E*TRADE Financial Corporation Announces Fourth Quarter and Full Year 2016 Results

NEW YORK--(BUSINESS WIRE)--

E*TRADE Financial Corporation ETFC:

Fourth Quarter Results

• Net income of $127 million, or $0.46 per diluted share, which includes a net benefit of $7 million, or $0.03 per diluted share, related to benefit to provision for loan losses, partially offset by restructuring and acquisition-related activities
• Total net revenue of $509 million
• Allowance for loan losses of $221 million, resulting in a benefit to provision for loan losses of $18 million
• Total non-interest expense of $322 million, including restructuring and acquisition-related activities of $7 million
• Operating margin of 40%; adjusted operating margin of 37%⁽¹⁾
• Daily Average Revenue Trades (DARTs) of 188,000
• Customer margin balances⁽²⁾ of $7.1 billion
• Net new brokerage accounts of 24,000; annualized growth rate of 2.8 percent
• Net new brokerage assets of $3.2 billion; annualized growth rate of 4.7 percent; end of period total customer assets of $311 billion

Full Year 2016 Results

• Net income of $552 million, or $1.98 per diluted share, which includes a net benefit of $93 million, or $0.33 per diluted share, related to benefit to provision for loan losses and benefit to income tax related to the release of state valuation allowances⁽³⁾, partially offset by executive severance and restructuring and acquisition-related activities
• Total net revenue of $1.9 billion
• Benefit to provision for loan losses of $149 million
• Total non-interest expense of $1.3 billion, including executive severance of $6 million and restructuring and acquisition-related activities of $32 million related to the OptionsHouse acquisition and other corporate restructuring during the second half of 2016
• Operating margin of 43%; adjusted operating margin of 35%⁽¹⁾
• DARTs of 164,000
• Net new brokerage accounts of 249,000; excluding the OptionsHouse acquisition, net new brokerage accounts of 101,000 and growth rate of 3.2 percent
• Net new brokerage assets of $13.1 billion; excluding the OptionsHouse acquisition, net new brokerage assets of $9.4 billion and growth rate of 3.8 percent

E*TRADE Financial Corporation ETFC today announced results for its fourth quarter ended December 31, 2016, reporting net income of $127 million, or $0.46 per diluted share. This compares to net income of $89 million, or $0.30 per diluted share, in the fourth quarter of 2015. Total net revenue of $509 million increased from net revenue of $439 million in the fourth quarter of 2015. Total non-interest expense in the quarter was $322 million compared to $305 million in the year-ago period.

"We ended the year as a more focused and energized company, and I am exceptionally proud what our team has accomplished during the past four months," said Karl Roessner, Chief Executive Officer. "The acquisition of OptionsHouse provided the catalyst to realign the leadership team and refocus the entire Company on business performance. After taking a hard look at our structure and list of projects, we exited 2016 as a leaner, more agile organization, poised to reclaim our position as the best home for active traders and investors alike, with the number one options platform in the industry. As for results, 2016 marks our strongest earnings in 10 years, demonstrating our commitment to managing expenses with discipline, deploying multiple capital initiatives, and diminishing risk associated with our legacy loan portfolio. With balance sheet expansion already well under way, and the team aligned and marching forward on our business growth objectives, I am confident in our ability to continue to create long-term value for our shareholders in the years to come."

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 (877) 256-7753 while international participants should dial +1 (303) 223-2689. 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, E*TRADE Financial, E*TRADE Bank, the Converging Arrows logo and OptionsHouse are registered trademarks of E*TRADE Financial Corporation or its subsidiaries in the United States and in other countries.

Forward-Looking Statements

The statements contained in this news release that are forward looking, including statements regarding the Company's ability to grow its balance sheet, execute on its growth plans, or create long-term value for shareholders 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 and the residential real estate market, market volatility and its impact on trading volumes, instability in the consumer credit markets and credit trends, such as fluctuations in interest rates, increased mortgage loan delinquency and default 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, 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.

Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income(4)
(In millions, except share data and per share amounts)
(Unaudited)
				Three Months Ended												Twelve Months Ended
				December 31,				September 30,				December 31,				December 31,
				2016				2016				2015				2016				2015
Revenue:
	Interest income			$	310			$	309			$	292			$	1,233			$	1,215
	Interest expense			(22		)		(22		)		(22		)		(85		)		(194		)
		Net interest income		288				287				270				1,148				1,021
	Commissions			122				107				99				442				424
	Fees and service charges			80				68				51				268				210
	Gains (losses) on securities and other, net			8				14				9				42				(324		)
	Other revenue			11				10				10				41				39
		Total non-interest income		221				199				169				793				349
		Total net revenue		509				486				439				1,941				1,370
Provision (benefit) for loan losses				(18		)		(62		)		(23		)		(149		)		(40		)
Non-interest expense:
	Compensation and benefits			127				123				112				501				466
	Advertising and market development			31				27				35				131				124
	Clearing and servicing			30				26				23				105				95
	Professional services			27				26				26				97				103
	Occupancy and equipment			27				24				24				98				88
	Communications			22				22				28				87				90
	Depreciation and amortization			19				20				20				79				81
	FDIC insurance premiums			7				6				5				25				41
	Amortization of other intangibles			8				5				5				23				20
	Restructuring and acquisition-related activities			7				25				9				35				17
	Losses on early extinguishment of debt, net			—				—				—				—				112
	Other non-interest expenses			17				19				18				71				82
		Total non-interest expense		322				323				305				1,252				1,319
Income before income tax expense (benefit)				205				225				157				838				91
Income tax expense (benefit)				78				86				68				286				(177		)
Net income				$	127			$	139			$	89			$	552			$	268
Basic earnings per share				$	0.46			$	0.51			$	0.31			$	1.99			$	0.92
Diluted earnings per share				$	0.46			$	0.51			$	0.30			$	1.98			$	0.91
Shares used in computation of per share data:
	Basic (in thousands)			274,585				274,362				292,713				277,789				290,762
	Diluted (in thousands)			275,840				275,472				294,947				279,048				295,011

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In millions, except share data)
(Unaudited)
					December 31,				September 30,				December 31,
					2016				2016				2015
ASSETS
Cash and equivalents					$	1,950			$	1,467			$	2,233
Cash required to be segregated under federal or other regulations					1,460				2,159				1,057
Available-for-sale securities					13,892				13,493				12,589
Held-to-maturity securities					15,751				16,189				13,013
Margin receivables					6,731				6,552				7,398
Loans receivable, net					3,551				3,832				4,613
Receivables from brokers, dealers and clearing organizations					1,056				1,118				520
Property and equipment, net					239				231				236
Goodwill					2,370				2,370				1,792
Other intangibles, net					320				328				174
Deferred tax assets, net					756				725				1,033
Other assets					923				735				769
Total assets					$	48,999			$	49,199			$	45,427
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits					$	31,682			$	31,697			$	29,445
Customer payables					8,159				7,827				6,544
Payables to brokers, dealers and clearing organizations					983				1,227				1,576
Other borrowings					409				409				491
Corporate debt					994				994				997
Other liabilities					500				729				575
Total liabilities					42,727				42,883				39,628
Shareholders' equity:
Preferred stock, $0.01 par value; $1,000 liquidation    preference; shares authorized: 1,000,000; shares issued    and outstanding at December 31, 2016: 400,000					394				394				—
Common stock, $0.01 par value; shares authorized:    400,000,000; shares issued and outstanding at December    31, 2016: 273,963,415					3				3				3
Additional paid-in-capital					6,921				6,916				7,356
Accumulated deficit					(909		)		(1,036		)		(1,461		)
Accumulated other comprehensive income (loss)					(137		)		39				(99		)
Total shareholders' equity					6,272				6,316				5,799
Total liabilities and shareholders' equity					$	48,999			$	49,199			$	45,427

Key Performance Metrics(5)
Corporate		Qtr ended 12/31/16			Qtr ended 9/30/16			Qtr ended 12/31/16 vs. 9/30/16		Qtr ended 12/31/15			Qtr ended 12/31/16 vs. 12/31/15
Operating margin %(6)			40%			46%		(6)%			36%		4%
Adjusted operating margin %(1)			37%			34%		3%			31%		6%
Employees			3,601			3,655		(1)%			3,421		5%
Consultants and other			134			130		3%			120		12%
Total headcount			3,735			3,785		(1)%			3,541		5%
Common equity book value per share(7)		$	21.46		$	21.63		(1)%		$	19.90		8%
Tangible common equity book value per share(7)		$	13.71		$	13.82		(1)%		$	14.71		(7)%
Cash and equivalents ($MM)		$	1,950		$	1,467		33%		$	2,233		(13)%
Corporate cash ($MM)(8)		$	461		$	306		51%		$	447		3%
Net interest margin (basis points)			260			259		—%			274		(0.1)%
Interest-earning assets, average ($MM)		$	44,260		$	44,489		(1)%		$	39,500		12%
Customer Activity		Qtr ended 12/31/16			Qtr ended 9/30/16			Qtr ended 12/31/16 vs. 9/30/16		Qtr ended 12/31/15			Qtr ended 12/31/16 vs. 12/31/15
Trading days			62.5			64.0		N.M.			63.0		N.M.
DARTs			187,620			151,905		24%			146,949		28%
Derivative DARTs %			29%			26%		3%			25%		4%
Total trades (MM)			11.7			9.7		21%			9.3		26%
Average commission per trade		$	10.42		$	10.97		(5)%		$	10.66		(2)%

Key Performance Metrics(5)
Customer Activity		Qtr ended 12/31/16			Qtr ended 9/30/16			Qtr ended 12/31/16 vs. 9/30/16		Qtr ended 12/31/15				Qtr ended 12/31/16 vs. 12/31/15
Gross new brokerage accounts		102,137			227,309			(55)%		79,397				29%
Gross new stock plan accounts		64,397			62,144			4%		94,326				(32)%
Gross new banking accounts		843			1,061			(21)%		1,037				(19)%
Closed accounts(9)		(149,687)			(122,336)			N.M.		(119,268		)		N.M.
Net new accounts		17,690			168,178			N.M.		55,492				N.M.
Net new brokerage accounts(9)		24,028			161,885			N.M.		10,010				N.M.
Net new stock plan accounts		1,639			11,368			N.M.		49,683				N.M.
Net new banking accounts		(7,977)			(5,075)			N.M.		(4,201		)		N.M.
Net new accounts		17,690			168,178			N.M.		55,492				N.M.
End of period brokerage accounts(9)		3,463,003			3,438,975			1%		3,213,541				8%
End of period stock plan accounts		1,456,060			1,454,421			—%		1,408,153				3%
End of period banking accounts		316,673			324,650			(2)%		339,888				(7)%
End of period total accounts		5,235,736			5,218,046			—%		4,961,582				6%
Annualized net new brokerage account growth rate		2.8%			1.7%			1.1%		1.2		%		1.6%
Annualized brokerage account attrition rate(9)(10)		9.1%			8.0%			N.M.		8.7		%		N.M.
Customer margin balances(2) B		$	7.1		$	6.8		4%		$	7.4			(4)%
Customer AssetsB
Security holdings		$	224.4		$	222.1		1%		$	203.8			10%
Sweep deposits		26.4			26.5			—%		24.0				10%
Customer cash held by third parties(11)		16.8			14.0			20%		11.2				50%
Customer payables (cash)		8.2			7.8			5%		6.5				26%
Brokerage customer assets		275.8			270.4			2%		245.5				12%
Unexercised stock plan holdings (vested)		30.2			31.2			(3)%		36.9				(18)%
Savings, checking and other banking assets		5.3			5.2			2%		5.5				(4)%
Total customer assets		$	311.3		$	306.8		1%		$	287.9			8%
Net new brokerage assets(12)		$	3.2		$	5.4		N.M.		$	2.8			N.M.
Net new banking assets(12)		0.1			—			N.M.		0.1				N.M.
Net new customer assets(12)		$	3.3		$	5.4		N.M.		$	2.9			N.M.
Annualized net new brokerage asset growth rate		4.7%			2.7%			2.0%		4.7		%		—%
Brokerage related cash		$	51.4		$	48.3		6%		$	41.7			23%
Other cash and deposits		5.3			5.2			2%		5.5				(4)%
Total customer cash and deposits		$	56.7		$	53.5		6%		$	47.2			20%
Managed products		$	3.9		$	3.7		5%		$	3.2			22%
Stock plan customer holdings (unvested)		$	73.2		$	73.4		—%		$	70.7			4%
Customer net (buy) / sell activity		$	0.8		$	2.4		N.M.		$	0.3			N.M.

Key Performance Metrics(5)
Loans		Qtr ended 12/31/16				Qtr ended 9/30/16				Qtr ended 12/31/16 vs. 9/30/16				Qtr ended 12/31/15				Qtr ended 12/31/16 vs. 12/31/15
Loans receivable ($MM)
Average loans receivable		$	3,892			$	4,202			$	(310	)		$	5,097			$	(1,205	)
Ending loans receivable, net		$	3,551			$	3,832			$	(281	)		$	4,613			$	(1,062	)
Loan servicing expense		$	6			$	7			$	(1	)		$	7			$	(1	)
Loan performance detail (all loans, including TDRs) ($MM)
One- to Four-Family
Current		$	1,787			$	1,927			$	(140	)		$	2,296			$	(509	)
30-89 days delinquent		67				65				2				72				(5		)
90-179 days delinquent		23				19				4				26				(3		)
180+ days delinquent (net of $28, $32 and    $41 in charge-offs for Q416, Q316 and    Q415, respectively)		86				97				(11		)		111				(25		)
Total delinquent loans(13)		176				181				(5		)		209				(33		)
Gross loans receivable(14)		$	1,963			$	2,108			(145		)		$	2,505			(542		)
Home Equity
Current		$	1,442			$	1,569			$	(127	)		$	1,981			$	(539	)
30-89 days delinquent		43				38				5				52				(9		)
90-179 days delinquent		18				24				(6		)		31				(13		)
180+ days delinquent (net of $30, $29    and $26 in charge-offs for Q416, Q316 and    Q415, respectively)		53				55				(2		)		53				—
Total delinquent loans(13)		114				117				(3		)		136				(22		)
Gross loans receivable(14)		$	1,556			$	1,686			(130		)		$	2,117			(561		)
Consumer
Current		$	248			$	269			$	(21	)		$	337			$	(89	)
30-89 days delinquent		4				4				—				6				(2		)
90-179 days delinquent		1				—				1				1				—
180+ days delinquent		—				—				—				—				—
Total delinquent loans		5				4				1				7				(2		)
Gross loans receivable(14)		$	253			$	273			(20		)		$	344			(91		)
Total Loans Receivable
Current		$	3,477			$	3,765			$	(288	)		$	4,614			$	(1,137	)
30-89 days delinquent		114				107				7				130				(16		)
90-179 days delinquent		42				43				(1		)		58				(16		)
180+ days delinquent (net of $58, $61    and $67 in charge-offs for Q416, Q316 and    Q415, respectively)		139				152				(13		)		164				(25		)
Total delinquent loans(13)		295				302				(7		)		352				(57		)
Gross loans receivable(14)		$	3,772			$	4,067			(295		)		$	4,966			(1,194		)

Key Performance Metrics(5)
Loans		Qtr ended 12/31/16				Qtr ended 9/30/16				Qtr ended 12/31/16 vs. 9/30/16				Qtr ended 12/31/15				Qtr ended 12/31/16 vs. 12/31/15
TDR performance detail ($MM)(15)
One- to Four-Family TDRs
Current		$	187			$	196			$	(9	)		$	212			$	(25	)
30-89 days delinquent		16				18				(2		)		19				(3		)
90-179 days delinquent		8				4				4				8				—
180+ days delinquent (net of $17, $19    and $23 in charge-offs for Q416, Q316    and Q415, respectively)		35				40				(5		)		47				(12		)
Total delinquent TDRs		59				62				(3		)		74				(15		)
TDRs		$	246			$	258			(12		)		$	286			(40		)
Home Equity TDRs
Current		$	160			$	166			$	(6	)		$	162			$	(2	)
30-89 days delinquent		10				8				2				11				(1		)
90-179 days delinquent		4				5				(1		)		8				(4		)
180+ days delinquent (net of $19, $19    and $17 in charge-offs for Q416, Q316    and Q415, respectively)		21				23				(2		)		21				—
Total delinquent TDRs		35				36				(1		)		40				(5		)
TDRs		$	195			$	202			(7		)		$	202			(7		)
Total TDRs
Current		$	347			$	362			$	(15	)		$	374			$	(27	)
30-89 days delinquent		26				26				—				30				(4		)
90-179 days delinquent		12				9				3				16				(4		)
180+ days delinquent (net of $36, $38    and $40 in charge-offs for Q416, Q316    and Q415, respectively)		56				63				(7		)		68				(12		)
Total delinquent TDRs		94				98				(4		)		114				(20		)
TDRs		$	441			$	460			(19		)		$	488			(47		)

Activity in Allowance for Loan Losses
		Three Months Ended December 31, 2016
		One- to Four- Family				Home Equity				Consumer				Total
		(In millions)
Allowance for loan losses, ending 9/30/16		$	47			$	183			$	5			$	235
Provision (benefit) for loan losses		(4		)		(14		)		—				(18		)
(Charge-offs) recoveries, net		2				2				—				4
Allowance for loan losses, ending 12/31/16		$	45			$	171			$	5			$	221
		Three Months Ended September 30, 2016
		One- to Four- Family				Home Equity				Consumer				Total
		(In millions)
Allowance for loan losses, ending 6/30/16		$	42			$	245			$	6			$	293
Provision (benefit) for loan losses		2				(64		)		—				(62		)
(Charge-offs) recoveries, net		3				2				(1		)		4
Allowance for loan losses, ending 9/30/16		$	47			$	183			$	5			$	235
		Three Months Ended December 31, 2015
		One- to Four- Family				Home Equity				Consumer				Total
		(In millions)
Allowance for loan losses, ending 9/30/15		$	39			$	330			$	7			$	376
Provision (benefit) for loan losses		—				(23		)		—				(23		)
(Charge-offs) recoveries, net		1				—				(1		)		—
Allowance for loan losses, ending 12/31/15		$	40			$	307			$	6			$	353

Specific Valuation Allowance Activity(16)
	As of December 31, 2016
	Recorded Investment in Modifications before charge-offs				Charge-offs				Recorded Investment in Modifications				Specific Valuation Allowance				Net Investment in Modifications				Specific Valuation Allowance as a % of Modifications		Total Expected Losses (17)
	(Dollars in millions)
One- to four-family	$	198			$	(45	)		$	153			$	(7	)		$	146			4%		26%
Home equity	271				(108		)		163				(51		)		112				31%		59%
Total	$	469			$	(153	)		$	316			$	(58	)		$	258			18%		45%
	As of September 30, 2016
	Recorded Investment in Modifications before charge-offs				Charge-offs				Recorded Investment in Modifications				Specific Valuation Allowance				Net Investment in Modifications				Specific Valuation Allowance as a % of Modifications		Total Expected Losses (17)
	(Dollars in millions)
One- to four-family	$	200			$	(44	)		$	156			$	(6	)		$	150			4%		25%
Home equity	279				(110		)		169				(51		)		118				30%		57%
Total	$	479			$	(154	)		$	325			$	(57	)		$	268			17%		44%
	As of December 31, 2015
	Recorded Investment in Modifications before charge-offs				Charge-offs				Recorded Investment in Modifications				Specific Valuation Allowance				Net Investment in Modifications				Specific Valuation Allowance as a % of Modifications		Total Expected Losses (17)
	(Dollars in millions)
One- to four-family	$	216			$	(46	)		$	170			$	(9	)		$	161			5%		25%
Home equity	284				(120		)		164				(52		)		112				32%		61%
Total	$	500			$	(166	)		$	334			$	(61	)		$	273			18%		45%

Capital	Qtr ended 12/31/16		Qtr ended 9/30/16		Qtr ended 12/31/16 vs. 9/30/16		Qtr ended 12/31/15		Qtr ended 12/31/16 vs. 12/31/15
E*TRADE Financial
Tier 1 leverage ratio(18)	7.8%		7.3%		0.5%		9.0%		(1.2)%
Common Equity Tier 1 capital ratio(18)	37.0%		34.0%		3.0%		39.3%		(2.3)%
Tier 1 risk-based capital ratio(18)	38.3%		35.1%		3.2%		39.3%		(1.0)%
Total risk-based capital ratio(18)	44.0%		40.7%		3.3%		43.9%		0.1%
E*TRADE Bank
Tier 1 leverage ratio(19)	8.8%		8.5%		0.3%		9.7%		(0.9)%
Common Equity Tier 1 capital ratio(19)	38.3%		36.7%		1.6%		36.5%		1.8%
Tier 1 risk-based capital ratio(19)	38.3%		36.7%		1.6%		36.5%		1.8%
Total risk-based capital ratio(19)	39.5%		38.0%		1.5%		37.8%		1.7%

Average Balance Sheet Data(a)
			Three Months Ended
			December 31, 2016										September 30, 2016
			Average				Interest				Average		Average				Interest				Average
			Balance				Inc./Exp.				Yield/Cost		Balance				Inc./Exp.				Yield/Cost
Cash and equivalents			$	1,610			$	2			0.47%		$	1,989			$	2			0.42%
Cash required to be segregated under federal or other regulation			1,590				2				0.44%		1,885				2				0.33%
Available-for-sale securities			13,612				68				2.01%		13,301				66				1.99%
Held-to-maturity securities			15,884				106				2.68%		15,937				109				2.73%
Margin receivables			6,711				64				3.76%		6,479				60				3.68%
Loans			3,892				45				4.59%		4,202				46				4.44%
Broker-related receivables and other			961				—				0.08%		696				—				0.13%
Subtotal interest-earning assets			44,260				287				2.59%		44,489				285				2.56%
Other interest revenue(b)			—				23						—				24
Total interest-earning assets			44,260				310				2.79%		44,489				309				2.77%
Total non-interest earning assets			4,816										4,793
Total assets			$	49,076									$	49,282
Deposits			$	31,601			$	—			0.01%		$	32,285			$	1			0.01%
Customer payables			7,915				1				0.06%		7,592				2				0.06%
Broker-related payables and other			1,093				—				0.00%		1,258				—				0.00%
Other borrowings			411				5				4.30%		409				4				4.15%
Corporate debt			994				14				5.47%		993				13				5.40%
Subtotal interest-bearing liabilities			42,014				20				0.19%		42,537				20				0.19%
Other interest expense(c)			—				2						—				2
Total interest-bearing liabilities			42,014				22				0.21%		42,537				22				0.20%
Total non-interest-bearing liabilities			723										719
Total liabilities			42,737										43,256
Total shareholders' equity			6,339										6,026
Total liabilities and shareholders' equity			$	49,076									$	49,282
Excess interest earning assets over interest bearing liabilities/ net interest income/ net interest margin			$	2,246			$	288			2.60%		$	1,952			$	287			2.59%

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

			Three Months Ended(a)
			December 31, 2015
			Average				Interest				Average
			Balance				Inc./Exp.				Yield/Cost
Cash and equivalents			$	1,834			$	1			0.19%
Cash required to be segregated under federal or other regulation			692				—				0.17%
Available-for-sale securities			11,660				56				1.92%
Held-to-maturity securities			12,283				87				2.86%
Margin receivables			7,549				68				3.58%
Loans			5,097				53				4.11%
Broker-related receivables and other			385				—				0.30%
Subtotal interest-earning assets			39,500				265				2.68%
Other interest revenue (b)			—				27
Total interest-earning assets			39,500				292				2.96%
Total non-interest-earning assets			4,464
Total assets			$	43,964
Deposits			$	27,578			$	—			0.01%
Customer payables			6,430				1				0.07%
Broker-related payables and other			1,701				—				0.00%
Other borrowings			489				5				4.34%
Corporate debt			997				13				5.38%
Subtotal interest-bearing liabilities			37,195				19				0.22%
Other interest expense(c)			—				3
Total interest-bearing liabilities			37,195				22				0.23%
Total non-interest-bearing liabilities			949
Total liabilities			38,144
Total shareholders' equity			5,820
Total liabilities and shareholders' equity			$	43,964
Excess interest earning assets over interest bearing liabilities/ net interest income/ net interest margin			$	2,305			$	270			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)			Represents interest revenue on securities loaned for the periods presented.
(c)			Represents interest expense on securities borrowed for the periods presented.

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 Revenue

Management believes that excluding the loss on termination of legacy wholesale funding obligations provides more useful information about the Company's ongoing operating performance because this item is not directly related to our performance. See endnote (1) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Adjusted Operating Margin

Adjusted operating margin is calculated by dividing adjusted income before income taxes by adjusted net revenue. Adjusted income before income taxes excludes the provision (benefit) for loan losses and losses on early extinguishment of debt. The related loss on termination of legacy wholesale funding obligations is excluded from both adjusted net revenue and adjusted income before income taxes. Management believes that excluding these items 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 (8) 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 (7) 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 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 income before income tax expense (benefit), adjusted operating margin percentage and adjusted net revenue to the comparable GAAP measures (dollars in millions):

		Q4 2016						Q3 2016						Q4 2015
		Amount				Operating Margin %		Amount				Operating Margin %		Amount				Operating Margin %
Income before income tax expense (benefit) and operating margin		$	205			40%		$	225			46%		$	157			36%
Provision (benefit) for loan losses		(18		)				(62		)				(23		)
Adjusted income before income tax expense (benefit) / adjusted operating margin		$	187			37%		$	163			34%		$	134			31%

		Twelve Months Ended December 31(a),
		2016				2015
Net revenue		$	1,941			$	1,370
Add back impact of termination of legacy wholesale funding obligations		—				370
Adjusted net revenue		$	1,941			$	1,740

(a)

A reconciliation of adjusted net revenue to net revenue is presented for the twelve months ended December 31, 2015 only as no other periods presented include adjustments to net revenue for the purpose of reporting adjusted operating margin.

		Twelve Months Ended						Twelve Months Ended
		December 31, 2016						December 31, 2015
		Amount				Operating Margin %		Amount				Operating Margin %
Income before income tax expense (benefit) and operating margin		$	838			43%		$	91			7%
Add back impact of pre-tax items:
Loss included in Gains (losses) on securities and other, net		—						370
Provision (benefit) for loan losses		(149		)				(40		)
Loss included in Losses on early extinguishment of debt, net		—						112
Adjusted income before income tax expense (benefit) / adjusted operating margin		$	689			35%		$	533			31%

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

		Q4 2016				Q3 2016				Q4 2015
Margin receivables held on balance sheet		$	6.7			$	6.5			$	7.4
Customer margin balances held by third party(a)		0.4				0.3				—
Total customer margin balances		$	7.1			$	6.8			$	7.4

(a)

Represents OptionsHouse's customer margin receivables held by third party.

(3) Effective January 1, 2016, the Company elected to treat E*TRADE Securities and E*TRADE Clearing as single member limited liability companies which resulted in a net tax benefit of $25 million for the full year 2016.

(4) Beginning in the first quarter of 2016, the Company updated the presentation of its consolidated income statement line items for all periods presented 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, net.

Although the Company issued preferred stock during the third quarter of 2016, it has not presented the net income available to common shareholders line item as no related preferred stock dividends were declared during 2016.

(5) Amounts and percentages may not recalculate due to rounding.

(6) 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.

(7) The following tables provide 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):

		Q4 2016								Q3 2016								Q4 2015
		Amount				Per Share				Amount				Per Share				Amount				Per Share
Common equity book value		$	5,878			$	21.46			$	5,922			$	21.63			$	5,799			$	19.90
Less: Goodwill and other intangibles, net		(2,690		)						(2,698		)						(1,966		)
Add: Deferred tax liabilities related to goodwill and other intangibles, net		569								560								454
Tangible common equity book value		$	3,757			$	13.71			$	3,784			$	13.82			$	4,287			$	14.71

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

		Q4 2016				Q3 2016				Q4 2015
Consolidated cash and equivalents		$	1,950			$	1,467			$	2,233
Less: Bank cash		(840		)		(482		)		(1,264		)
Less: U.S. broker-dealers' cash		(614		)		(646		)		(497		)
Less: Other		(35		)		(33		)		(25		)
Corporate cash		$	461			$	306			$	447

(9) Net new and end of period brokerage accounts during the third quarter of 2016 include 147,761 accounts acquired as part of the OptionsHouse acquisition. Net new and end of period brokerage accounts during the fourth quarter 2015 were impacted by the closure of 3,007 accounts related to the shutdown of the Company's global trading platform.

(10) 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.

(11) Customer cash held by third parties are held outside E*TRADE Financial and include 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 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 cash held by third parties (dollars in billions):

		Q4 2016				Q3 2016				Q4 2015
Sweep deposits at unaffiliated financial institutions		$	14.9			$	12.3			$	5.8
Customer cash held by third party clearing firm(a)		1.6				1.5				—
Municipal funds and other		0.3				0.2				3.6
Money market fund		—				—				1.8
Total customer cash held by third parties		$	16.8			$	14.0			$	11.2

(a)		Represents OptionsHouse's customer cash held by third party.

(12) Net new brokerage assets and net new customer assets during the third quarter of 2016 include $3.7 billion of assets from the OptionsHouse acquisition. 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):

		Q4 2016				Q3 2016				Q4 2015
One- to four-family		$	96			$	101			$	113
Home equity		193				200				224
Total charge-offs		$	289			$	301			$	337

(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 2016				Q3 2016				Q4 2015
Modified loans		$	316			$	325			$	334
Bankruptcy loans		125				135				154
Total TDRs		$	441			$	460			$	488

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

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

		Q4 2016				Q3 2016				Q4 2015
E*TRADE Financial shareholders' equity		$	6,272			$	6,316			$	5,799
DEDUCT:
Preferred stock		(394		)		(394		)		—
E*TRADE Financial Common Equity Tier 1 capital before regulatory adjustments		$	5,878			$	5,922			$	5,799
ADD:
(Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax		139				(37		)		102
DEDUCT:
Goodwill and other intangible assets, net of deferred tax liabilities		(2,029		)		(2,043		)		(1,419		)
Disallowed deferred tax assets		(505		)		(556		)		(839		)
Other(a)		—				—				104
E*TRADE Financial Common Equity Tier 1 capital		$	3,483			$	3,286			$	3,747
ADD:
Preferred stock		394				394				—
DEDUCT:
Disallowed deferred tax assets		(267		)		(284		)		—
E*TRADE Financial Tier 1 capital		$	3,610			$	3,396			$	3,747
ADD:
Allowable allowance for loan losses		124				128				129
Non-qualifying capital instruments subject to phase-out (trust preferred securities)(a)		414				414				310
E*TRADE Financial total capital		$	4,148			$	3,938			$	4,186
E*TRADE Financial average assets for leverage capital purposes		$	49,113			$	49,240			$	44,016
DEDUCT:
Goodwill and other intangible assets, net of deferred tax liabilities		(2,029		)		(2,043		)		(1,419		)
Disallowed deferred tax assets		(772		)		(840		)		(839		)
Other(a)		—				—				104
E*TRADE Financial adjusted average assets for leverage capital purposes		$	46,312			$	46,357			$	41,862
E*TRADE Financial total risk-weighted assets(b)		$	9,422			$	9,678			$	9,536
E*TRADE Financial Tier 1 leverage ratio (Tier 1 capital / Adjusted average    assets for leverage capital purposes)		7.8		%		7.3		%		9.0		%
E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets		37.0		%		34.0		%		39.3		%
E*TRADE Financial Tier 1 capital / Total risk-weighted assets		38.3		%		35.1		%		39.3		%
E*TRADE Financial total capital / Total risk-weighted assets		44.0		%		40.7		%		43.9		%

(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 in 2016.
(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.

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

		Q4 2016				Q3 2016				Q4 2015
E*TRADE Bank shareholder's equity		$	3,153			$	3,278			$	3,181
ADD:
(Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax		139				(37		)		102
DEDUCT:
Goodwill and other intangible assets, net of deferred tax liabilities		(38		)		(38		)		(38		)
Disallowed deferred tax assets		(122		)		(134		)		(169		)
E*TRADE Bank Common Equity Tier 1 capital / Tier 1 capital		$	3,132			$	3,069			$	3,076
ADD:
Allowable allowance for loan losses		105				107				110
E*TRADE Bank total capital		$	3,237			$	3,176			$	3,186
E*TRADE Bank average assets for leverage capital purposes		$	35,885			$	36,300			$	31,785
DEDUCT:
Goodwill and other intangible assets, net of deferred tax liabilities		(38		)		(38		)		(38		)
Disallowed deferred tax assets		(122		)		(134		)		(169		)
E*TRADE Bank adjusted average assets for leverage capital purposes		$	35,725			$	36,128			$	31,578
E*TRADE Bank total risk-weighted assets(a)		$	8,187			$	8,368			$	8,424
E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets for leverage capital purposes)		8.8		%		8.5		%		9.7		%
E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets		38.3		%		36.7		%		36.5		%
E*TRADE Bank Tier 1 capital / Total risk-weighted assets		38.3		%		36.7		%		36.5		%
E*TRADE Bank total capital / Total risk-weighted assets		39.5		%		38.0		%		37.8		%

(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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