ETFC E TRADE Financial Corporation

Company reduces its consolidated Tier 1 leverage ratio threshold to 6.5%

Announces $1 billion share repurchase program

E*TRADE Financial Corporation (NASDAQ:ETFC):

Second Quarter Results

• Net income of $193 million, or $0.70 per diluted share, which includes a net benefit of $50 million, or $0.18 per diluted share, related to a benefit to provision for loan losses, partially offset by one-time market data expenses as well as expenses associated with the OptionsHouse integration and crossing the $50 billion regulatory threshold
• Total net revenue of $577 million
• Allowance for loan losses of $116 million, resulting in a benefit to provision for loan losses of $99 million
• Operating margin of 55 percent; adjusted operating margin of 38 percent(1)
• Consolidated balance sheet assets of $58.8 billion
• Daily Average Revenue Trades (DARTs) of 208,000; 32 percent in derivatives
• Customer margin balances of $8.2 billion(2)
• Net new brokerage accounts of 41,000; annualized growth rate of 4.7 percent
• Net new brokerage assets of $2.6 billion; annualized growth rate of 3.5 percent; end of period total customer assets of $348.2 billion
• Managed products of $4.6 billion

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its second quarter ended June 30, 2017, reporting net income of $193 million and $0.70 diluted earnings per common share. This compares to net income of $145 million, or $0.48 diluted earnings per common share, in the prior quarter. This also compares to net income of $133 million, or $0.48 diluted earnings per common share, in the second quarter of 2016. Total net revenue of $577 million increased from net revenue of $553 million in the prior quarter and $474 million in the second quarter of 2016. Operating margin for the quarter was 55 percent and adjusted operating margin was 38 percent(1) which compares to 41 percent and 38 percent(1) in the prior quarter and 45 percent and 38 percent(1) in the year-ago quarter.

“The impressive results we recorded the last quarter proved to be only the beginning of our positive drumbeat that continued steadier and louder this quarter,” said Karl Roessner, Chief Executive Officer. “There is a lot to be excited about with our brokerage performance and bottom-line results. First, customer activity held strong, while derivatives increased to a record portion of customer trades during the quarter. Margin balances reached 3-year highs and net new brokerage assets represented our strongest second quarter on record. In pursuit of our goal to reclaim our irreverent, challenger-brand status, we launched a bold new advertising campaign toward quarter-end. Further, our balance sheet growth is progressing as planned. As we move into the second half of the year, we are poised to execute on several critical initiatives: completion of the integration of OptionsHouse, continued balance sheet growth, and the launch of a new $1 billion share repurchase program—enabled by our strong financial performance and a reduction in our consolidated Tier 1 leverage ratio threshold to 6.5 percent. Fueled by our singular focus on doing what is right for our customers and our shareholders, the team continues to deliver. While we have produced outstanding results in the first half of 2017, I am even more energized by what I believe we will accomplish in the months and years ahead.”

Michael Pizzi, Chief Financial Officer, commented, “This quarter’s results include a few noteworthy items, the most prominent being a $99 million benefit to provision for loan losses. Virtually all loans have converted from interest-only, and a significant portion have been amortizing for more than 12 months. The outperformance of these loans relative to our modeled expectations drove the reduction to the allowance and benefit to provision. Additionally, our results include $9 million of one-time communications expense associated with customer market data and $9 million of integration and implementation expenses related to OptionsHouse and crossing $50 billion in balance sheet assets. These costs were reflected primarily in professional services and restructuring. The cumulative impact these one-time items on net income was $50 million, or $0.18 per diluted share, for the 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) 701-6414 while international participants should dial +1 (303) 223-4398. 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 customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC) and OptionsHouse (Member FINRA/SIPC/NFA). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries. More information is available at www.etrade.com. ETFC-E

Important Notices

E*TRADE Financial, E*TRADE, the E*TRADE logo, and OptionsHouse 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 reinvigorate its brand, execute on its business and balance sheet growth plans, successfully integrate OptionsHouse, deliver results for its customers and shareholders or repurchase shares of its common stock are “forward-looking statements” within the meaning of the federal securities laws, 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, market volatility and its impact on trading volumes, fluctuations in interest rates, the ability to attract and retain customers and develop new products and services, increased competition, potential system disruptions and security breaches, the ability to realize synergies or to implement integration plans and other risks from mergers and acquisitions, increased restrictions resulting from financial regulatory reform or changes in the policies of our regulators, adverse developments in litigation or regulatory matters, the timing and duration of, and the amount of shares repurchased and amount of cash expended in connection with, the share repurchase program, and the other factors set forth in our annual, quarterly, and current reports on Form 10-K, Form 10-Q, and Form 8-K previously filed 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, except as required by law.

© 2017 E*TRADE Financial Corporation. All rights reserved.

  E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statement of Income (In millions, except share data and per share amounts) (Unaudited)         Three Months Ended   Six Months Ended June 30,   March 31,   June 30, June 30, 2017 2017 2016 2017   2016 Revenue: Interest income $ 378 $ 341 $ 306 $ 719 $ 614 Interest expense (22 ) (22 ) (20 ) (44 ) (41 ) Net interest income 356   319   286   675   573   Commissions 105 127 106 232 213 Fees and service charges 98 86 62 184 120 Gains on securities and other, net 7 10 10 17 20 Other revenue 11   11   10   22   20   Total non-interest income 221   234   188   455   373   Total net revenue 577   553   474   1,130   946   Provision (benefit) for loan losses (99 ) (14 ) (35 ) (113 ) (69 ) Non-interest expense: Compensation and benefits 133 136 125 269 251 Advertising and market development 42 43 30 85 73 Clearing and servicing 33 32 25 65 49 Professional services 24 22 22 46 44 Occupancy and equipment 29 27 24 56 47 Communications 36 25 20 61 43 Depreciation and amortization 20 20 20 40 40 FDIC insurance premiums 8 8 6 16 12 Amortization of other intangibles 9 9 5 18 10 Restructuring and acquisition-related activities 4 4 1 8 3 Other non-interest expenses 21   16   17   37   35   Total non-interest expense 359   342   295   701   607   Income before income tax expense 317 225 214 542 408 Income tax expense 124   80   81   204   122   Net income $ 193 $ 145 $ 133 $ 338 $ 286 Preferred stock dividends —   13   —   13   —   Net income available to common shareholders $ 193   $ 132   $ 133   $ 325   $ 286     Basic earnings per common share $ 0.70 $ 0.48 $ 0.48 $ 1.18 $ 1.02 Diluted earnings per common share $ 0.70 $ 0.48 $ 0.48 $ 1.17 $ 1.01 Shares used in computation of per common share data: Basic (in thousands) 275,410 274,876 277,013 275,167 281,141 Diluted (in thousands) 276,272 276,277 277,978 276,370 282,426     E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet (In millions, except share data) (Unaudited)         June 30, March 31, December 31, 2017 2017 2016 ASSETS Cash and equivalents $ 1,091 $ 998 $ 1,950 Cash required to be segregated under federal or other regulations 889 1,876 1,460 Available-for-sale securities 18,890 17,769 13,892 Held-to-maturity securities 21,502 19,191 15,751 Margin receivables 7,773 6,906 6,731 Loans receivable, net 3,055 3,288 3,551 Receivables from brokers, dealers and clearing organizations 1,237 1,410 1,056 Property and equipment, net 245 239 239 Goodwill 2,370 2,370 2,370 Other intangibles, net 303 312 320 Deferred tax assets, net 519 653 756 Other assets 879   867   923   Total assets $ 58,753   $ 55,879   $ 48,999     LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $ 40,072 $ 37,384 $ 31,682 Customer payables 7,992 8,926 8,159 Payables to brokers, dealers and clearing organizations 1,473 1,288 983 Other borrowings 1,009 409 409 Corporate debt 992 991 994 Other liabilities 532   437   500   Total liabilities 52,070   49,435   42,727     Shareholders' equity: Preferred stock, $0.01 par value; $1,000 liquidation preference; shares authorized: 1,000,000; shares issued and outstanding at June 30, 2017: 400,000 394 394 394

Common stock, $0.01 par value; shares authorized:

400,000,000; shares issued and outstanding at

June 30, 2017: 275,054,601

3 3 3 Additional paid-in-capital 6,929 6,919 6,921 Accumulated deficit (581 ) (774 ) (909 ) Accumulated other comprehensive loss (62 ) (98 ) (137 ) Total shareholders' equity 6,683   6,444   6,272   Total liabilities and shareholders' equity $ 58,753   $ 55,879   $ 48,999       Key Performance Metrics(3)            

Corporate

Qtrended6/30/17

Qtrended3/31/17

Qtr ended6/30/17 vs. 3/31/17

Qtrended6/30/16

Qtr ended6/30/17 vs. 6/30/16

  Operating margin %(1) 55 % 41 % 14% 45 % 10% Adjusted operating margin %(1) 38 % 38 % —% 38 % —%   Employees 3,614 3,629

—%

3,588 1% Consultants and other 99   114   (13)% 180   (45)% Total headcount 3,713 3,743 (1)% 3,768 (1)%   Common equity book value per share(4) $ 22.86 $ 22.00 4% $ 21.14 8% Tangible common equity book value per share(4) $ 15.29 $ 14.36 6% $ 15.74 (3)%   Cash and equivalents ($MM) $ 1,091 $ 998 9% $ 2,393 (54)% Corporate cash ($MM)(5) $ 478 $ 417 15% $ 523 (9)%   Net interest margin (basis points) 274 263 11 264 10 Interest-earning assets, average ($MM) $ 51,899 $ 48,654 7% $ 43,422 20%  

Customer Activity

Qtrended6/30/17

Qtrended3/31/17

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Qtrended6/30/16

Qtr ended6/30/17 vs. 6/30/16

  Trading days 63.0 62.0 N.M. 64.0 N.M.   DARTs 208,205 207,221 —% 152,488 37% Derivative DARTs % 32 % 29 % 3% 24 % 8%   Total trades (MM) 13.1 12.8 2% 9.8 34% Average commission per trade $ 8.02 $ 9.87 (19)% $ 10.82 (26)%     Key Performance Metrics(3)            

Customer Activity

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Qtr ended

6/30/17vs.3/31/17

Qtr ended6/30/16

Qtr ended6/30/17vs.6/30/16

  Gross new brokerage accounts 120,204 137,854

(13)%

90,779 32% Gross new stock plan accounts 66,773 57,919

15%

68,362 (2)% Gross new banking accounts 876 880

—%

1,157 (24)% Closed accounts (137,666 ) (136,666 )

1%

 

(124,546 )

11%

Net new accounts 50,187 59,987

(16)%

 

35,752

40%

  Net new brokerage accounts 41,271 58,215

(29)%

 

23,090

79%

Net new stock plan accounts 13,154 5,478

140%

 

18,488

(29)%

Net new banking accounts (4,238 ) (3,706 )

(14)%

 

(5,826 )

27%

Net new accounts 50,187 59,987

(16)%

35,752

40%

  End of period brokerage accounts 3,562,489 3,521,218

1%

3,277,090 9% End of period stock plan accounts 1,474,692 1,461,538

1%

1,443,053 2% End of period banking accounts 308,729   312,967  

(1)%

329,725   (6)% End of period total accounts 5,345,910 5,295,723

1%

5,049,868 6%   Annualized net new brokerage account growth rate 4.7 % 6.7 %

(2.0)%

2.8 % 1.9% Annualized brokerage account attrition rate(6) 9.0 % 9.2 %

(0.2)%

8.3 % 0.7%   Customer margin balances(2) ($B) $ 8.2 $ 7.3

12%

$ 6.8 21%  

Customer Assets($B)

Security holdings $ 255.3 $ 243.8

5%

$ 208.8 22% Sweep deposits 34.9 32.0

9%

27.8 26% Customer cash held by third parties(7) 8.8 12.6

(30)%

8.5 4% Customer payables (cash) 8.0   8.9  

(10)%

6.7   19% Brokerage customer assets 307.0   297.3  

3%

251.8   22% Unexercised stock plan holdings (vested) 36.1 33.0

9%

28.9 25% Savings, checking and other banking assets 5.1   5.4  

(6)%

5.2   (2)% Total customer assets $ 348.2   $ 335.7  

4%

$ 285.9   22%   Net new brokerage assets(8) $ 2.6 $ 4.2 $

(1.6)

$ 1.6 $ 1.0 Net new banking assets(8) (0.3 ) 0.1  

(0.4)

(0.2 ) (0.1) Net new customer assets(8) $ 2.3 $ 4.3 $

(2.0)

$ 1.4 $ 0.9   Annualized net new brokerage asset growth rate 3.5 % 6.1 %

(2.6)%

2.6 % 0.9%   Brokerage related cash $ 51.7 $ 53.5

(3)%

$ 43.0 20% Other cash and deposits 5.1   5.4  

(6)%

5.2   (2)% Total customer cash and deposits $ 56.8 $ 58.9

(4)%

$ 48.2 18%   Managed products $ 4.6 $ 4.3

7%

$ 3.4 35% Stock plan customer holdings (unvested) $ 83.5 $ 82.7

1%

$ 64.6 29%   Customer net (buy) / sell activity $ (4.0 ) $ (1.6 ) N.M. $ (1.4 ) N.M.     Key Performance Metrics(3)            

Loans

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Qtr ended3/31/17

Qtr ended6/30/17vs.3/31/17

Qtr ended6/30/16

Qtr ended6/30/17vs.6/30/16

  Loans receivable ($MM) One- to four-family $ 1,641 $ 1,785 $ (144 ) $ 2,216 $ (575 ) Home equity 1,205 1,275 (70 ) 1,584 (379 ) Consumer 209   228   (19 ) 289   (80 ) Loans receivable, net $ 3,055   $ 3,288   $ (233 ) $ 4,089   $ (1,034 ) Loan servicing expense $ 5 $ 6 $ (1 ) $ 8 $ (3 )   Loan performance detail ($MM)   Current $ 2,901 $ 3,190 $ (289 ) $ 4,047 $ (1,146 ) 30-89 days delinquent 103 131 (28 ) 120 (17 ) 90-179 days delinquent 46 46 — 53 (7 ) 180+ days delinquent 121   134   (13 ) 162   (41 ) Total delinquent loans 270   311   (41 ) 335   (65 ) Gross loans receivable(9) $ 3,171   $ 3,501   $ (330 ) $ 4,382   $ (1,211 )     Activity in Allowance for Loan Losses         Three Months Ended June 30, 2017

One- to Four-Family

Home Equity Consumer Total (In millions) Allowance for loan losses, ending 3/31/17 $ 46 $ 162 $ 5 $ 213 Provision (benefit) for loan losses (18 ) (81 ) — (99 ) (Charge-offs) recoveries, net 1   1   —   2   Allowance for loan losses, ending 6/30/17 $ 29   $ 82   $ 5   $ 116     Three Months Ended March 31, 2017

One- to Four-Family

Home Equity Consumer Total (In millions) Allowance for loan losses, ending 12/31/16 $ 45 $ 171 $ 5 $ 221 Provision (benefit) for loan losses — (15 ) 1 (14 ) (Charge-offs) recoveries, net 1   6   (1 ) 6   Allowance for loan losses, ending 3/31/17 $ 46   $ 162   $ 5   $ 213     Three Months Ended June 30, 2016

One- to Four-Family

Home Equity Consumer Total (In millions) Allowance for loan losses, ending 3/31/16 $ 49 $ 267 $ 6 $ 322 Provision (benefit) for loan losses (8 ) (28 ) 1 (35 ) (Charge-offs) recoveries, net 1   6   (1 ) 6   Allowance for loan losses, ending 6/30/16 $ 42   $ 245   $ 6   $ 293      

Capital

 

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Qtr ended6/30/17 vs. 6/30/16

 

E*TRADE Financial

Tier 1 leverage ratio(10) 7.5 % 7.2 % 0.3 % 7.5 % — % Common Equity Tier 1 capital ratio(10) 35.0 % 33.0 % 2.0 % 35.6 % (0.6 )% Tier 1 risk-based capital ratio(10) 37.5 % 35.4 % 2.1 % 35.6 % 1.9 % Total risk-based capital ratio(10) 42.4 % 40.7 % 1.7 % 41.2 % 1.2 %  

E*TRADE Bank

Tier 1 leverage ratio(11) 8.0 % 8.1 % (0.1 )% 8.2 % (0.2 )% Common Equity Tier 1 capital ratio(11) 35.1 % 35.0 % 0.1 % 34.2 % 0.9 % Tier 1 risk-based capital ratio(11) 35.1 % 35.0 % 0.1 % 34.2 % 0.9 % Total risk-based capital ratio(11) 36.3 % 36.3 % — % 35.5 % 0.8 %     Average Balance Sheet Data                 Three Months Ended June 30, 2017 March 31, 2017 Average Interest Average Average Interest Average Balance Inc./Exp. Yield/Cost Balance Inc./Exp. Yield/Cost Cash and equivalents $ 890 $ 2 0.87 % $ 1,345 $ 2 0.64 % Cash required to be segregated under federal or other regulations 1,355 3 0.94 % 1,684 3 0.71 % Available-for-sale securities 18,197 95 2.10 % 16,586 85 2.05 % Held-to-maturity securities 19,725 137 2.78 % 17,531 120 2.74 % Margin receivables 7,258 75 4.14 % 6,781 66 3.93 % Loans 3,332 41 4.88 % 3,608 43 4.77 % Broker-related receivables and other 1,142   1   0.20 % 1,119   —   0.12 % Subtotal interest-earning assets 51,899 354 2.73 % 48,654 319 2.63 % Other interest revenue(a) —   24   —   22   Total interest-earning assets 51,899 378   2.91 % 48,654 341   2.81 % Total non-interest earning assets 4,951   5,252   Total assets $ 56,850   $ 53,906     Deposits $ 37,894 $ 1 0.01 % $ 34,869 $ 1 0.01 % Customer payables 8,686 2 0.06 % 8,686 1 0.06 % Broker-related payables and other 1,237 — 0.00 % 1,160 — 0.00 % Other borrowings 674 5 3.18 % 492 5 3.85 % Corporate debt 991   13   5.41 % 994   14   5.39 % Subtotal interest-bearing liabilities 49,482 21 0.17 % 46,201 21 0.18 % Other interest expense(b) —   1   —   1   Total interest-bearing liabilities 49,482 22   0.18 % 46,201 22   0.19 % Total non-interest-bearing liabilities 884   1,402   Total liabilities 50,366 47,603 Total shareholders' equity 6,484   6,303   Total liabilities and shareholders' equity $ 56,850   $ 53,906    

Excess interest earning assets overinterest bearing liabilities/ net interestincome/ net interest margin

$ 2,417   $ 356   2.74 % $ 2,453   $ 319   2.63 %   (a)   Represents interest revenue on securities loaned for the periods presented. (b) Represents interest expense on securities borrowed for the periods presented.       Three Months Ended June 30, 2016 Average   Interest   Average Balance Inc./Exp. Yield/Cost Cash and equivalents $ 1,589 $ 1 0.36 % Cash required to be segregated under federal or other regulations 1,599 1 0.34 % Available-for-sale securities 13,503 68 2.01 % Held-to-maturity securities 15,354 107 2.80 % Margin receivables 6,502 61 3.76 % Loans 4,512 49 4.32 % Broker-related receivables and other 363   1   0.29 % Subtotal interest-earning assets 43,422 288 2.65 % Other interest revenue(a) —   18   Total interest-earning assets 43,422 306   2.83 % Total non-interest-earning assets 4,815   Total assets $ 48,237     Deposits $ 31,865 $ 1 0.01 % Customer payables 6,913 1 0.07 % Broker-related payables and other 1,345 — 0.00 % Other borrowings 410 4 4.43 % Corporate debt 993   14   5.40 % Subtotal interest-bearing liabilities 41,526 20 0.19 % Other interest expense(b) —   —   Total interest-bearing liabilities 41,526 20   0.20 % Total non-interest-bearing liabilities 969   Total liabilities 42,495 Total shareholders' equity 5,742   Total liabilities and shareholders' equity $ 48,237    

Excess interest earning assets over interest bearing liabilities/net interest income/ net interest margin

$

1,896

 

$

286

 

2.64

%

 

 

 

 

 

 

 

(a) Represents interest revenue on securities loaned for the periods presented. (b) Represents interest expense on securities borrowed for the periods presented.    

Explanation of Non-GAAP Measures

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 discussed below are appropriate for evaluating the operating and liquidity performance of the Company.

Adjusted Operating Margin

Adjusted operating margin is calculated by dividing adjusted income before income taxes by net revenue. Adjusted income before income taxes excludes the provision (benefit) for loan losses. Management believes that excluding the provision (benefit) for loan losses from operating margin provides a useful measure of the Company's ongoing operating performance because management excludes it 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 (5) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Tangible Common Equity Book Value per Share

Tangible common equity book value per share represents common shareholders’ equity, which excludes preferred stock, less goodwill and other intangible assets (net of related deferred tax liabilities) divided by common stock outstanding. The Company believes that tangible common equity book value per share is a measure of the Company’s capital strength. See endnote (4) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

It is important to note that these non-GAAP measures may involve judgment by management and should be considered in addition to, not as substitutes for, or superior to, measures 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) 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. The following table provides a reconciliation of GAAP operating margin percentage to non-GAAP adjusted operating margin percentage (dollars in millions):

  Q2 2017   Q1 2017   Q2 2016 Amount  

OperatingMargin %

Amount  

OperatingMargin %

Amount  

OperatingMargin %

  Income before income tax expense and operating margin $ 317 55 % $ 225 41 % $ 214 45 % Provision (benefit) for loan losses (99 )   (14 )   (35 )   Adjusted income before income tax expense / adjusted operating margin $ 218   38 % $ 211   38 % $ 179   38 %    

(2) Customer margin balances include the following (dollars in billions):

Q2 2017   Q1 2017   Q2 2016 Margin receivables held on balance sheet $ 7.8 $ 6.9 $ 6.8 Customer margin balances held by a third party clearing firm(a) 0.4   0.4   — Total customer margin balances $ 8.2   $ 7.3   $ 6.8   (a) Represents OptionsHouse's customer margin balances held by a third party clearing firm.

(3) Amounts and percentages may not recalculate due to rounding. For percentage based metrics, the variance represents the current period less the prior period.

(4) The following table provides a reconciliation of GAAP common equity book value and common equity book value per share to non-GAAP tangible common equity book value and tangible common equity book value per share at period end (dollars in millions, except per share amounts):

  Q2 2017   Q1 2017   Q2 2016 Amount  

PerShare

Amount  

Per Share

Amount  

PerShare

Common equity book value $ 6,289 $ 22.86 $ 6,050 $ 22.00 $ 5,785 $ 21.14 Less: Goodwill and other intangibles, net (2,673 ) (2,682 ) (1,956 ) Add: Deferred tax liabilities related to goodwill and other intangibles, net 591     580     478     Tangible common equity book value $ 4,207   $ 15.29   $ 3,948   $ 14.36   $ 4,307   $ 15.74    

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

Q2 2017   Q1 2017   Q2 2016 Consolidated cash and equivalents $ 1,091 $ 998 $ 2,393 Less: Cash at regulated subsidiaries(a) (613 ) (581 ) (1,870 ) Corporate cash $ 478   $ 417   $ 523     (a) Reported net of corporate cash on deposit at E*TRADE Bank that is eliminated in consolidation.

(6) The brokerage account attrition rate is calculated by dividing attriting brokerage accounts by total brokerage accounts at the previous period end, and is presented on an annualized basis. Attriting brokerage accounts are derived by subtracting net new brokerage accounts from gross new brokerage accounts.

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

Q2 2017   Q1 2017   Q2 2016 Sweep deposits at unaffiliated financial institutions $ 6.6 $ 10.6 $ 4.6 Customer cash held by a third party clearing firm(a) 1.7 1.7 — Municipal funds and other 0.5 0.3 3.6 Money market fund —   —   0.3 Total customer cash held by third parties $ 8.8   $ 12.6   $ 8.5   (a) Represents OptionsHouse's customer cash held by a third party clearing firm.

(8) 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.

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

(10) E*TRADE Financial’s capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):

Q2 2017   Q1 2017   Q2 2016 E*TRADE Financial shareholders' equity $ 6,683 $ 6,444 $ 5,785 DEDUCT: Preferred stock (394 ) (394 ) —   E*TRADE Financial Common Equity Tier 1 capital before regulatory adjustments $ 6,289   $ 6,050   $ 5,785   ADD: (Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax 62 98 (43 ) DEDUCT: Goodwill and other intangible assets, net of deferred tax liabilities (2,039 ) (2,058 ) (1,422 ) Disallowed deferred tax assets (537 ) (638 ) (857 ) E*TRADE Financial Common Equity Tier 1 capital $ 3,775   $ 3,452   $ 3,463   ADD: Preferred stock 394 394 — DEDUCT: Disallowed deferred tax assets (124 ) (136 ) —   E*TRADE Financial Tier 1 capital $ 4,045   $ 3,710   $ 3,463   ADD: Allowable allowance for loan losses 116 135 129 Non-qualifying capital instruments subject to phase-out (trust preferred securities) 414   414   414   E*TRADE Financial total capital $ 4,575   $ 4,259   $ 4,006     E*TRADE Financial average assets for leverage capital purposes $ 56,928 $ 54,032 $ 48,255 DEDUCT: Goodwill and other intangible assets, net of deferred tax liabilities (2,039 ) (2,058 ) (1,422 ) Disallowed deferred tax assets (661 ) (774 ) (857 ) E*TRADE Financial adjusted average assets for leverage capital purposes $ 54,228   $ 51,200   $ 45,976     E*TRADE Financial total risk-weighted assets(a) $ 10,780 $ 10,466 $ 9,731   E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted average

assets for leverage capital purposes)

7.5 % 7.2 % 7.5 % E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets 35.0 % 33.0 % 35.6 % E*TRADE Financial Tier 1 capital / Total risk-weighted assets 37.5 % 35.4 % 35.6 % E*TRADE Financial total capital / Total risk-weighted assets 42.4 % 40.7 % 41.2 %   (a) 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.  

(11) E*TRADE Bank’s capital ratios are calculated as follows and are preliminary for the current period (dollars in millions):

Q2 2017

  Q1 2017   Q2 2016 E*TRADE Bank shareholder's equity $ 3,485 $ 3,291 $ 3,207 ADD: (Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax 62 98 (43 ) DEDUCT: Goodwill and other intangible assets, net of deferred tax liabilities (38 ) (38 ) (38 ) Disallowed deferred tax assets (56 ) (100 ) (186 ) E*TRADE Bank Common Equity Tier 1 capital / Tier 1 capital $ 3,453   $ 3,251   $ 2,940   ADD: Allowable allowance for loan losses 116   118   112   E*TRADE Bank total capital $ 3,569   $ 3,369   $ 3,052     E*TRADE Bank average assets for leverage capital purposes $ 43,527 $ 40,501 $ 36,292 DEDUCT: Goodwill and other intangible assets, net of deferred tax liabilities (38 ) (38 ) (38 ) Disallowed deferred tax assets (56 ) (100 ) (186 ) E*TRADE Bank adjusted average assets for leverage capital purposes $ 43,433   $ 40,363   $ 36,068     E*TRADE Bank total risk-weighted assets(a) $ 9,840 $ 9,280 $ 8,594   E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets for leverage capital purposes) 8.0 % 8.1 % 8.2 % E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets 35.1 % 35.0 % 34.2 % E*TRADE Bank Tier 1 capital / Total risk-weighted assets 35.1 % 35.0 % 34.2 % E*TRADE Bank total capital / Total risk-weighted assets 36.3 % 36.3 % 35.5 %   (a) 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.

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