E*TRADE Financial Corporation (NASDAQ:ETFC):

COMPANY TO INITIATE QUARTERLY DIVIDEND ON COMMON STOCK

ANNOUNCES NEW $1 BILLION SHARE REPURCHASE PROGRAM

Third Quarter Results

• Net income of $285 million; net income available to common shareholders of $261 million
• Diluted earnings per common share of $1.00, which includes a net benefit of $30 million, or $0.12 per diluted share, related to the benefit to provision for loan losses and other items(1)
• Total net revenue of $720 million, a Company record(2)
• Operating margin of 52 percent; adjusted operating margin of 48 percent, a Company record(2),(3)
• Average interest-earning assets of $60 billion; net interest margin of 310 basis points
• Daily Average Revenue Trades (DARTs) of 266,000, including derivative DARTs of 86,000
• Customer margin balances of $11.2 billion, a Company record(2)
• Net new brokerage accounts of 67,000
• Net new brokerage assets of $3.2 billion
• Managed products of $6.2 billion
• Repurchased 5.3 million shares, completing the prior $1 billion share repurchase program at an average price of $51.38

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its third quarter ended September 30, 2018, reporting net income of $285 million, diluted earnings per common share of $1.00 and total net revenue of $720 million. Operating margin for the quarter was 52 percent and adjusted operating margin was 48 percent(3).

The Company announced that its Board of Directors declared a quarterly cash dividend of $0.14 per share on the Company's outstanding shares of common stock. The dividend is payable on November 15, 2018, to shareholders of record as of the close of business on October 30, 2018.

The Company also announced that its Board of Directors approved the launch of a new $1 billion share repurchase program.

“I am pleased to exit the last 24 months with such positive trajectory,” said Karl Roessner, Chief Executive Officer. “The Company has made exceptional progress — returning to our roots as the undisputed leader for digitally inclined traders and investors, driving strong business momentum, and creating significant value for our shareholders. I couldn’t be more proud of the team whose focus and tireless efforts led to a broadened suite of offerings, meaningful growth in our client base, and the addition of a new RIA custody platform. Today, we are also initiating a new $1 billion share repurchase program and a quarterly dividend — actions which underscore the stability of our earnings base, and our commitment to return excess capital to our shareholders. As we look to the future, we intend to fully leverage our many accomplishments to maintain our growth trajectory and to continue to deliver meaningful long-term value for our shareholders.”

The Company will host a conference call beginning at 5 p.m. ET today to discuss the quarterly results, as well as the Board of Directors' assessment of the long-term strategy for the firm. This conference call will be available to domestic participants by dialing 800-920-5564 while international participants should dial +1 415-226-5357. A live audio webcast and replay of this conference call will also be available at about.etrade.com where the Company has also posted an updated investor presentation with supplementary information for this conference call.

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

About E*TRADE Financial

E*TRADE Financial and its subsidiaries provide financial services including brokerage and banking products and services to retail customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Commodity futures and options on futures products and services are offered by E*TRADE Futures LLC (Member NFA). Managed Account Solutions are offered through E*TRADE Capital Management, LLC, a Registered Investment Adviser. Bank products and services are offered by E*TRADE Bank, and RIA custody solutions are offered by E*TRADE Savings Bank, both of which are national federal savings banks (Members FDIC). More information is available at www.etrade.com. ETFC-E

Important Notices

E*TRADE Financial, E*TRADE, the E*TRADE logo, and Trust Company of America are registered trademarks of E*TRADE Financial Corporation.

Forward-Looking Statements

The statements contained in this press release that are forward looking, including statements regarding the Company's ability to continue to grow and deliver value for its shareholders, the planned payment of its quarterly dividend in November 2018, the Company's ability to generate capital and pay additional dividends in the future, and the Company's planned repurchases 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: risks related 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; increased restrictions resulting from financial regulatory reform or changes in the policies of our regulators, including with respect to approval of any future dividend or share repurchase; 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.

© 2018 E*TRADE Financial Corporation. All rights reserved.

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 and losses on early extinguishment of debt. Management believes that excluding the provision (benefit) for loan losses and losses on early extinguishment of debt 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 (3) 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 brokerage 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.

Adjusted Return on Common Equity

Adjusted return on common equity is calculated by dividing annualized adjusted net income available to common shareholders by average common shareholders' equity. Adjusted net income available to common shareholders excludes the after-tax impact of provision (benefit) for loan losses and losses on early extinguishment of debt. Management believes that excluding the provision (benefit) for loan losses and losses on early extinguishment of debt from net income available to common shareholders provides a useful measure of the Company's ongoing operating performance because management excludes it when evaluating return on common equity performance. See endnote (6) 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 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) Net income of $285 million, or per $1.00 diluted share, includes net after-tax benefits of $30 million, or $0.12 per diluted share, related to the following items:

• $34 million pre-tax, or $0.10, of benefit to provision for loan losses
• $8 million, or $0.03, of income tax benefit related to the revaluation of net deferred tax assets
• $5 million pre-tax, or $0.01, of gains related to the sale of our legacy equity investment in the Chicago Stock Exchange
• $4 million pre-tax, or $0.01, of costs related to restructuring and acquisition-related activities
• $4 million pre-tax, or $0.01, of losses on early extinguishment of debt

(2) Records based on the period during which metric has been reported by the Company.

(3) 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):

(4) Beginning in the first quarter of 2018, the Company updated the presentation of its consolidated financial statements as follows:

• On the consolidated statement of income, fair value hedging adjustments, previously referred to as hedge ineffectiveness, are included within net interest income beginning in the first quarter of 2018. Amounts prior to 2018 have not been reclassified to conform to current period presentation and continue to be reflected within gains on securities and other, net. Fair value hedging adjustments were as follows for the respective periods:
  • Expenses of $5 million, $5 million, and $2 million for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively
  • Expenses of $13 million and $5 million for the nine months ended September 30, 2018, and September 30, 2017, respectively
• On the consolidated balance sheet, reclassified deferred tax assets, net to other assets. Prior periods have been reclassified to conform to current period presentation. Deferred tax assets were $94 million, $146 million and $416 million at September 30, 2018, June 30, 2018 and September 30, 2017, respectively.

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

(6) Return on common equity is calculated by dividing annualized net income available to common shareholders by average common shareholders' equity, which excludes preferred stock. The following table provides a reconciliation of GAAP return on common equity percentage to non-GAAP adjusted return on common equity percentage (dollars in millions):

(7) 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):

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

(9) Includes the April 9, 2018 acquisition impact of the Trust Company of America (TCA) acquisition, including post-acquisition activity, as follows:

• April 2018 acquisition impact: gross new brokerage accounts of 146,000, net new brokerage assets of $18.4 billion, which includes $17.2 billion of securities holdings and $1.2 billion of sweep deposits
• As of and for the quarter ended June 30, 2018: net new brokerage accounts of 148,000, end of period brokerage customer assets of $18.8 billion, net new brokerage assets of $18.6 billion, DARTs of 3,000 and customer net buy activity of $700 million
• As of and for the quarter ended September 30, 2018: net new brokerage accounts of 2,400, end of period brokerage customer assets of $19.7 billion, net new brokerage assets of $400 million, DARTs of 3,200 and customer net sell activity of $40 million

Adjusted derivative DARTs %, adjusted annualized net new brokerage account growth rate and adjusted annualized net new brokerage asset growth rate exclude the impact of TCA.

(10) 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. 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):

(11) Net new brokerage assets are total inflows to all new and existing brokerage customer accounts less total outflows from all closed and existing brokerage customer accounts, excluding the effects of market movements in the value of brokerage customer assets. Net new banking assets are total inflows to all new and existing banking customer accounts less total outflows from all closed and existing banking 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.

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

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

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

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