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E*Trade Financial Corporation Announces First Quarter 2016 Results

The following excerpt is from the company's SEC filing.

NEW YORK--(BUSINESS WIRE)--April 21, 2016--E*TRADE Financial Corporation (NASDAQ:ETFC):

First Quarter Results

Net income of $153 million, or $0.53 per diluted share

Adjusted net income of $122 million

, or $0.43 per diluted share

excluding a $31 million income tax benefit related to the release of a valuation allowance against state deferred tax assets

Total net revenue of $472 million

Allowance for loan losses of $322 million resulting in a benefit to provision for loan losses of $34 million

Total non-interes t expense of $312 million

Daily Average Revenue Trades (DARTs) of 165,000

End of period margin receivables of $6.3 billion

Net new brokerage accounts of 45,000 and an annualized attrition rate of 7.3 percent, excluding the impact of shutting down the Company's Hong Kong and Singapore operations

Net new brokerage assets of $2.9 billion; end of period total customer assets of $285 billion

Utilized $301 million to repurchase 13.1 million shares at an average price of $23.01, bringing the total utilization under the Company’s program to $351 million

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its first quarter ended March 31, 2016, reporting net income of $153 million, or $0.53 per diluted share. Excluding a $31 million income tax benefit related to the release of a valuation allowance against state deferred tax assets, net income would have been $122 million

, or $0.43 per diluted share

This compares to net income of $89 million, or $0.30 per diluted share, in the prior quarter and net income of $40 million, or $0.14 per diluted share, in the first quarter of 2015 which includes $73 million of pre-tax losses on early extinguishment of debt. Total net revenue

of $472 million increased from $439 million in the prior quarter and $441 million in the first quarter of 2015.

“We started the year with respectable business growth and exceptional levels of capital deployment,” said Paul Idzik, Chief Executive Officer. “While economic uncertainty persisted throughout the quarter, our customers remained active while generating healthy levels of new accounts and assets. Further, we moved $400 million of capital from our subsidiaries to the parent, began operating our bank at a lower capital threshold, and moved our balance sheet closer to its target size. We also took advantage of market conditions to accelerate our share repurchase program and aggressively return capital to our owners, completing nearly half of our $800 million authorization in just a few months. In all, this has been a solid start to the year and we look forward to continuing to deliver for our customers and shareholders as 2016 progresses.”

The Company made several reporting changes in the first quarter of 2016. First, to reflect management’s current view of operations and financial performance, it has consolidated its reporting segments. Second, the Company has reclassified the components of other income (expense), moving corporate interest expense to net interest income, losses on early extinguishment of debt to non-interest expense, and other income to gains (losses) on securities and other

. Lastly, the Company is now utilizing net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with current period presentation. Historical data through 2014 as well as an overview of the Company's reporting changes is available in the Quarterly Financial Supplement at about.etrade.com.

E*TRADE reported DARTs of 165,000 during the quarter, an increase of 12 percent from the prior quarter and a decrease of three percent versus the same quarter a year ago.

The Company ended the quarter with 3.3 million brokerage accounts, an increase of 45,000

from the prior quarter. This compares to 13,000

net new brokerage accounts in the fourth quarter of 2015 and 39,000 in the first quarter of 2015. Brokerage account attrition for the first quarter was 7.3 percent annualized

The Company ended the quarter with $285 billion in total customer assets, compared with $288 billion at the end of the prior quarter and $299 billion a year ago.

During the quarter, customers added $2.9 billion in net new brokerage assets. Brokerage related cash increased by $0.9 billion to $42.6 billion during the first quarter. Customers were net buyers of approximately $1.2 billion of securities. Margin receivables averaged $6.7 billion in the quarter, down 11 percent from the prior quarter and 15 percent from the year ago quarter, ending the quarter at $6.3 billion.

Corporate cash ended the quarter at $482 million

, an increase of $35 million from the prior quarter. The increase was primarily driven by $396 million in capital distributions to the parent from the Company's bank and broker-dealer subsidiaries, offset by utilization of $301 million to repurchase shares of the Company's common stock.

Net interest income

for the first quarter was $287 million, up from $270 million in the prior quarter and $250 million a year ago. First quarter results reflected a net interest margin of 2.81 percent on average interest-earning assets of $40.9 billion, compared with 2.74 percent on $39.5 billion in the prior quarter and 2.42 percent on $41.4 billion in the first quarter of 2015.

Commissions, fees and service charges, and other revenue in the first quarter were $175 million, compared to $160 million in the prior quarter and $176 million in the first quarter of 2015. Average commission per trade for the quarter was $10.64, down from $10.66 in the prior quarter and $10.94 in the first quarter of 2015. Total net revenue in the quarter also included $10 million of net gains on the sale of securities and other. This compares to $9 million in the prior quarter and $15 million in the first quarter of 2015.

Total non-interest expense in the quarter of $312 million increased $7 million from the prior quarter, and decreased $61 million from the year ago period, which included a $73 million pre-tax loss on early extinguishment of debt

. The Company’s operating margin for the quarter was 41 percent. Adjusted for the quarter’s benefit to provision for loan losses, adjusted operating margin was 34 percent

, which compared to 31 percent

in the prior quarter.

The Company’s total assets ended the quarter at $47.9 billion, an increase of $2.5 billion from the prior quarter. The increase was driven by the movement of customer assets held at third party institutions onto the Company's balance sheet during the quarter.

The Company’s loan portfolio ended the quarter at $4.7 billion, declining $0.3 billion from the prior quarter. Net charge-offs in the quarter resulted in a recovery of $3 million compared with $0 in the prior quarter and net charge-offs of $7 million in the first quarter of 2015. The allowance for loan losses ended the quarter at $322 million, down from $353 million in the prior quarter and $402 million in the first quarter of 2015. The decrease in the allowance resulted in a benefit to provision for loan losses of $34 million, which compared to a benefit of $23 million in the previous quarter and a provision of $5 million in the first quarter of 2015.

As of March 31, 2016, the Company reported bank and consolidated Tier 1 leverage ratios of 8.6 percent

and 7.8 percent

, compared with 9.7 percent

and 9.0 percent

in the previous quarter.

Historical metrics and financials can be found on the E*TRADE Financial corporate website at about.etrade.com.

The Company will host a conference call to discuss the results beginning at 5 p.m. ET today. This conference call will be available to domestic participants by dialing 800-698-4476 while international participants should dial +1 303-223-4362. A live audio webcast and replay of this conference call will also be available at about.etrade.com.

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services including online brokerage and related banking products and services to retail investors. Securities products and services are offered by E*TRADE Securities (Member FINRA/SIPC). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries and affiliates. More information is available at

www.etrade.com

. ETFC-E

Important Notices

E*TRADE Financial, E*TRADE and the E*TRADE logo are trademarks or registered trademarks of E*TRADE Financial Corporation.

Forward-Looking Statements

The statements contained in this news release that are forward looking, including statements regarding the Company’s ability to deliver for its customer and shareholders are “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, and are subject to a number of uncertainties and risks. Actual results may differ materially from those indicated in the forward-looking statements. The uncertainties and risks include, but are not limited to, macro trends of the economy in general and the residential real estate market, market volatility, instability in the consumer credit markets and credit trends, increased mortgage loan delinquency and default rates, portfolio growth, portfolio seasoning and resolution through collections, sales or charge-offs, the uncertainty surrounding the foreclosure process, and the potential negative regulatory consequences resulting from the implementation of financial regulatory reform as well as from actions by or more restrictive policies or interpretations of the Federal Reserve and the Office of the Comptroller of the Currency or other regulators. Further information about these risks and uncertainties can be found in the annual, quarterly, and current reports on Form 10-K, Form 10-Q, and Form 8-K previously filed by E*TRADE Financial Corporation with the Securities and Exchange Commission (including information in these reports under the caption “Risk Factors”). Any forward-looking statement included in this release speaks only as of the date of this communication; the Company disclaims any obligation to update any information.

© 2016 E*TRADE Financial Corporation. All rights reserved.

Financial Statements

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statement of Income

(In millions, except share data and per share amounts)

(Unaudited)

Three Months Ended

March 31,

December 31,

2016

2015

2015

Revenue:

Interest income

308

292

316

Interest expense

(21

(22

(66

Net interest income

287

270

250

Commissions

107

99

114

Fees and service charges

58

51

52

Gains (losses) on securities and other

10

9

15

Other revenue

Total non-interest income

185

169

191

Total net revenue

472

439

441

Provision (benefit) for loan losses

(34

(23

5

Non-interest expense:

Compensation and benefits

126

112

113

Advertising and market development

43

35

34

Clearing and servicing

24

23

FDIC insurance premiums

6

18

Professional services

22

26

27

Occupancy and equipment

21

Communications

28

19

Depreciation and amortization

20

Amortization of other intangibles

Restructuring and other exit activities

2

4

Losses on early extinguishment of debt

73

Other non-interest expenses

Total non-interest expense

312

305

373

Income before income tax expense

194

157

63

Income tax expense

41

68

Net income

153

89

40

Basic earnings per share

0.54

0.31

0.14

Diluted earnings per share

0.53

0.30

Shares used in computation of per share data:

Basic (in thousands)

285,274

292,713

289,741

Diluted (in thousands)

286,680

294,947

294,722

Consolidated Balance Sheet

(In millions, except share data)

ASSETS

Cash and equivalents

1,627

2,233

1,025

Cash required to be segregated under federal or other

regulations

2,158

1,057

849

Available-for-sale securities

14,005

12,589

13,841

Held-to-maturity securities

14,968

13,013

12,517

Margin receivables

6,336

7,398

8,220

Loans receivable, net

4,360

4,613

5,664

Receivables from brokers, dealers and clearing organizations

611

520

704

Property and equipment, net

232

236

241

Goodwill

1,792

Other intangibles, net

174

189

Deferred tax assets, net

940

1,033

906

Other assets

745

769

877

Total assets

47,943

45,427

46,825

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:

Deposits

31,829

29,445

26,272

Customer payables

6,793

6,544

6,293

Payables to brokers, dealers and clearing organizations

1,437

1,576

1,880

Other borrowings

409

491

4,972

Corporate debt

993

997

Other liabilities

575

930

Total liabilities

42,206

39,628

41,372

Shareholders' equity:

Common stock, $0.01 par value, shares authorized:

400,000,000 at March 31, 2016, December 31, 2015 and

March 31, 2015, shares issued and outstanding:

279,526,976 at March 31, 2016, 291,335,241 at December

31, 2015 and 289,897,529 at March 31, 2015

3

Additional paid-in-capital

7,056

7,356

7,350

Accumulated deficit

(1,308

(1,461

(1,689

Accumulated other comprehensive loss

(14

(99

(211

Total shareholders' equity

5,737

5,799

5,453

Total liabilities and shareholders' equity

Key Performance Metrics

3/31/16

12/31/15

vs.

3/31/15

vs.

Operating margin %

36

14

Adjusted operating margin %

(1)(8)

31

32

Employees

3,498

3,421

3,250

Consultants and other

120

105

Total headcount

3,605

3,541

3,355

Book value per share

20.52

19.90

18.81

Tangible book value per share

15.10

14.65

13.38

Corporate cash ($MM)

482

447

258

Net interest margin (basis points)

281

274

242

Interest-earning assets, average ($MM)

40,892

39,500

41,351

Customer Activity

Trading days

61.0

63.0

DARTs

165,122

146,949

169,951

Total trades (MM)

10.1

9.3

10.4

Average commission per trade

10.64

10.66

10.94

End of period margin receivables ($B)

6.3

7.4

8.2

Average margin receivables ($B)

6.7

7.5

7.9

Qtr ended

Gross new brokerage accounts

103,508

79,397

107,887

Gross new stock plan accounts

60,250

94,326

65,133

Gross new banking accounts

1,070

1,037

1,249

Closed accounts

(112,294

(119,268

(131,040

Net new accounts

52,534

55,492

43,229

Net new brokerage accounts

40,459

10,010

38,716

Net new stock plan accounts

16,412

49,683

9,684

Net new banking accounts

(4,337

(4,201

(5,171

End of period brokerage accounts

3,254,000

3,213,541

3,182,639

End of period stock plan accounts

1,424,565

1,408,153

1,273,468

End of period banking accounts

335,551

339,888

356,873

End of period total accounts

5,014,116

4,961,582

4,812,980

Annualized brokerage account attrition rate

(3)(10)

7.8

8.7

8.8

Customer Assets ($B)

Security holdings

205.6

203.8

213.8

Sweep deposits

26.4

24.0

20.4

Customer payables (cash)

6.8

6.5

Customer assets held by third parties

9.4

11.2

14.9

Brokerage customer assets

248.2

245.5

255.4

Unexercised stock plan holdings (vested)

30.9

36.9

38.2

Savings, checking and other banking assets

5.4

5.5

5.8

Total customer assets

284.5

287.9

299.4

Net new brokerage assets

2.9

2.8

3.5

Net new banking assets

0.1

Net new customer assets

Brokerage related cash

42.6

41.7

41.6

Other cash and deposits

Total customer cash and deposits

48.0

47.2

47.4

Stock plan customer holdings (unvested)

65.5

70.7

79.2

Customer net (buy) / sell activity

(1.2

0.3

(3.1

Loans receivable ($MM)

Average loans receivable

4,803

5,097

(294

6,203

(1,400

Ending loans receivable, net

(253

(1,304

Loan servicing expense

7

8

(1)

Loan performance detail (all loans, including

TDRs) ($MM)

One- to Four-Family

Current

2,176

2,296

(120

2,687

(511

30-89 days delinquent

74

72

(33

90-179 days delinquent

25

Total 30-179 days delinquent

102

98

132

(30

180+ days delinquent (net of $39, $41 and

$47 in charge-offs for Q116, Q415 and

Q115, respectively)

108

111

(3

129

Total delinquent loans

210

209

1

261

(51

Gross loans receivable

2,386

2,505

(119

2,948

(562

Home Equity

1,841

1,981

(140

2,541

(700

77

(25

80

83

104

(24

180+ days delinquent (net of $28, $26 and

$25 in charge-offs for Q116, Q415 and

55

53

42

13

135

136

(1

146

(11

1,976

2,117

(141

(711

Consumer and Other

314

337

423

(109

(2

180+ days delinquent

Total delinquent loans

320

344

431

(111

Total Loans Receivable

4,331

4,614

(283

5,651

(1,320

131

130

(60

57

188

244

(56

163

164

171

(8

351

352

415

(64

4,682

4,966

(284

6,066

(1,384

TDR performance detail ($MM)

One- to Four-Family TDRs

212

219

(10

30

(4

(15

180+ days delinquent (net of $22, $23

and $24 in charge-offs for Q116, Q415

and Q115, respectively)

47

50

(7

Total delinquent TDRs

(6

90

TDRs

277

286

(9

309

(32

Home Equity TDRs

167

162

184

(17

12

11

17

(5

180+ days delinquent (net of $19, $17

and $16 in charge-offs for Q116, Q415

202

225

(16

Total TDRs

376

374

403

(27

16

44

46

(19

66

110

486

488

534

(48

Activity in Allowance for Loan Losses

Three Months Ended March 31, 2016

(In millions)

Allowance for loan losses, ending 12/31/15

307

353

(42

(Charge-offs) recoveries, net

Allowance for loan losses, ending 03/31/16

49

267

322

Three Months Ended December 31, 2015

Allowance for loan losses, ending 9/30/15

39

330

Three Months Ended March 31, 2015

Allowance for loan losses, ending 12/31/14

367

404

Allowance for loan losses, ending 03/31/15

360

402

Specific Valuation Allowance Activity

As of March 31, 2016

Recorded

Investment in

Modifications

before charge-

Allowance as

a % of

Expected

(Dollars in millions)

One- to four-family

208

(45

155

Home equity

288

(116

172

(50

122

29

Total

496

(161

335

(58

As of December 31, 2015

216

(46

170

161

284

(52

61

500

(166

334

(61

273

45

As of March 31, 2015

180

(132

(62

118

62

537

(177

(73

Capital

Qtr ended

3/31/16

vs.

3/31/15

Tier 1 leverage ratio

8.6

9.7

(1.1

9.8

Common Equity Tier 1 ratio

33.3

36.5

(3.2

42.4

(9.1

Tier 1 risk-based capital ratio

Total risk-based capital ratio

34.6

37.8

43.7

9.0

8.4

(0.6

34.5

39.3

(4.8

35.0

(0.5

40.0

43.9

(3.9

39.4

0.6

Average Balance Sheet Data

Average

Interest

Balance

Inc./Exp.

Yield/Cost

Cash and cash equivalents

1,611

0.41

1,834

0.19

or other regulation

1,133

0.32

692

0.17

12,642

64

2.03

11,660

56

1.92

13,676

103

3.01

12,283

87

2.86

6,677

3.89

7,549

3.58

4,804

4.23

4.11

Broker-related receivables and other

349

0.29

385

Subtotal interest-earning assets

285

2.79

265

2.68

Other interest revenue

Total interest-earning assets

2.96

Total non-interest earning assets

4,921

4,464

45,813

43,964

29,567

0.01

27,578

6,452

0.07

6,430

Broker-related payables and other

1,450

0.00

1,701

436

4.13

489

4.34

995

5.39

5.38

Subtotal interest-bearing liabilities

38,900

0.21

37,195

0.22

Other interest expense

Total interest-bearing liabilities

0.23

Total non-interest-bearing liabilities

1,189

949

40,089

38,144

5,724

5,820

Excess interest earning assets over interest

bearing liabilities/ net interest income/ net

interest margin

1,992

2.81

2,305

2.74

(a)

Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been reclassified to conform with the current period presentation.

(b)

Includes loans held-for-sale and excludes loans to customers on margin.

(c)

Represents interest revenue on securities loaned for the periods presented.

(d)

Represents interest expense on securities borrowed for the periods presented.

Yield/Cost

1,673

0.15

Cash required to be segregated under federal or other regulation

0.08

12,341

2.15

12,279

88

7,888

3.49

6,204

4.00

657

0.74

2.78

Other interest revenue

3.07

Total non-interest-earning assets

4,733

46,084

25,051

0.03

6,388

1,759

5,030

3.33

1,264

6.44

39,492

0.66

0.67

1,153

40,645

5,439

Excess interest earning assets over interest bearing

liabilities/ net interest income/ net interest margin

1,859

2.42

Beginning in 2016, corporate interest income and corporate interest expense are presented within net interest income. In addition, the Company transitioned to net interest margin as the key metric for measuring balance sheet performance. Prior periods have been represented to conform with the current period presentation.

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that adjusting GAAP measures by excluding or including certain items is helpful to investors and analysts who may wish to use some or all of this information to analyze the Company’s current performance, prospects and valuation. Management uses this non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods. Management believes that the non-GAAP measures and metrics discussed below are appropriate for evaluating the operating and liquidity performance of the Company.

Adjusted Net Income and Adjusted EPS

Management believes that excluding the income tax benefit related to the release of a valuation allowance against state deferred tax assets and the charge related to early extinguishment of debt from net income and EPS provides useful additional measures of the Company’s ongoing operating performance because these items are not directly related to our performance. See endnote (1) for a reconciliation of these non-GAAP measures to the comparable GAAP measures.

Adjusted Operating Margin

Management believes that excluding provision (benefit) for loan losses and the charge related to early extinguishment of debt from operating margin provides a useful measure of the Company's ongoing operating performance because management excludes these items when evaluating operating margin performance. See endnote (1) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Corporate Cash

Corporate cash represents cash held at the parent company as well as cash held in certain subsidiaries, not including bank and broker-dealer subsidiaries, that can distribute cash to the parent company without any regulatory approval or notification. The Company believes that corporate cash is a useful measure of the parent company’s liquidity as it is the primary source of capital above and beyond the capital deployed in regulated subsidiaries. See endnote (4) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Tangible Book Value per Share

Tangible book value per share represents shareholders’ equity less goodwill (net of related deferred tax liability) and other intangible assets divided by common stock outstanding. The Company believes that tangible book value per share is a measure of the Company’s capital strength. See endnote (9) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

It is important to note that these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as substitutes for, or superior to, net income or other measures of financial performance prepared in accordance with GAAP. For additional information on the adjustments to these non-GAAP measures, please see the Company’s financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that will be included in the periodic report the Company expects to file with the SEC with respect to the financial periods discussed herein.

ENDNOTES

(1) The following tables provide reconciliations of non-GAAP adjusted net income, adjusted EPS, and adjusted operating margin percentage to the comparable GAAP metrics (dollars in millions except for per share amounts):

Q1 2016

Q4 2015

Q1 2015

Amount

Diluted

EPS

Add back impact of corporate debt reduction and refinance:

Loss on early extinguishment of debt

Income tax related to loss on extinguishment of debt

(28

Net of tax

Deduct income tax benefit related to the release of

a valuation allowance against state deferred tax

assets

(31

Adjusted net income and adjusted diluted EPS

0.43

85

Margin %

Add back impact of pre-tax items:

Subtotal

78

Adjusted income before income tax

expense and adjusted operating

160

134

141

(2) Beginning in the first quarter of 2016, the Company updated the presentation of its consolidated income statement line items as follows:

Reclassified corporate interest income and corporate interest expense from other income (expense) to net interest income;

Reclassified losses on early extinguishment of debt from other income (expense) to non-interest expense; and

Reclassified other income (expense) from other income (expense) to gains (losses) on securities and other.

Prior periods have been reclassified to conform to the current period presentation.

(3) Net new brokerage accounts and end of period brokerage accounts were impacted by the closure of 4,430 accounts related to the shutdown of the Company's Hong Kong and Singapore operations in the first quarter of 2016 and 3,007 accounts related to the shutdown of the Company’s global trading platform in the fourth quarter of 2015.

(4) The following table provides a reconciliation of non-GAAP corporate cash to GAAP consolidated cash and equivalents at period end (dollars in millions):

Consolidated cash and equivalents

Less: Bank cash

(680

(1,264

(606

Less: U.S. broker-dealers' cash

(440

(497

(134

Less: Other

Corporate cash

(a) U.S. broker-dealers' cash includes E*TRADE Securities and E*TRADE Clearing. Prior to the move of E*TRADE Clearing out from under E*TRADE Bank in the third quarter of 2015, related cash was included in the “Bank cash” line item.

(5) E*TRADE Bank’s Tier 1 leverage, Common Equity Tier 1, Tier 1 risk-based capital, and total risk-based capital ratios are preliminary for the current period. E*TRADE Bank’s capital ratios are calculated as follows (dollars in millions):

Q1 2016

Q4 2015

Q1 2015

E*TRADE Bank shareholder's equity

3,126

3,181

4,165

Losses in OCI on AFS debt securities and cash flow hedges, net of tax

DEDUCT:

Goodwill & other intangible assets, net of deferred tax liabilities

(38

Disallowed deferred tax assets

(209

(169

E*TRADE Bank Tier 1 capital/Common Equity Tier 1 capital

2,896

3,076

4,277

Allowable allowance for loan losses

E*TRADE Bank total capital

3,009

3,186

4,407

E*TRADE Bank average assets

34,073

31,785

43,622

Other

E*TRADE Bank adjusted average assets for leverage capital purposes

33,826

31,578

43,518

E*TRADE Bank total risk-weighted assets

(a)(b)

8,695

8,424

10,094

E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets

for leverage capital purposes)

E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets

42.4%

E*TRADE Bank Tier 1 capital / Total risk-weighted assets

E*TRADE Bank total capital / Total risk-weighted assets

(a) Amounts presented for E*TRADE Bank exclude E*TRADE Securities as of February 1, 2015 and E*TRADE Clearing as of July 1, 2015.

(b) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.

(6) E*TRADE Financial’s Tier 1 leverage, Common Equity Tier 1, Tier 1 risk-based capital, and total risk-based capital ratios are preliminary for the current period. E*TRADE Financial’s capital ratios are calculated as follows (dollars in millions):

E*TRADE Financial shareholders' equity

(1,435

(1,419

(1,451

(909

(839

(645

E*TRADE Financial Common Equity Tier 1 capital

3,410

3,747

3,681

140

Non-qualifying capital instruments subject to phase-out (TRUPs)

414

310

325

E*TRADE Financial total capital

3,955

4,186

4,146

E*TRADE Financial average assets

45,886

44,016

45,931

E*TRADE Financial adjusted average assets for leverage capital purposes

43,542

41,862

43,943

E*TRADE Financial total risk-weighted assets

9,882

9,536

10,522

E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted average

assets for leverage capital purposes)

E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets

35.0%

E*TRADE Financial Tier 1 capital / Total risk-weighted assets

E*TRADE Financial total capital / Total risk-weighted assets

(a) As a result of applying the transition provisions under Basel III, in 2015 the Company included 25% of the TRUPs in the calculation of E*TRADE Financial’s Tier 1 capital and 75% of the TRUPs in the calculation of E*TRADE Financial’s total capital. In accordance with the transition provisions, the TRUPs were fully phased out of E*TRADE Financial's Tier 1 capital as of January 1, 2016.

(7) Amounts and percentages may not calculate due to rounding.

(8) Operating margin is the percentage of net revenue that results in income before income taxes. The percentage is calculated by dividing income before income taxes by total net revenue. Adjusted operating margin percentage is calculated by dividing income before income taxes, excluding the provision (benefit) for loan losses and the charge related to early extinguishment of debt, by total net revenue.

(9) The following tables provide a reconciliation of GAAP book value and book value per share to non-GAAP tangible book value and tangible book value per share at period end (dollars in millions, except per share amounts):

Per

Share

Share

Share

Book value

Less: Goodwill and other intangibles, net

(1,961

(1,966

(1,981

Add: Deferred tax liability related to goodwill

446

434

407

Tangible book value

4,222

4,267

3,879

(10) The brokerage account attrition rate is calculated by dividing attriting brokerage accounts, which are gross new brokerage accounts less net new brokerage accounts, by total brokerage accounts at the previous period end. This rate is presented on an annualized basis.

(11) Customer assets held by third parties are held outside E*TRADE Financial and include money market funds and sweep deposit accounts at unaffiliated financial institutions. Customer assets held by third parties are not reflected in the Company’s consolidated balance sheet and are not immediately available for liquidity purposes. The following table provides details of customer assets held by third parties (dollars in billions):

Money market fund

0.2

1.8

7.6

Sweep deposits at unaffiliated financial institutions

5.6

3.6

Municipal funds and other

3.7

Total customer assets held by third parties

(12) Net new customer assets are total inflows to all new and existing customer accounts less total outflows from all closed and existing customer accounts. The net new banking assets and net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts.

(13) Delinquent loans include charge-offs for loans that are in bankruptcy or are 180 days past due which have been written down to their expected recovery value. The following table shows the total amount of charge-offs on loans that are still held by the Company at the end of the periods presented (dollars in millions):

123

215

224

Total charge-offs

(14) Includes unpaid principal balances and premiums (discounts).

(15) The TDR loan performance detail is a subset of the Company’s total loan performance. TDRs include loan modifications performed under the Company’s modification programs and loans that have been charged-off due to bankruptcy notification.

(16) Modifications are a subset of TDRs, and represent loan modifications performed under the Company’s modification programs. They do not include loans that have been charged-off due to the Company receiving notification of bankruptcy if the loan has not been modified previously by the Company. The following table shows the reconciliation of total TDRs that had a modification and those for which the Company received a notification of bankruptcy (dollars in millions):

Q4 2015

Modified loans

Bankruptcy loans

151

154

Total TDRs

(17) The total expected losses on modifications includes both the previously recorded charge-offs and the specific valuation allowance.

CONTACT:

E*TRADE Media Relations

Thayer Fox, 646-521-4418

thayer.fox@etrade.com

E*TRADE Investor Relations

Brett Goodman, 646-521-4406

brett.goodman@etrade.com

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

E*TRADE Financial: Form, Schedule Or Registration Statement No Filing Party: Date Filed: - March 30, 2016
E*TRADE Financial Corporation releases salary data. CEO sees compensation rise 5% - March 30, 2016