ETFC Initiation

RBC Capital Markets, LLC
Bulent Ozcan, CFA (Analyst)
(212) 863-4818
bulent.ozcan@rbccm.com
Sector: Brokers, Asset Managers & Exchanges
Outperform
NASDAQ: ETFC; USD 27.05
Price Target USD 35.00
Scenario Analysis*
Downside
Scenario
23.00
15%
Current
Price
27.05
Price
Target
35.00
29%
Upside
Scenario
42.00
55%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 289.2
Dividend: 0.00
Market Cap (MM): 7,822
Yield: 0.0%
Avg. Daily Volume: 3,072,501
RBC Estimates
FY Dec 2014A 2015E 2016E 2017E
EPS, Rpt Diluted 1.00 1.29 1.55 2.09
P/Rpt EPS 27.2x 21.0x 17.4x 12.9x
EBITDA 665.0 766.4 880.1 1,114.7
DPS 0.00 0.00 0.28 0.48
Div Yield 0.0% 0.0% 1.0% 1.8%
BVPS Basic 18.59 20.00 21.80 23.97
P/BVPS 1.46x 1.35x 1.24x 1.13x
EPS, Rpt Diluted Q1 Q2 Q3 Q4
2014 0.33A 0.24A 0.29A 0.14A
2015 0.28E 0.30E 0.35E 0.35E
2016 0.38E 0.36E 0.40E 0.41E
EBITDA
2014 198.0A 167.0A 178.0A 122.0A
2015 173.0E 182.4E 206.0E 204.9E
2016 218.1E 208.5E 226.7E 226.7E
All values in USD unless otherwise noted.
March 26, 2015
E*TRADE Financial Corporation
Initiating at Outperform: We Expect Excess Capital
to Grow Materially
Our view: E*TRADE Financial is a special situations story with significant
upside. Having realigned its legal entities, we expect excess capital at the
parent company to grow from $310 million today to close to $2 billion over
the next two years. We expect balance sheet growth to accelerate, as we
view the $50B size limitation as a temporary constraint.
Key points:
Our detailed analysis on the firm's excess capital position leads us to
believe that parent company liquidity could increase significantly over the
next two years. Moreover, we believe that the market underestimates
earnings growth, which could exceed a CAGR of 26% over the next three
years. We think that investors stand to reap the benefits of a restructuring
story that is still in the early innings:
• Capacity to upstream dividends improved significantly: Realignment of
legal entity structure provides the firm with financial flexibility, which
could accelerate efforts to return capital to its shareholders. We expect
share buybacks of $40 million in 2015 and $200 million in 2016.
• Excess capital to grow significantly: We expect earnings growth to add
over $1 billion to excess capital. Furthermore, we expect phasing in of
Basel III and running the bank at a Tier 1 leverage ratio of 8% to add
$599 million to excess capital. In addition, we believe that FDIC expense
reductions and deferred tax assets could contribute to excess capital
over time.
• Asset sensitivity to drive earnings growth: We believe that E*TRADE
Financial continues to be meaningfully interest-rate sensitive despite
the firm's hedging program. We estimate that earnings per share could
benefit by approximately 24 cents (21% accretive relative to 2014 EPS)
for a 50 basis points increase in interest rates.
• Sweep account optimization to boost balance sheet: A reduction in the
safety buffer needed to not exceed a targeted balance sheet size limit of
$50 billion could add approximately $3 billion to assets and $60 million
to net interest income. We expect this project to be completed in 1H/15.
• Over the longer term, expect balance sheet growth to accelerate as
the management team could abandon its $50B size limit: We believe
that the opportunity cost of remaining below $50B is going to increase
with rising interest rates. We estimate earnings could be 16 cents (14
percent) higher if the company managed approximately $15B of client
assets on its own balance sheet. We expect the opportunity cost to more
than double over the next three years. Furthermore, there seems to be
bipartisan support to revisit the $50B limit above which banks qualify as
“systemically important” under the Dodd-Frank Act. We think we could
see an upward revision of this threshold.
We arrive at our above consensus $35 price target by applying a 23x P/E
multiple on earnings of $1.55 and valuing deferred tax assets separately
at $2.
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Conflicts Disclosures, see Page 48.

Target/Upside/Downside Scenarios
Exhibit 1: E*TRADE Financial Corporation
80m
60m
40m
20m
N
2012
D J F M A M J J A S O N
2013
D J F M A M J J A S O N
2014
D J F
2015
M
UPSIDE 42.00
TARGET 35.00
CURRENT 27.05
DOWNSIDE 23.00
Mar 2016
37.5
27.5
22.5
17.5
12.5
7.50
125 Weeks 02NOV12 - 25MAR15
ETFC Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/base case
Our 12-month price target for E*TRADE is $35. We arrive at
our price target using a price-to-earnings multiple of 23.0x on
our 2016 calendar year earnings estimate of $1.55 per diluted
weighted average shares. We then discount the resulting
valuation using a cost of equity of 11.0%, before adding an
estimated value of $2 for the DTA to our valuation to arrive at
our price target.
These are our assumptions: Net interest margins of 283
basis points by the year 2016; average enterprise interest-
earning assets of $47.8 billion; daily average revenue trades of
175,776; average revenue per revenue trade of $11.00.
Upside scenario
Our valuation is $42. We arrive at our price target using a
price-to-earnings multiple of 25.0x on our 2016 calendar year
earnings estimate of $1.71. We then add $2 to our price target
for the DTA.
Downside scenario
Our valuation is $23. We arrive at our price target using a
price-to-earnings multiple of 16.0x on our 2016 calendar year
earnings estimate of $1.39. We then add $2 to our price target
for the DTA.
Investment summary
We think of E*TRADE Financial Corporation as a special
situations story that is still to play out. Investors stand to
reap the benefits of management's efforts to restructure the
company to unlock value.
Potential Catalysts
• Capacity to upstream dividends improved post the
realignment of legal entities and we expect excess capital
to grow significantly: Realignment of legal entity structure
could accelerate efforts to return capital to its shareholders.
We expect earnings growth to add over $1 billion to excess
capital over the next two years and phasing in of Basel III
& running the bank at a Tier 1 leverage ratio of 8% to add
another $599 million to excess capital.
• Asset sensitivity to drive earnings growth: We estimate
that earnings per share could benefit by approximately 24
cents (21% accretive to 2014 EPS) for a 50 basis points
increase in interest rates.
• We expect the firm to grow its balance sheet beyond
the $50 billion threshold: We estimate sweep account
optimization could boost balance sheet by approximately $3
billion in the near term. Furthermore, we would expect the
management team to abandon its $50 billion size limit as
higher interest rates add to the opportunity cost of having
third-party financial institutions manage the firm's assets.
Risks
• Drop in consumer confidence & commissions could
negatively impact commission revenues and earnings.
• Prolonged period of low interest rates could compress net
interest margins.
• Unforeseen regulatory constraints could impact valuation.
• Balance sheet growth below our expectation could lead to
an earnings miss.
• Changes in average balances, especially client margin, could
impact operating results. Revenues could fall short of our
expectation were balance sheet growth to slow significantly
or decline.
• The company has significant exposure to mortgage
loans which could result in losses due to deteriorating
performance.
• Sharp decline in securities markets & deterioration in credit
markets/housing which could lead to a sharp increase in
provisions and a decline in earnings.
• Deferred tax assets might not be realized. The firm has about
$1 billion of deferred tax assets. E*TRADE might have to
establish a valuation allowance against these reserves if it
determines that not all of these assets will be realized. This
could negatively impact earnings and valuation.
Brokers, Asset Managers & Exchanges
March 26, 2015 Bulent Ozcan, CFA (212) 863-4818; bulent.ozcan@rbccm.com 2

Key questions
Our view
1. Given the recent announcement
on the upcoming realignment of its
legal entities, what are the likely
options for returning capital to
shareholders?
The firm’s January announcement that its regulators have approved plans to modify
the corporate structure is a significant positive development. This should enable the
firm to upstream dividends and excess capital of $509 million in 1Q/15.
Furthermore, it should become meaningfully less burdensome to get regulatory
approval to upstream quarterly dividends to the parent company in the future.
However, we believe that investors should not expect dividend payments in 2015.
We believe that the management team is done de-levering the balance sheet. We
view balance sheet growth, de-risking legacy assets, and share buybacks as the most
likely use of excess capital. We expect dividend payments to commence in 2016 at
the earliest. We estimate that excess capital could approach $2 billion by the end of
2016.
2. Are there any catalysts that could
drive the share price even higher
given recent performance?
We believe that the firm is in its 4
th
inning. The realignment of its legal entities has
put the firm in a position to return capital. We believe that excess capital will grow
significantly from here on. We expect earnings growth, phasing in of Basel III,
running E*TRADE Bank at a Tier 1 leverage ratio, reduction in FDIC charges, and
usage of deferred tax assets to add significantly to excess capital. We provide the
details in the note.
3. How should investors think about
asset growth as the company
approaches the $50 billion SIFI
mark?
While one could argue that growth could be limited given the company’s current
desire to limit the size of its balance sheet, we believe that the firm’s balance sheet
will exceed $50 billion in 2016. Certainly, right now, it makes sense to avoid more
stringent regulatory capital requirements and adherence to enhanced prudential
standards under the Dodd-Frank Act. However, there seems to be bipartisan
support to raise the $50 billion threshold to be considered systemically important.
Furthermore, we believe that the opportunity cost of using third-party financial
institutions to manage the firm’s assets will grow with rising interest rates. We
believe that a sweep account optimization will allow the firm to approach $50 billion
quickly. We also think that the firm will start managing the $10.5 billion of non-
money market client assets at third parties on its balance sheet with rising interest
rates. We estimate that earnings could be boosted by $0.36/share by 2017 by
managing the assets on E*TRADE’s balance sheet.
4. How asset sensitive is the firm and
should investors buy ETFC’s shares
to position themselves for rising
rates?
We estimate that a 50 basis points move in interest rates would impact earnings per
share to the tune of 24 cents (21% accretive relative to 2014 EPS). In comparison,
we would expect TD Ameritrade’s earnings to be impacted by around 12 cents to 14
cents (9% accretive based on 2014 EPS) and Charles Schwab’s earnings by about 31
cents (33% accretive based on 2014 EPS). Despite generating about 60% of its
revenues through spread-based revenues, earnings are not as interest rate sensitive
as one would expect. We believe that the company has taken a defensive posture
and hedged its interest rate exposure meaningfully. Management could decide to
reduce its hedging efforts with rising interest rates, potentially picking up
incremental earnings beyond our estimate.
5. What risks remain on the balance
sheet post the company’s efforts
to de-risk it?
While the company’s management has done a tremendous job de-risking the
company’s balance sheet, E*TRADE Financial’s balance sheet continues to remain
meaningfully more risky than that of its peers, in our view. The company maintains a
sizeable exposure to mortgage loans. Whereas we are not as concerned about the
HELOC portfolio, as the allowance for loan losses seems adequate, we have seen a
significant decline in provisions for loan losses for one- to four-family home loans.
About $1.3 billion of a total of $3.1 billion of one- to four-family home loans will
convert from interest only to amortizing loans over the coming three years. An
increase in frequency or severity of losses could lead to the need to add to reserves
as the company has been releasing provisions for loan losses.

Table of contents
We expect excess capital at the parent company to grow significantly over next two
years ....................................................................................................................................5
Realignment of legal entity structure now puts E*TRADE Financial in a position to
return capital to its shareholders........................................................................................5
We expect E*TRADE Financial to grow excess capital meaningfully over the next
two years.............................................................................................................................7
We anticipate earnings to increase significantly with rising interest rates ........................9
Sweep account optimization could lead to accelerated balance sheet growth ...............11
We think that the firm’s $50 billion size limit is increasingly becoming a “soft target”.......14
Bringing back assets held by third-party financial institutions could boost earnings.......14
We are modeling a meaningful improvement in operating margins and cash
generation starting in 2016...............................................................................................15
Items management needs to address over the coming years .............................................20
E*TRADE’s business model is too transactional................................................................20
Balance sheet continues to be the most risky among peers ............................................23
Ban on payment for order flow practices could impact earnings.....................................25
Sharp increase in short-term interest rates could negatively impact the firm given
the duration of its balance sheet ......................................................................................26
Valuation framework .........................................................................................................27
Risks and price target impediments ...................................................................................30
Quick overview of E*TRADE Financial Corp. .......................................................................31
Products.............................................................................................................................33
Revenue break-down .........................................................................................................35
Business segments .............................................................................................................39
Products.............................................................................................................................40
Distribution ........................................................................................................................41
Competitors .......................................................................................................................42
History................................................................................................................................43
Management team.............................................................................................................44

We expect excess capital at the parent company to grow significantly over
next two years
Realignment of legal entity structure now puts E*TRADE
Financial in a position to return capital to its shareholders
We believe that the recent regulatory approval to realign E*TRADE Financial Corporation’s
legal entities puts the firm in a situation to buy back shares in 2015. We are estimating that
the firm could repurchase shares worth approximately $40 million in 2015 and $200 million
in 2016.
In 2009, E*TRADE Financial was required to move its introducing broker–dealer entity
(E*TRADE Securities) under E*TRADE Bank at the request of its regulators where the firm’s
clearing broker–dealer (E*TRADE Clearing) was already residing. Consequently, the company
turned both broker–dealers into a subsidiary of E*TRADE Bank as part of an attempt to
strengthen the bank’s capital. Under this structure, management had to get approval from its
regulators before it was able to “dividend-up” any excess capital to the parent company.
More recently, the firm proposed a new “simplified” structure to its regulators in order to
create a direct source of capital to the parent. Furthermore, E*TRADE Financial requested
permission to operate its bank at a Tier 1 leverage ratio of 9%. This was a 50 basis points
reduction from its previous target.
The recent regulatory permission to realign its corporate structure and operate the bank at a
lower tier 1 leverage ratio has significant positive implications. Access to excess capital
generated by the broker–dealers has been simplified. The income and capital generated by
the broker–dealers is now housed directly below the parent company. Previously, the
earnings generated by the firm’s broker–dealers were generated within the bank and thus
subject to bank regulatory approvals before any capital could be moved to the parent
company.
The company provided some context on what these changes imply during its 4Q/14 earnings
call. Under the previous structure, E*TRADE Financial was able to pay quarterly dividends of
$75 million in 2014, or $300 million for the entire year. Under the new structure, the firm
would have been able to dividend-up $225 million of earnings from the bank in 2014. In
addition, the broker–dealers would have generated excess capital of about $200 million, for
a total of $425 million for 2014. The chart below shows this:
Exhibit 2: E*TRADE Financial should be able to dividend-up significantly more capital post regulatory approval & realignment
Current structure
2014
E*TRADE Bank
E*TRADE Financial
E*TRADE Securities E*TRADE Clearing
$300M dividends
Proposed new structure
2014 pro forma for realignment
E*TRADE Financial
E*TRADE Bank E*TRADE Securities E*TRADE Clearing
$225M dividends $200M dividends
Source: Company reports; RBC Capital Markets

The company indicated that it will dividend-up $434 million to the parent company in 1Q/15.
Furthermore, the company will also ask to dividend-up $75 million from the bank in 1Q/15.
Beginning in 2Q/15, it will request the full amount of the previous quarter’s earnings
generated by the bank as dividends.
The company has also provided a timeline for the realignment. E*TRADE Securities is
expected to be moved closer to the parent in early February, while E*TRADE Clearing will be
moved in late 2015. This proposed realignment of legal entities should improve the
company’s liquidity and cash position considerably. The exhibit below shows this.
Exhibit 3: Parent liquidity will be over $500 million post the realignment of entities and
reduction in debt ($M)
$233
$310
$560
$434
$75
( $432 )
$250
$-
$100
$200
$300
$400
$500
$600
$700
$800
4Q/14
Corporate
cash
Legal entity
realignment
Planned Q1
dividend from
bank
Debt
reduction and
refinance
4Q/14 Pro-
forma
corporate cash
Revolver 4Q/14 Pro-
forma parent
liquidity
Source: Company filings; RBC Capital Markets
What are E*TRADE Financial’s options now that it is in a strong position to have access to
excess capital at the parent company? We do not expect the firm to pay dividends in 2015,
nor to pay down more debt. It has now achieved its long-term goal of having $1 billion of
debt outstanding. We believe that the incremental benefits of reducing debt would be small
from here on as the debt burden is manageable. The firm’s stated target is to hold a
minimum of twice the annual debt service. Applying a weighted average cost of debt of 5.0%,
we arrive at a minimum cash balance of $100 million.
Clearly, E*TRADE Financial will enjoy some financial flexibility following the realignment of its
legal entities and the reduction in debt burden. We believe that there are three likely options
to deploy excess capital, namely buying back shares, reducing wholesale financing needs,
and growing the firm’s balance sheet. The company’s capital plan could include a
combination of all of the above. After all, we do not believe that the current shareholder
base invested in E*TRADE is expecting dividend payments. Thus, we would not expect
current shareholders to be disappointed should E*TRADE choose a different mode of
creating shareholder value.

We expect E*TRADE Financial to grow excess capital
meaningfully over the next two years
We believe that excess capital could reach $2 billion, as the company reduces its bank’s
targeted Tier 1 leverage ratio to 8 percent and phases in Basel III. In addition, FDIC
expenses could potentially decline due to management’s efforts to reduce debt and de-risk
the loan portfolio.
A) We anticipate earnings growth to add approximately $1.2 billion to excess
capital at the parent company over the next two years
Assuming that we are correct with our $550 million of excess capital generation figure for
2015, excess capital could stand at $810 million by the end of this year. Assuming that net
income grows another 18% in 2016, excess capital could stand at $1.4 billion should
E*TRADE Financial’s management decide not to return capital to its shareholders over the
next two years. This scenario assumes that the firm will incur $50 million of interest expense
on its debt each year and that it will not deploy excess capital for share buybacks or pay
dividends.
Exhibit 4: Excess capital could grow to $1.4 billion by 2016 ($ in million)
$310
$810
$1,410
$1,660
$550
$50
$650
$50
$250
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
4Q/14 Pro-
forma
corporate
cash
2015
Excess
capital
generated
2015 int.
expense
4Q/15 pro-
forma
excess
capital
2016
Excess
capital
generated
2016 int.
expense
4Q/16 pro-
forma
excess
capital
Revolver Pro-forma
parent
liquidity
However, there are additional factors beyond earnings growth that could add to excess
capital.
B) We believe that phasing-in Basel III and reducing the bank’s targeted Tier 1
leverage ratio could add another $432 million to $599 million to excess capital
over time
The table below shows E*TRADE Bank’s pro-forma Tier 1 leverage ratio assuming that the
broker–dealers had been moved from below the bank at the end of the December quarter.
The ratio also reflects a dividend payment of $75 million to the parent company, which is
scheduled for 1Q/15. Thus, the resulting pro-forma leverage ratio of 9% would be in line with
the firm’s current target of running the bank at a Tier 1 leverage ratio of 9%. Were we to
include the deferred tax assets that are currently not being accounted for in Tier 1 capital,
we would estimate the Tier 1 leverage ratio to be 9.8% under Basel III. This provides the firm
with incremental excess capital. Moreover, we would expect excess capital to increase
further, as E*TRADE Financial approaches its target of operating at a Tier 1 leverage ratio of
8% by 2016. The table below shows our calculation.
Excess capital could grow
to $1.4 billion over the next
two years

Exhibit 5: We think phasing in Basel III and reducing the firm’s Tier 1 leverage ratio target to 8% could add about $599 million to
excess capital
($ in million)
E*TRADE
Bank
E*TRADE
Securities
E*TRADE
Clearing
Pro-forma
Bank
Pro-forma
for 1Q/15
div.
Basel III DTA
adjustment
Pro-forma
Bank
Tier 1 capital $4,548 ($625) ($883) $3,040 $2,965 +$300 $3,265
Tier 1 assets $42,876 ($743) ($9,031) $33,102 $33,027 +$300 $33,327
Tier 1 leverage ratio 10.6% 84.1% 9.8% 9.2% 9.0% 9.8%
Excess capital at targeted:
Tier 1 leverage ratio 8.5% $158 $432
Tier 1 leverage ratio 8.0% $323 $599
Source: Company filings; RBC Capital Markets estimates
The management team indicated that it would like to run the bank at a targeted Tier 1
leverage ratio of 8% over the next two years. Thus, we would expect this to add about $323
million to excess capital, which could be streamed-up to the parent company with the
approval of the bank’s regulator. Furthermore, we would expect the addition of deferred tax
assets in the definition of Tier 1 capital under Basel III to add another $300 million to excess
capital. Thus, at a Tier 1 leverage ratio of 8%, the bank’s excess capital would grow to $599
million without the firm having to grow its balance sheet. Consequently, with the approval of
OCC, we would expect the parent company’s liquidity position to grow by an incremental
$599 million excluding the impact of earnings. Combining this with our earnings growth
estimate, we would expect excess capital to grow to approximately $2.0 billion.
C) Reduction in FDIC charges could add further to excess capital
The company is clearly in a better position to utilize its excess capital after its regulators gave
the management team their seal of approval to move the broker–dealers closer to the
parent company. Having de-levered the balance sheet further in March and with continued
de-risking of its loan portfolio, one could expect Federal Deposit Insurance Corporation
(FDIC) insurance expenses to decline. The firm provided its own internal model during a
recent presentation. Management assumed that it could reduce FDIC charges from about 19
basis points today to around 11 basis points over time. The lower FDIC premium would
translate into savings of about $35 million on a pre-tax basis ($22 million after tax). This
would equate to 7 cents per diluted share based on 2014 assets and a 38% tax rate.
Overall, the company seems to be in a solid capital position. We believe that the Fed could
have a more favorable view of the company post management’s strong execution on its
capital plan. We believe that implementation of Basel III could provide management with
additional capital buffer. We show this below. On a consolidated basis, we estimate that Tier
1 leverage ratio would have increased by 90 basis points under Basel III had the company
removed 75% of its trust preferred securities from and added about $718 million of deferred
tax assets to the definition of Tier 1 capital.
E*TRADE could add 7 cents
to earnings and $22m to
excess capital were the
firm to be successful in
reducing FDIC expenses

Exhibit 6: Tier 1 leverage ratio would have been 8.9% phasing out 75% of trust preferred
securities
Consolidated
($ in million) Reported TRUPs DTA Pro-Forma
Tier 1 capital $3,463 ($325) $651 $3,789
Tier 1 assets $42,845 ($325) $651 $42,520
Tier 1 leverage ratio 8.1% 8.9%
TRUPs 75% phased out
Source: RBC Capital Markets estimates
Were the company to phase out 100% of the trust preferred securities right away, Tier 1
leverage ratio would increase by 60 basis points. However, the company is required to phase
out 75% of the trust preferred securities in 2015 and the remaining 25% in 2016. Thus, we
would expect the firm to generate additional capital, which would add to the above
estimates.
Exhibit 7: Tier 1 leverage ratio would have been 8.7% phasing out 100% of trust preferred
securities
Consolidated
($ in million) Reported TRUPs DTA Pro-Forma
Tier 1 capital $3,463 ($433) $651 $3,681
Tier 1 assets $42,845 ($433) $651 $42,412
Tier 1 leverage ratio 8.1% 8.7%
TRUPs 100% phased out
Our key point is this: E*TRADE Financial seems well capitalized. The management team will
have to think hard about how to unlock value over the coming quarters and years. Options
include paying dividends, buying back shares, growing the balance sheet, or running off
legacy assets at an accelerated rate. We believe that any of these options could be a catalyst
for E*TRADE’s shares. We would rank addressing legacy issues and buybacks a top priority.
While we have demonstrated that excess capital at the parent company will increase
meaningfully, we also need to address why we believe that E*TRADE Financial could
generate earnings growth in excess of consensus figures. We show this below.
We anticipate earnings to increase significantly with rising
interest rates
E*TRADE Financial’s earnings could increase by about 24 cents (or 21% based on 2014
earnings) for a 50 basis point move in interest rates.
While not as asset sensitive as Charles Schwab, E*TRADE Financial is nonetheless
meaningfully asset sensitive. We estimate that a 50 basis points increase in interest rates
could add about $0.24 to earnings. This would be 21% accretive to normalized earnings of
$1.12 per share, which the company reported in 2014. As a comparison, we estimate that
Charles Schwab’s 2014 earnings per share would have been 33% higher, and TD Ameritrade’s
2014 earnings about 9% higher had we had higher interest rates.
This should not come as a surprise as the largest component of the firm’s net revenues is
spread-based revenues. The exhibit below provides a revenue bridge for 2014.
We estimate a pro-forma
Tier 1 leverage ratio of 9%
post implementation of
Basel III guidelines

Exhibit 8: Spread-based revenues comprised 60% of total net revenues in 2014 ($M)
$456
$1,814
$1,088
$186
$84
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Commission
revenues
Spread revenues Fee revenues Other Total net revenue
Given the firm’s large dependency on interest-earning assets in order to generate revenues,
one would expect E*TRADE Financial to be the most interest rate sensitive among its peers.
However, this does not seem to be the case. One reason for this could be that the company
has hedged its interest rate sensitivity. Over time, management could decide to roll off these
hedges as interest rates start rising.
While E*TRADE Financial does not provide its own sensitivity to interest rates, we believe
that we were able to come up with a workable approach. We have arrived at our conclusion
using the company’s financial model as presented during a competitor’s conference earlier
this year. E*TRADE Financial provided an estimate of the impact of lower interest rates on its
revenues. The company pointed out that revenues would have been higher to the tune of
$182 million based on its 2014 balance sheet had net interest spreads been 300 basis points.
This is what the company would expect net interest margins to be in a normalized rate
environment.
As a reference, net interest margins were 255 basis points in 2014. Thus, the company’s
model would imply that a 45 basis points rise in net interest margins would impact net
revenues by the aforementioned $182 million. Consequently, it appears that each basis point
increase in net interest margin would result in a $4 million boost to net interest revenues.
We then tried to figure out what by how much net interest margins would expand for a 50
basis point move in interest rates. Looking at historical data, we estimated that funding costs
would increase by about 12 basis points should interest-earning yields improve by 50 basis
points. Consequently, we would expect an increase in interest rates of 50 basis points to
impact net interest margins by 38 basis points.
A 38 basis points expansion in net interest margins would result in incremental net interest
income revenue of $153 million. The next point is up for debate. We assumed an incremental
margin of 75% on these earnings, similar to our approach for its peers. We then arrived at
the EPS impact by using a 38% tax rate and 294 million of diluted shares.
The exhibit below provides a sensitivity table showing the impact on EPS using various
assumptions for interest rate movements and pre-tax margins.

Exhibit 9: We estimate that a 50 bps move in interest rates would impact EPS by about 24 cents
40 43 45 48 50 53 55
40.0% $0.10 $0.11 $0.12 $0.12 $0.13 $0.14 $0.14
42.5% $0.11 $0.12 $0.12 $0.13 $0.14 $0.14 $0.15
45.0% $0.12 $0.12 $0.13 $0.14 $0.15 $0.15 $0.16
47.5% $0.12 $0.13 $0.14 $0.15 $0.15 $0.16 $0.17
50.0% $0.13 $0.14 $0.15 $0.15 $0.16 $0.17 $0.18
52.5% $0.14 $0.14 $0.15 $0.16 $0.17 $0.18 $0.19
55.0% $0.14 $0.15 $0.16 $0.17 $0.18 $0.19 $0.20
57.5% $0.15 $0.16 $0.17 $0.18 $0.19 $0.20 $0.20
60.0% $0.16 $0.17 $0.17 $0.18 $0.19 $0.20 $0.21
62.5% $0.16 $0.17 $0.18 $0.19 $0.20 $0.21 $0.22
65.0% $0.17 $0.18 $0.19 $0.20 $0.21 $0.22 $0.23
67.5% $0.17 $0.19 $0.20 $0.21 $0.22 $0.23 $0.24
70.0% $0.18 $0.19 $0.20 $0.22 $0.23 $0.24 $0.25
72.5% $0.19 $0.20 $0.21 $0.22 $0.23 $0.25 $0.26
75.0% $0.19 $0.21 $0.22 $0.23 $0.24 $0.26 $0.27
77.5% $0.20 $0.21 $0.23 $0.24 $0.25 $0.26 $0.28
Move in interest rates (bps)
Assumedincrementalmargins
Thus, we would expect a move of 50 basis points in interest rates to impact earnings by
about 24 cents (21% of normalized 2014 EPS). As a comparison, we estimated an impact of
31 cents on EPS for Charles Schwab (or 33% of 2014 EPS) and about 12 cents to 14 cents at
TD Ameritrade (9% of 2014 EPS using midpoint).
As mentioned earlier, we believe that the company has taken a defensive posture and
hedged its interest rate exposure meaningfully, which contributes to the current asset
sensitivity. This would make sense as its regulators need to be comfortable about the firm’s
risk profile in order to allow it to move up its broker–dealers, which have been a “source of
strength” post the financial crisis. Furthermore, the firm’s balance sheet has a three-year
duration. This compares to about two years for TD Ameritrade and Charles Schwab. This
longer duration would impact the company more than its peers if interest rates increased
sharply. Thus, hedging the company from sudden moves in interest rates is the prudent thing
to do as net interest margins could decline were funding costs to re-price faster than the
yield on the firm’s investment portfolio.
However, there is the possibility that the firm’s interest rate sensitivity could increase above
our expectation as the firm’s capital position strengthens and management decides not to
roll over all hedges. We view this as an optionality.
Sweep account optimization could lead to accelerated balance
sheet growth
Assuming that E*TRADE Financial holds an incremental $3 billion of assets on its balance
sheet and earns a 200 basis point spread, we would expect net operating income to
increase by about $60 million (or 5 cents per share).
Currently, E*TRADE Financial’s management team has set itself a limit of keeping the firm’s
balance sheet below $50 billion. The goal is to avoid additional regulatory burdens. E*TRADE
Financial’s balance sheet is currently at $45.5 billion. Considering that it needs to hold a
buffer to avoid crossing the $50 billion mark, we think that balance sheet growth would have
to be decelerated significantly once the firm gets to the $48 billion range. We believe that
We expect EPS to be
impacted by about 24 cents
based on a 50 basis points
movement in interest rates

the firm would have to maintain a buffer in order not to exceed the $50 billion target. Our
call is that there will not be a need for a large buffer once the firm has optimized its sweep
account processes over the coming months. We think that management will provide its
treasury function with additional flexibility and allow it to nightly move its clients’ assets
quickly to and from third-party financial institutions. This will add to balance sheet growth
and earnings.
Today, E*TRADE Financial is forced to route client cash to third-party financial institutions if
assets on its balance sheet approach a certain level. Whereas cash can be swept overnight to
third-party financial institutions, it can take E*TRADE Financial several months before it gains
access to this capital given the current structure. It is difficult to maximize profits under
today’s structure as the firm needs to maintain a sufficient buffer for unforeseen growth in
the balance sheet.
Consider this: While adding clients could lead to growth, there are other reasons beyond
client growth that could result in a larger balance sheet. For instance, the balance sheet
could grow as consumer engagement declines. Here is why: If customers reduced their
market engagement, buying fewer shares, and keeping their assets in cash and cash
equivalents, then the balance sheet grows. This poses a real risk to the company’s target of
limiting the size of its balance sheet. This is not a hypothetical, but real risk. The firm
disclosed for its fiscal year 2014 that net buying activity was $7.7 billion. Management
estimates normalized levels to be in the $2 billion to $3 billion range. Thus, the balance sheet
could grow by $4 billion to $5 billion if clients decided to reduce their equity market
exposure.
The exhibit below shows assets held by these third parties, i.e., outside of E*TRADE Financial.
These include money market funds and sweep deposit accounts at unaffiliated financial
institutions. Were these assets included on the company’s balance sheet, it would be safe to
assume that E*TRADE Financial would have to comply with additional regulatory burdens,
given that its own balance sheet is about $45.5 billion—excluding $15 billion of assets held
by third parties.
Exhibit 10: Assets held by unaffiliated financial institutions have grown to over $15 billion
$-
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
While there still will be a need to sweep money to third parties in the near term, we believe
that E*TRADE Financial should be able to approach the $50 billion limit once it has optimized
its sweep account procedures without the risk of exceeding this size limit.

The impact of increasing its balance sheet on revenues should not be ignored. Assuming that
E*TRADE Financial could hold an incremental $3 billion of assets on its balance sheet and
earn spread of 200 basis points, we would expect net operating interest income to increase
by about $60 million. Assuming a 40% margin and a 38% tax rate, we estimate earnings could
increase by 5 cents per share by optimizing sweep account procedures. The exhibit below
provides a sensitivity analysis.
Exhibit 11: Adding $3 billion to interest-earning assets could increase EPS by 5 cents
25% 30% 35% 40% 45% 50%
150 $0.02 $0.03 $0.03 $0.04 $0.04 $0.05
175 $0.03 $0.03 $0.04 $0.04 $0.05 $0.06
200 $0.03 $0.04 $0.04 $0.05 $0.06 $0.06
225 $0.04 $0.04 $0.05 $0.06 $0.06 $0.07
250 $0.04 $0.05 $0.06 $0.06 $0.07 $0.08
275 $0.04 $0.05 $0.06 $0.07 $0.08 $0.09
300 $0.05 $0.06 $0.07 $0.08 $0.09 $0.09
325 $0.05 $0.06 $0.07 $0.08 $0.09 $0.10
Pre-tax margins
Interestspreads(bps)

We think that the firm’s $50 billion size limit is increasingly becoming a “soft
target”
Bringing back assets held by third-party financial institutions
could boost earnings
Management’s current limit on the balance sheet size is not sustainable over time, as we
expect the opportunity cost to increase with rising interest rates. Furthermore, there seems
to be growing support to reconsider the $50 billion bright line test to be considered
systemically important. We estimate that earnings could increase by 16 cents were the
company to move assets held by third-party financial institutions on its balance sheet
today.
We think that the $50 billion threshold to be considered a systemically important financial
institution could potentially change. There seems to be growing bipartisan support to
reconsider this bright line $50 billion assets test. The threshold for triggering systemic risk
worthy of enhanced prudential standards could be lifted to a higher number such as $100
billion or $200 billion. This could be combined with qualitative assessments of risk. The
Bipartisan Policy Center, a non-profit organization focused on promoting bipartisan
solutions, has endorsed a hybrid approach that would raise the threshold to $250 billion. It
would also establish more of a “dashed line” versus the brightline-test that would give
regulators discretion to add firms based on risk factors other than size and exclude business
deemed less systemically imporantant. Former Rep. Barney Frank, D-Mass., a key author of
the financial reform law, also testified before the House banking panel in July that lawmakers
should revisit the $50 billion threshold. Several other regulators, including Federal Reserve
Gov. Daniel Tarullo and Comptroller of the Curry Thomas Curry, have made similar
statements.
Here we provide a sensitivity analysis around incremental earnings potential.
Bringing back assets held by third-party financial institutions could boost earnings
It should not come as a surprise that E*TRADE Financial’s decision to sweep client assets to
third-party financial institutions costs the firm a significant amount of earnings. The firm
reported earnings of only $14 million in 2014 on assets held by these third-party institutions.
We estimate that the average assets routed off the balance sheet were approximately $14.5
billion, resulting in a meager 10 basis points yield on these assets. As a comparison, E*TRADE
Finanical’s net interest margins were 255 basis points in 2014. Thus, the decision to have
third parties manage clients’ assets costs the firm $236 million in incremental revenues.
Assuming that one-third of the assets are in money market funds earning 10 basis points and
a 254 basis points net interest margin on the remaining assets, plus a 25% pre-tax margin, a
38% tax rate, and 294.1 million shares outstanding, earnings per diluted share could have
been 13 cents higher than the $1.00 reported for 2014 were the company not forced to
route cash to unaffiliated financial institutions. We should note that the above calculation
does not assume that assets are being brought back today, but is intended to provide a
“what if” analysis. Certainly, new investment rates would be around 200 basis points today.
At 200 basis points and 40% of incremental pre-tax margins, EPS would have been 16 cents
higher. The table below provides various scenarios.
We estimate that
managing client assets on
its balance sheet would
have been 12% accretive to
2014 earnings

Exhibit 12: At an incremental margin of 40% and 200 bps of net interest margin, EPS could
have been 16 cents higher
20% 25% 30% 35% 40% 45% 50%
100 $0.04 $0.05 $0.06 $0.07 $0.08 $0.09 $0.10
125 $0.05 $0.06 $0.07 $0.09 $0.10 $0.11 $0.12
150 $0.06 $0.07 $0.09 $0.10 $0.12 $0.13 $0.15
175 $0.07 $0.09 $0.11 $0.12 $0.14 $0.16 $0.18
200 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18 $0.20
225 $0.09 $0.11 $0.14 $0.16 $0.18 $0.21 $0.23
250 $0.10 $0.13 $0.15 $0.18 $0.20 $0.23 $0.26
275 $0.11 $0.14 $0.17 $0.20 $0.23 $0.25 $0.28
300 $0.12 $0.15 $0.19 $0.22 $0.25 $0.28 $0.31
325 $0.13 $0.17 $0.20 $0.23 $0.27 $0.30 $0.34
Pre-tax margins
Interestspreads(bps)
There is more. Assets held by third parties have grown at a compound average growth rate
of 46% over the past four years. This growth rate has declined to 12.3% year over year in
2014. Assuming that assets continue to grow at 12.3% over the next three years, those could
reach $22 billion by 2017. Were we correct with our pre-tax margin projection of 40% by
2017 and assuming net interest spread assumption of 275 basis points (or 24 basis points
below our overall portfolio yield projection for 2017) , earnings per share would be lifted by
36 cents by managing these client assets on the E*TRADE Financial’s balance sheet instead.
To us, this pickup in earnings seems compelling and we believe that management will have
to ponder whether the opportunity cost incurred justifies trying to avoid incremental
regulatory scrutiny.
We do believe that the firm has the compliance and regulatory systems already in place to
operate a much larger balance sheet. After all, regulators needed to be comfortable with the
existing enterprise risk management at E*TRADE Financial before allowing the firm to realign
its legal entities. It is just a question of time until the benefits of a larger balance sheet
exceed the incremental cost associated with having to comply with modified liquidity
coverage ratio requirements. We believe that management could make a decision relatively
quickly once interest rates start rising.
We are modeling a meaningful improvement in operating
margins and cash generation starting in 2016
We believe that there are encouraging signs that management will grow its balance sheet
beyond $50 billion, resulting in operating leverage and margin expansion.
We have already seen a significant improvement in operating margins and cash generation
since Mr. Paul T. Idzik was appointed CEO on January 17, 2013, joining E*TRADE Financial
after having worked as Group Chief Executive of DTZ Holdings PLC in London and having
served 10 years at Barclays PLC.
While one could argue that all discount brokers have benefited from improving margins, we
would point out that margin expansion was not simply a case of the “tide lifting all the
boats”. In fact, E*TRADE Financial’s management team has been working hard on its
turnaround story. The exhibit below shows the improvement in the firm’s opreating margins
and cash generation capacity. We use the EBITDA to net revenues ratio as a proxy for cash
generation.
Having gone through a
number of changes at the
top level, we believe that
the current E*TRADE
management team has the
needed qualities to
position the firm for
growth over time
Were the company to
deploy $14.5 billion of
client assets at a 200 basis
points yield today, we
would expect EPS to
increase by 16 cents
assuming 40% incremental
margins on these earnings

Our call is that we are not done yet and could see continued improvement over the next
three years.
Exhibit 13: Operating margins have been expanding significantly since 2013
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2010 2011 2012 2013 2014 2015E 2016E 2017E
AMTD SCHW ETFC
In fact, we belive that E*TRADE Finanical could add 7.9 percentage points to its pre-tax
operating margin from 2014 to 2017. This, in turn, would improve the company’s ability to
generate excess capital. The exhibit below depicts the EBITDA to revenue ratio over time.
Exhibit 14: E*TRADE Financial has improved its EBITDA/revenue ratios meaningfully
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013 2014 2015E 2016E 2017E
AMTD SCHW ETFC
We believe that there are encouraging signs that management will grow its balance sheet,
resulting in operating leverage. Management has done a remarkable job de-risking its loan
EBITDA to total net
revenues has improved
significantly at E*TRADE
since 2012

portfolio and de-levering the balance sheet. This in turn, has resulted in fewer clients leaving
E*TRADE Financial. In fact, client attrition has declined significantly over time. This positions
the firm for growth. The next two sub-sections provide specifics on what the management
team has done to make E*TRADE Financial a better fiduciary of its clients’ capital.
Management de-risked its loan portfolio
The company has been continuously reducing the risk embedded in the loan portfolio. The
firm had about $6.4 billion of gross loan receivables as of 4Q/14. This was comprised of $3.1
billion in one- to four-family home loans, $2.8 billion of home equity loans, and $461 million
of consumer and other loans. This compares to a loan portfolio of $2.7 billion of consumer
loans, $16.9 billion of one- to four-family home loans, and $12.4 billion of home equity loans
as of 3Q/07. In addition, there were about $17 billion of securities on its balance sheet
including MBS securities, bonds, and asset-backed securities that management had to
address.
The exhibit below shows the progress the company has made. The chart depicts delinquent
loans as a percentage of total gross loans. Clearly, the trend has been improving since 2010.
Exhibit 15: Delinquent loans as % of gross loans have been declining since 2010
0%
2%
4%
6%
8%
10%
12%
14%
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
A slow but steady ecomomic recovery in combination with better risk management has
helped the firm improve the performance of its loan portfolio. In order to test how well
management had anticipated expected losses, and more importantly, reserved for it, we
aggregated the charge-offs for four quarters and compared the result to the beginning
allowance for loan losses at the start of the four-quarter period (Exhibit 16). While
management had to set up large provisions for loan losses in 2009, it seems that it had built
enough cushion to absorb losses starting in 2013. In fact, E*TRADE Financial started releasing
some provisions it had set up for its one- to four-family home loan portfolio over the past
eight quarters.
E*TRADE’s loan portfolio of
$32 billion in 2007, has
been reduced to its current
size and risk of about $6.4
billion of gross loans
outstanding

Exhibit 16: Provisions for loan losses have stabilized starting in 2014
0%
50%
100%
150%
200%
250%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
One-to-four-family Home equity Consumer and other
Consequently, the firm has regained the trust of clients such that client attrition has declined
to historical levels.
Client attrition rate has declined significantly
The company’s efforts to strengthen its capital position and reduce the risk of its investment
portfolio is yielding results, positioning the firm to grow client accounts and its balance
sheet. It is undeniable that management has been able to restore confidence after the
events of 2007. The exhibit below shows the decline in the attrition rate for the period from
2008 to 2014. Clearly, the trend has been positive.
Exhibit 17: Fewer clients are leaving E*TRADE today than in the past
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2008 2009 2010 2011 2012 2013 2014
The attrition rate, which the company defines as closed accounts as a percentage of previous
quarter’s total brokerage accounts, has declined from 16.9% in 2008 to 8.7% as of 2014.
Consequently, the firm was able to grow the total number of accounts starting in 2011.
Client attrition has declined
from 16.9% in 2008 to 8.7%
as of 2014

Exhibit 18: Total account growth commenced in 2011
3,900,000
4,000,000
4,100,000
4,200,000
4,300,000
4,400,000
4,500,000
4,600,000
4,700,000
4,800,000
4,900,000
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
This bodes well for revenue growth as we expect the firm to continue to add to its client
base—as long as the number of gross new brokerage accounts exceeds closures. This seems
to be the case since 2011.
Exhibit 19: E*TRADE Financial added 155,981 net new client accounts in 2014
28,439
(213,903)
69,162
163,063
133,713
155,981
(250,000)
(200,000)
(150,000)
(100,000)
(50,000)
0
50,000
100,000
150,000
200,000
2009 2010 2011 2012 2013 2014
Net new brokerage accounts were the main contributors to total net new accounts in 2014,
with net new stock plans and net new banking accounts contributing marginally to growth. In
fact, net new brokerage accounts of 146,000 in 2014 was the highest addition in over a
decade at E*TRADE Financial. It seems that management has been able to restore confidence
among retail clients, as it is able to retain more existing clients while adding new accounts.
The improvement we have seen in fixing the business and being able to add to the client
base gives us confidence that E*TRADE Financial will be able to grow its assets. We would
argue that balance sheet growth could accelerate once the management team determines
that the limit on its balance sheet size of $50 billion is too costly to maintain. We expect the
opportunity cost to do so to increase with higher interest rates.

Items management needs to address over the coming years
E*TRADE’s business model is too transactional
We believe that the firm might not able to participate in certain growth opportunities
including growth in independent RIAs as management has been too focused on fixing
legacy issues.
While E*TRADE Financial has done a great job restructuring its balance sheet and
repositioning the firm for growth, we are concerned that the business model has not
changed much. Rather, the management team has focused on unwinding the errors made by
the previous management teams and refocusing on its core franchise—which has been
providing the best trading platform for its retail client. The exhibit below shows the firm’s
product offerings versus peers.
Exhibit 20: ETFC’s product offering is limited versus peers
ETFC AMTD SCHW
Brokerage
Full range of investment products   
Third-party research   
In-house research   
Mutual funds
Proprietary funds   
Third-party funds   
Exchange Traded Funds
Proprietary funds   
Third-party funds   
Advice - In-House
Investment advice   
Tailored portfolio construction   
Portfolio management   
Separately managed accounts   
Financial consultants 300 ~700 1,200
RIA relationships  ~5,000 7,000
Number of branches 30 105 300+
Corporate services
Retirement plans (401k)   
Equity compensation plans   
Banking services
Full service bank   
Trust services
Custody services   
Administrative trustee services   
Average retail client assets -estimate $65,000 $100,000 $250,000
Average age of retail client Mid 40s Mid 40s Mid 50s
E*TRADE’s competitors
have taken advantage of
regulatory limitations on
its growth and
management’s decision to
refocus on its core
franchise

Still, there have simply been too many fires to fight, which in our view, might have put the
firm at a competitive disadvantage versus its peers. The firm has not been able to expand its
product offering to the same degree as its competitors. The management team did the best
it could given the opportunity set. One can assume that its regulators would not have been
approachable had the management team been discussing paths to aggressively grow its
business. The firm missed opportunities to grow and keep up with its evolving competitors
while it was fully engaged with its regulators.
The exhibit below shows the average organic growth rate for client assets, growth in average
fee based investment assets, and growth in interest-earning assets. While E*TRADE Financial
was able to add to its client assets, we estimate that the average organic growth rate to be
the lowest with 4.6%. This compares with 5.1% for Charles Schwab, and 10.5% for TD
Ameritrade. As for interest rate sensitive assets, there has been a decline in average interest-
earning assets since 2009. The firm’s peers grew their assets at a compounded annual
growth rate of 16% to 17% since 2009.
Exhibit 21: ETFC’s five-year compound annual growth rate versus peers (2009 to 2014)
5%
11%
5%
24%
20%
n/m
16% 17%
-2%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
SCHW AMTD ETFC
Client assets organic growth Avg. fee based investment balances Avg. Interest rate sensitive assets
Looking at the data over a three-year period, we come to a similar conclusion. The average
organic growth rate for client assets is 4.2%, which is lower than over the five-year period. As
for interest rate sensitive assets, the firm has slowed down running off its balance sheet.
However, growth remained negative to the tune of 1.4% over the past three years.
E*TRADE seems to have fallen behind while its peers have evolved. A good example would
be TD Ameritrade. The firm’s effort to build out its RIA network and capitalize on the
“breakaway advisor” trend is paying dividends, in our view. While still lagging Charles
Schwab, we have seen a tremendous effort and some success in closing the gap. Charles
Schwab, on the other hand, has now evolved to a full-service brokerage firm.
Our point is this: E*TRADE Financial’s business model is too transactional. Certainly, the firm
has grown its corporate services business. At the end of 2009, there were about 1 million
stock plan accounts. This number increased to approximately 1.3 million by the end of 2014.
However, there has been a slowdown in growth, as evidenced by net new accounts added.
The exhibit below shows this. The decline could be due to mergers or an attempt to focus on
more profitable segments of the market. However, a decline of over 50 percent is material
and difficult to ignore.

Exhibit 22: Net new stock plan account growth has been declining since 2012
7,083
22,711 21,890
77,180
71,979
28,407
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2009 2010 2011 2012 2013 2014
Given a lack of growth, it should not come as a surprise that the company’s revenue mix is
not as diversified as that of its peers. Spread-based revenues are the major contributor to
net revenues. Unlike its competitors, the firm has not grown its fee-based revenue stream.
Based on the competitive landscape as of today, we believe that—absent of any
acquisition—it will be difficult for the firm to catch up to its competitors if it attempted to
transition to an asset gathering business model. Thus, we would expect the firm to continue
to rely heavily on its balance sheet and commission revenues to grow the top line.
Exhibit 23: Spread-based revenues contribute about 60% to net revenues (2014)
15%
43%
25%
38%
19% 60%
42%
36%
10%
6% 2% 5%
0%
20%
40%
60%
80%
100%
120%
SCHW AMTD ETFC
Commission revenues Spread revenues Fee revenues Other
Revenues will be significantly impacted by the company’s ability to grow its interest-earning
assets. While we believe that the firm will be able to grow its balance sheet, a lack of growth
in interest-earning assets could lead to earnings growth below our expectation.

Balance sheet continues to be the most risky among peers
While HELOC provisions seem adequate, investors need to be cognizant of the fact that
there are about $3.2 billion of loans that will convert from interest only to amortizing
loans, and that provisions for 1- to 4-family home loans have declined to $27 million. We
would expect an increase in loan loss provisions over the coming years.
While E*TRADE Financial has done a tremendous job in reducing its risk exposure, there is
still significantly more risk associated with investing in the company’s shares versus that of its
peers.
Consider this: The loan portfolio was at $32 billion at its height. Today, this portfolio has
been reduced to about $6.4 billion, and the quality of its loans has improved. Provisions for
loan losses of $36 million in 2014 were down 75% relative to 2013.
However, the company has still not turned the corner in our view. As the company pointed
out, it believes that provision for loan losses will remain in the $10–$30 million range per
quarter in 2015 and 2016. It expects the provisions to be at the lower end of that range in
2015, and at the higher end of the range of 2016. So, what is happening?
There are about $3.1 billion of one- to four-family home loans and $2.8 billion of home
equity loans on E*TRADE Financial’s balance sheet. About 42% of the one- to four-family
home loans are going to convert from interest only to amortizing loans, while this ratio will
be 68% for home equity line of credit loans (HELOC). The exhibit below shows the timing and
amount of loan balances that are going to convert.
Exhibit 24: A total of $3.2 billion of loans will convert from interest only to amortizing loans
over the next three years ($ in billion)
$0.8
$0.1 $0.1
$0.5
$0.7
$0.2
$0.1
$0.6
$1.0
$0.3
$-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
2013 and priod 2014 2015 2016 2017
1-4 family I/O to amortizing conversions HELOC I/O to amortizing conversions
What is going to happen is that borrowers will move from paying a minimum monthly
payment to paying based on a loan amortization schedule, which should increase the
amount paid by the borrowers. Certainly, some of the borrowers have already started paying
principal voluntarily. The company reported that 15% of the one- to four-family home
borrowers paid back at least $2,500 in principal during 2014, while 6% reduced their
principal amount by at least $10,000. These are positive developments. However, the
average loan size is $496,000. As for the HELOC portfolio, 38% of borrowers have returned at
Management expects
provisions for loan losses
to be in the $10 million to
$30 million per quarter
range.

least $500 of the principal while 17% have returned at least $2,500. Again, the average loan
amount of $73,000 is meaningful.
It is difficult to forecast potential loan losses over the next three years. Our point is that
investors should consider this risk. It appears that E*TRADE Financial has been strengthening
its allowance for loan losses for HELOC loans, but has been reducing it for one- to four-family
home loans. The exhibit below shows this.
Exhibit 25: Company expects increasing losses on HELOC loans, but lower losses on the one-
to four-family home loan portfolio (allowance for loan losses as % of outstanding balances)
0%
2%
4%
6%
8%
10%
12%
14%
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
One-to-four-family Home equity
There are many variables that could lead to better or worse than expected loan losses. We
believe that the severity and frequency of the losses will be determined by the borrowers’
financial situation, which is a function of the economy.
Certainly, the trend has been good. The exhibit below shows delinquent loans as a
percentage of gross loans receivable. We have seen a decline in total delinquent loans,
especially for one- to four-family home loans.
Exhibit 26: Delinquent loans as percentage of gross loans receivable have been declining
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14

Nonetheless, it is difficult to determine whether current reserves will be enough to absorb
future losses. While the firm seems to be adequately reserved for losses on HELOC loans, we
have seen reserve releases from allowances for losses on one- to four-family home loans.
The exhibit below shows the current allowance as a percentage of the balances that are
expected to convert over the next three years.
Exhibit 27: It would take losses of 2.1 percent of the upcoming one- to four-family home loan
conversion balances to wipe out the current allowance
2.1%
19.3%
0%
5%
10%
15%
20%
25%
Ban on payment for order flow practices could impact earnings
While we do not expect a ban on payment for order flow practices, we estimate that an
adverse outcome could impact EPS to the tune of 13 cents.
In order to attract trades, exchanges pay brokers for routing a trade through them. This is
called “payment for order flow”. According to current SEC rules, all that the brokers have to
do now is disclose whether they receive payment for order flows and provide details of this
arrangement.
The Securities and Exchange Commission is currently reviewing whether brokers act in their
clients’ best interest when they “sell the orders” to a trading firm or an exchange for a fee.
While we think that there is a low probability of this changing, the SEC could decide to
eliminate this practice. The UK Financial Conduct Authority has already changed its policies in
2014 and prohibits brokers from taking payments for orders routed to other firms. Their view
is that there is a “clear conflict” of interest caused by these payments.
So far, it does not seem likely that the SEC will follow suite. Mary Jo White, The SEC’s
Chairwoman, said in her market structure reform speech that fees and payments for orders
create a conflict of interest if these payments are not passed through to customers.
However, she did not call for an end of such practices. There is a very high likelihood that the
outcome of the SEC’s inquiry into this topic could simply be better disclosures instead of
banning this practice.
However, if this practice was banned, we believe E*TRADE and TD Ameritrade would be
impacted the most. We estimate that the firm generated about $90 million in order routing
revenues in 2014. This figure compares to about $100 million at Schwab and $300 million at
While “Payment for Order
Flow” is being reviewed by
the SEC, we do not
anticipate an elimination of
these fees, but rather
expect additional
disclosures around fees

TD Ameritrade. While the absolute dollar revenue generated is the lowest among peers, the
impact on EPS in percentage term appears to be the highest. This is how we arrived at our
conclusion:
The firm did not disclose the percentage of its order routing revenues from equity
transactions. We estimate this to be around 70%. As a note, the SEC is not reviewing
transactions in other types of securities. Assuming 70% of the $90 million is from equity
trades, a 100% margin on these revenues, and a 38% tax rate, we estimate that earnings per
share could be impacted to the tune of $0.13. This compares to an estimated impact of $0.17
per share at TD Ameritrade and less than a nickel at Schwab. This calculation is based on an
average share count of 294.1 million diluted shares. To put this figure into perspective, the
firm’s earnings were $1.00 per diluted share in 2014. The exhibit below shows our
calculation.
Exhibit 28: We estimate the impact from a ban on payment for order flow practices to impact
EPS by about 13 cents
($ in million) FY 2014
Order routing revenue $89.0
Assumed equity transactions 70%
Revenues at risk $62.3
Assumed margin 100%
Impact on pre-tax earnings 62.3
Tax rate 38%
Impact on earnings $38.6
Sharecount 294.1
EPS Impact $0.13
We believe that a ban is unlikely. However, if there should be one on payment for order
flows, then we believe E*TRADE Financial would stand out to be impacted slightly more than
TD Ameritrade. The impact is equal to 13% of earnings per share reported in 2014. While TD
Ameritrade would be impacted more in dollar terms, with 17 cents, earnings per share would
decline by about 12%. Over time, however, we would expect both firms to find ways to make
up for the lost revenues through other fees and charges.
Sharp increase in short-term interest rates could negatively
impact the firm given the duration of its balance sheet
E*TRADE Financial’s assets have a duration of about three years, longer than the 2 years
for its peers.
While a slow increase in rates would be a “tailwind”, as shown above, a sharp increase in
rates could impact the firm negatively. This would result in net interest spread compression
as yields paid on interest-bearing client balances would rise faster than what the firm earns
on interest-earning assets.
The consolidated duration of the firm’s assets are about three years as of the end of fiscal
year 2014. Although we assume a gradual increase in interest rates in our model, we also
appreciate the fact that it is difficult to predict interest rate movements. Thus, while this is
not a major issue from our perspective, we still think that investors ought to be cognizant of
Ban of “Payment for Order
Flow” practices could
impact E*TRADE’s EPS by
approximately 13 cents,
which would be significant
While increases in interest
rates are a positive
development, sharp
increases in rates could
impact E*TRADE more than
peers given the duration of
its assets

the risks of sharply increasing rates on earnings. We estimate that Charles Schwab’s duration
is about 1.9 years while TD Ameritrade’s is 2.2 years.

Valuation framework
We value E*TRADE Financial Corporation using a forward-looking P/E multiple approach. We
understand that there are biases to this approach as P/E multiples can be overly high during
bull markets and depressed during bear markets. We are trying to compensate for this by
taking an average P/E multiple over an extended period. In addition, we are adding the
present value of the deferred tax assets to arrive at our price target.
Our 12-month price target for E*TRADE is $35. We arrive at our price target using a price-to-
earnings multiple of 23.0x on our 2016 calendar year earnings estimate of $1.55 per diluted
weighted average shares. We then discount the resulting valuation using a cost of equity of
11.0%. The discount rate is based on a beta of 1.9x, a risk free rate of 4%, and a market
premium of 4%. The discount period is 0.8 years.
Furthermore, we discount the $1 billion of deferred tax assets (DTAs) assuming that these
will be realized over a four-year period. We discount the DTAs using a cost of equity of
11.0%. Furthermore, we take a 10% haircut to compensate for a margin of error in respect to
the timing. We estimate that the DTAs could be worth approximately $2. This leads us to our
price target of $35.
Exhibit 29: Price target based on one-plus-a-half-methodology
Valuation
CY 2016 EPS $1.55
P/E Multiple 23.0x
Valuation $36
Valuation - PV $33
Value of DTA 2
Price target - PV $35
Source: Company reports; RBC Capital Markets estimates
Our $35 base case scenario valuation is based on these assumptions for 2016: Net interest
margins of 283 basis points by the year 2016; average enterprise interest-earning assets of
$47.8 billion; daily average revenue trades of 175,776; average revenue per revenue trade of
$11.00; a pre-tax margin of 33.9%. We believe a 23x P/E multiple is justified given historical
valuation.
Deferred tax assets valuation
E*TRADE Financial Corporation had $951 billion of deferred tax assets (DTAs) as of 4Q/14.
DTAs were driven by the losses the company had to take on its investment portfolio, which
had peaked at $32 billion in 2007, and a debt exchange of zero coupon convertible
debentures for interest bearing debt in 2009. Today, about $323 million of the approximate
$1 billion of DTAs are at the parent company. E*TRADE Financial expects its subsidiaries to
reimburse the parent for the use of its deferred tax assets. There is value to the DTAs as
these can be used to offset income.
The company has not established an allowance against its federal deferred tax assets, which
in our view is an indication that management believes the full DTA amount is available for
use. In fact, the firm expects to realize the majority of its existing federal deferred tax assets
within the next four years.
We estimate that deferred
tax assets (DTAs), which we
have incorporated into our
valuation, should be worth
about $2 per share

DTAs are a source of future cash that, ultimately, will be held at the parent company, as
subsidiaries will have to reimburse the parent for using the DTA. The following shows the
impact of the DTAs on cash tax expenses. The company showed GAAP tax expenses of $159
million for 2014. However, cash outlays to meet the tax liabilities were only about $4 million
for this period. We expect the firm to fully utilize the deferred tax assets by 2018. Thus, we
estimate the value of the DTAs to be about $2 per share.
Exhibit 30: We estimate the present value of DTAs per share to be around $2
Valuation of Potential Deferred Tax Assets
DTA, net ($ mm) $951
Assumed discount rate (cost of equity): 11.0%
Assumed utilization period 4.0 years
($ in million) 1 2 3 4
Est DTA usage $233.3 $275.9 $363.7 $78.1
Discount factor 0.90 0.81 0.73 0.66
Discounted cash flow $210.2 $224.0 $266.0 $51.5
PV of cash flows ($ mn): $751.6
Haircut: 10%
Estimated DTA value: $676.4
Shares outstanding (in million): 294
PV of DTA assets per share $2.30
Years
To arrive at our valuation, we assumed that the firm would be able to use up the deferred
tax assets of $951 million over a period of four years. In addition, to be conservative, we
used a 10% haircut in order to adjust for any timing errors. We discounted the resulting cash
savings by the company’s cost of equity, which we estimate to be around 11.0%.
Why we choose a PE multiple of 23.0x
We have looked at P/E multiples going back to April 2003. On average, shares of ETFC have
traded at a 23.1x P/E multiple since April 2003. The average P/E multiple prior to 2008 was
15.9x. As for the period post the financial crisis, our data shows that ETFC has been trading at
an average P/E multiple of 32.9x. However, P/E multiples have been elevated recently given
weak earnings and investor expectations that there could be some positive catalysts
regarding the firm’s capital management plans. The shares of ETFC have been trading at an
average P/E multiple of 23.1x since the beginning of this year. More recently, we have seen
an uptick in the P/E multiple, which stands at 27.3x as of March 24
th
. However, we are taking
a longer term view and believe that the 23.0x P/E multiple is appropriate.

Exhibit 31: ETFC’s current P/E multiples seem elevated relative to the period leading to the
financial crisis
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
80.0x
90.0x
04/21/2003
11/12/2003
06/10/2004
01/05/2005
08/02/2005
02/28/2006
09/22/2006
04/23/2007
11/14/2007
06/12/2008
01/07/2009
08/04/2009
03/02/2010
09/24/2010
04/20/2011
11/14/2011
06/12/2012
01/09/2013
08/06/2013
03/04/2014
09/26/2014
P/EMultiple
Priced as of market close ET, March 24, 2015.
Source: FactSet; RBC Capital Markets

Risks and price target impediments
Drop in consumer confidence & commissions
A decline in trading volume and commission rates could negatively impact commission
revenues and earnings. Trading volume is, to a high degree, dependent on market volatility.
Usually, higher volatility would contribute to higher trading volume. However, a prolonged
period of market volatility in declining markets could lead to a decrease in consumer
confidence and thus trading activity. E*TRADE could be forced to reduce commission rates
for its most active customers. Furthermore, margin borrowing/lending could decline
significantly, leading to earnings shortfall.
Prolonged period of low interest rates
A prolonged low interest rate environment could compress net interest margins. We are
assuming a gradual increase in interest rates over the coming years. A sharp increase in
short-term interest rates could be detrimental to the firm, as its assets seem to have a longer
duration than its liabilities. This could lead to a net interest margin compression and earnings
below our estimate.
Unforeseen regulatory constraints could impact valuation
E*TRADE is a highly regulated entity. The holding company depends on dividend payments
from its subsidiaries to pay for its debt obligations. Any regulatory action that could limit the
company’s ability to “dividend-up” capital to the holding company could negatively impact
the firm’s financial condition and have a direct impact on the firm’s ability to buy back shares
or pay dividends. While the firm does not pay dividends at this time, we are assuming that
the firm will commence paying dividends in 2016.
Balance sheet growth below our expectation could lead to an earnings miss
Changes in average balances, especially client margin, could impact operating results.
Revenues could fall short of our expectation were balance sheet growth to slow significantly
or decline.
The company has significant exposure to mortgage loans which could result in
losses
E*TRADE had a loan portfolio of $6.4 billion as of the end of 2014. This figure includes a
home equity loan portfolio of about $2.8 billion and a one-to-four-family loan portfolio of
about $3.1 billion. Performance of the loan portfolio can vary and the provisions for loan
losses might not be adequate. Deteriorating performance could impact customer retention,
earnings, book value and valuations of the company’s common shares.
Sharp decline in securities markets & deterioration in credit markets/housing
A sharp decline in securities markets could lead to losses as the value of collateral held in
connection with margin receivables would decline. This could create collection issues with
the margin receivable accounts, which could lead to an earnings shortfall. Likewise, the
company continues to have sizeable exposure to the housing market via its portfolio of one-
to four-family loans, home equity loans, and consumer loans. Deteriorating credit/housing
markets could lead to a sharp increase in provisions and a decline in earnings.
Deferred tax assets might not be realized
The firm has about $1.2 billion of deferred tax assets. E*TRADE might have to establish a
valuation allowance against these reserves if it determines that not all of these assets will be
realized. This could negatively impact earnings and valuation.

Quick overview of E*TRADE Financial Corp.
Headquartered at New York, NY, E*Trade Financial Corp. operates as a financial services
company that provides brokerage and related products and services primarily to individual
retail investors. Incorporated in California in 1982, the company was reincorporated in
Delaware in July 1996.
Quick history
The firm’s story is not dissimilar to AIG’s in that bad investment decisions almost resulted in
a disastrous outcome. Here is a summary of how the second largest discount broker very
nearly became extinct as management teams took on too much risk for the sake of earnings
growth. It starts with Mitchell Caplan taking over as the CEO of Financial in 2003 after his
precessor Christos Cotsakos had to step down. Through various articles it became known
that Mr. Cotsakos had been living a lavish lifestyle—at the expense of E*TRADE’s
shareholders. Mr. Caplan had joined E*TRADE Finanical with a retail banking background
after E*TRADE Financial had acquired Telebanc Financial Corporation in 2000, where he had
served as President and CEO.
Mitchell Caplan’s view of the future was different than his predecessors. He wanted to
position the firm as an electronic financial supermarket, away from generating revenues
largely based on trading volumes. After all, E*TRADE Financial managed to generate positive
earnings in only 4 quarters out of 12 quarters from 1999 to 2001. He wanted the bank to play
a more dominant part in generating earnings.
This led to a culture of risk taking—excessive risk taking. The management team’s focus
shifted from discount brokerage services to banking—specifically mortgages and home
equity loans. Initially, management relied on loans originated by the firm to grow the balance
sheet. Then, the company started purchasing mortgage pools from subprime lenders.
This worked for some time, with revenues growing at a steep pace. In fact, E*TRADE
Financial reported four consecutive years of record revenues and earnings from 2003 to
2006.
The firm was chasing yields, making investments in mortgages, mortgage-backed securties,
and various asset-backed securities—until the mortgage meltdown of 2007. By early 2007,
investors became concerned about the mortgage market and the company’s mortgage
portfolio started to show signs of deterioration. Understanding the severity of the situation
in which it found itself, the management team started looking for options with two potential
bidders emerging for E*TRADE Financial’s business. One was Citadel, the other a group
consisting of TD Ameritrade and J.C. Flowers.
The firm announced in September 2007 its strategic plan to transition towards a “retail-
driven” plain vanilla balance sheet. Put differently, it decided to de-risk its balance sheet
after years of taking excessive risk in order to grow earnings. At this point, the firm’s
mortgage portfolio had already deteriorated significantly andE*TRADE Financial’s shares had
lost 35%. The company’s longer-term vision was to structure the balance sheet such that
80% to 85% of liabilities would be deposits from customers (instead of relying on wholesale
funding sources) and 80% to 85% of assets would be loans to customers. The firm wanted to
eliminate second lien mortgage exposure and shift its loan portfolio to first lien mortgages.
The goal was to improve net interest spreads over time and improve the performance of its
loan portfolio by allowing borrowers to prepay their debt and letting loans mature.
However, time was a luxury E*TRADE Finacial did not have. The firm was bailed out with a
$2.5 billion of cash infusion the same day CEO Mitchell Caplan resigned. On November 29,
After years of management
changes and uncertainty,
E*TRADE seems to have a
leadership team in place
that focuses on unlocking
shareholder value while
paying attention to risk
management

2007, Citadel LLC purchased E*TRADE Financial’s securitized subprime mortgage investments
for approximately $800 million in cash—or at 27% of book value. This transaction effectively
removed $3 billion of asset-backed securities (ABS portfolio), collateralized debt obligations,
and second lien loans from the firm’s balance. Citadel also provided $1.75 billion of capital in
exchange for 12.5% senior unsecured notes and a 20% ownership of the firm. Furthermore,
Citadel received a seat on the board of directors. The firm had to take a $2.2 billion pre-tax
charge related to the ABS portfolio. The firm also increased its allowance for loan losses by
$285 million, bringing the total allowance to $400 million.
In March 2008, E*TRADE Finanical named Donald Layton, who had been Chairman of the
board since November 2007, as its new CEO. He replaced Jarrett Lilien as the interim CEO.
However, Mr. Layton retired at the end of 2009, and was replaced by interim CEO and
chairman Robert Druskin—until a permanent CEO was found.
Steven Freiberg, who had held multiple senior positions as Citigroup, was appointed the new
CEO of E*TRADE Financial on April 1, 2010. In August 2012, just two years into his four-year
contract, he stepped down as the firm went through a strategic review. While E*TRADE
Financial had been exploring the sale of its business, as Citadel had suggested earlier, it
abandoned the effort of selling itself. Instead, management embarked on a turnaround
strategy.
Frank Petrilli, the company’s chairman, replaced Mr. Freiberg as an interim CEO until the
current CEO was announced. Mr. Paul T. Idzik was appointed CEO on January 17, 2013. Mr.
Idzik joined the firm after having worked as Group Chief Executive of DTZ Holdings PLC in
London and having served 10 years at Barclays PLC. We have a favorable view of the current
management team as it able to put E*TRADE in a position that could lead to dividend
payments in the not so distant future.
The new management was well received by the markets. As the exhibit below shows, ETFC’s
shares have outperformed its peers since Mr. Idzik took over.
Exhibit 32: Shares of E*TRADE Financial have appreciated over 150% since January 17, 2013
0%
50%
100%
150%
200%
250%
300%
17/01/2013
17/03/2013
17/05/2013
17/07/2013
17/09/2013
17/11/2013
17/01/2014
17/03/2014
17/05/2014
17/07/2014
17/09/2014
17/11/2014
17/01/2015
ETFC S&P 500 AMTD SCHW
Priced as of market close ET, March 24, 2015.
Source: FactSet; RBC Capital Markets
The shares of E*TRADE Financial are up 174.6% from January 17, 2013 to March 24, 2015.
This compares with 40.0% for the S&P 500, 102.8% for TD Ameritrade, and 2.3% for Charles
Schwab.

Products
The company also provides investor-focused banking products, primarily sweep deposits and
savings products, to retail investors. The company provides services to customers in the U.S.
through mobile applications and its website. It also provide services through its network of
customer service representatives and financial consultants, over the phone or in person
through its 30 E*TRADE branches.
Exhibit 33: DARTs (in thousands) Total customer assets (in billions)
151
157
138
151
168
0
45
90
135
180
2010 2011 2012 2013 2014
176.2 172.4
201.2
260.8
290.3
$0
$50
$100
$150
$200
$250
$300
2010 2011 2012 2013 2014
DART - Daily average revenue trades
E*TRADE reported daily average revenue trades (DARTs) of 168,000 during the Q4’14, an
increase of 10% from the prior quarter and an increase of 5% from the same quarter a year
ago. DARTs for the full year were 168,000, up from 151,000 in 2013.
In FY’14, the Company added 146,000 net new brokerage accounts. Brokerage account
attrition for FY’14 was 8.7%, representing a slight improvement from 8.8% in 2013.
Key products/services and client offerings are:
 Trading – Equities, Options, ETFs, Futures & forex, fixed income, Mutual funds
 Margin lending – Enables customers to borrow against their securities
 Customer Support – The Company provides the help of experienced financial
consultants, independent research and analytics, education resources, and screeners
and tools
E*TRADE’s digital platforms are listed below:
 E*TRADE.com – The Company website provides customers with tools, guidance,
actionable ideas, research, and education to take control of their finances
 E*TRADE Mobile – Powerful trading applications for the most popular smart phones and
tablets, delivering the same core functionality as E*TRADE’s desktop platforms
 E*TRADE Pro – Trading platform for active and elite traders, with sophisticated tools

Exhibit 34: ETFC snapshot
Snapshot
Founded 1982
Headquarters New York, NY, USA
President and CEO Paul T. Idzik
Employees 3,377 (as ofDecember 31, 2014)
Business Segments Trading & Investing, Balance sheet management
Total Revenue US$1.814 Billion (as ofDecember 31, 2014)
Total Client Assets US$290.3 Billion (as ofDecember 31, 2014)
Key subsidiaries through which ETFC conducts its business include:
 E*TRADE Bank is a federally chartered savings bank that provides investor-focused
banking products to retail customers nationwide and deposit accounts insured by the
Federal Deposit Insurance Corporation (“FDIC”).
 E*TRADE Securities LLC is a registered broker–dealer and is a wholly owned operating
subsidiary of E*TRADE Bank. It is the primary provider of brokerage products and
services to its customers.
 E*TRADE Clearing LLC is the clearing firm for its brokerage subsidiaries and is a wholly
owned operating subsidiary of E*TRADE Bank. Its main purpose is to clear and settle
securities transactions for customers of E*TRADE Securities LLC.

Revenue break-down
Sources of revenue
The Company’s major sources of revenues are Net Operating Interest income; Commissions;
Fees and service charges; and Gains and losses on securities & Principal transactions.
A) Net Operating Interest income
Net operating interest income is earned primarily through investing customer payables and
deposits in enterprise interest-earning assets, which include: real estate loans, margin
receivables, available-for-sale securities, and held-to-maturity securities. It represents what
is traditionally known as the net interest margin or spread-related revenue, and accounts for
~61% of the total revenues earned during FY’14. This revenue head is largely driven by
investment yield and average balances. This also includes gains and losses on the legacy
mortgage portfolio. At the end of quarter ended December 2014, net interest spread stood
at 2.69%, up from 2.40% in Q4 2013.
Exhibit 35: Enterprise interest-earnings assets | yield ($ in billion)
$6.5,
407 bps
$24.8, 256bps
$1.7, 13bps
$7.9,
449 bps
Q4 14 Enterprise Interest Earnings Assets | yield
Legacy Loan Agency Securities Cash Margin receivables & other
Source: Company reports; RBC Capital Market
Exhibit 36: Enterprise interest-bearing liabilities | cost ($ in billion)
$5.1,
360bps
$24.7,
-5bps
$1.7,
-69bps
$6.4,
38bps
Q4 14 Enterprise interest bearing liabilities | cost
Wholesale Funding Customer deposits Other Customer assets held by third parties

Prior to the 2008 crisis, the company took on additional debt to invest in mortgage-backed
securities. In 2007, the value of these investments deteriorated resulting in substantial write-
downs and additional capital requirement for ETFC, which in turn were provided by hedge
fund Citadel. ETFC has been able to refinance some of its high cost debt and now has ~$1.3
billion in corporate debt at an average cost of 5.97%. ETFC has since discontinued its
mortgage-backed program and has no asset-backed securities in its portfolio. The write-
downs resulted in a deferred tax asset of $1.2 billion, which is used to offset tax liability
against current income. The legacy loan portfolio currently stands at $6 billion down from
$31 billion in 2007. This holding is among the highest yielding assets in the portfolio, carrying
a yield of 4.07%.
Exhibit 37: Average interest-earning assets ($ in billion)
$44.5 $41.1 $42.7 $44.3 $40.9 $41.4
2.72%
2.91%
2.79%
2.39% 2.33%
2.55%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
$39.0
$40.0
$41.0
$42.0
$43.0
$44.0
$45.0
2009 2010 2011 2012 2013 2014
Average interest earning assets Net Interest Spread
B) Commissions
Commissions are a function of daily average revenue trades (DARTs), average commission
per trade, and the number of trading days. Average commission per trade is determined by
customer mix and the different commission rates on various trade types (e.g., equities,
options, fixed income, stock plan, exchange-traded funds, mutual funds, forex, and cross
border). DARTs for the quarter ended 2014 stood at 168,000, up from 153,000 in the last
quarter. Average commission per trade for the quarter was $10.84, compared with $11.05 in
the prior quarter, and $10.97 in the fourth quarter of 2013. Option DARTs represent 22% of
2014 of total DARTs, given that options represent recurring revenue as options expire and
need to be renewed. ETFC charges an extra $0.75 per contract for options.

Exhibit 38: DARTs chart with option trading
179 151 157 138 151 169
13%
17%
20%
24% 24%
22%
0%
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
120
140
160
180
200
2009 2010 2011 2012 2013 2014
DARTs (000’s) Options DARTs
C) Fees and services charges
Fees and services charges comprise payment for order flow, which is the largest component
for this revenue stream. This also includes mutual fund service fees, foreign exchange
revenue, and advisor management fees. ETFC has 1% of customer assets in retirement
accounts and 27% of their brokerage accounts are retirement accounts. As of December
2014, the Company has $47.9 billion in retirement assets and $3.1 billion in managed
accounts.
Exhibit 39: Retirement assets Managed accounts
$23 $28 $30 $35 $43 $48
$0
$10
$20
$30
$40
$50
$60
2009 2010 2011 2012 2013 2014
Retirement assets ($B)
$0.3 $0.7 $1.3 $2.4 $3.1
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2009 2010 2011 2012 2013 2014
Assets in managed accounts ($B)

Exhibit 40: Total customer assets
$151 $176 $172 $201 $261 $290
$0
$50
$100
$150
$200
$250
$300
$350
2009 2010 2011 2012 2013 2014
Total customer assets ($B)
D) Gains on loans and securities & Principal transactions
Gains on loans and securities is driven by gains or losses resulting from the sale of available-
for-sale securities, trading securities, sales of loans, hedge ineffectiveness, and derivative
instruments, which are not accounted as hedging instruments.
Exhibit 41: Segment revenue break-up FY’14 vs. FY’10 ($M)
FY '14 Revenues
($1,776M)
61%
1%
26%
10%
2%
FY '10 Revenues
($2,069M)
59%
5%
21%
7%
8%
Net operating interest income Commissions
Fees and service charges Principal transactions
Gains on loans and securities, net
Net operating interest income, which is earned through investing deposits and customer
payables in enterprise interest-earning assets, is the biggest source of revenue for the
company. As depicted in the chart, during FY’14, the majority of revenues were generated
from Net Operating Interest income (61%), followed by Commissions (26%), Fees and service
charges (10%), Gains on loans and securities (2%), and Principal transactions (1%). During
FY’10, the majority of revenues were generated through Net Operating Interest income
(59%), followed by Commissions (21%), and Gains on loans and securities (7%).

Business segments
The Company primarily operates in two segments: Trading and investing, and Balance sheet
management
Trading and investing
Trading and investing includes retail brokerage products and services; investor-focused
banking products; market making; and corporate services.
Balance sheet management
Balance sheet management includes the management of asset allocation; loans previously
originated by the Company or purchased from third parties; deposits and customer payables;
and credit, liquidity, and interest rate risk for the Company.
Exhibit 42: Revenue break-up of business segments
Net
Operating
interest
income
46%
Commissions
35%
Fees &
service
charges
14%
Principal
transactions
2%
Other
revenues
3%
Trading & Investing LTM Sep'14 revenues
(in $M)
Net Operating
interest
income
91%
Gains on loans
and securities
8%
Other
revenues
1%
Balance Sheet Management LTM Sep'14 revenues
(in $M)

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