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E*TRADE Financial Corporation Announces Fourth Quarter And Full Year 2012 Results

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 a substitute for, or superior to, net income (loss), 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 Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios at E*TRADE Financial are Q412 estimates based on the Federal Reserve regulatory minimum well-capitalized requirements. E*TRADE Financial is not currently subject to capital requirements; however, the implementation of holding company capital requirements are expected to become effective within the next three years as a result of the Dodd-Frank Act. Management believes this ratio is an important measure of the Company's capital strength and has begun to track this ratio internally, using the current capital guidelines that apply to bank holding companies. The Tier 1 leverage, Tier 1 risk-based capital and total risk-based capital ratios are calculated as follows (dollars in thousands):

    Q4 2012     Q3 2012     Q4 2011
Shareholders' equity $ 4,904,470     $ 5,093,854     $ 4,927,950
DEDUCT:
Losses in OCI on AFS debt securities and cash flow hedges, net of tax (315,369 ) (307,587 ) (389,623 )
Goodwill and other intangible assets, net of deferred tax liabilities 1,899,365 1,897,547 1,947,488
ADD:
Qualifying restricted core capital elements (TRUPs)   433,000         433,000         433,000  
Subtotal 3,753,474 3,936,894 3,803,085
DEDUCT:
Disallowed servicing assets and deferred tax assets   1,278,912         1,259,101         1,331,001  
Tier 1 capital   2,474,562         2,677,793         2,472,084  
ADD:
Allowable allowance for loan losses   251,842         261,589         277,665  
Total capital $ 2,726,404       $ 2,939,382       $ 2,749,749  
 
Total average assets $ 48,152,713 $ 49,400,750 $ 46,964,166
DEDUCT:
Goodwill and other intangible assets, net of deferred tax liabilities   1,899,365         1,897,547         1,947,488  
Subtotal 46,253,348 47,503,203 45,016,678
DEDUCT:
Disallowed servicing assets and deferred tax assets   1,278,912         1,259,101         1,331,001  
Average total assets for leverage capital purposes $ 44,974,436       $ 46,244,102       $ 43,685,677  
 
Total risk-weighted assets (a) $ 19,854,479 $ 20,614,940 $ 21,668,053
 
Tier 1 leverage ratio (Tier 1 capital / Average total assets for leverage capital purposes) 5.5 % 5.8 % 5.7 %
Tier 1 capital / Total risk-weighted assets 12.5 % 13.0 % 11.4 %
Total capital / Total risk-weighted assets 13.7 % 14.3 % 12.7 %

(a) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.

(2) The Tier 1 common ratio at E*TRADE Financial is a Q412 estimate and is a non-GAAP measure. Management believes this ratio is an important measure of the Company's capital strength. The Tier 1 common ratio is calculated as follows (dollars in thousands):

    Q4 2012     Q3 2012     Q4 2011
Shareholders' equity $ 4,904,470     $ 5,093,854     $ 4,927,950
DEDUCT:
Losses in OCI on AFS debt securities and cash flow hedges, net of tax (315,369 ) (307,587 ) (389,623 )
Goodwill and other intangible assets, net of deferred tax liabilities   1,899,365         1,897,547         1,947,488  
Subtotal 3,320,474 3,503,894 3,370,085
DEDUCT:
Disallowed servicing assets and deferred tax assets   1,278,912         1,259,101         1,331,001  
Tier 1 common $ 2,041,562       $ 2,244,793       $ 2,039,084  
 
Total risk-weighted assets $ 19,854,479 $ 20,614,940 $ 21,668,053
 
Tier 1 common ratio (Tier 1 common / Total risk-weighted assets) 10.3 % 10.9 % 9.4 %
 
 




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