E*TRADE Financial Corporation Announces Third Quarter 2012 Results

  E*TRADE Financial Corporation Announces Third Quarter 2012 Results

Business Wire

NEW YORK -- October 18, 2012

E*TRADE Financial Corporation (NASDAQ: ETFC):

Third Quarter Results

  *Net loss of $29 million, or $0.10 loss per share on total net revenue of
    $490 million
  *Gain on securities revenue of $79 million, including gains related to
    securities sold to reduce asset balances as a result of the termination of
    $520 million in wholesale funding obligations, which resulted in a $51
    million loss on early extinguishment of debt
  *Provision for loan losses of $141 million, including $50 million related
    to new data on borrower bankruptcies acquired by the Company
  *Total special mention delinquencies decreased six percent sequentially;
    total at-risk delinquencies decreased seven percent
  *Total operating expenses of $289 million, including $13 million in
    severance paid for Company’s prior CEO
  *Balance sheet growth of $1.2 billion, driven by $3.2 billion in customer
    inflows and customer net selling, offset by of $1.3 billion from
    deleveraging actions
  *Daily Average Revenue Trades (DARTs) of 129,000
  *Net new brokerage accounts of 18,000, representing year-to-date net new
    accounts of 110,000, for 5.3% annualized growth
  *Net new brokerage assets of $1.9 billion, representing year-to-date net
    new assets of $8.1 billion, for 7.4% annualized growth^(1); end of period
    customer assets of $204 billion

E*TRADE Financial Corporation (NASDAQ: ETFC) today announced results for its
third quarter ended September 30, 2012, reporting a net loss of $29 million,
or $0.10 loss per share. This compares with net income of $40 million, or
$0.14 per share in the prior quarter, and net income of $71 million, or $0.24
per share in the third quarter of 2011. The Company reported total net revenue
of $490 million for the third quarter of 2012, compared with $452 million in
the prior quarter and $507 million in the third quarter of 2011.

“While this quarter’s results were marked by some unique items, we made good
progress on our deleveraging and cost reduction initiatives, and continued to
improve our risk profile,” said E*TRADE’s Chairman and Interim CEO, Frank
Petrilli.“We delivered on our strategic initiatives during the third quarter
and executed well in our brokerage business, while continuing to manage down
the loan portfolio. We have identified or completed over $4 billion of balance
sheet reductions, which are critical to achieving our goal of distributing
capital from the Bank to the Parent. Importantly, our core brokerage franchise
continues to grow assets and accounts at healthy rates, despite lackluster
investor engagement across the industry. During the first three quarters of
the year, we have surpassed the full year 2011 in terms of net new accounts,
aided by record account retention. We are making headway in the retirement and
investing customer segment, ending the quarter with over $1 billion in managed
accounts, less than three years after introducing the products. In addition,
our management team is delivering against cost reduction initiatives, with a
new target of $100 million in run-rate reductions to be completed by the end
of 2013.”

E*TRADE reported DARTs of 129,000 during the quarter, a decrease of seven
percent from the prior quarter and a decrease of 22 percent versus the same
quarter a year ago.

At quarter end, the Company reported 4.4 million customer accounts, which
included 2.9 million brokerage accounts. Net new brokerage accounts were
18,000 during the quarter compared with 46,000 in the prior quarter and 13,000
in the third quarter of 2011.

The Company ended the quarter with $204 billion in total customer assets,
compared with $193 billion at the end of the second quarter and $160 billion
from the year-ago period.

During the quarter, customers added $1.9 billion in net new brokerage assets.
Brokerage related cash increased by $3.4 billion to $32.6 billion during the
period, as customers were net sellers of approximately $2.2 billion of
securities. Margin receivables averaged $5.6 billion in the quarter, flat
sequentially and up four percent year over year.

Net operating interest income for the third quarter was $261 million, down
from $279 million in the prior quarter and $306 million a year ago. Third
quarter results reflected a net interest spread of 2.28 percent on average
interest-earning assets of $44.9 billion, compared with a net interest spread
of 2.44 percent on average interest-earning assets of $44.8 billion in the
prior quarter.

Commissions, fees and service charges, principal transactions, and other
revenue in the third quarter were $153 million, compared with $154 million in
the prior quarter and $181 million in the third quarter of 2011. Average
commission per trade for the quarter was $11.24, compared to $10.68 in the
prior quarter, and $10.76 in the third quarter of 2011.

Total operating expenses for the quarter increased $8 million sequentially to
$289 million. Compensation and benefits included the impact of $13 million in
severance associated with the August departure of the Company’s former Chief
Executive Officer.

Total assets ended the quarter at $50.4 billion, growing $1.2 billion from the
prior quarter, as customer net selling and net inflows increased cash and
deposits by $3.2 billion, which was partially offset by deleveraging actions
of $1.3 billion. Deleveraging included approximately $0.8 billion in
brokerage-related customer cash directed to third party institutions, as well
as $0.5 billion in terminated wholesale funding obligations, which resulted in
a pre-tax loss of $51 million on early extinguishment of debt. The
corresponding reduction to assets resulted in a gain on sale of securities,
included in the $79 million of total net gains recorded during the quarter.

The Company’s loan portfolio ended the quarter at $11.1 billion, contracting
$616 million from the prior quarter, primarily related to $458 million of
paydowns. Provision for loan losses of $141 million included approximately $50
million related to loan charge-offs associated with newly identified
bankruptcy filings. The Company utilizes third party servicers to obtain
bankruptcy data specific to its loan portfolio. During the third quarter the
Company identified an increase in bankruptcies reported to them by one
specific servicer. In researching this increase the Company discovered that
the servicer had not been reporting all prior bankruptcy data on a timely
basis. As a result the Company implemented an enhanced procedure around all
servicer reporting to corroborate bankruptcy reporting with independent third
party data. Through this additional process, approximately $90 million of
loans were identified in which the servicers failed to report the bankruptcy
filing to the Company. Of those loans, approximately 90 percent are current.
In accordance with the Company’s long-standing policy to write down loans to
their collateral value when notified of a borrower bankruptcy, these loans
were written down during the third quarter, resulting in an increase to
provision for loan losses of approximately $50 million. The Company also noted
these additional charge-offs were not a result of the recently-issued
regulatory guidance on the treatment of discharged bankruptcies.

Excluding the effect of these additional charge-offs, provision for loan
losses increased $24 million from the prior quarter to $91 million^(2). This
sequential increase was due primarily to a decline of $16 million in put-back
settlements.

Including the $50 million in charge-offs related to the aforementioned
adjustments, net charge-offs in the quarter were $158 million, an increase of
$38 million from the prior quarter. The allowance for loan losses at
quarter-end was $508 million, down $17 million from the previous quarter.
Despite the decline in the reserve balance, coverage ratios improved slightly
across the portfolio.

For the Company’s entire loan portfolio, special mention delinquencies
decreased six percent sequentially, and total at-risk delinquencies declined
seven percent versus the second quarter. As compared to the year-ago period,
both special mention delinquencies and total at-risk delinquencies declined 29
percent.

As of September 30, 2012, the Company reported a consolidated Tier 1 common
ratio of 10.9 percent^(3), up from 10.2 percent in the prior period and 9.3
percent at the end of the third quarter of 2011. E*TRADE Bank ended the
quarter with Tier 1 leverage^(4) and total risk-based capital ratios of 7.9
percent and 19.3 percent, compared with 7.9 percent and 18.0 percent,
respectively, at the end of the prior period and 8.1 percent and 17.2 percent,
respectively, in the year-ago period.

Historical metrics and financials can be found on the E*TRADE Financial
Investor Relations website at investor.etrade.com.

The Company will host a conference call to discuss the results beginning at
5:00 p.m. EDT today. This conference call will be available to domestic
participants by dialing 888-754-4437 and international participants by dialing
+44 (0) 800-528-0638 or 212-271-4651. No conference ID number is required. A
live audio webcast and replay of this conference call will also be available
at investor.etrade.com.

About E*TRADE Financial

The E*TRADE Financial family of companies provides financial services
including online brokerage and related banking products and services to retail
investors. Specific business segments include Trading and Investing and
Balance Sheet Management. Securities products and services are offered by
E*TRADE Securities LLC (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 our balance sheet
reductions, cost reduction initiatives and the growth of our brokerage
franchise, are based on current expectations that are subject to a number of
uncertainties and risks, and actual results may differ materially. The
uncertainties and risks include, but are not limited to, our potential
inability to reduce our balance sheet and costs, potential changes in market
activity, anticipated changes in the rate of new customer acquisition and in
rate of net acquisition of brokerage accounts and assets, macro trends of the
economy in general and the residential real estate market, 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 potentially 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.

© 2012 E*TRADE Financial Corporation. All rights reserved.

Financial Statements
E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
                                                             
                     Three Months Ended              Nine Months Ended
                     September 30,                   September 30,
                     2012            2011            2012              2011
                                                                       
Revenue:
Operating
interest             $ 333,977       $ 383,701       $ 1,050,758       $ 1,165,820
income
Operating
interest              (73,100 )      (78,123 )      (225,924  )      (235,119  )
expense
Net operating
interest              260,877       305,578       824,834         930,701   
income
Commissions            90,424          113,407         291,168           341,690
Fees and
service                30,915          29,446          91,976            103,299
charges
Principal              22,177          27,345          67,562            80,677
transactions
Gains on loans
and                    78,977          24,341          138,568           87,686
securities,
net
Net impairment         (2,395  )       (3,196  )       (11,196   )       (12,142   )
Other revenues        9,060         10,354        28,928          29,678    
Total
non-interest          229,158       201,697       607,006         630,888   
income
Total net             490,035       507,275       1,431,840       1,561,589 
revenue
Provision for          141,019         98,384          280,227           317,578
loan losses
Operating
expense:
Compensation           94,790          80,452          272,617           244,973
and benefits
Clearing and           30,856          34,748          98,248            113,095
servicing
Advertising
and market             26,001          27,258          110,156           108,642
development
FDIC insurance         31,342          35,690          86,899            80,288
premiums
Professional           20,421          19,772          60,690            64,732
services
Occupancy and          19,423          17,021          55,521            50,998
equipment
Communications         17,560          16,930          55,038            49,712
Depreciation
and                    23,044          22,873          68,387            67,644
amortization
Amortization
of other               6,296           6,538           18,887            19,613
intangibles
Facility
restructuring          2,350           458             3,515             6,056
and other exit
activities
Other
operating             16,950        79,972        46,769          124,891   
expenses
Total
operating             289,033       341,712       876,727         930,644   
expense
Income before
other income
(expense) and          59,983          67,179          274,886           313,367
income tax
expense
(benefit)
Other income
(expense):
Corporate
interest               21              10              55                689
income
Corporate
interest               (45,483 )       (44,769 )       (135,893  )       (132,870  )
expense
Gains on sales
of                     18              -               17                38
investments,
net
Gains (losses)
on early               (50,608 )       -               (50,608   )       3,091
extinguishment
of debt
Equity in
income (loss)
of investments        (234    )      520           1,774           197       
and venture
funds
Total other
income                (96,286 )      (44,239 )      (184,655  )      (128,855  )
(expense)
Income (loss)
before income          (36,303 )       22,940          90,231            184,512
tax expense
(benefit)
Income tax
expense               (7,678  )      (47,756 )      16,755          21,465    
(benefit)
Net income           $ (28,625 )     $ 70,696       $ 73,476         $ 163,047   
(loss)
                                                                       
Basic earnings
(loss) per           $ (0.10   )     $ 0.25          $ 0.26            $ 0.62
share
Diluted
earnings             $ (0.10   )     $ 0.24          $ 0.25            $ 0.56
(loss) per
share
Shares used in
computation of
per share
data:
Basic                  285,850         283,807         285,658           261,272
Diluted                285,850         289,706         290,395           289,770
                                                                                   
                                                                                   

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
                                                         
                                                                 
                               Three Months Ended
                               September 30,     June 30,        September 30,
                               2012              2012            2011
Revenue:
Operating interest             $  333,977        $ 354,520       $  383,701
income
Operating interest               (73,100  )      (75,415 )       (78,123  )
expense
Net operating interest           260,877        279,105        305,578  
income
Commissions                       90,424           93,313           113,407
Fees and service charges          30,915           29,063           29,446
Principal transactions            22,177           21,239           27,345
Gains on loans and                78,977           24,685           24,341
securities, net
Net impairment                    (2,395   )       (5,269  )        (3,196   )
Other revenues                   9,060          10,272         10,354   
Total non-interest               229,158        173,303        201,697  
income
Total net revenue                490,035        452,408        507,275  
Provision for loan                141,019          67,261           98,384
losses
Operating expense:
Compensation and                  94,790           85,549           80,452
benefits
Clearing and servicing            30,856           32,837           34,748
Advertising and market            26,001           36,567           27,258
development
FDIC insurance premiums           31,342           27,195           35,690
Professional services             20,421           19,934           19,772
Occupancy and equipment           19,423           18,244           17,021
Communications                    17,560           18,358           16,930
Depreciation and                  23,044           23,104           22,873
amortization
Amortization of other             6,296            6,295            6,538
intangibles
Facility restructuring
and other exit                    2,350            1,589            458
activities
Other operating expenses         16,950         11,783         79,972   
Total operating expense          289,033        281,455        341,712  
Income before other
income (expense) and              59,983           103,692          67,179
income tax expense
(benefit)
Other income (expense):
Corporate interest                21               20               10
income
Corporate interest                (45,483  )       (45,285 )        (44,769  )
expense
Gains on sales of                 18               -                -
investments, net
Losses on early                   (50,608  )       -                -
extinguishment of debt
Equity in income (loss)
of investments and               (234     )      2,113          520      
venture funds
Total other income               (96,286  )      (43,152 )       (44,239  )
(expense)
Income (loss) before
income tax expense                (36,303  )       60,540           22,940
(benefit)
Income tax expense               (7,678   )      21,030         (47,756  )
(benefit)
Net income (loss)              $  (28,625  )     $ 39,510       $  70,696   
                                                                 
Basic earnings (loss)          $  (0.10    )     $ 0.14          $  0.25
per share
Diluted earnings (loss)        $  (0.10    )     $ 0.14          $  0.24
per share
Shares used in
computation of per share
data:
Basic                             285,850          285,645          283,807
Diluted                           285,850          290,044          289,706
                                                                             
                                                                             

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share data)
(Unaudited)
                                                        
                                                                
                          September 30,      June 30,           December 31,
                          2012             2012             2011
ASSETS
Cash and                  $ 2,825,012        $ 1,378,454        $ 2,099,839
equivalents
Cash required to be
segregated under            1,434,330          761,485            1,275,587
federal or other
regulations
Trading securities          107,378            60,081             54,372
Available-for-sale          14,925,459         16,152,748         15,651,493
securities
Held-to-maturity            9,684,568          8,433,682          6,079,512
securities
Margin receivables          5,608,253          5,804,350          4,826,256
Loans receivable,           10,627,434         11,225,848         12,332,807
net
Investment in FHLB          128,944            131,478            140,183
stock
Property and                294,517            297,344            299,693
equipment, net
Goodwill                    1,934,232          1,934,232          1,934,232
Other intangibles,          266,918            273,213            285,805
net
Other assets               2,518,560      2,702,915      2,960,673  
Total assets              $ 50,355,605    $ 49,155,830    $ 47,940,452 
                                                                
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Liabilities:
Deposits                  $ 29,127,826       $ 27,911,100       $ 26,459,985
Securities sold
under agreements to         4,609,117          4,717,656          5,015,499
repurchase
Customer payables           6,013,640          5,128,653          5,590,858
FHLB advances and           2,325,846          2,741,383          2,736,935
other borrowings
Corporate debt              1,505,466          1,501,278          1,493,552
Other liabilities          1,679,856      2,076,151      1,715,673  
Total liabilities          45,261,751     44,076,221     43,012,502 
                                                                
Shareholders'
equity:
Common stock, $0.01
par value, shares
authorized:
400,000,000 at
September 30,
2012, June 30, 2012
and December 31,
2011, shares issued         2,861              2,857              2,854
and outstanding:
286,056,306 at
September 30, 2012,
285,740,705 at June
30, 2012
and 285,368,075
at December 31,
2011
Additional                  7,316,057          7,310,487          7,306,862
paid-in-capital
Accumulated deficit         (1,921,661 )       (1,893,036 )       (1,995,137 )
Accumulated other          (303,403   )    (340,699   )    (386,629   )
comprehensive loss
Total shareholders'        5,093,854      5,079,609      4,927,950  
equity
Total liabilities
and shareholders'         $ 50,355,605    $ 49,155,830    $ 47,940,452 
equity
                                                                
                                                                

                                                                                
Segment Reporting
                     Three Months Ended September 30, 2012
                     Trading and     Balance          Corporate/
                     Investing      Sheet           Other           Eliminations^(5)     Total
                                     Management
                     (In thousands)
Revenue:
Operating
interest             $ 165,523       $ 264,977        $ -              $   (96,523   )      $ 333,977
income
Operating
interest              (8,718  )      (160,905 )      -                96,523           (73,100 )
expense
Net operating
interest              156,805       104,072        -                -                260,877 
income
Commissions            90,424          -                -                  -                  90,424
Fees and
service                30,311          604              -                  -                  30,915
charges
Principal              22,177          -                -                  -                  22,177
transactions
Gains (losses)
on loans and           3               78,980           (6       )         -                  78,977
securities,
net
Net impairment         -               (2,395   )       -                  -                  (2,395  )
Other revenues        7,747         1,313          -                -                9,060   
Total
non-interest          150,662       78,502         (6       )        -                229,158 
income
Total net             307,467       182,574        (6       )        -                490,035 
revenue
Provision for          -               141,019          -                  -                  141,019
loan losses
Operating
expense:
Compensation           61,994          4,442            28,354             -                  94,790
and benefits
Clearing and           17,409          13,447           -                  -                  30,856
servicing
Advertising
and market             26,000          1                -                  -                  26,001
development
FDIC insurance         -               31,342           -                  -                  31,342
premiums
Professional           7,218           388              12,815             -                  20,421
services
Occupancy and          17,381          453              1,589              -                  19,423
equipment
Communications         16,819          330              411                -                  17,560
Depreciation
and                    18,946          167              3,931              -                  23,044
amortization
Amortization
of other               6,296           -                -                  -                  6,296
intangibles
Facility
restructuring          -               -                2,350              -                  2,350
and other exit
activities
Other
operating             8,400         2,634          5,916            -                16,950  
expenses
Total
operating             180,463       53,204         55,366           -                289,033 
expense
Segment income
(loss) before         127,004       (11,649  )      (55,372  )        -                59,983  
other income
(expense)
Other income
(expense):
Corporate
interest               -               -                21                 -                  21
income
Corporate
interest               -               -                (45,483  )         -                  (45,483 )
expense
Gains on sale
of                     -               -                18                 -                  18
investments,
net
Losses on
early                  -               -                (50,608  )         -                  (50,608 )
extinguishment
of debt
Equity in loss
of investments        -             -              (234     )        -                (234    )
and venture
funds
Total other
income                -             -              (96,286  )        -                (96,286 )
(expense)
Segment income       $ 127,004      $ (11,649  )     $ (151,658 )     $   -               $ (36,303 )
(loss)
                                                                                            
                                                                                            
                     Three Months Ended June 30, 2012
                     Trading and     Balance          Corporate/
                     Investing       Sheet            Other            Eliminations^(5)     Total
                                     Management
                     (In thousands)
Revenue:
Operating
interest             $ 174,368       $ 284,682        $ 3              $   (104,533  )      $ 354,520
income
Operating
interest              (9,165  )      (170,783 )      -                104,533          (75,415 )
expense
Net operating
interest              165,203       113,899        3                -                279,105 
income
Commissions            93,313          -                -                  -                  93,313
Fees and
service                28,395          668              -                  -                  29,063
charges
Principal              21,239          -                -                  -                  21,239
transactions
Gains (losses)
on loans and           (114    )       24,799           -                  -                  24,685
securities,
net
Net impairment         -               (5,269   )       -                  -                  (5,269  )
Other revenues        8,887         1,385          -                -                10,272  
Total
non-interest          151,720       21,583         -                -                173,303 
income
Total net             316,923       135,482        3                -                452,408 
revenue
Provision for          -               67,261           -                  -                  67,261
loan losses
Operating
expense:
Compensation           64,973          4,156            16,420             -                  85,549
and benefits
Clearing and           16,327          16,510           -                  -                  32,837
servicing
Advertising
and market             36,529          38               -                  -                  36,567
development
FDIC insurance         -               27,195           -                  -                  27,195
premiums
Professional           10,632          1,307            7,995              -                  19,934
services
Occupancy and          16,502          452              1,290              -                  18,244
equipment
Communications         17,570          356              432                -                  18,358
Depreciation
and                    18,984          159              3,961              -                  23,104
amortization
Amortization
of other               6,295           -                -                  -                  6,295
intangibles
Facility
restructuring          -               -                1,589              -                  1,589
and other exit
activities
Other
operating             297           6,435          5,051            -                11,783  
expenses
Total
operating             188,109       56,608         36,738           -                281,455 
expense
Segment income
(loss) before         128,814       11,613         (36,735  )        -                103,692 
other income
(expense)
Other income
(expense):
Corporate
interest               -               -                20                 -                  20
income
Corporate
interest               -               -                (45,285  )         -                  (45,285 )
expense
Equity in
income of
investments           -             -              2,113            -                2,113   
and venture
funds
Total other
income                -             -              (43,152  )        -                (43,152 )
(expense)
Segment income       $ 128,814      $ 11,613        $ (79,887  )     $   -               $ 60,540  
(loss)
                                                                                            
                                                                                            
                     Three Months Ended September 30, 2011
                     Trading and     Balance          Corporate/
                     Investing       Sheet            Other            Eliminations^(5)     Total
                                     Management
                     (In thousands)
Revenue:
Operating
interest             $ 197,905       $ 313,516        $ 4              $   (127,724  )      $ 383,701
income
Operating
interest              (12,373 )      (193,474 )      -                127,724          (78,123 )
expense
Net operating
interest              185,532       120,042        4                -                305,578 
income
Commissions            113,407         -                -                  -                  113,407
Fees and
service                29,268          178              -                  -                  29,446
charges
Principal              27,345          -                -                  -                  27,345
transactions
Gains (losses)
on loans and           (935    )       25,278           (2       )         -                  24,341
securities,
net
Net impairment         -               (3,196   )       -                  -                  (3,196  )
Other revenues        8,286         2,068          -                -                10,354  
Total
non-interest          177,371       24,328         (2       )        -                201,697 
income
Total net             362,903       144,370        2                -                507,275 
revenue
Provision for          -               98,384           -                  -                  98,384
loan losses
Operating
expense:
Compensation           58,558          4,607            17,287             -                  80,452
and benefits
Clearing and           18,363          16,385           -                  -                  34,748
servicing
Advertising
and market             26,928          330              -                  -                  27,258
development
FDIC insurance         -               35,690           -                  -                  35,690
premiums
Professional           10,966          1,063            7,743              -                  19,772
services
Occupancy and          15,968          668              385                -                  17,021
equipment
Communications         16,179          338              413                -                  16,930
Depreciation
and                    17,893          284              4,696              -                  22,873
amortization
Amortization
of other               6,538           -                -                  -                  6,538
intangibles
Facility
restructuring          -               -                458                -                  458
and other exit
activities
Other
operating             66,460        7,060          6,452            -                79,972  
expenses
Total
operating             237,853       66,425         37,434           -                341,712 
expense
Segment income
(loss) before         125,050       (20,439  )      (37,432  )        -                67,179  
other income
(expense)
Other income
(expense):
Corporate
interest               -               -                10                 -                  10
income
Corporate
interest               -               -                (44,769  )         -                  (44,769 )
expense
Equity in
income of
investments           -             -              520              -                520     
and venture
funds
Total other
income                -             -              (44,239  )        -                (44,239 )
(expense)
Segment income       $ 125,050      $ (20,439  )     $ (81,671  )     $   -               $ 22,940  
(loss)
                                                                                                      
                                                                                                      

Key Performance Metrics^(6)
                                                     Qtr                         Qtr
Corporate            Qtr ended       Qtr ended       ended       Qtr ended       ended
Metrics            9/30/12       6/30/12       9/30/12   9/30/11       9/30/12
                                                     vs.                         vs.
                                                     6/30/12                     9/30/11
                                                                          
Operating margin
%^(7)
Consolidated           12 %            23 %          (11)%         13 %          (1)%
Trading and            41 %            41 %          0 %           34 %          7 %
Investing
Balance Sheet        N.M.              9 %           N.M.        N.M.            N.M.
Management
                                                                                 
Employees              3,086           3,104         (1)%          3,122         (1)%
Consultants and       100            110           (9)%         161           (38)%
other
Total headcount        3,186           3,214         (1)%          3,283         (3)%
                                                                                 
Book value per       $ 17.81         $ 17.78         0 %         $ 17.34         3 %
share
Tangible book
value per            $ 11.17         $ 11.08         1 %         $ 10.41         7 %
share^(8)
                                                                                 
Corporate cash       $ 430.8         $ 436.5         (1)%        $ 438.2         (2)%
($MM)
                                                                                 
Enterprise net
interest spread        228             244           (7)%          281           (19)%
(basis
points)^(9)
Enterprise
interest-earning     $ 44,853        $ 44,770        0 %         $ 42,681        5 %
assets, average
($MM)
                                                                                 
Earnings before
interest, taxes,
depreciation &
amortization
("EBITDA") ($MM)
Net income           $ (28.6)        $ 39.5          N.M.        $ 70.7          N.M.
(loss)
Income tax
expense                (7.7)           21.0          N.M.          (47.8)        N.M.
(benefit)
Depreciation &         29.3            29.4          0 %           29.4          0 %
amortization
Corporate             45.5           45.3          0 %          44.8          2 %
interest expense
EBITDA               $ 38.5          $ 135.2         (72)%       $ 97.1          (60)%
                                                                                 
Interest               0.8             3.0           N.M.          2.2           N.M.
coverage^(10)
                                                                                 
Bank earnings
before taxes and
before credit        $ 145.9         $ 153.9         (5)%        $ 152.3         (4)%
losses
($MM)^(11)
                                                                                 
Trading and
Investing
Metrics
                                                                                 
Trading days           62.5            63.0          N.M.          64.0          N.M.
                                                                                 
DARTs                  128,701         138,653       (7)%          164,715       (22)%
                                                                                 
Total trades           8.0             8.7           (8)%          10.5          (24)%
(MM)
Average
commission per       $ 11.24         $ 10.68         5 %         $ 10.76         4 %
trade
                                                                                 
End of period
margin               $ 5.6           $ 5.8           (3)%        $ 5.2           8 %
receivables ($B)
Average margin       $ 5.6           $ 5.6           0 %         $ 5.4           4 %
receivables ($B)
                                                                                 
                                                                                 
Gross new
brokerage              79,534          104,659       (24)%         85,515        (7)%
accounts
Gross new stock        55,539          52,173        6 %           49,421        12 %
plan accounts
Gross new              3,492           4,328         (19)%         5,064         (31)%
banking accounts
Closed accounts       (114,044)      (102,587)     N.M.         (130,699)     N.M.
Net new accounts       24,521          58,573        N.M.          9,301         N.M.
                                                                                 
Net new
brokerage              18,247          45,599        N.M.          13,043        N.M.
accounts
Net new stock          14,538          22,899        N.M.          8,042         N.M.
plan accounts
Net new banking       (8,264)        (9,925)       N.M.         (11,784)      N.M.
accounts
Net new accounts       24,521          58,573        N.M.          9,301         N.M.
                                                                                 
End of period
brokerage              2,892,852       2,874,605     1 %           2,772,816     4 %
accounts
End of period
stock plan             1,118,840       1,104,302     1 %           1,062,088     5 %
accounts
End of period         437,884        446,148       (2)%         472,783       (7)%
banking accounts
End of period          4,449,576       4,425,055     1 %           4,307,687     3 %
total accounts
                                                                                 
Annualized
brokerage
account                8.5%            8.4%          N.M.          10.5%         N.M.
attrition
rate^(12)
                                                                                 
Customer Assets
($B)
Security             $ 141.2         $ 134.9         5 %         $ 109.9         28 %
holdings
Customer               6.0             5.1           18 %          5.4           11 %
payables (cash)
Customer cash
balances held by       4.7             3.6           31 %          3.3           42 %
third parties
Unexercised
stock plan            23.1           21.0          10 %         16.1          43 %
customer options
(vested)
Customer assets
in brokerage and      175.0          164.6         6 %          134.7         30 %
stock plan
accounts
Sweep deposits         21.9            20.5          7 %           17.4          26 %
Savings,
transaction and       7.2            7.4           (3)%         7.8           (8)%
other
Customer assets
in banking            29.1           27.9          4 %          25.2          15 %
accounts
Total customer       $ 204.1         $ 192.5         6 %         $ 159.9         28 %
assets
                                                                                 
Net new
brokerage assets     $ 1.9           $ 2.2           N.M.        $ 2.6           N.M.
($B)^(13)
Net new banking       (0.2)          (0.5)         N.M.         (0.5)         N.M.
assets ($B)^(13)
Net new customer     $ 1.7           $ 1.7           N.M.        $ 2.1           N.M.
assets ($B)^(13)
                                                                                 
Brokerage
related cash         $ 32.6          $ 29.2          12 %        $ 26.1          25 %
($B)
Other customer
cash and              7.2            7.4           (3)%         7.8           (8)%
deposits ($B)
Total customer
cash and             $ 39.8          $ 36.6          9 %         $ 33.9          17 %
deposits ($B)
                                                                                 
Unexercised
stock plan           $ 48.4          $ 43.5          11 %        $ 33.2          46 %
customer options
(unvested) ($B)
                                                                                 
Customer net
(purchase) /         $ 2.2           $ (3.9)         N.M.        $ (2.2)         N.M.
sell activity
($B)
                                                                                 
Market Making
Equity shares          105,282         101,415       4 %           94,219        12 %
traded (MM)
Average revenue
capture per          $ 0.207         $ 0.206         1 %         $ 0.290         (29)%
1,000 equity
shares
% of Bulletin
Board equity           93.5%           93.6%         (0)%          92.4%         1 %
shares to total
equity shares
                                                                                 
Balance Sheet
Management
Metrics
                                                                                 
Loans receivable
($MM)
Average loans        $ 11,711        $ 12,310        (5)%        $ 14,298        (18)%
receivable
Ending loans         $ 10,627        $ 11,226        (5)%        $ 13,000        (18)%
receivable, net
                                                                                 
Loan performance
detail (all
loans, including
TDRs) ($MM)
                                                                                 
One- to
Four-Family
Current              $ 5,122         $ 5,329         (4)%        $ 6,000         (15)%
30-89 days             210             227           (7)%          292           (28)%
delinquent
90-179 days           108            119           (9)%         141           (23)%
delinquent
Total 30-179           318             346           (8)%          433           (27)%
days delinquent
180+ days
delinquent (net
of $157M, $181M
and $243M in          300            338           (11)%        556           (46)%
charge-offs for
Q312, Q212 and
Q311,
respectively)
Total delinquent      618            684           (10)%        989           (38)%
loans^(14)
Gross loans          $ 5,740         $ 6,013         (5)%        $ 6,989         (18)%
receivable^(15)
                                                                                 
Home Equity
Current              $ 4,277         $ 4,543         (6)%        $ 5,330         (20)%
30-89 days             99              104           (5)%          147           (33)%
delinquent
90-179 days           65             71            (8)%         109           (40)%
delinquent
Total 30-179           164             175           (6)%          256           (36)%
days delinquent
180+ days
delinquent (net
of $23M, $25M
and $21M in           42             43            (2)%         51            (18)%
charge-offs for
Q312, Q212 and
Q311,
respectively)
Total delinquent      206            218           (6)%         307           (33)%
loans^(14)
Gross loans          $ 4,483         $ 4,761         (6)%        $ 5,637         (20)%
receivable^(15)
                                                                                 
Consumer and
Other
Current              $ 892           $ 957           (7)%        $ 1,170         (24)%
30-89 days             18              18            0 %           20            (10)%
delinquent
90-179 days           3              3             0 %          4             (25)%
delinquent
Total 30-179           21              21            0 %           24            (13)%
days delinquent
180+ days             -              -             N.M.         -             N.M.
delinquent
Total delinquent      21             21            0 %          24            (13)%
loans
Gross loans          $ 913           $ 978           (7)%        $ 1,194         (24)%
receivable^(15)
                                                                                 
Total Loans
Receivable
Current              $ 10,291        $ 10,829        (5)%        $ 12,500        (18)%
30-89 days             327             349           (6)%          459           (29)%
delinquent
90-179 days           176            193           (9)%         254           (31)%
delinquent
Total 30-179           503             542           (7)%          713           (29)%
days delinquent
180+ days             342            381           (10)%        607           (44)%
delinquent
Total delinquent      845            923           (8)%         1,320         (36)%
loans^(14)
Total gross
loans                $ 11,136        $ 11,752        (5)%        $ 13,820        (19)%
receivable^(15)
                                                                                 
TDR performance
detail
($MM)^(16)
                                                                                 
One- to
Four-Family TDRs
Current              $ 849           $ 843           1 %         $ 726           17 %
30-89 days             95              89            7 %           66            44 %
delinquent
90-179 days           40             46            (13)%        32            25 %
delinquent
Total 30-179           135             135           0 %           98            38 %
days delinquent
180+ days
delinquent (net
of $47M, $49M
and $49M in           80             79            1 %          120           (33)%
charge-offs for
Q312, Q212 and
Q311,
respectively)
Total delinquent      215            214           0 %          218           (1)%
TDRs
TDRs                 $ 1,064         $ 1,057         1 %         $ 944           13 %
                                                                                 
Home Equity TDRs
Current              $ 215           $ 242           (11)%       $ 361           (40)%
30-89 days             18              20            (10)%         54            (67)%
delinquent
90-179 days           9              11            (18)%        25            (64)%
delinquent
Total 30-179           27              31            (13)%         79            (66)%
days delinquent
180+ days
delinquent (net
of $4M, $3M and
$3M in                6              5             20 %         4             50 %
charge-offs for
Q312, Q212 and
Q311,
respectively)
Total delinquent      33             36            (8)%         83            (60)%
TDRs
TDRs                 $ 248           $ 278           (11)%       $ 444           (44)%
                                                                                 
Total TDRs
Current              $ 1,064         $ 1,085         (2)%        $ 1,087         (2)%
30-89 days             113             109           4 %           120           (6)%
delinquent
90-179 days           49             57            (14)%        57            (14)%
delinquent
Total 30-179           162             166           (2)%          177           (8)%
days delinquent
180+ days             86             84            2 %          124           (31)%
delinquent
Total delinquent      248            250           (1)%         301           (18)%
TDRs
TDRs                 $ 1,312         $ 1,335         (2)%        $ 1,388         (5)%
                                                                                 
Capital Metrics
                                                                                 
E*TRADE Bank
Tier 1 leverage        7.9 %           7.9 %         0.0 %         8.1 %         (0.2)%
ratio^(4)(17)
Tier 1
risk-based             18.0 %          16.7 %        1.3 %         16.0 %        2.0 %
capital
ratio^(17)
Total risk-based
capital                19.3 %          18.0 %        1.3 %         17.2 %        2.1 %
ratio^(17)
Tier 1 common          18.0 %          16.7 %        1.3 %         11.0 %        7.0 %
ratio^(17)(18)
E*TRADE Bank
excess Tier 1        $ 1,320.2       $ 1,303.8       1 %         $ 1,308.8       1 %
capital
($MM)^(17)
E*TRADE Bank
excess Tier 1
risk-based           $ 2,421.1       $ 2,263.2       7 %         $ 2,119.1       14 %
capital
($MM)^(17)
E*TRADE Bank
excess
risk-based           $ 1,869.8       $ 1,686.2       11 %        $ 1,537.3       22 %
capital
($MM)^(17)
                                                                                 
E*TRADE
Financial
Tier 1 leverage        5.8 %           5.7 %         0.1 %         5.7 %         0.1 %
ratio^(19)
Tier 1
risk-based             13.0 %          12.2 %        0.8 %         11.2 %        1.8 %
capital
ratio^(19)
Total risk-based
capital                14.2 %          13.4 %        0.8 %         12.5 %        1.7 %
ratio^(19)
Tier 1 common          10.9 %          10.2 %        0.7 %         9.3 %         1.6 %
ratio^(3)
                                                                                 
                                                                                 

Activity in Allowance for Loan Losses
                Three Months Ended September 30, 2012
                   One- to                          Consumer
                   Four-         Home Equity    and Other     Total
                   Family
                   (In thousands)
Allowance
for loan
losses,            $ 215,934       $ 266,883        $ 42,939        $ 525,756
ending
6/30/12
Provision
for loan             24,702          105,022          11,295          141,019
losses
Charge-offs,        (34,236 )      (111,016 )      (13,241 )      (158,493 )
net
Allowance
for loan
losses,            $ 206,400      $ 260,889       $ 40,993       $ 508,282  
ending
9/30/12
                                                                    
                                                                    
                   Three Months Ended June 30, 2012
                   One- to                          Consumer
                   Four-           Home Equity      and Other       Total
                   Family
                   (In thousands)
Allowance
for loan
losses,            $ 239,602       $ 291,015        $ 48,558        $ 579,175
ending
3/31/12
Provision
for loan             247             65,050           1,964           67,261
losses
Charge-offs,        (23,915 )      (89,182  )      (7,583  )      (120,680 )
net
Allowance
for loan
losses,            $ 215,934      $ 266,883       $ 42,939       $ 525,756  
ending
6/30/12
                                                                    
                                                                    
                   Three Months Ended September 30, 2011
                   One- to                          Consumer
                   Four-           Home Equity      and Other       Total
                   Family
                   (In thousands)
Allowance
for loan
losses,            $ 326,580       $ 493,551        $ 58,484        $ 878,615
ending
6/30/11
Provision
for loan             29,202          65,114           4,068           98,384
losses
Charge-offs,        (44,331 )      (104,623 )      (7,990  )      (156,944 )
net
Allowance
for loan
losses,            $ 311,451      $ 454,042       $ 54,562       $ 820,055  
ending
9/30/11
                                                                               
                                                                               

Specific Valuation Allowance Activity^(16)
               As of September 30, 2012
                                                                                                    Specific
                  Recorded                                                          Net             Valuation
                  Investment                       Recorded        Specific         Investment      Allowance     Total
                  in TDRs       Charge-offs    Investment    Valuation      in            as          Expected
                  before                           in TDRs         Allowance        TDRs            a % of        Losses^(20)
                  charge-offs                                                                       TDR
                                                                                                    Loans
                  (Dollars in thousands)
One- to           $ 1,374,800     $ (311,122 )     $ 1,063,678     $ (98,628  )     $ 965,050       9     %       30     %
four-family
Home equity        405,302        (156,809 )      248,493        (92,702  )      155,791       37    %       62     %
Total             $ 1,780,102     $ (467,931 )     $ 1,312,171     $ (191,330 )     $ 1,120,841     15    %       37     %
                                                                                                                  
                  As of June 30, 2012
                                                                                                    Specific
                  Recorded                                                          Net             Valuation
                  Investment                       Recorded        Specific         Investment      Allowance     Total
                  in TDRs        Charge-offs      Investment     Valuation       in             as           Expected
                  before                           in TDRs         Allowance        TDRs            a % of        Losses^(20)
                  charge-offs                                                                       TDR
                                                                                                    Loans
                  (Dollars in thousands)
One- to           $ 1,356,888     $ (299,307 )     $ 1,057,581     $ (94,474  )     $ 963,107       9     %       29     %
four-family
Home equity        435,484        (158,072 )      277,412        (98,293  )      179,119       35    %       59     %
Total             $ 1,792,372     $ (457,379 )     $ 1,334,993     $ (192,767 )     $ 1,142,226     14    %       36     %
                                                                                                                  
                  As of September 30, 2011
                                                                                                    Specific
                  Recorded                                                          Net             Valuation
                  Investment                       Recorded        Specific         Investment      Allowance     Total
                  in TDRs        Charge-offs      Investment     Valuation       in             as           Expected
                  before                           in TDRs         Allowance        TDRs            a % of        Losses^(20)
                  charge-offs                                                                       TDR
                                                                                                    Loans
                                                                                                                  
One- to             1,147,693       (203,893 )       943,800         (104,502 )       839,298       11    %       27     %
four-family
Home equity        488,878        (45,013  )      443,865        (222,606 )      221,259       50    %       55     %
Total              1,636,571      (248,906 )      1,387,665      (327,108 )      1,060,557     24    %       35     %
                                                                                                                         
                                                                                                                         

<td class="bwpadl0 bwnowrap bwpadr0 bwvertalignt bwalignc bwsingl*Story too
large*
Average Enterprise Balance Sheet Data
                              Three Months Ended
                                 September 30, 2012
                                 Average          Operating     Average
                                                    Interest
                                 Balance            Inc./Exp.       Yield/Cost
Enterprise                       (In thousands)
interest-earning assets:
Loans^(21)                       $ 11,727,325       $ 118,747         4.05  %
Margin receivables                 5,604,036          55,465          3.94  %
Available-for-sale                 14,992,705         82,959          2.21  %
securities
Held-to-maturity                   8,984,586          61,923          2.76  %
securities
Cash and equivalents               2,268,833          1,219           0.21  %
Segregated cash                    693,057            115             0.07  %
Securities borrowed and           582,746          11,897         8.12  %
other
Total enterprise                 $ 44,853,288       332,325        2.96  %
interest-earning assets
Enterprise
interest-bearing
liabilities:
Deposits                         $ 28,631,403         5,885           0.08  %
Customer payables                  5,646,155          2,839           0.20  %
Securities sold under              4,709,203          40,136          3.34  %
agreements to repurchase
FHLB advances and other            2,622,282          24,153          3.60  %
borrowings
Securities loaned and             705,235          30             0.02  %
other
Total enterprise
interest-bearing                 $ 42,314,278       73,043         0.68  %
liabilities
Enterprise net interest                             $ 259,282        2.28  %
income/spread^(9)
                                                                    
                                 Three Months Ended
                                 June 30, 2012
                                 Average            Operating       Average
                                                    Interest
                                 Balance            Inc./Exp.

[TRUNCATED]