ETFC E TRADE Financial Corporation

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 23, 2015


E*TRADE Financial Corporation
(Exact name of registrant as specified in its charter)

(646) 521-4300
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

⃞     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

⃞     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

⃞     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

⃞     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

On April 23, 2015, the Company announced its first quarter earnings for fiscal year 2015. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information furnished shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or incorporated by reference into any filing thereunder or under the Securities Act of 1933 unless expressly set forth by specific reference in such filing.

Additionally, the Company published an updated version of its investor presentation with data for the quarter ended March 31, 2015. The presentation is available on the Company’s corporate website, about.etrade.com.  

Investors should note that the Company announces material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, the Company may also use the Investor Relations section of its corporate website, about.etrade.com, to communicate with investors about the Company. It is possible that the financial and other information posted there could be deemed to be material information. The information on the Company’s corporate website is not part of this document.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 99.1

E*TRADE Financial Corporation Announces First Quarter 2015 Results

NEW YORK--(BUSINESS WIRE)--April 23, 2015--E*TRADE Financial Corporation (NASDAQ:ETFC):

First Quarter Results

• Net income of $40 million, or $0.14 per share
• Net income of $85 million⁽¹⁾, or $0.29 per share⁽¹⁾ excluding a charge related to the early extinguishment of corporate debt
• Total net revenue of $456 million
• Total operating expenses of $300 million
• Provision for loan losses of $5 million
• Daily Average Revenue Trades (DARTs) of 170,000
• End of period margin receivables of $8.2 billion
• Net new brokerage accounts of 39,000; annualized attrition rate of 8.8 percent
• Net new brokerage assets of $3.5 billion; end of period customer assets of $299 billion

E*TRADE Financial Corporation (NASDAQ:ETFC) today announced results for its first quarter ended March 31, 2015, reporting net income of $40 million, or $0.14 per share, compared to $41 million, or $0.14 per share, from the prior quarter. Excluding pre-tax losses on early extinguishment of corporate debt of $73 million in the first quarter of 2015 and $59 million in the prior quarter, net income would have been $85 million⁽¹⁾, or $0.29 per share⁽¹⁾, and $78 million⁽¹⁾ or $0.26 per share⁽¹⁾. This also compares with net income of $97 million, or $0.33 per share in the first quarter of 2014. Total net revenue of $456 million decreased from $461 million in the prior quarter and $475 million in the first quarter of 2014.

“Our year is off to a solid start on several fronts,” said Paul Idzik, Chief Executive Officer. “Our core business is strong and growing stronger, demonstrated by healthy trading levels, record high margin balances and continued growth in accounts and assets. The key regulatory approvals we announced at the beginning of the year enabled us to reduce our corporate debt to our target level of $1 billion. We will ultimately have more than a few options for further capital deployment as the team’s hard work has led to a level of capital flexibility this company hasn’t seen in years. As we move forward I can promise we will never stop focusing on two things: our customer experience, and on being a good and faithful steward of capital for our owners.”

E*TRADE reported DARTs of 170,000 during the quarter, an increase of one percent from the prior quarter and a decrease of 14 percent versus the same quarter a year ago.

The Company ended the quarter with 3.2 million brokerage accounts, an increase of 39,000 from the prior quarter. This compared with 17,000 net new brokerage accounts in the prior quarter and 72,000 in the first quarter of 2014. Brokerage account attrition for the first quarter was 8.8 percent annualized.

The Company ended the quarter with $299 billion in total customer assets, compared with $290 billion at the end of the prior quarter and $269 billion from a year ago.

During the quarter, customers added $3.5 billion in net new brokerage assets, representing an annualized growth rate of 5.7 percent. Brokerage related cash increased by $0.5 billion to $41.6 billion during the first quarter. Customers were net buyers of approximately $3.1 billion of securities. Margin receivables averaged $7.9 billion in the quarter, flat with the prior quarter and up 14 percent year over year, ending the quarter at $8.2 billion.

Corporate cash ended the quarter at $258 million⁽²⁾, an increase of $25 million from the prior quarter, primarily due to a $434 million dividend from E*TRADE Securities and a $75 million dividend from the bank, offset by the use of $432 million to reduce and refinance corporate debt.

Net operating interest income⁽³⁾ for the first quarter was $271 million, down from $279 million in the prior quarter and up from $263 million a year ago. First quarter results reflected a net interest spread of 2.62 percent on average interest-earning assets of $41.1 billion, compared with 2.69 percent on $40.9 billion in the prior quarter and 2.47 percent on $42.1 billion in the first quarter of 2014.

Commissions, fees and service charges⁽³⁾, and other revenue in the first quarter were $176 million, flat with the prior quarter and down from $187 million in the first quarter of 2014. Average commission per trade for the quarter was $10.94, compared with $10.84 in the prior quarter, and $10.64 in the first quarter of 2014.

Total net revenue in the quarter also included $9 million of net gains on loans and securities. This compared with $6 million in the prior quarter and $15 million in the first quarter of 2014.

Total operating expenses in the quarter of $300 million increased $6 million sequentially, and increased $10 million from the year ago period.

In March 2015, the Company completed a transaction to reduce and refinance a portion of its corporate debt. The issuance of $460 million of 4.625% Senior Notes due 2023, along with approximately $432 million of corporate cash were used to redeem $800 million of 6.375% Senior Notes due 2019. The transaction, which resulted in a pre-tax loss of $73 million on early extinguishment of debt, reduced the Company’s debt burden by $340 million and lowered its annual debt service costs by approximately $30 million on a pre-tax basis.

The Company’s loan portfolio ended the quarter at $6.1 billion, contracting approximately $0.3 billion from the prior quarter. First quarter provision for loan losses of $5 million decreased from $10 million in the previous quarter.

Net charge-offs in the quarter were $7 million, flat with the prior quarter. The allowance for loan losses ended the quarter at $402 million, down $2 million from the previous quarter.

As of March 31, 2015, the Company reported bank and consolidated Tier 1 leverage ratios under the Basel III Standardized Approach of 9.8 percent⁽⁴⁾ and 8.4 percent⁽⁵⁾. In the previous quarter the Company reported bank and consolidated Tier 1 leverage ratios of 10.6 percent⁽⁴⁾ and 8.1 percent⁽⁵⁾ prior to the implementation of Basel III and the move of E*TRADE Securities.

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 5:00 p.m. ET today. This conference call will be available to domestic participants by dialing 800-735-5968 while international participants should dial +1 212-271-4651. 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. Specific business segments include Trading and Investing and Balance Sheet Management. Securities products and services are offered by E*TRADE Securities (Member FINRA/SIPC). Bank products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries and affiliates. More information is available at www.etrade.com. ETFC-E

Important Notices

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

Forward-Looking Statements

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

© 2015 E*TRADE Financial Corporation. All rights reserved.

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that net income and EPS excluding the loss on the early extinguishment of corporate debt, corporate cash, tangible book value per share, EBITDA, interest coverage, E*TRADE Bank Tier 1 common ratio and E*TRADE Financial capital ratios calculated prior to Basel III becoming effective for the Company on January 1, 2015 are appropriate measures for evaluating the operating and liquidity performance of the Company. 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 non-GAAP information internally to evaluate operating performance and in formulating the budget for future periods.

Net Income and EPS Excluding the Loss on Early Extinguishment of Corporate Debt

Management believes that excluding the loss on the early extinguishment of corporate debt from net income and EPS provides useful additional measures of the Company’s ongoing operating performance because the charge is not directly related to our 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 that can distribute cash to the parent company without any regulatory approval. 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 (2) for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Tangible Book Value per Share

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

EBITDA

EBITDA represents net income (loss) before taxes, depreciation and amortization and corporate interest expense. Management believes that EBITDA provides a useful additional measure of the Company’s performance by excluding certain non-cash charges and expenses that are not directly related to the performance of the business. See the table entitled “Key Performance Metrics” for a reconciliation of this non-GAAP measure to the comparable GAAP measure.

Interest Coverage

Interest coverage represents EBITDA divided by corporate interest expense. Management believes that by excluding the charges and expenses that are excluded from EBITDA, interest coverage provides a useful additional measure of the Company’s ability to continue to meet interest obligations and liquidity needs. See endnote (11) for a calculation of this non-GAAP measure on a GAAP basis.

E*TRADE Bank Tier 1 Common Ratio and E*TRADE Financial Capital Ratios

Prior to Basel III becoming effective for the Company on January 1, 2015, E*TRADE Financial capital ratios, including Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios, were based on the Federal Reserve regulatory minimum well-capitalized threshold. E*TRADE Bank’s and E*TRADE Financial’s Tier 1 common ratios were defined as the Tier 1 capital less elements of Tier 1 capital that are not in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets. Management believes these capital ratios are an important measure of E*TRADE Bank’s and the Company’s capital strength. See endnotes (4) and (5) for reconciliations of these non-GAAP measures to the comparable GAAP measures.

It is important to note 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, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. For additional information on the adjustments to these non-GAAP measures, please see the Company’s financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” 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 table provides a reconciliation of net income and EPS after adjusting for the loss on early extinguishment of corporate debt to GAAP net income and EPS (dollars in millions, except for per share amounts):

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

(3) Beginning in the first quarter of 2015, the Company reclassified the revenue earned on customer assets held by third parties from operating interest income to fees and service charges. Prior periods have been reclassified to conform to the current period presentation.

(4) E*TRADE Bank’s Tier 1 leverage, Tier 1 risk-based capital, total risk-based capital and Common Equity Tier 1 ratios are preliminary for the current period. Prior to Basel III becoming effective for E*TRADE Bank on January 1, 2015, E*TRADE Bank’s Tier 1 common ratio was a non-GAAP measure that management believes is an important measure of capital strength. Common Equity Tier 1 capital under Basel III replaced Tier 1 common capital. E*TRADE Bank’s capital ratios are calculated as follows (dollars in millions):

(5) E*TRADE Financial’s Tier 1 leverage, Tier 1 risk-based capital, total risk-based capital and Common Equity Tier 1 ratios are preliminary for the current period. Prior to Basel III becoming effective for E*TRADE Financial on January 1, 2015, E*TRADE Financial’s capital ratios were based on the Federal Reserve’s well-capitalized requirements as management believes these ratios are an important measure of the Company's capital strength and managed capital against ratios then applicable to bank holding companies in preparation for the application of these requirements. Common Equity Tier 1 capital under Basel III replaced Tier 1 common capital. E*TRADE Financial’s capital ratios are calculated as follows (dollars in millions):

(6) Reflects elimination of transactions between Trading and Investing and Balance Sheet Management segments, which includes deposit and intercompany transfer pricing arrangements.

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

(8) Operating margin is the percentage of net revenue that results in income before other income (expense) and income taxes. The percentage is calculated by dividing income before other income (expense) and income taxes by total net revenue.

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

(10) Enterprise net interest spread is the taxable equivalent rate earned on average enterprise interest-earning assets less the rate paid on average enterprise interest-bearing liabilities, excluding corporate interest-earning assets and liabilities and customer assets held by third parties.

(11) Interest coverage represents the ratio of the Company’s EBITDA to its corporate interest expense. The interest coverage ratio calculated based on the Company’s net income to its corporate interest expense was 1.9, 1.5, and 3.4 for the three months ended March 31, 2015, December 31, 2014, and March 31, 2014, respectively.

(12) E*TRADE Bank net income is calculated as follows (dollars in millions):

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

(14) Customer assets held by third parties are held outside E*TRADE Financial and include money market funds and sweep deposit accounts at unaffiliated financial institutions. Customer assets held by third parties are not reflected in the Company’s consolidated balance sheet and are not immediately available for liquidity purposes. However, we maintain the ability to bring the majority of these customer assets back on-balance sheet with appropriate notification to the third party financial institutions and customer consent, as appropriate. The following table provides details of customer assets held by third parties (dollars in billions):

(15) 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.

(16) 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):

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

(18) 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. Beginning in Q412, loans that had been charged-off due to bankruptcy notification were also considered TDRs.

(19) Beginning on January 1, 2015, regulatory capital for E*TRADE Bank and E*TRADE Financial was calculated under the Basel III Standardized Approach, subject to transition provisions.

(20) 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 which the Company received a notification of bankruptcy (dollars in millions):

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

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

(23) Scheduled balances for FHLB advances and securities sold under agreements to repurchase are shown below (dollars in millions):

CONTACT:
E*TRADE Media Relations
Thayer Fox, 646-521-4418
thayer.fox@etrade.com
or
E*TRADE Investor Relations
Brett Goodman, 646-521-4406
brett.goodman@etrade.com