E TRADE Financial Corp.
Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549______________________________________FORM 10-K______________________________________ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017Commission File Number 1-11921 ________________________________ETRADE Financial Corporation(Exact Name of Registrant as Specified in its Charter)______________________________________________Delaware 94-2844166(State or other jurisdictionof incorporation or organization) (I.R.S. EmployerIdentification Number)11 Times Square, 32nd Floor, New York, New York 10036(Address of principal executive offices and Zip Code)(646) 521-4300(Registrant’s telephone number, including area code)Securities Registered Pursuant to Section 12(b) of the act:Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share The NASDAQ Stock Market LLCNASDAQ Global Select MarketSecurities Registered Pursuant to Section 12(g) of the Act: None _____________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growthcompany. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.Large accelerated filer xAccelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company)Smaller reporting company ¨Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xAt June 30, 2017, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $8.0 billion (based upon the closing price per share of theregistrant's common stock as reported by the NASDAQ Global Select Market on that date). Shares of common stock held by each officer, director and holder of 5% or more ofthe outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliates' status is not necessarily a conclusivedetermination for other purposes.Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:As of February 16, 2018, there were 266,334,340 shares of common stock outstanding.Documents Incorporated by Reference: Certain portions of the definitive Proxy Statement related to the Company’s 2018 Annual Meeting of Stockholders, to be filed hereafter(incorporated into Part III hereof).Table of Contents E*TRADE FINANCIAL CORPORATIONFORM 10-K ANNUAL REPORTFor the Year Ended December 31, 2017TABLE OF CONTENTSPART I Forward-Looking Statements1Item 1.Business2 Overview2 Strategy3 Products and Services4 Sales and Customer Service5 Competition6 Regulation6 Available Information10Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments23Item 2.Properties24Item 3.Legal Proceedings24Item 4.Mine Safety Disclosures24 PART II Item 5.Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities25Item 6.Selected Financial Data28Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)29 Overview29 Earnings Overview38 Balance Sheet Overview48 Liquidity and Capital Resources52 Risk Management59 Concentrations of Credit Risk65 Summary of Critical Accounting Policies and Estimates66 Statistical Disclosure by Bank Holding Companies68Item 7A.Quantitative and Qualitative Disclosures about Market Risk75 Key Terms78Item 8.Financial Statements and Supplementary Data82 Management Report on Internal Control Over Financial Reporting83 Reports of Independent Registered Public Accounting Firm84 Consolidated Statement of Income86 Consolidated Statement of Comprehensive Income87 Consolidated Balance Sheet88 Consolidated Statement of Shareholders’ Equity89 Consolidated Statement of Cash Flows90 Notes to Consolidated Financial Statements92 Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies92 Note 2—Restructuring and Other Acquisition-Related Activities107 Note 3—Interest Income and Interest Expense109E*TRADE 2017 10-K | Page i Table of Contents Note 4—Fair Value Disclosures110 Note 5—Offsetting Assets and Liabilities119 Note 6—Available-for-Sale and Held-to-Maturity Securities121 Note 7—Loans Receivable, Net125 Note 8—Derivative Instruments and Hedging Activities132 Note 9—Property and Equipment, Net134 Note 10—Goodwill and Other Intangibles, Net136 Note 11—Receivables From and Payables To Brokers, Dealers and Clearing Organizations137 Note 12—Deposits138 Note 13—Other Borrowings138 Note 14—Corporate Debt139 Note 15—Income Taxes141 Note 16—Shareholders' Equity145 Note 17—Earnings Per Share150 Note 18—Regulatory Requirements150 Note 19—Lease Arrangements153 Note 20—Commitments, Contingencies and Other Regulatory Matters153 Note 21—Condensed Financial Information (Parent Company Only)157 Note 22—Quarterly Data (Unaudited)159 Note 23—Subsequent Event159Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure159Item 9A.Controls and Procedures160Item 9B.Other Information160 PART III Item 10.Directors, Executive Officers and Corporate Governance161Item 11.Executive Compensation161Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters161Item 13.Certain Relationships and Related Transactions, and Director Independence161Item 14.Principal Accountant Fees and Services161 PART IVItem 15.Exhibits and Financial Statement Schedules162Item 16.Form 10-K Summary165 Signatures166 Unless otherwise indicated, references to "the Company," "we," "us," "our," "E*TRADE" and "E*TRADE Financial" mean E*TRADEFinancial Corporation and its subsidiaries, and references to the parent company mean E*TRADE Financial Corporation but not itssubsidiaries.E*TRADE, E*TRADE Financial, E*TRADE Bank, the Converging Arrows logo, OptionsHouse and Equity Edge Online are registered trademarks ofE*TRADE Financial Corporation in the United States and in other countries. All other trademarks are the property of their respective owners.E*TRADE 2017 10-K | Page ii Table of Contents PART I FORWARD-LOOKING STATEMENTSThis report contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks anduncertainties. These statements discuss, among other things, our future plans, objectives, outlook, strategies, expectations and intentions relatingto our business and future financial and operating results and the assumptions that underlie these matters and include statements regarding ourcapital plan initiatives and expected balance sheet size, the payment of dividends from our subsidiaries to our parent company, the managementof our legacy loan portfolio, our ability to utilize deferred tax assets, the expected implementation and applicability of government regulation andour ability to comply with these regulations, continued repurchases of our common stock, payment of dividends on our preferred stock, our abilityto meet upcoming debt obligations, the integration and related restructuring costs of past and any future acquisitions, the expected outcome ofexisting or new litigation, our ability to execute our business plans and manage risk, the potential decline of fees and service charges, the futuresources of revenue, expense and liquidity and any other statement that is not historical in nature. These statements may be identified by the useof words such as "assume," "expect," "believe," "may," "will," "should," "anticipate," "intend," "plan," "estimate," "continue" and similarexpressions. We caution that actual results could differ materially from those discussed in these forward-looking statements. Important factorsthat could contribute to our actual results differing materially from any forward-looking statements include, but are not limited to, changes inbusiness, economic or political condition, performance, volume and volatility in the equity and capital markets, changes in interest rates or interestrate volatility, customer demand for financial products and services, our ability to continue to compete effectively and respond to aggressive pricecompetition within our industry, cyber security threats, potential system disruptions and other security breaches or incidents, our ability toparticipate in consolidation opportunities in our industry, to complete consolidation transactions and to realize synergies or implement integrationplans, our ability to service our corporate debt and, if necessary, to raise additional capital, changes in government regulation or actions by ourregulators, including those that may result from the implementation and enforcement of regulatory reform legislation, our ability to move capital toour parent company from our subsidiaries, adverse developments in litigation, our ability to manage our balance sheet growth, the timing, durationand costs associated with our stock repurchase program and other factors discussed under MD&A and Item 1A. Risk Factors of this Form 10-K;and elsewhere in this report and in other reports we file with the Securities and Exchange Commission (SEC). By their nature forward-lookingstatements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predictor quantify. Actual future results may vary materially from expectations expressed or implied in this report or any of our prior communications. Theforward-looking statements contained in this report reflect our expectations only as of the date of this report. Investors should not place unduereliance on forward-looking statements, as we do not undertake to update or revise forward-looking statements to reflect the impact ofcircumstances or events that arise after the date the forward-looking statements were made, except as required by law.E*TRADE 2017 10-K | Page 1 Table of Contents ITEM 1. BUSINESSOVERVIEWWe are a financial services company that provides online brokerage and related products and services primarily to individual retail investors.Founded on the principle of innovation, we aim to enhance the financial independence of traders and investors through a powerful digitalexperience that includes tools and educational material, supported by professional guidance, to help individual investors and traders meet theirnear- and long-term investing goals. We provide these services to customers through our digital platforms and network of industry-licensedcustomer service representatives and financial consultants, over the phone, by email and online via two national financial centers and in-person at30 regional financial centers across the United States. We operate federally chartered savings banks with the primary purpose of maximizing thevalue of deposits generated through our brokerage business.Our corporate offices are located at 11 Times Square, 32nd Floor, New York, New York 10036. We were incorporated in California in 1982 andreincorporated in Delaware in July 1996. We had approximately 3,600 employees at December 31, 2017. We operate directly and through severalsubsidiaries, many of which are overseen by governmental and self-regulatory organizations (SROs). Substantially all of our revenues for the yearsended December 31, 2017, 2016 and 2015 were derived from our operations in the United States. Our most important subsidiaries are describedbelow:•E*TRADE Securities LLC (E*TRADE Securities) is a registered broker-dealer that clears and settles customer securities transactions.•E*TRADE Bank is a federally chartered savings bank that provides Federal Deposit Insurance Corporation (FDIC) insurance on qualifyingamounts of customer deposits and provides other banking and cash management capabilities.•E*TRADE Savings Bank, a subsidiary of E*TRADE Bank, is a federally chartered savings bank that provides FDIC insurance on qualifyingamounts of customer deposits.•E*TRADE Futures LLC (E*TRADE Futures) is a registered non-clearing Futures Commission Merchant (FCM) that provides clearing andsettlement services for customer futures transactions.•E*TRADE Capital Management, LLC (E*TRADE Capital Management) is a registered investment adviser that provides investment advisoryservices for our customers.•E*TRADE Financial Corporate Services is a provider of software and services for managing equity compensation plans to our corporateclients.E*TRADE 2017 10-K | Page 2 Table of Contents Delivering a powerful digital offering to our customers is a core pillar of our business strategy and we believe our focus on being a digital leader inthe financial services industry is a competitive advantage. Our hybrid delivery model is available through the following award-winning digitalplatforms:WebOur leading-edge sites for customers and our primary channel to interact with prospects • Access to a broad range of trading solutions• Actionable ideas and information• Research and education for decision making MobilePowerful trading applications for smartphones, tablets and watches • Award-winning mobile apps• Platforms to manage accounts on the move• Stock and portfolio alerts Active Trading PlatformsPowerful software and web-based trading solutions • Sophisticated trading tools• Idea generation and analysis• Advanced portfolio and market trackingSTRATEGYOur business strategy is centered on two key objectives: accelerating the growth of our core brokerage business to improve market share, andgenerating robust earnings growth and healthy returns on capital to deliver long-term value for our shareholders.Accelerate Growth of Core Brokerage Business•Enhance overall customer experienceWe are focused on delivering cutting-edge trading solutions while improving our market position in investing products. Through these offerings,we aim to continue growing our customer base while deepening engagement with our existing customers.•Capitalize on value of corporate services channelOur corporate services channel is a strategically important driver of brokerage account and asset growth. We leverage our industry-leadingposition in corporate stock plan administration to improve client acquisition and engage with plan participants to bolster awareness of our fullsuite of offerings.Generate Robust Earnings Growth and Healthy Returns on Capital•Utilize balance sheet to enhance returnsWe utilize our bank structure to effectively monetize brokerage relationships by investing stable, low-cost deposits primarily in agencymortgage-backed securities. Meanwhile, we continue to manage down the size and risk associated with our legacy loan portfolio.E*TRADE 2017 10-K | Page 3 Table of Contents •Put capital to work for shareholdersAs we continue to deliver on our capital plan initiatives, we are focused on generating and effectively deploying excess capital, includingthrough our share repurchase program, for the benefit of our shareholders.PRODUCTS AND SERVICESWe offer a broad range of products and services to our customers. Our core brokerage business is organized into three product areas: Trading,Investing and Corporate Services. Additionally, we offer banking and cash management capabilities, including FDIC-insured deposit accounts,which are fully integrated into customer brokerage accounts. Among other features, customers have access to debit cards with ATM fee refunds,online and mobile bill pay, mobile check deposits, Apple Pay and E*TRADE Line of Credit.TradingThe Company delivers automated trade order placement and execution services, offering our customers a full range of investment vehicles,including US equities, exchange-traded funds (ETFs), options, bonds, futures, American depositary receipts (ADRs) and non-proprietary mutualfunds. Margin accounts are also available to qualifying customers, enabling them to borrow against their securities. We help customers plan andexecute margin trades through robust margin solutions, including calculators and requirement lookup and analysis tools. The Company also offersa fully paid lending program, which allows our customers to be compensated for lending certain securities in their account.The Company markets trading products and services to self-directed investors and active traders. Products and services are delivered throughweb, desktop and mobile digital channels. Trading and investing tools are supported by guidance, including fixed income, options and futuresspecialists available on-call for customers. Other tools and resources include independent research and analytics, live and on-demand education,and strategies, trading ideas and screeners for major asset classes.InvestingThe Company endeavors to help investors build wealth and address their long-term investing needs. Products and services include individualretirement accounts (IRAs), including Roth IRAs, and a suite of managed products and asset allocation models. These include our Core Portfolios,Blend Portfolios, Dedicated Portfolios, and Fixed Income Portfolios. Investors are provided a full breadth of digital tools across the Company's weband mobile channels to address their investing needs. These include planning and allocation tools, education, and editorial content.The Company also offers guidance through a team of licensed financial consultants and Chartered Retirement Planning CounselorsSM at our 30regional financial centers across the country. Guidance is also accessible through our two national financial centers by phone, email and onlinechannels. Customers can receive complimentary portfolio reviews and personalized investment recommendations.E*TRADE 2017 10-K | Page 4 Table of Contents Corporate ServicesThe Company provides stock plan administration services for both public and private companies. Through our industry-leading platform, EquityEdge Online™, the Company offers management of employee stock option plans, employee stock purchase plans and restricted stock plans withfully-automated stock plan administration. Accounting, reporting and scenario modeling tools are also available. The integrated stock plansolutions include multi-currency settlement and delivery, disbursement in international countries and streamlined tax calculation. Additionally,corporate clients are offered 10b5-1 plan design and implementation and SEC filing assistance. The Company's digital platforms allow participantsin corporate client stock plans to view and manage their holdings. Additionally, participants have access to education tools, restricted stock salessupport and dedicated stock plan service representatives. The Corporate Services channel is an important driver of brokerage account and assetgrowth, serving as an introductory channel to the Company, with approximately 1.5 million individual stock plan accounts across nearly 1,000corporate clients that represent approximately 20% of S&P 500 companies.SALES AND CUSTOMER SERVICEWe believe providing superior sales and customer service is fundamental to our business. We strive to maintain a high standard of customerservice by staffing the customer support team with appropriately trained personnel who are equipped to handle customer inquiries in a prompt andthorough manner. Our customer service representatives utilize technology solutions that enable our team to reduce the number of touch-pointsrequired to answer customer inquiries. We also have specialized customer service programs that are tailored to the needs of each core customergroup. We provide sales and customer support through the following channels:OnlineOur Online Service Center serves as a portal for customer requests, providing answers to frequently askedquestions, a secure message portal, and live chat capabilities to engage directly with our customer servicerepresentatives. In addition, our Investor Education Center provides customers with access to a variety of live andon-demand educational content and courses. PhoneWe have a toll-free number that connects customers to the appropriate department where an investment advisor orcustomer service representative can assist with the customer's inquiry. Financial CentersWe have 30 financial centers located across the US where retail investors can get face-to-face support andguidance. Financial consultants are available on-site to help customers assess their current asset allocation anddevelop plans to help them achieve their investment goals. Customers can also contact our financial consultants viaphone or e-mail.E*TRADE 2017 10-K | Page 5 Table of Contents COMPETITIONThe online financial services industry continues to evolve and remains highly competitive. Our core brokerage business competes with full service,discount, and online brokerage firms, Registered Investment Advisers (RIAs), finance technology start-ups, internet banks, and retail banks andthrifts. Some of these competitors provide online trading and banking services, investment advisor services, robo-advice capabilities, electronicbill payment services and a host of other financial products.Competition in the financial services industry continues to intensify, particularly amid continued consolidation and recent declines in commissionpricing. The proliferation of emerging financial technology start-ups further evidences the continued shift to digital offerings. Our future success willdepend upon our ability to continue providing digitally compelling and easy to use products and solutions to retail customers.We also face competition in attracting and retaining qualified employees. Our ability to compete effectively in financial services will depend uponour ability to attract new employees, and retain and motivate our existing employees while efficiently managing compensation-related costs.REGULATIONOur business is subject to regulation, primarily by US federal and state regulatory agencies and certain SROs, such as central banks andsecurities exchanges, that have been charged with the protection of the financial markets and the interests of those participating in those markets.We, along with other larger institutions, have been subject to a broad range of rules and regulations and a climate of heightened regulatoryscrutiny, particularly with respect to compliance with laws and regulations, including controls and business processes. This scrutiny and relatedrule-making has resulted in part from the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010,which significantly changed the bank regulatory structure of our Company and its thrift subsidiaries. The substance and full impact of the laws andregulations to which we are subject may be affected by changes in the US political landscape, and we expect to continue to incur costs toimplement new or phase-in requirements and monitor for continued compliance. For additional regulatory information on our brokerage and bankingregulations, see MD&A—Liquidity and Capital Resources and Note 18—Regulatory Requirements.Financial Services RegulationOur regulators are increasingly focused on ensuring that our customer privacy, data protection, information security and cyber security-relatedpolicies and practices are adequate to inform consumers of our data collection, use, sharing or security practices, to provide them with choices, ifrequired, about how we use and share their information, and to safeguard their personal information. We maintain systems designed to comply withthese privacy, data protection, information security and cyber security requirements, including procedures designed to securely process, transmitand store confidential information and protect against unauthorized access to such information.Our brokerage and banking entities are required by the Gramm-Leach-Bliley Act of 1999 to disclose their privacy policies and practices related tosharing customer information with affiliates and non-affiliates. These rules give customers the ability to "opt out" of having non-public informationdisclosed to third parties or receiving marketing solicitations from affiliates and non-affiliates based on non-public information received from ourbrokerage and banking entities. The Bank Secrecy Act, as amended by the USA PATRIOT ACT of 2001 (BSA/USA PATRIOT Act), applies to ourbrokerage and banking entities and requires financial institutions to develop anti-money laundering (AML) programs to assist in the prevention anddetection of money laundering and combating terrorism. In order to comply with the BSA/USA PATRIOT Act, we have an AML department that isresponsible for developing and implementing our enterprise-wide programs for compliance with the various anti-money laundering and counter-terrorist financing laws andE*TRADE 2017 10-K | Page 6 Table of Contents regulations. Our brokerage and banking entities are also subject to US sanctions laws administered by the Office of Foreign Assets Control and wehave policies and procedures in place to comply with these laws.Savings and Loan Holding Company and Bank RegulationThe Board of Governors of the Federal Reserve System (Federal Reserve Board, and together with the twelve Federal Reserve Banks, the FederalReserve) has primary jurisdiction for the supervision and regulation of savings and loan holding companies, including the Company. We arerequired to file periodic reports with the Federal Reserve and are subject to its examination and supervision. The Federal Reserve Board hasissued guidance aligning the supervisory and regulatory standards of savings and loan holding companies more closely with the standardsapplicable to bank holding companies on such matters as liquidity risk management, securitizations, operational risk management, internalcontrols and audit systems, business continuity and compensation and other employee benefits.Our banking entities are regulated, supervised, and examined by the Office of the Comptroller of the Currency (OCC), the Consumer FinancialProtection Bureau (CFPB), and the FDIC. The banking entities are also subject to regulation and various requirements and restrictions under stateand other federal laws. Such regulation covers all aspects of the banking business, including lending practices, safeguarding deposits, customerprivacy and information security, capital structure, transactions with affiliates and conduct and qualifications of personnel.In certain circumstances, each of our banking entities may be subject to restrictions on its ability to declare dividends or make capital distributionsand may be required to provide notice, submit applications or requests for non-objection from the OCC or the Federal Reserve in connection with aplanned capital distribution. A savings and loan holding company, such as the Company, is also required to notify and consult with the FederalReserve in advance of taking capital actions when, among other things, doing so could create safety and soundness concerns or the savings andloan holding company is experiencing financial weakness.The US Basel III framework for the calculation of a banking organization’s regulatory capital and risk-weighted assets became effective for us andfor our savings association subsidiaries on January 1, 2015, subject to a phase-in period for certain requirements over several years. The Basel IIIrule established Common Equity Tier 1 capital as a new tier of capital, raised the minimum thresholds for required capital, increased minimumrequired risk-based capital ratios, narrowed the eligibility criteria for regulatory capital instruments, provided for new regulatory capital deductionsand adjustments, and modified methods for calculating risk-weighted assets. A capital conservation buffer was also introduced, which limits abanking organization’s ability to make capital distributions and discretionary bonus payments to executive officers if it fails to maintain a CommonEquity Tier 1 capital conservation buffer of at least 2.5%, on a fully phased-in basis, of total risk-weighted assets above certain minimum risk-based capital ratio requirements. This requirement was effective beginning on January 1, 2016, and will be fully phased-in by 2019. In addition,certain deductions from and adjustments to regulatory capital are subject to phase-in over a four year period that began in 2015. The majority ofthese deductions are scheduled for full implementation in 2018; however, federal banking agencies recently finalized a rule that extended theexisting capital requirements for certain items, including certain deferred tax assets. This extension is not expected to have a material impact onthe Company's capital ratios and we expect to remain compliant with the Basel III framework as it is phased-in.The FDIC Improvement Act of 1991 requires the appropriate federal banking regulator to take "prompt corrective action" with respect to adepository institution if that institution does not meet certain capital adequacy standards. While these regulations generally apply only to banks,such as E*TRADE Bank and E*TRADE Savings Bank, the Federal Reserve is authorized to take appropriate action against a parent savings andloan holding company, such as the Company, based on the undercapitalized status of any bank subsidiary. In certain instances, we would berequired to guarantee the performance of a capital restoration plan if either of our bank subsidiaries were undercapitalized.E*TRADE 2017 10-K | Page 7 Table of Contents The Company has historically not been subject to certain regulatory requirements that apply to banking organizations with $50 billion or more intotal consolidated assets, as defined by each applicable regulation. Total consolidated assets of $50 billion, which is generally measured on thebasis of the average of the four most recent quarters, is a meaningful regulatory threshold, as US banking organizations become subject to anumber of additional, and in some cases more stringent, regulatory requirements once they reach that size. The Company surpassed $50 billion intotal consolidated assets on a four-quarter average in the first quarter of 2017 and we are continuing to implement policies, procedures, systemsand governance structures that are designed to comply with requirements that will become applicable to the Company. The Company is continuingto monitor for regulatory developments as certain regulatory requirements are not yet final or not yet applicable to savings and loan holdingcompanies.Capital Stress TestingE*TRADE Bank, as a federal savings association with total consolidated assets of more than $10 billion, is required to conduct annual company-run stress tests using certain regulator-specified scenarios (baseline, adverse and severely adverse), report the results to the OCC, and publiclydisclose a summary of results for the severely adverse scenario. E*TRADE Bank conducted its annual stress test using financial statement dataas of December 31, 2016, reported the stress test results to the OCC in July 2017, and publicly disclosed a summary of results for the severelyadverse scenario in October 2017. The timeline for E*TRADE Bank's stress test reporting to the OCC for 2018 will be the same as that for 2017.The Company became subject to the annual company-run stress tests requirement in 2017. The Company conducted its first annual stress testusing financial statement data as of December 31, 2016, as required by Federal Reserve Board Regulations, reported the stress test results to theFederal Reserve in July 2017, and publicly disclosed a summary of results for the severely adverse scenario in October 2017. For 2018, theCompany will be required to complete and report the annual company-run stress test results to the Federal Reserve Board in April 2018 andpublicly disclose a summary of results for the severely adverse scenario in June 2018.As a savings and loan holding company, the Company is not currently subject to the Comprehensive Capital Analysis and Review (CCAR) processconducted pursuant to the Federal Reserve Board's capital plan rule. The Company may be subject to CCAR requirements in the future based onpotential changes in regulations.Liquidity RequirementsLarge banking organizations are subject to a quantitative liquidity coverage ratio (LCR) requirement, which required banking organizations to holdminimum amounts of high-quality liquid assets (HQLA) based on a percentage of their net cash outflows over a 30-day period as projected underthe LCR rule. Banking organizations with $250 billion or more in total consolidated assets or foreign exposures of $10 billion or more are subject tofull LCR requirements. Bank and savings and loan holding companies with total consolidated assets of $50 billion or more but less than $250billion, based on the average of the four most recent quarters, that do not have foreign exposures of $10 billion or more, such as the Company, aresubject to a modified LCR rule requiring them to hold HQLA in an amount equal to at least 70% of their projected net cash outflows over a 30-dayperiod. As a result of the Company's balance sheet growth, we will be subject to the modified LCR requirement beginning April 1, 2018. TheCompany believes the LCR is an important measure of liquidity and has been managing against it in preparation for the applicability of theserequirements. In addition, beginning October 1, 2019, we will be required to disclose certain quantitative and qualitative information related to ourLCR calculation after each calendar quarter.In addition to the modified LCR rule, the Company may in the future be required to comply with rules proposed by the Federal Reserve Board inMay 2016 that would impose a net stable funding requirement, the net stable funding ratio (NSFR). The proposed NSFR requirement would requirea banking organization subject to the rule to maintain a minimum acceptable level of stable funding based on its liquidityE*TRADE 2017 10-K | Page 8 Table of Contents characteristics over a one-year time horizon. The proposal contemplates an effective date of January 1, 2018; however, the proposal has yet to befinalized.Resolution and Recovery PlansIn 2012, the FDIC issued a final rule requiring insured depository institutions with total assets of $50 billion or more, based on the average of thefour most recent quarters, to submit to the FDIC periodic plans providing for their resolution by the FDIC in the event of failure (resolution plans)under the receivership and liquidation provisions of the Federal Deposit Insurance Act. E*TRADE Bank is currently not subject to these rules, butif it were to exceed the asset threshold, it would be required to file with the FDIC an annual resolution plan demonstrating how it could be resolvedin an orderly and timely manner in the event of receivership such that the FDIC would be able to ensure the bank's depositors receive access totheir deposits within one business day, to maximize the net present value of the bank's assets when disposed of, and to minimize losses incurredby the bank's creditors. There is a separate resolution plan requirement for bank holding companies with total consolidated assets of $50 billion ormore; however, the Company is not subject to this rule due to its status as a savings and loan holding company.In September 2016, the OCC published final guidelines that establish standards for recovery planning for federal savings associations with averagetotal consolidated assets of $50 billion or more, based on the average of the four most recent quarters. E*TRADE Bank is currently not subject tothese guidelines, but if it were to exceed the asset threshold, it would be required to develop and maintain a recovery plan for identifying andresponding rapidly to significant stress events that could affect its financial condition and threaten its viability. The recovery plan would need toidentify triggers for escalation of information to senior management and the board of directors, identify a wide range of viable options thatE*TRADE Bank could undertake in response to severe stress, and be integrated into E*TRADE Bank’s risk governance function.Federal Deposit Insurance and Related AssessmentsThe FDIC’s Deposit Insurance Fund (DIF) provides insurance coverage for certain deposits, generally up to $250,000 per depositor, per insuredbank and per account ownership type, and is funded by quarterly assessments on insured depository institutions. Each of our banking entities hasdeposits insured by the FDIC and pays quarterly assessments to the DIF, maintained by the FDIC, for this insurance coverage. On March 25,2016, the FDIC published its final rule to add a surcharge to the regular DIF assessments of banks with $10 billion or more in assets, whichincludes E*TRADE Bank. Under the final rule, E*TRADE Bank is subject to an additional surcharge applied to its assessment base, which tookeffect for the assessment period beginning on July 1, 2016. Surcharges at an annual rate of 4.5 basis points will be assessed until the sooner of(1) the DIF attaining the minimum reserve ratio of 1.35 percent of insured deposits or (2) the fourth quarter of 2018. The FDIC anticipates eightquarters of surcharge assessments. There may be a one-time “shortfall assessment” in the first quarter of 2019 to bring the fund immediately to1.35 percent if needed. The surcharge has not had, and is not expected to have, a material impact on our financial condition, results of operationsor cash flows.Home Owners' Loan ActUnder the Home Owners’ Loan Act, the OCC requires E*TRADE Bank and E*TRADE Savings Bank to comply with the qualified thrift lender (QTL)test. Under the QTL test, a federal savings association is required to maintain at least 65% of its “portfolio assets” (defined as the savingsassociation’s total assets less the sum of: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the valueof property used to conduct its business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, includingcertain mortgage-backed securities, credit card loans, student loans and small business loans) in at least nine months of the most recent 12-month period. E*TRADE Bank and E*TRADE Savings Bank currently meet that test. A savings association that fails to meet the QTL test issubject to certain operating restrictions and may be required to convert to a national bank charter.E*TRADE 2017 10-K | Page 9 Table of Contents Brokerage Regulation and Capital RequirementsOur US broker-dealer, E*TRADE Securities, is registered with the SEC and is subject to regulation by the SEC and by SROs, such as theFinancial Industry Regulatory Authority (FINRA) and the securities exchanges of which it is a member, as well as various state regulators. Inaddition, our FCM subsidiary, E*TRADE Futures, is registered with the CFTC and is a member of the NFA. E*TRADE Capital Management, LLC,is registered with the SEC and is subject to regulation as such by the SEC as well as various state regulators.Brokerage regulation covers various aspects of brokerage activities, including segregated cash requirements and net capital. E*TRADE Securitiescarries security accounts for customers and maintains segregated cash and investments pursuant to Rule 15c3-3 under the Securities ExchangeAct of 1934. E*TRADE Futures maintains cash deposits that have been segregated or secured for the benefit of futures clients pursuant to CFTCregulations governing FCMs. E*TRADE Securities is subject to the Uniform Net Capital Rule, Rule 15c3-1 under the Securities Exchange Act of1934, which requires the maintenance of minimum net capital, and E*TRADE Futures is subject to CFTC net capital requirements. Brokerageregulation also covers other brokerage activities, including required books and records, safekeeping of funds and securities, trading, prohibitedtransactions, public offerings, margin lending, customer qualifications for margin and options transactions, registration of personnel andtransactions with affiliates.In April 2016, the US Department of Labor (DOL) published its final Conflicts of Interest Rule- Retirement Investment Advice regulations under theEmployee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 (Fiduciary Rule). Certain aspects of the Fiduciary Rulebecame applicable in June 2017. The Fiduciary Rule generally subjects particular persons, such as broker-dealers and other financial advisersproviding investment advice to individual retirement accounts and other qualified retirement plans and accounts, to fiduciary duties and additionalregulatory restrictions for a wider range of customer interactions. The DOL extended the transition period for the remaining aspects of the FiduciaryRule, currently scheduled to take effect on July 1, 2019. During this transition period, the DOL has indicated that it will not take enforcementactions against impacted parties that are in reasonable and good faith compliance with the regulations.AVAILABLE INFORMATIONWe make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports,available free of charge at our corporate website as soon as reasonably practicable after they have been filed with the SEC. Our corporate websiteaddress is about.etrade.com. Information on our website is not part of this report.The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC20549. The public may obtain information of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website thatcontains the materials we file with the SEC at www.sec.gov.E*TRADE 2017 10-K | Page 10 Table of Contents ITEM 1A. RISK FACTORSThe following discussion sets forth the risk factors which could materially and adversely affect our business, financial condition and results ofoperations, and should be carefully considered in addition to the other information set forth in this report. Additional risks and uncertainties notcurrently known to us or that we currently do not deem to be material may also adversely affect our business, financial condition and results ofoperations.Risks Relating to the Nature and Operation of Our BusinessChanges in business, economic, or political conditions that negatively impact global financial markets could reducetrading volumes and margin lending, resulting in lower revenues.Digital investing services to the retail customer, including trading, margin lending and sweep deposits, account for a significant portion of ourrevenues. Changes in business, economic or political conditions could cause a downturn in the global financial markets. Such a downturn coulddecrease the volume of securities transactions which may, in turn, result in lower transactions revenue. A decrease in trading activity or securitiesprices would also typically be expected to result in a decrease in margin lending, which would reduce our interest income earned on marginreceivables and increase our credit risk because the value of the collateral could fall below the amount of indebtedness it secures.We may be unsuccessful in managing the effects of changes in interest rates on our business.Net interest income is our most significant source of revenue. Our results of operations depend, in part, on our level of net interest income and oureffective management of the impact of changing interest rates and varying asset and liability maturities. Our ability to manage interest rate riskcould impact our financial condition. We use derivatives as hedging instruments to reduce the potential effects of changes in interest rates on ourresults of operations. However, the derivatives we utilize may not be effective at managing this risk and changes in market interest rates and theyield curve could reduce the value of our financial assets and reduce our net interest income.Net interest margin may fluctuate based on the size and mix of the balance sheet, as well as the impact of the interest rate environment. Risinginterest rates and other market factors may cause the Company's funding costs to increase. Higher funding costs without offsetting increases inasset yields may adversely affect our results of operations.We rely heavily on technology, which can be subject to interruption and instability due to operational and technologicalfailures, both internal and external.We rely on technology, particularly the Internet and mobile services, to conduct much of our business activity and allow our customers to conductfinancial transactions. Our systems and operations, including our primary and disaster recovery data center operations, are vulnerable todisruptions from natural disasters, power outages, computer and telecommunications failures, software bugs, computer viruses or other malicioussoftware, distributed denial of service (DDoS) attacks, spam attacks, security breaches, technological failure, human error and other similarevents. Furthermore, parties may attempt to fraudulently induce employees, customers, clients, third parties or other users of our systems todisclose sensitive information in order to gain access to our data or that of our customers. In addition, extraordinary trading volumes or site usagecould cause our computer systems to operate at an unacceptably slow speed or even fail. Disruptions to, instability of or other failure to effectivelymaintain our information technology systems or external technology that allows our customers to use our products and services could harm ourbusiness and our reputation. Should our technology operations be disrupted, we may have to makeE*TRADE 2017 10-K | Page 11 Table of Contents significant investments to upgrade, repair or replace our technology infrastructure and may not be able to make such investments on a timelybasis. While we have made significant investments designed to enhance the reliability and scalability of our operations, we cannot assure that wewill be able to maintain, expand and upgrade our systems and infrastructure to meet future requirements and mitigate future risks on a timely basisor that we will be able to retain skilled information technology employees. Disruptions in service and slower system response times could result insubstantial losses, decreased customer service and satisfaction, customer attrition and harm to our reputation. In addition, technology systems,including our own proprietary systems and the systems of third parties on whom we rely to conduct portions of our operations, are potentiallyvulnerable to security breaches and unauthorized usage. Social and traditional media may incorrectly report on cyber incidents or exaggerate theeffect of a breach. An actual or perceived breach of the security of our technology could harm our business and our reputation. Further, any actualor perceived breach or cybersecurity attack directed at other financial institutions or financial services companies, whether or not we are impacted,could lead to a general loss of customer confidence in the use of technology to conduct financial transactions, which could negatively impact us,including the market perception of the effectiveness of our security measures and technology infrastructure. The occurrence of any of theseevents may have a material adverse effect on our business or results of operations.Further, a cybersecurity intrusion could occur and persist for an extended period of time without detection. We expect that any investigation of acybersecurity intrusion could take a substantial amount of time, and during such time we may not necessarily know the extent of the harm or howbest to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which couldfurther increase the costs and consequences of such an attack.As our business model relies heavily on our customers’ use of their own personal computers, mobile devices and the Internet, our business andreputation could be harmed by security breaches of our customers and third parties. Computer viruses and other attacks on our customers’personal computer systems, home networks and mobile devices or against the third-party networks and systems of internet and mobile serviceproviders could create losses for our customers even without any breach in the security of our systems, and could thereby harm our business andour reputation. As part of our E*TRADE Complete Protection Guarantee, we reimburse our customers for losses caused by a breach of security ofour customers’ own personal systems. Such reimbursements may not be covered by applicable insurance and could have a material impact on ourfinancial performance and results of operations.We rely on third parties to perform certain key functions, and their failure to perform those functions could result in theinterruption of our operations and systems and could result in significant costs and reputational damage to us.We rely on third party service providers for certain technology, processing, servicing and support functions. These providers are also susceptibleto operational and technology vulnerabilities, which may impact our business. In addition, these third party service providers may rely on otherparties (sub-contractors), to provide services to us which also face similar risks. For example, external content providers provide us with financialinformation, market news, quotes, research reports and other fundamental data that we offer to customers. Also, we do not directly service any ofour mortgage loans and, as a result, we rely on third party vendors and servicers to provide information on our loan portfolio.We have third party oversight capabilities which include enhanced processes to evaluate third party providers, designed to verify that the thirdparty service providers can support the stability of our operations and systems. However, these processes may be insufficient and we cannotassure that we will not experience a failure as a result of a third party service provider. Any significant failures or security breaches by or of ourthird party service providers or their sub-contractors, including any actual or perceived cybersecurity attacks, security breaches, fraud, phishingattacks, acts of vandalism, information security breaches and computer viruses which could result in unauthorized access, misuse, loss ordestruction of data, an interruption in service or other similar events could interrupt our business, cause us to incur losses, subject us to fines orlitigation and harm our reputation. An interruption in or the cessation of service by any third party service provider and our inability to makealternative arrangements in a timely manner couldE*TRADE 2017 10-K | Page 12 Table of Contents have a material impact on our ability to offer certain products and services and cause us to incur losses. We cannot assure that any of these thirdparty service providers or their sub-contractors will be able to continue to provide their products and services in an efficient, cost effective manner,if at all, or that they will be able to adequately expand their services to meet our needs and those of our customers. We may incur significantadditional costs to implement enhanced protective measures and technology, to investigate and remediate vulnerabilities or other exposures or tomake required notifications.We expect that our regulators will hold us responsible for any deficiencies in our oversight and control of our third party relationships and for theperformance of such third parties. If there were deficiencies in the oversight and control of our third party relationships, and if our regulators held usresponsible for those deficiencies, our business, reputation, and results of operations could be adversely affected.Unauthorized disclosure of data, whether through a breach of our computer systems or those of our customers or thirdparties, may subject us to significant liability and reputational harm.As part of our business, we are required to collect, use and store customer, employee and third party data, including personally identifiableinformation (PII). This may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, taxidentification numbers and account information. We maintain systems and procedures designed to securely process, transmit and storeconfidential information (including PII) and to protect against unauthorized access to such information. We also require our third party serviceproviders to have adequate security if they have access to PII. However, risks associated with the management, use and storage of sensitivedata have grown in recent years due to increased sophistication and activities of organized crime, hackers, terrorists and other external parties.For example, we, and other financial institutions, experienced a cyber-incident in 2013 which resulted in certain customer contact information beingcompromised and potentially accessed by unauthorized third parties. As of the date of this Annual Report, we are unaware of any financial fraud orother misuse of customer data resulting from this incident. We are cooperating with government agencies in connection with their investigation.We have continued to invest in our technology, including advanced security measures, but, despite these investments, we, our customers and ourthird party service providers may be vulnerable to security breaches, phishing attacks, acts of vandalism, computer viruses or other cybersecurityattacks which could result in unauthorized access, misuse, loss or destruction of data, an interruption in service or other similar events. Inaddition, because the methods and techniques employed by organized crime, hackers, terrorists and other external parties are increasinglysophisticated and often are not fully recognized or understood until after they have been launched, we may be unable to anticipate, detect orimplement effective preventative measures against cybersecurity attacks, which could result in substantial exposure of either employee orcustomer PII. Any breach of security, real or perceived, involving the misappropriation, loss or other unauthorized disclosure of PII, whether by us,our customers or our third party service providers, could severely damage our reputation, expose us to the risk of litigation and liability, disrupt ouroperations and have a materially adverse effect on our business. In addition, although we maintain insurance coverage that we believe isreasonable, prudent and adequate for the purpose of our business, it may be insufficient to protect us against all losses and costs stemming frombreaches of security, cyber-attacks and other types of unlawful activity, or any resulting disruptions from such events.As a result, we are subject to numerous laws and regulations designed to protect this information, such as US federal and state laws and foreignregulations governing the protection of PII and other customer data. These laws and regulations are increasing in complexity and number, changefrequently and sometimes conflict. If any person, including any of our employees, negligently disregards or intentionally breaches our establishedcontrols with respect to client data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages,regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictionsE*TRADE 2017 10-K | Page 13 Table of Contents We conduct all of our operations through subsidiaries and rely on dividends from our subsidiaries for a substantialamount of our cash flows.We depend on dividends, distributions and other payments from our subsidiaries to fund payments on our obligations, including our debtobligations. Regulatory and other legal restrictions limit our ability to transfer funds to or from certain subsidiaries. In addition, many of oursubsidiaries are subject to laws and regulations that authorize regulatory bodies to block or reduce the flow of funds to us, or that prohibit suchtransfers altogether in certain circumstances. These laws and regulations may hinder our ability to access funds that we may need to makepayments on our obligations, including our debt obligations, and otherwise conduct our business.In particular, a savings association that is part of a savings and loan holding company structure, such as E*TRADE Bank and E*TRADE SavingsBank, must file a notice of a declaration of a dividend with the Federal Reserve at least 30 days before the proposed dividend declaration by thebank’s board of directors. OCC regulations set forth the circumstances under which a federal savings association is required to submit anapplication or notice before it may make a dividend or capital distribution. See Business—Regulation for additional information.As of December 31, 2017, much of our capital was invested in our banking subsidiary, E*TRADE Bank. The Federal Reserve may object to aproposed dividend or capital distribution if, among other things, E*TRADE Bank is, or as a result of such dividend or distribution would be,undercapitalized or it has safety and soundness concerns. We cannot be certain, however, that we will receive regulatory approval for suchcontemplated dividends at the requested levels or at all. We expect to use excess capital generated by E*TRADE Bank to fund balance sheetgrowth and the contemplated acquisitions previously announced, however we will continue to assess our ability to distribute dividends fromE*TRADE Bank during 2018.Under the OCC stress test regulations, E*TRADE Bank is required to conduct stress-testing using the prescribed stress-testing methodologies. In2017, E*TRADE Bank submitted and published the results of its third annual stress test, as required. The OCC analyzes and provides feedbackon the quality of E*TRADE Bank's stress test process and results. While there is no formal mechanism for the OCC to "pass" or "fail" E*TRADEBank's stress test processes and results, it will likely consider these processes and results in evaluating proposed actions that may affect ourbank's capital, including but not limited to redemption or repurchase of regulatory capital instruments, dividends and mergers and acquisitions. Ifthe OCC were to object to any such proposed action, our business prospects, results of operations and financial condition could be adverselyaffected.We operate in a highly competitive industry where many of our competitors have greater resources and may have productsuites that may appeal to our current or potential customers.The financial services industry is highly competitive, with multiple industry participants competing for the same customers. Many of ourcompetitors have longer operating histories and greater resources than we have and offer a wider range of financial products and services. Theimpact of competitors with superior name recognition, greater market acceptance, larger customer bases or stronger capital positions couldadversely affect our revenue growth and customer retention. Our competitors may also be able to respond more quickly to new or changingopportunities and demands and withstand changing market conditions better than we can. Competitors may conduct extensive promotionalactivities, offering better terms, lower prices, or different products and services that could attract current and prospective E*TRADE customers andpotentially result in intensified price competition within the industry. During 2017, we experienced this, with aggressive price competition in theindustry, including reduced trading commissions and various free trade offers. We may not be able to match the marketing efforts or prices of ourcompetitors. Some of our competitors may also benefit from established relationships among themselves or with third parties that enhance theirproducts and services.E*TRADE 2017 10-K | Page 14 Table of Contents In addition, we compete in a technology-intensive industry characterized by rapid innovation. We may be unable to effectively use newtechnologies, adapt our services to emerging industry standards or develop, introduce and market enhanced or new products and services. If weare not able to update or adapt our products and services to take advantage of the latest technologies and standards, or are otherwise unable totailor the delivery of our services to the latest personal and mobile computing devices preferred by our retail customers, our business and financialperformance could suffer.Our ability to compete successfully in the financial services industry depends on a number of factors, including, among other things:•Maintaining and expanding our market position•Attracting and retaining customers•Providing easy to use and innovative financial products and services•Our reputation and the market perception of our brand and overall value•Maintaining competitive pricing•Competing in a concentrated competitive landscape•The effectiveness of our technology (including cybersecurity defenses), products and services•Deploying a secure and scalable technology and back office platform•Innovating effectively in launching new or enhanced products•The differences in regulatory oversight regimes to which we and our competitors are subject•Attracting new employees and retaining our existing employees•General economic and industry trendsOur competitive position within the industry could be adversely affected if we are unable to adequately address these factors, which could have amaterial adverse effect on our business and financial condition.Our business could be adversely affected due to risks related to our acquisitions and the subsequent integration of theacquired businesses.We consider opportunistic acquisitions to grow existing business, add new technologies, or expand distribution. We cannot be certain that we willbe able to identify, consummate and successfully integrate acquisitions, and no assurance can be given with respect to the timing, likelihood orbusiness effect of any possible transaction. Transactions that we consummate would involve risks and uncertainties to us, including mispricingthe inherent value of the acquired entity, as well as potential difficulties integrating people, systems and customers.We have entered into agreements to acquire Trust Company of America (TCA), a leading provider of technology solutions and custody services tothe independent RIA market for $275 million in cash and to acquire approximately one million retail brokerage accounts from Capital One FinancialCorporation (Capital One) for a purchase price of up to $170 million. While we expect to complete the TCA acquisition by the second quarter of2018, and the Capital One brokerage account acquisition by the third quarter of 2018, there can be no guarantee that the acquisitions will closewhen expected, or at all. If consummated, the acquisition subjects us to a number of risks, uncertainties, and potential costs. The risksassociated with these transactions include:E*TRADE 2017 10-K | Page 15 Table of Contents •We may experience significant attrition in the acquired accounts and assets under custody, and our retention of the accounts and assets maybe impacted by our ability to successfully integrate the acquired operations, products and personnel.•We could be subject to undisclosed liabilities that could be material or become subject to litigation or regulatory risks as a result of theacquisition.•Management’s attention may be diverted from other business initiatives.•Unanticipated restructuring costs may be incurred.•We will have less cash available for other purposes, including for use in acquisitions or the development of other technologies or products.Any future acquisitions could involve these and additional risks. Our ability to pursue additional strategic transactions may also be limited by ourcorporate debt, including our senior unsecured revolving credit facility. Future acquisitions may also be funded through the issuance of additionaldebt or preferred stock.Any of these risks, whether with respect to the current or any future acquisitions, could have a material adverse effect on our business and resultsof operations.Our risk management practices may leave us exposed to unidentified or unanticipated risk.As a financial services company, our business exposes us to certain risks. We seek to monitor and manage our significant risk exposures througha set of board-approved limits as well as Key Risk Indicators (KRIs) or metrics. We have adopted a governance framework which includesreporting of these metrics and other significant risks and exposures to management and the Board of Directors. See MD&A-Risk Management foradditional information. However, our risk management methods may not identify future risk exposures and may not be effective in mitigating ourkey risks. Furthermore, our risk management methods may not properly identify and mitigate the aggregation of risks across our organization orthe interdependency of our risk mitigation efforts. In addition, some of our risk management methods are based on an evaluation of informationregarding markets, customers and other matters that are based on assumptions that may not be accurate. A failure to manage our risk effectivelycould materially and adversely affect our business, results of operations and financial condition.Advisory services subject us to additional risks.We provide advisory services to investors to aid them in their decision making. Investment recommendations and suggestions are based onpublicly available documents and communications with investors regarding investment preferences and risk tolerances. Publicly availabledocuments may be inaccurate and misleading, resulting in recommendations or transactions that are inconsistent with investors’ intended results.In addition, advisors may not understand investor needs or risk tolerances, which may result in the recommendation or purchase of a portfolio ofassets that may not be suitable for the investor. Risks associated with advisory services also include those arising from possible conflicts ofinterest, inadequate due diligence, inadequate disclosure, human error and fraud. To the extent that we fail to know our customers or improperlyadvise them, we could be found liable for losses suffered by such customers, which could harm our reputation and business.We may suffer losses due to credit risk associated with margin lending, securities lending transactions or other financialtransactions.We permit certain customers to purchase securities on margin and borrow against their securities holdings. A downturn in securities markets mayimpact the value of collateral held in connection with margin receivables and assets pledged for securities-based lending and may reduce its valuebelow the amount borrowed, potentially creating collections issues if deficiencies are not remediated. In addition, weE*TRADE 2017 10-K | Page 16 Table of Contents frequently borrow securities from and lend securities to other broker-dealers. Under regulatory guidelines, when we borrow or lend securities, wemust simultaneously disburse or receive cash deposits. A sharp change in security market values may result in losses if counterparties to theborrowing and lending transactions default on their obligations. We also engage in financial transactions with counterparties, including repurchaseagreements, that expose us to credit losses in the event counterparties cannot meet their obligations.We may continue to experience losses in our mortgage loan portfolio.At December 31, 2017, the principal balance of our one-to four-family loan portfolio was $1.4 billion with an allowance for loan losses of $24 million.The principal balance of our home equity loan portfolio was $1.1 billion with an allowance for loan losses of $46 million. Certain characteristics ofour mortgage loan portfolio indicate an additional risk of loss and we believe the relative importance of these factors varies, depending uponeconomic conditions. Whether a loan is amortizing is among the key items we track to predict and monitor credit risk in our mortgage portfolio,together with loan-to-value (LTV)/combined loan-to-value (CLTV), borrower Fair Isaac Credit Organization (FICO) scores, loan type, housing prices,loan vintage and geographic location of the underlying property. Second lien loans carry higher credit risk because the holder of the first lienmortgage has priority in right of payment. As second lien holders, we are also exposed to risk associated with the actions and inactions of the firstlien holder loans for which we do not hold the first lien positions and we do not have access to complete data on the first lien positions of secondlien home equity loans. Actual loan defaults and delinquencies that exceed our current expectations could negatively impact our financialperformance. In the normal course of conducting examinations, our banking regulators, the OCC and Federal Reserve, continue to review ourpolicies and procedures. This process is dynamic and ongoing and we cannot be certain that additional changes or actions to our policies andprocedures will not result from their continuing review. Due to the complexity and judgment required by management regarding the effect of mattersthat are inherently uncertain, there can be no assurance that our allowance for loan losses will be adequate. See MD&A—Risk Management foradditional information.Our corporate debt may restrict how we conduct our business and failure to comply with the terms of our corporate debtcould adversely affect our financial condition and results of operations.As of December 31, 2017, we have $1 billion of corporate debt and have the capacity to incur $300 million in additional indebtedness under oursenior unsecured revolving credit facility, subject to certain covenant requirements. Our expected annual debt service interest payment isapproximately $33 million. The degree to which we are leveraged could have important consequences, including:•A portion of our cash flow from operations is dedicated to the payment of interest on our indebtedness, thereby reducing the funds available forother purposes.•Our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other corporate needs may be limited.•Our leverage may affect our ability to adjust rapidly to changing market conditions and make us more vulnerable in the event of a downturn ingeneral economic conditions or our business.Our senior unsecured revolving credit facility and the indentures governing our corporate debt place limitations on our ability, and certain of oursubsidiaries’ ability to, among other things:•Create liens•Merge, consolidate or transfer substantially all of our assets•With respect to our subsidiaries only, incur additional indebtednessE*TRADE 2017 10-K | Page 17 Table of Contents The senior unsecured revolving credit facility also contains certain financial covenants, including that we maintain a minimum interest coverageratio, a maximum total leverage ratio and certain capitalization requirements for the parent company and certain of its subsidiaries.We could be forced to repay immediately any outstanding borrowings under the senior unsecured revolving credit facility and outstanding debtsecurities at their full principal amount if we were to breach their respective covenants and not cure such breach, even if we otherwise meet ourdebt service obligations. If we experience a change in control, as defined in the senior unsecured revolving credit facility, we could be required torepay all loans outstanding under the credit facility at their full principal amount plus any accrued interest or fees.Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition, operating performance and ourability to receive dividend payments from our subsidiaries, which are subject to certain business, economic and competitive conditions, regulatoryapproval or notification, and other factors beyond our control. If our cash flows and capital resources are insufficient to fund our debt serviceobligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure orrefinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt serviceobligations. In addition, the terms of our existing or future debt instruments may restrict us from adopting some of these alternatives.Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of ourcredit rating, which could harm our ability to obtain additional financing in the future. In addition, any future indebtedness could be at a higherinterest rate or include covenants that are more restrictive than our current covenants.The value of our net deferred tax assets may be adversely affected by further changes in statutory tax rates or changes inour estimates of future taxable income.We had net deferred tax assets of $251 million at December 31, 2017. The Tax Cuts and Jobs Act was enacted on December 22, 2017, whichresulted in the remeasurement of certain of our deferred tax assets and liabilities using the new statutory federal corporate income tax rate of 21%.As a result, we recognized $58 million of additional tax expense for the year ended December 31, 2017. Further changes to statutory tax ratesmay impact the value of deferred tax assets and liabilities. We did not establish a valuation allowance against our federal net deferred tax assetsat December 31, 2017 as we believe it is more likely than not that all of these assets will be realized. In evaluating the need for a valuationallowance, we estimated future taxable income based on management-approved forecasts. This process required judgment by management aboutmatters that are by nature uncertain. If future events differ significantly from our current forecasts, a valuation allowance may need to beestablished, which could have a material adverse effect on our results of operations and our financial condition. See MD&A— Summary of CriticalAccounting Policies and Estimates for additional information.E*TRADE 2017 10-K | Page 18 Table of Contents Risks Relating to the Regulation of Our BusinessWe are subject to extensive government regulation, including banking and securities rules and regulations, which couldrestrict our business practices.The financial services industry is subject to extensive regulation. Our brokerage subsidiaries must comply with many laws and rules, includingrules relating to sales practices and the suitability of recommendations to customers, possession and control of customer funds and securities,margin lending, execution and settlement of transactions and anti-money laundering. E*TRADE Financial Corporation, as a savings and loanholding company, and E*TRADE Bank and E*TRADE Savings Bank, as federally chartered savings banks, are subject to extensive regulation,supervision and examination by the OCC, the Federal Reserve and the CFPB, and, in the case of E*TRADE Bank and E*TRADE Savings Bank,the FDIC. Such regulation and supervision covers all aspects of the banking business, including lending practices, safeguarding deposits, capitalstructure, recordkeeping, transactions with affiliates and conduct and qualifications of personnel.In providing services to customers, we manage, use and store sensitive customer data including PII. As a result, we are subject to numerous lawsand regulations designed to protect this information, such as US federal and state laws and foreign regulations governing the protection of PII.These laws have increased in complexity, change frequently and can conflict with one another. In addition, our results of operations could beaffected by regulations which impact the business and financial communities generally, including changes to the laws governing taxation,electronic commerce, customer privacy and security of customer data. If we fail to establish and enforce procedures to comply with applicableregulations, our failure could have a material adverse effect on our business.While we have implemented policies and procedures designed to provide for compliance with all applicable laws and regulations, our regulatorshave broad discretion with respect to the enforcement of applicable laws and regulations and there can be no assurance that violations will notoccur. Failure to comply with applicable laws and regulations and our policies could result in sanctions by regulatory agencies, litigation, civilpenalties and harm to our reputation, which could have a material adverse effect on our business, financial condition and results of operations.Further, to the extent we undertake actions requiring regulatory approval or non-objection, our regulators may make their approval or non-objectionsubject to conditions or restrictions that could have a material adverse effect on our business, results of operations and financial condition. New,or amended legislation, regulations, guidance and supervisory practices may negatively impact our business and financial results.If we fail to comply with applicable securities and banking laws, rules and regulations, either domestically orinternationally, we could be subject to disciplinary actions, litigation, investigations, damages, penalties or restrictionsthat could significantly harm our business.The financial services industry faces substantial litigation and regulatory risks. We are subject to arbitration claims and lawsuits in the ordinarycourse of our business, as well as class actions and other significant litigation. We also are the subject of inquiries, investigations andproceedings by regulatory and other governmental agencies. Actions brought against us may result in settlements, awards, injunctions, fines,penalties and other results adverse to us. Predicting the outcome of such matters is inherently difficult, particularly where claims are brought onbehalf of various classes of claimants or by a large number of claimants, when claimants seek substantial or unspecified damages or wheninvestigations or legal proceedings are at an early stage. A substantial judgment, settlement, fine or penalty could be material to our operatingresults or cash flows, or could cause us significant reputational harm, which could harm our business prospects. In market downturns, the volumeof legal claims and amount of damages sought in litigation and regulatory proceedings against financial services companies have historicallyincreased. We are also subject to litigation claims from third parties alleging infringement of their intellectual property rights. Such litigation canrequire the expenditure of significant resources, regardless of whether the claimsE*TRADE 2017 10-K | Page 19 Table of Contents have merit. If we were found to have infringed a third-party patent or other intellectual property right, we could incur substantial liability and in somecircumstances could be enjoined from using the relevant technology or providing related products and services, which could have a materialadverse effect on our business and results of operations.The SEC, FINRA and other SROs and state securities commissions, among other things, can censure, fine, issue cease-and-desist orders orsuspend or expel a broker-dealer or any of its officers or employees. Clearing securities firms, such as E*TRADE Securities, are subject tosubstantially more regulatory control and examination than introducing brokers that rely on others to perform clearing functions. Similarly, theattorneys general of each state could bring legal action on behalf of the citizens of the various states to ensure compliance with local laws.Regulatory agencies in countries outside of the US have similar authority. The ability to comply with applicable laws and rules is dependent in parton the establishment and maintenance of a reasonable compliance function. The failure to establish and enforce reasonable complianceprocedures, even if unintentional, could subject us to significant losses or disciplinary or other actions.The Federal Reserve has primary jurisdiction for the supervision and regulation of savings and loan holding companies, including the Company;and the OCC has primary supervision and regulation of federal savings associations, such as the Company’s two thrift subsidiaries. Although theDodd-Frank Act maintained the federal thrift charter, it eliminated certain preemption, branching and other benefits of the charter and imposed newpenalties for failure to comply with the QTL test.We are required to file periodic reports with the Federal Reserve and are subject to examination and supervision by it. The Federal Reserve Boardalso has certain types of enforcement powers over us, including the ability to issue cease-and-desist orders, force divestiture of our thriftsubsidiaries and impose civil and monetary penalties for violations of federal banking laws and regulations or for unsafe or unsound bankingpractices. The Federal Reserve has issued guidance aligning the supervisory and regulatory standards of savings and loan holding companiesmore closely with the standards applicable to bank holding companies. Our thrift subsidiaries are subject to similar reporting, examination,supervision and enforcement oversight by the OCC. For all banks and thrifts with total consolidated assets over $10 billion, including E*TRADEBank, as well as their affiliates, the CFPB has exclusive rulemaking and examination, and primary enforcement authority, under federal consumerfinancial laws and regulations. In addition, states may adopt consumer protection laws and regulations that are stricter than those regulationspromulgated by the CFPB.The Company surpassed $50 billion in total consolidated assets on a four-quarter average in the first quarter of 2017 which we believe is ameaningful regulatory threshold, as US banking organizations become subject to a number of additional, and in some cases more stringent,regulatory requirements once they reach that size. These additional regulations may affect how we conduct our business through heightenedcapital, liquidity, governance, or other requirements. We anticipate that regulators will continue to intensify their supervision through the examprocess and increase their enforcement of regulations across the industry. The regulators' heightened expectations and intense supervision haveand will continue to increase our costs and may limit our ability to pursue certain business opportunities.New legislation, rule changes or changes in the interpretation or enforcement of existing laws, rules and regulations could increase our compliancecosts and adversely affect our business and results of operations. For example, in April 2016, the DOL published its final fiduciary regulationsseeking to broaden the definition of who is an investment advice fiduciary and how such advice can be provided to account holders in retirementaccounts such as 401(k) plans and IRAs. Certain aspects of these regulations began to take effect in June 2017, and the remaining aspects ofthese regulations are currently scheduled to take effect on July 1, 2019. For further information on how ongoing regulatory reform could affect us,see Business—Regulation.E*TRADE 2017 10-K | Page 20 Table of Contents If we do not maintain the capital and liquidity levels required by regulators, we may be fined or subject to otherdisciplinary or corrective actions.The SEC, FINRA, the OCC, the CFTC, the Federal Reserve and various other regulatory agencies have stringent rules with respect to themaintenance of specific levels of net capital by securities broker-dealers and regulatory capital by banks.Failure to maintain the required net capital by our US securities broker-dealer or FCM could result in suspension or revocation of registration by theSEC or suspension or expulsion by FINRA, the CFTC or the NFA, as applicable, and could ultimately lead to the firm’s liquidation. If such netcapital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require an intensive use ofcapital could be limited. Such operations may include investing activities, marketing and the financing of customer account balances. Also, ourability to withdraw capital from brokerage subsidiaries could be restricted.E*TRADE Bank and E*TRADE Savings Bank are subject to various regulatory capital requirements administered by the OCC, and the Company issubject to specific capital requirements administered by the Federal Reserve. Failure to meet minimum capital requirements can trigger certainmandatory, and possibly additional discretionary actions by regulators that, if undertaken, could affect the operations and financial performance ofthese entities. The capital amounts and classifications of the Company, E*TRADE Bank and E*TRADE Savings Bank are subject to qualitativejudgments by the regulators of these entities, including about the strength of components of its capital, risk weightings of assets, off-balancesheet transactions and other factors. Any significant reduction in the Company’s, E*TRADE Bank’s or E*TRADE Savings Bank's regulatory capitalcould result in them being less than "well capitalized" or "adequately capitalized" under applicable capital standards. A failure to be "adequatelycapitalized" that is not cured within time periods specified in the credit agreement for our senior unsecured revolving credit facility would constitutea default under our senior unsecured revolving credit facility and likely result in any outstanding balance on the senior unsecured revolving creditfacility becoming immediately due and payable. In addition, the Federal Deposit Insurance Act prohibits the acceptance, renewal or roll-over of“brokered deposits” by depository institutions that are not “well capitalized,” unless a depository institution is “adequately capitalized” and receivesa waiver from the FDIC. Sweep deposits that qualify as “brokered deposits” are a significant source of liquidity for E*TRADE Bank and E*TRADESavings Bank, and if they were terminated by the FDIC, that could have a material negative effect on our business. If we fail to meet certaincapital requirements, the Federal Reserve and the OCC may request we raise equity or otherwise increase the regulatory capital of the Company,E*TRADE Bank or E*TRADE Savings Bank. If we were unable to raise equity or otherwise increase capital, we could face negative regulatoryconsequences, including under the “prompt corrective action” framework, such as restrictions on our activities and requirements that we dispose ofcertain assets and liabilities within a prescribed period. Any such actions could have a material negative effect on our business.As a non-grandfathered savings and loan holding company, we are subject to activity limitations and requirements thatcould restrict our ability to engage in certain activities and take advantage of certain business opportunities.Under applicable law, our banking activities are restricted to those that are financial in nature and certain real estate-related activities. Although webelieve all of our existing activities and investments are permissible, we are unable to pursue future activities that are not financial in nature orotherwise real-estate related. We are also limited in our ability to invest in other savings and loan holding companies. Various other laws andregulations require savings and loan holding companies such as the Company, as well as all of our thrift subsidiaries, to be both "well capitalized"or "well managed" in order for us to conduct certain financial activities, such as securities underwriting. We believe that we will be able to continueto engage in all of our current financial activities. However, if we and our thrift subsidiaries are unable to satisfy the "well capitalized" and "wellmanaged" requirements, we could be subject to activity restrictions that could prevent us from engaging in certain activities as well as othernegative regulatory actions.E*TRADE 2017 10-K | Page 21 Table of Contents In addition, E*TRADE Bank and E*TRADE Savings Bank are currently subject to extensive regulation of their activities and investments,capitalization, community reinvestment, risk management policies and procedures and relationships with affiliated companies. Acquisitions of andmergers with other financial institutions, purchases of deposits and loan portfolios, the establishment of new depository institution subsidiaries andthe commencement of certain new activities by these subsidiaries require the prior approval of the OCC and the Federal Reserve, and in somecases the FDIC, any of which may deny approval or condition their approval on the imposition of limitations on the scope of our planned activity.Also, these regulations and conditions could affect our ability to realize synergies from future acquisitions, negatively affect us following anacquisition and also delay or prevent the development, introduction and marketing of new products and services.Risks Relating to Owning Our StockThe value of our common stock may be diluted if we need additional funds in the future and is subject to the liquidationpreference of our preferred stock.In the future, we may need to raise additional funds via the issuance and sale of our debt or equity instruments, which we may not be able toconduct on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital needs and ourplans for the growth of our business.In addition, if funds are available, the issuance of equity securities could significantly dilute the value of our shares of our common stock andcause the market price of our common stock to fall. We have the ability to issue a significant number of shares of stock in future transactions,which would substantially dilute existing stockholders, without seeking further stockholder approval. We have issued $700 million aggregateliquidation preference of preferred stock in two series, Series A Preferred Stock and Series B Preferred Stock. Future issuances and sales ofpreferred stock or the perception that such issuances and sales could occur, may also cause prevailing market prices for the Series A PreferredStock, Series B Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financialmarkets at times and prices favorable to us.The market price of our common stock may continue to be volatile.From January 1, 2013 through December 31, 2017, the price per share of our common stock ranged from a low of $9.06 to a high of $51.04. Themarket price of our common stock has been, and is likely to continue to be, highly volatile and subject to wide fluctuations. Among the factors thatmay affect our stock price are the following:•Speculation in the investment community or the press about, or actual changes in, our competitive position, organizational structure,executive team, operations, financial condition, financial reporting and results, ability to meet growth targets or plans to engage in strategictransactions•The announcement of new products, services, acquisitions, or dispositions by us or our competitors•Increases or decreases in revenues or earnings, changes in earnings estimates by the investment community, and variations betweenestimated financial results and actual financial results•The pricing structure for products and services offered to customers by us or our competitorsGeneral stock market volatility or volatility related to our industry may also affect our stock price. In the past, volatility in the market price of acompany’s securities has often led to securities class action litigation. Such litigation could result in substantial costs to us and divert ourattention and resources, which could harm our business. We have been a party to litigation related to the decline in the market price of our stock inthe past and such litigation could occur again in the future. Declines in the market price of our common stock orE*TRADE 2017 10-K | Page 22 Table of Contents failure of the market price to increase could also harm our ability to retain key employees, reduce our access to capital and otherwise harm ourbusiness.We have provisions in our organizational documents that may discourage takeover attempts.Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a third party from acquiring control of us in amerger, acquisition or similar transaction that a stockholder may consider favorable. Such provisions include:•Authorization for the issuance of "blank check" preferred stock•The prohibition of cumulative voting in the election of directors•A super-majority voting requirement to effect business combinations and certain amendments to our certificate of incorporation and bylaws•Limits on the persons who may call special meetings of stockholders•The prohibition of stockholder action by written consent•Advance notice requirements for nominations to the Board or for proposing matters that can be acted on by stockholders at stockholdermeetingsIn addition, certain provisions of our stock incentive plans, management retention and employment agreements (including severance paymentsand stock option acceleration), our senior unsecured revolving credit facility, certain provisions of Delaware law and certain provisions of theindentures governing certain series of our debt securities that would require us to offer to purchase such securities at a premium in the event ofcertain changes in our ownership may also discourage, delay or prevent someone from acquiring or merging with us, which could limit theopportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors arewilling to pay for our common stock.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.E*TRADE 2017 10-K | Page 23 Table of Contents ITEM 2. PROPERTIESA summary of our significant locations at December 31, 2017 is shown in the following table. Square footage amounts are net of space that hasbeen sublet or space that is part of a facility restructuring. Location Approximate Square FootageAlpharetta, Georgia 260,000Jersey City, New Jersey 109,000Arlington, Virginia 102,000Sandy, Utah 85,000Menlo Park, California 63,000Chicago, Illinois 46,000New York, New York 31,000All facilities are leased at December 31, 2017. All other leased facilities with space of less than 25,000 square feet are not listed by location. Inaddition to the significant facilities above, we also lease all 30 regional financial centers, ranging in space from approximately 2,500 to 8,000square feet.ITEM 3. LEGAL PROCEEDINGSInformation in response to this item can be found under the heading Legal Matters in Note 20—Commitments, Contingencies and Other RegulatoryMatters in this Annual Report and is incorporated by reference into this item.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.E*TRADE 2017 10-K | Page 24 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESOur common stock is listed on the NASDAQ Stock Market under the ticker symbol ETFC.Price Range of Common StockThe following graph shows the high and low intraday sale prices of our common stock as reported by the NASDAQ for the periods indicated: 2017 2016 High Low High LowFirst Quarter$38.61 $32.25 $29.05 $19.61Second Quarter$38.52 $33.06 $28.14 $21.52Third Quarter$43.67 $38.13 $29.36 $21.94Fourth Quarter$51.04 $42.55 $36.04 $27.34The closing sale price of our common stock as reported on the NASDAQ on February 16, 2018 was $51.81 per share. At that date, there were 628holders of record of our common stock.Common Stock DividendsWe have never declared or paid cash dividends on our common stock and have no current plans to do so in the future. For additional informationregarding our ability to pay dividends, see Business–Regulation, Note 16–Shareholders' Equity and Note 18–Regulatory Requirements.E*TRADE 2017 10-K | Page 25 Table of Contents Issuer Purchases of Equity SecuritiesThe table below shows the timing and impact of our share repurchase program, if applicable, and the shares withheld from employees to satisfytax withholding obligations during the three months ended December 31, 2017 (dollars in millions, except per share amounts):Period Total Number ofSharesPurchased(1) Average PricePaid per Share(2) Total Number of SharesPurchased as Part ofthe Publicly AnnouncedPlan(3) Maximum Dollar Value ofShares That May Yet BePurchased Under thePlan(3)October 1, 2017 - October 31, 2017 1,033,764 $43.53 1,033,400 $768.0November 1, 2017 - November 30, 2017 2,162,089 $44.19 2,153,600 $672.8December 1, 2017 - December 31, 2017 704,668 $49.48 702,900 $638.0Total 3,900,521 $44.97 3,889,900 (1)Of the shares purchased during the three months ended December 31, 2017, 10,621 were withheld to satisfy tax withholding obligations associated with vested share-based payments.(2)Excludes commission paid.(3)In July 2017, we announced that our Board of Directors authorized the repurchase of up to $1 billion of shares of our common stock. The timing and exact amount of anycommon stock repurchases will depend on various factors, including market conditions and our capital position. Our share repurchase program does not include specificprice targets, may be executed through open market purchases or privately negotiated transactions, may utilize Rule 10b5-1 plans and may be suspended or terminatedat any time at our discretion.E*TRADE 2017 10-K | Page 26 Table of Contents Performance GraphThe following performance graph shows the cumulative total return to a holder of our common stock, assuming dividend reinvestment, comparedwith the cumulative total return, assuming dividend reinvestment, of the Standard & Poor (S&P) 500 Index and the Dow Jones US Financials Indexduring the period from December 31, 2012 through December 31, 2017. 12/12 12/13 12/14 12/15 12/16 12/17E*TRADE Financial Corporation100.00 219.44 271.01 331.17 387.15 553.85S&P 500 Index100.00 132.39 150.51 152.59 170.84 208.14Dow Jones US Financials Index100.00 134.22 153.80 153.94 180.64 216.82E*TRADE 2017 10-K | Page 27 Table of Contents ITEM 6. SELECTED FINANCIAL DATAThe selected consolidated financial data should be read in conjunction with MD&A and Financial Statements and Supplementary Data.(Dollars in millions except per share amounts, shares in thousands): Year Ended December 31, Variance Results of Operations: 2017 2016 2015 2014 2013 2017 vs. 2016Net interest income $1,485 $1,148 $1,021 $961 $855 29%Commissions $441 $442 $424 $456 $420 —%Total net revenue $2,366 $1,941 $1,370 $1,704 $1,613 22%Provision (benefit) for loan losses $(168) $(149) $(40) $36 $143 13%Total non-interest expense $1,470 $1,252 $1,319 $1,216 $1,275 17%Net income $614 $552 $268 $293 $86 11%Basic earnings per share $2.16 $1.99 $0.92 $1.02 $0.30 9%Diluted earnings per share $2.15 $1.98 $0.91 $1.00 $0.29 9%Weighted average shares—basic 273,190 277,789 290,762 288,705 286,991 (2)%Weighted average shares—diluted 274,352 279,048 295,011 294,103 292,589 (2)% Financial Condition (at year end): Available-for-sale securities $20,679 $13,892 $12,589 $12,388 $13,592 49%Held-to-maturity securities $23,839 $15,751 $13,013 $12,248 $10,181 51%Margin receivables $9,071 $6,731 $7,398 $7,675 $6,353 35%Loans receivable, net $2,654 $3,551 $4,613 $5,979 $8,123 (25)%Total assets $63,365 $48,999 $45,427 $45,530 $46,280 29%Deposits $42,742 $31,682 $29,445 $24,890 $25,971 35%Customer payables $9,449 $8,159 $6,544 $6,455 $6,310 16%Corporate debt $991 $994 $997 $1,366 $1,768 —%Shareholders’ equity $6,931 $6,272 $5,799 $5,375 $4,856 11%E*TRADE 2017 10-K | Page 28 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS (MD&A)The following discussion should be read in conjunction with the consolidated financial statements and related notes included in FinancialStatements and Supplementary Data.OVERVIEWOur mission is to enhance the financial independence of investors and traders through a powerful digital offering and professional guidance. Ourvision is to be the #1 digital broker and advisor to traders and investors, known for an easy-to-use platform and the completeness of our offering.Our success in the future will depend upon, among other things, our ability to execute on our business strategy. Our financial performance isaffected by a number of factors outside of our control, including:•Customer demand for financial products and services and the impact of actions by our competitors•Our ability to attract and retain customers•Performance, volume and volatility of the equity and capital markets•The level and volatility of interest rates•Our ability to move capital to our parent company from our subsidiaries subject to regulatory approvals or notifications•Changes to the rules and regulations governing the financial services industry•The performance of the residential real estate and credit markets•Market demand and liquidity in the secondary market for agency securitiesOur net revenue is generated primarily from net interest income, commissions and fees and service charges. Net interest income is largelyimpacted by the size of our balance sheet, our balance sheet mix, and average yields on our assets and liabilities. Net interest income is drivenprimarily from interest earned on investment securities and margin receivables, less interest paid on interest-bearing liabilities, including deposits,customer payables, corporate debt and other borrowings. Net interest income is also earned on our legacy mortgage loan portfolio which we expectto continue to run off in future periods. Commissions revenue is generated by customer trades and is largely impacted by trade volume andcommission rates. Fees and service charges revenue is mainly impacted by order flow revenue, fees earned on off-balance sheet customer cash,mutual fund service fees and advisor management fees. Our net revenue is offset by non-interest expenses, the largest of which arecompensation and benefits and advertising and market development.Significant EventsAnnounced acquisition of brokerage accounts from Capital OneIn January 2018, we announced an agreement to acquire approximately one million retail brokerage accounts with $18 billion in customer assetsfrom Capital One for a cash purchase price of up to $170 million. We intend to fund this transaction with existing corporate cash. The acquisition isexpected to close by the third quarter of 2018, subject to customary closing conditions and regulatory approvals.E*TRADE 2017 10-K | Page 29 Table of Contents Announced Trust Company of America acquisitionIn October 2017, we announced an agreement to acquire TCA for $275 million in cash. We intend to fund the transaction with the net proceedsreceived from our December 2017 issuance of fixed-to-floating rate non-cumulative perpetual preferred stock. The acquisition is expected to closeby the second quarter of 2018, subject to customary closing conditions and regulatory approvals.Completed OptionsHouse integrationIn August 2017, we completed the integration of OptionsHouse, which was acquired by the Company in 2016. Completion of the integrationincluded the rollout of OptionsHouse features and functionality through E*TRADE.com and consolidation of retail brokerage accounts andcustomer-related balances onto our platforms.Issued $1 billion of senior notes and redeemed higher cost corporate debtIn August 2017, we issued $600 million of 2.95% Senior Notes due 2022 and $400 million of 3.80% Senior Notes due 2027 and used the netproceeds, along with existing corporate cash, to redeem our outstanding $540 million of 5.375% Senior Notes and $460 million of 4.625% SeniorNotes, resulting in a $58 million loss on early extinguishment of debt. This transaction reduced our annual corporate debt service costs from $50million to $33 million.Repurchased 8.5 million shares of our common stockIn July 2017, we announced that our Board of Directors authorized the repurchase of up to $1 billion of shares of our common stock. During theyear ended December 31, 2017, the Company repurchased 8.5 million shares of common stock at an average price of $42.62 for a total of $362million. As of December 31, 2017, $638 million remained available for additional repurchases. As of February 16, 2018, we have subsequentlyrepurchased an additional 1.1 million shares of common stock at an average price of $49.99.Tier 1 leverage ratio thresholds reduced for E*TRADE Financial and E*TRADE BankBeginning July 2017, E*TRADE Financial's consolidated Tier 1 leverage ratio threshold was reduced to 6.5%, down from the previous threshold of7.0%. E*TRADE Bank's Tier 1 leverage ratio threshold was reduced to 7.5% from 8.0% in February 2017 and was further reduced to 7.0%beginning January 2018.Launch of new advertising campaign - Don't Get Mad, Get E*TRADEWe launched a new advertising campaign, Don't Get Mad, Get E*TRADE. This campaign acknowledges the everyday frustrations that consumersfeel when bombarded by depictions of exaggerated wealth, and encourages consumers to channel these frustrations into positive action. Throughthe campaign we aim to tell consumers that we understand them, and we offer a way for them to have greater control over their future.Reduced commission rates for equity and options tradesIn March 2017, we reduced trade commissions for stock, options and exchange-traded funds (ETFs) to $6.95 from $9.99. For active traders,commissions were reduced to $4.95 from $7.99 and options charges were reduced to $0.50 per contract from $0.75. Further, the number of tradesrequired to reach the active tier were reduced to 30 per quarter from 150.E*TRADE 2017 10-K | Page 30 Table of Contents Exceeded $50 billion in total consolidated assetsThe Company exceeded $50 billion in total consolidated assets in the first quarter of 2017 and ended the year at over $63 billion. We continue tomonitor and prepare for the incremental regulatory and reporting requirements that will apply as a result of this balance sheet growth.E*TRADE 2017 10-K | Page 31 Table of Contents Key Performance MetricsManagement monitors a number of customer activity and company metrics to evaluate the Company’s performance. The most significant of theseare displayed below along with the percentage variance from the prior period, where applicable, and includes OptionsHouse from the September12, 2016 acquisition date.Customer Activity Metrics: E*TRADE 2017 10-K | Page 32 Table of Contents E*TRADE 2017 10-K | Page 33 Table of Contents Daily Average Revenue Trades (DARTs) is the predominant driver of commissions revenue from our customers. DARTs were 214,284, 164,134and 155,470 for the years ended December 31, 2017, 2016 and 2015, respectively.Derivative DARTs, a key driver of commissions revenue, is the daily average number of options and futures trades, and Derivative DARTspercentage is the mix of options and futures as a component of total DARTs. Derivative DARTs were 65,264, 42,430 and 37,826 for the yearsended December 31, 2017, 2016 and 2015, respectively, and Derivative DARTs represented 30%, 26% and 24%, respectively, of total DARTs.Average commission per trade is an indicator of changes in our customer mix, product mix and/or product pricing. Average commission pertrade was $8.23, $10.70 and $10.86 for the years ended December 31, 2017, 2016 and 2015, respectively. Average commission per trade for theyear ended December 31, 2017 was impacted by our reduced commission rates for equity and options trades effective March 13, 2017, whichwere as follows:•Stock, options and ETF trade commissions reduced to $6.95 from $9.99•For active traders, commissions reduced to $4.95 from $7.99 and options charges reduced to $0.50 per contract from $0.75; tradesrequired for active trader tier reduced to 30 per quarter from 150Customer margin balances represents credit extended to customers to finance their purchases of securities by borrowing against securities theyown and is a key driver of net interest income. Customer margin balances were $9.1 billion, $7.1 billion and $7.4 billion at December 31, 2017,2016 and 2015, respectively. Customer margin at December 31, 2016 includes OptionsHouse balances which were held by a third party clearingfirm. In connection with the integration of OptionsHouse, $0.4 billion of customer margin held by the third party clearing firm was transferred to ourbalance sheet and is reflected as margin receivables at December 31, 2017.Managed products represents customer assets in our Managed Investment Portfolio, Unified Managed Account, Fixed Income Portfolio andAdaptive Portfolio. Managed products are a driver of fees and service charges revenue. Managed products were $5.4 billion, $3.9 billion and $3.2billion at December 31, 2017, 2016 and 2015, respectively.End of period brokerage accounts, net new brokerage accounts and brokerage account attrition rate are indicators of our ability to attractand retain brokerage customers. End of period brokerage accounts were 3.6 million, 3.5 million and 3.2 million at December 31, 2017, 2016 and2015, respectively. Net new brokerage accounts were 171,906, 249,462 and 69,618 for the years ended December 31, 2017, 2106 and 2015,respectively. Our brokerage account attrition rate was 9.4%, 8.5% and 9.7% for the years ended December 31, 2017, 2016 and 2015 respectively.During the years ended December 31, 2017, 2016 and 2015 our net new brokerage account growth rate was 5.0%, 7.8% and 2.2%, respectively.These metrics include the impact of the following:E*TRADE 2017 10-K | Page 34 Table of Contents •Net new and end of period brokerage accounts for the year ended December 31, 2016 included 147,761 accounts from the OptionsHouseacquisition. Excluding the impact of this item, the net new brokerage account growth rate was 3.2% for the year ended December 31, 2016.•Net new and end of period brokerage accounts for the year ended December 31, 2015 were impacted by the closure of 23,150 accountsrelated to the shutdown of the Company's global trading platform and the closure of 3,484 accounts related to the escheatment of unclaimedproperty. Excluding the impact of these items, the brokerage account attrition rate was 8.9% for the year ended December 31, 2015.Customer assets is an indicator of the value of our relationship with the customer. An increase generally indicates that the use of our productsand services by existing and new customers is expanding. Changes in this metric are also driven by changes in the valuations of our customers'underlying securities. Customer assets were $383.3 billion, $311.3 billion and $287.9 billion at December 31, 2017, 2016 and 2015, respectively.Net new brokerage assets is total inflows to new and existing brokerage accounts less total outflows from closed and existing brokerageaccounts. The net new brokerage assets metric is a general indicator of the use of our products and services by new and existing brokeragecustomers. Net new brokerage assets were $12.2 billion, $13.1 billion and $9.3 billion for the years ended December 31, 2017, 2016 and 2015,respectively. During the years ended December 31, 2017, 2016 and 2015, our net new brokerage asset growth rate was 4.4%, 5.3% and 3.8%,respectively. Net new brokerage assets for the year ended December 31, 2016 included $3.7 billion from the OptionsHouse acquisition. Excludingthe impact of this item, the net new brokerage asset growth rate was 3.8% for the year ended December 31, 2016.Brokerage related cash is an indicator of the level of engagement with our brokerage customers and is a key driver of net interest income as wellas fees and service charges revenue, which includes fees earned on customer cash held by third parties. Brokerage related cash was $52.9billion, $51.4 billion and $41.7 billion at December 31, 2017, 2016 and 2015, respectively.Company Metrics: E*TRADE 2017 10-K | Page 35 Table of Contents Operating margin is the percentage of net revenue that results in income before income taxes and is an indicator of the Company's profitability.Operating margin was 45%, 43% and 7% for the years ended December 31, 2017, 2016 and 2015, respectively.E*TRADE 2017 10-K | Page 36 Table of Contents Adjusted operating margin is a non-GAAP measure that provides useful information about our ongoing operating performance by excluding theprovision (benefit) for loan losses, the loss on termination of wholesale funding obligations and losses on early extinguishment of debt, which arenot viewed as key factors governing our investment in the business and are excluded by management when evaluating operating marginperformance. Adjusted operating margin was 40%, 35% and 31% for the years ended December 31, 2017, 2016 and 2015, respectively. SeeMD&A—Earnings Overview for a reconciliation of adjusted operating margin to operating margin.Corporate cash, a non-GAAP measure, is a component of cash and equivalents and represents the primary source of capital above and beyondthe capital deployed in our regulated subsidiaries. Corporate cash was $541 million, $461 million and $447 million at December 31, 2017, 2016 and2015, respectively, while cash and equivalents was $931 million, $2.0 billion and $2.2 billion for the same periods. See MD&A—Liquidity andCapital Resources for a reconciliation of corporate cash to cash and equivalents.Tier 1 leverage ratio is an indicator of capital adequacy for E*TRADE Financial and E*TRADE Bank. Tier 1 leverage ratio is Tier 1 capital dividedby adjusted average assets for leverage capital purposes. E*TRADE Financial's Tier 1 leverage ratio was 7.4%, 7.8% and 9.0% at December31, 2017, 2016 and 2015, respectively. E*TRADE Bank's Tier 1 leverage ratio was 7.6%, 8.8% and 9.7% at December 31, 2017, 2016 and 2015,respectively. See MD&A—Liquidity and Capital Resources for additional information, including the calculation of regulatory capital ratios.Allowance for loan losses is an estimate of probable losses inherent in the loan portfolio as of the balance sheet date, as well as the forecastedlosses, including economic concessions to borrowers, over the estimated remaining life of loans modified as troubled debt restructurings (TDRs).Allowance for loan losses was $74 million, $221 million and $353 million at December 31, 2017, 2016 and 2015, respectively.Interest-earning assets, along with net interest margin, is an indicator of our ability to generate net interest income. Average interest-earningassets were $53.2 billion, $43.3 billion and $41.0 billion for the years ended December 31, 2017, 2016 and 2015, respectively.Net interest margin is a measure of the net yield on our average interest-earning assets. Net interest margin is calculated for a given period bydividing the annualized sum of net interest income by average interest-earning assets. Net interest margin was 2.79%, 2.65% and 2.50% for theyears ended December 31, 2017, 2016 and 2015, respectively.Total employees were 3,607, 3,601 and 3,421 at December 31, 2017, 2016 and 2015, respectively.E*TRADE 2017 10-K | Page 37 Table of Contents EARNINGS OVERVIEWWe generated net income of $614 million on total net revenue of $2.4 billion for the year ended December 31, 2017. The following chart provides areconciliation of net income for the year ended December 31, 2016 to net income for the year ended December 31, 2017 (dollars in millions):(1)Includes commissions and other revenue.(2)Includes clearing and servicing, professional services, occupancy and equipment, depreciation and amortization, FDIC insurance premiums, amortization of otherintangibles, restructuring and acquisition-related activities and other non-interest expenses.E*TRADE 2017 10-K | Page 38 Table of Contents The significant components of the consolidated statement of income are as follows (dollars in millions except per share amounts): Year Ended December 31, Variance Variance 2017 vs. 20162016 vs. 2015 2017 2016 2015 Amount % Amount %Net interest income$1,485 $1,148 $1,021 $337 29% $127 12 %Total non-interest income881 793 349 88 11% 444 127 %Total net revenue2,366 1,941 1,370 425 22% 571 42 %Provision (benefit) for loan losses(168) (149) (40) (19) 13% (109) 273 %Total non-interest expense1,470 1,252 1,319 218 17% (67) (5)%Income before income taxexpense (benefit)1,064 838 91 226 27% 747 821 %Income tax expense (benefit)450 286 (177) 164 57% 463 *Net income$614 $552 $268 $62 11% $284 106 %Preferred stock dividends25 — — 25 100% — — %Net income available tocommon shareholders$589 $552 $268 $37 7% $284 106 %Diluted earnings percommon share$2.15 $1.98 $0.91 $0.17 9% $1.07 118 %*Percentage not meaningful.Net income increased 11% to $614 million, or $2.15 per diluted share, for the year ended December 31, 2017 compared to 2016 and increased106% to $552 million, or $1.98 per diluted share, for the year ended December 31, 2016 compared to 2015. Net income available to commonshareholders was $589 million for the year ended December 31, 2017, which reflects payments of $25 million in preferred stock dividends,compared to net income available to common shareholders of $552 million and $268 million in 2016 and 2015, respectively.•The increase in net income from 2016 to 2017 was primarily driven by higher interest income due to a larger balance sheet and higherinterest rates, as well as higher fees and service charges revenue. Net income for the year ended December 31, 2017 included a $168million benefit for loan losses, which was partially offset by $27 million of pre-tax costs primarily incurred in connection with theOptionsHouse integration and preparation for the incremental regulatory and reporting requirements that our balance sheet growth requires,and a $58 million pre-tax loss on early extinguishment of corporate debt. The year ended December 31, 2017 also included a $58 millionincome tax expense related to the remeasurement of our net deferred tax assets due to tax reform and the new statutory federal incometax rate.•The increase in net income from 2015 to 2016 resulted primarily from the $413 million pre-tax charge on the termination of legacywholesale funding obligations recognized in 2015. This pre-tax charge included $43 million of losses on early extinguishment of debt and$370 million of losses that were reclassified from accumulated other comprehensive loss related to cash flow hedges into the gains(losses) on securities and other, net line item. The benefit for loan losses increased to $149 million in 2016 from $40 million in 2015. Theyear ended December 31, 2015 also included a $220 million income tax benefit resulting from the settlement of an IRS examination and a$73 million pre-tax loss on early extinguishment of corporate debt.E*TRADE 2017 10-K | Page 39 Table of Contents Net RevenueThe components of net revenue and the resulting variances are as follows (dollars in millions): Year Ended December 31, Variance Variance 2017 vs. 2016 2016 vs. 2015 2017 2016 2015 Amount % Amount %Net interest income$1,485 $1,148 $1,021 $337 29 % $127 12%Commissions441 442 424 (1) — % 18 4%Fees and service charges369 268 210 101 38 % 58 28%Gains (losses) on securities andother, net28 42 (324) (14) (33)% 366 *Other revenue43 41 39 2 5 % 2 5%Total non-interest income881 793 349 88 11 % 444 127%Total net revenue$2,366 $1,941 $1,370 $425 22 % $571 42%*Percentage not meaningful.Net Interest IncomeNet interest income increased 29% to $1.5 billion for the year ended December 31, 2017 compared to 2016, and increased 12% to $1.1 billion forthe year ended December 31, 2016 compared to 2015. Net interest income is earned primarily through investment securities, margin receivablesand our legacy mortgage and consumer loan portfolio, offset by funding costs. The legacy wholesale funding obligations termination in 2015 andour investment grade debt refinancing in 2017 significantly reduced our funding costs and improved our ability to generate net interest income.E*TRADE 2017 10-K | Page 40 Table of Contents The following table presents average balance sheet data and interest income and expense data, as well as the related net interest margin, yieldsand rates (dollars in millions): Year Ended December 31, 2017 2016 2015 AverageBalance InterestInc./Exp. AverageYield/Cost AverageBalance InterestInc./Exp. AverageYield/Cost AverageBalance InterestInc./Exp. AverageYield/CostCash and equivalents$1,011 $9 0.89% $1,700 $7 0.41% $1,728 $3 0.18%Cash required to be segregated under federal orother regulations1,186 12 0.99% 1,553 6 0.36% 425 1 0.15%Available-for-sale securities18,391 390 2.12% 13,265 266 2.01% 12,541 245 1.95%Held-to-maturity securities20,699 572 2.76% 15,217 425 2.79% 12,201 346 2.84%Margin receivables7,721 320 4.15% 6,592 249 3.77% 7,884 276 3.50%Loans(1)3,194 157 4.93% 4,351 191 4.39% 5,651 230 4.06%Broker-related receivables and other1,014 3 0.29% 594 1 0.16% 527 3 0.61%Subtotal interest-earning assets53,216 1,463 2.75% 43,272 1,145 2.65% 40,957 1,104 2.70%Other interest revenue(2)— 108 — 88 — 112 Total interest-earning assets53,216 1,571 2.95% 43,272 1,233 2.85% 40,957 1,216 2.97%Total non-interest-earning assets4,979 4,864 4,512 Total assets$58,195 $48,136 $45,469 Sweep deposits$33,775 $4 0.01% $26,088 $3 0.01% $20,638 $4 0.02%Savings deposits3,085 — 0.01% 3,227 — 0.01% 3,534 — 0.01%Other deposits2,055 — 0.03% 2,018 — 0.03% 1,977 — 0.03%Customer payables8,793 5 0.06% 7,221 5 0.07% 6,435 5 0.07%Broker-related payables and other1,250 — 0.00% 1,286 — 0.00% 1,759 — 0.00%Other borrowings665 22 3.33% 416 18 4.32% 3,500 117 3.32%Corporate debt994 48 4.77% 994 54 5.41% 1,076 59 5.63%Subtotal interest-bearing liabilities50,617 79 0.16% 41,250 80 0.19% 38,919 185 0.49%Other interest expense(3)— 7 — 5 — 9 Total interest-bearing liabilities50,617 86 0.17% 41,250 85 0.21% 38,919 194 0.50%Total non-interest-bearing liabilities1,058 954 894 Total liabilities51,675 42,204 39,813 Total shareholders' equity6,520 5,932 5,656 Total liabilities and shareholders' equity$58,195 $48,136 $45,469 Excess interest earning assets over interestbearing liabilities/net interest income/net interestmargin(4)$2,599 $1,485 2.79% $2,022 $1,148 2.65% $2,038 $1,022 2.50%(1)Nonaccrual loans are included in the average loan balances. Interest payments received on nonaccrual loans are recognized on a cash basis in interest income until it isdoubtful that full payment will be collected, at which point payments are applied to principal.(2)Represents interest income on securities loaned.(3)Represents interest expense on securities borrowed.(4)The taxable equivalent adjustment to reconcile to net interest income was less than $1 million for the years ended December 31, 2017 and 2016 and $1 million for theyear ended December 31, 2015.E*TRADE 2017 10-K | Page 41 Table of Contents Year Ended December 31, 2017 2016 2015Ratio of interest-earning assets to interest-bearing liabilities105.14% 104.90% 105.24%Return on average: Total assets1.06% 1.15% 0.59%Total shareholders’ equity9.42% 9.30% 4.75%Average total shareholders’ equity to average total assets11.20% 12.32% 12.44%Average interest-earning assets increased 23% to $53.2 billion for the year ended December 31, 2017 compared to 2016. The fluctuation ininterest-earning assets is generally driven by changes in interest-bearing liabilities, primarily deposits and customer payables. Average interest-bearing liabilities increased 23% to $50.6 billion for the year ended December 31, 2017 compared to 2016. The increase was primarily due to higherdeposits as a result of transferring customer cash held by third parties to our balance sheet. For additional information on our balance sheet growthand customer cash held by third parties, see MD&A—Balance Sheet Overview.Net interest margin increased 14 basis points to 2.79% for the year ended December 31, 2017 compared to 2016. Net interest margin is driven bythe mix of asset and liability average balances and the interest rates earned or paid on those balances. The increase during the year endedDecember 31, 2017 compared to 2016, is due to higher interest rates earned on increased margin receivable and available-for-sale securitiesbalances, increased securities lending activities and lower corporate debt service cost, partially offset by the continued run-off of our higheryielding legacy mortgage and consumer loan portfolio.Average interest-earning assets increased 6% to $43.3 billion for the year ended December 31, 2016 compared to 2015. Average interest-bearingliabilities increased 6% to $41.3 billion and net interest margin increased 15 basis points to 2.65%. The increase was primarily due to lowerborrowing costs resulting from the termination of legacy wholesale funding obligations during 2015.CommissionsCommissions revenue decreased by less than 1% to $441 million for the year ended December 31, 2017 compared to 2016, and increased 4% to$442 million for the year ended December 31, 2016 compared to 2015. The main factors that affect commissions revenue are DARTs, averagecommission per trade and the number of trading days.DARTs volume increased 31% to 214,284 for the year ended December 31, 2017 compared to 2016, and increased 6% to 164,134 for the yearended December 31, 2016 compared to 2015, mainly driven by the inclusion of OptionsHouse accounts and the strength of the equity markets.Derivative DARTs volume increased 54% to 65,264 for the year ended December 31, 2017 compared to 2016 and increased 12% to 42,430 for theyear ended December 31, 2016 compared to 2015. Derivative DARTs represented 30%, 26% and 24% of trading volume for the years endedDecember 31, 2017, 2016 and 2015, respectively.Average commission per trade decreased 23% to $8.23 for the year ended December 31, 2017 compared to 2016 and decreased 1% to $10.70 forthe year ended December 31, 2016 compared to 2015. Average commission per trade is impacted by customer mix and differing commission rateson various trade types (e.g. equities, derivatives, stock plan and mutual funds). Average commission per trade for the year ended December 31,2017 was impacted by reduced commission rates implemented in March 2017 as well as increased trading activity from certain customers,qualifying them for lower commission rates due to our new active trader pricing. The lower price structure for customer accounts associated withthe OptionsHouse acquisition has also impacted commissions revenue.E*TRADE 2017 10-K | Page 42 Table of Contents Fees and Service ChargesThe components of fees and service charges and the resulting variances are as follows (dollars in millions): Year Ended December 31, Variance Variance 2017 vs. 2016 2016 vs. 2015 2017 2016 2015 Amount % Amount %Order flow revenue$135 $96 $85 $39 41% $11 13%Money market funds and sweep depositsrevenue(1)92 50 23 42 84% 27 117%Mutual fund service fees39 36 27 3 8% 9 33%Advisor management fees36 28 27 8 29% 1 4%Foreign exchange revenue26 21 15 5 24% 6 40%Reorganization fees16 16 12 — —% 4 33%Other fees and service charges25 21 21 4 19% — —%Total fees and service charges$369 $268 $210 $101 38% $58 28%(1)Includes revenue earned on average customer cash held by third parties based on the federal funds rate or LIBOR plus a negotiated spread or other contractualarrangements with the third party institutions.Fees and service charges increased 38% to $369 million for the year ended December 31, 2017 compared to 2016 and increased 28% to $268million for the year ended December 31, 2016 compared to 2015. The increase in fees and service charges in both periods was largely driven byan increase in revenue earned on customer cash held by third parties, which was impacted by higher interest rates, partially offset by loweraverage balances. The gross yield on customer cash held by third parties was approximately 90 basis points, 40 basis points and 15 basis pointsfor the years ended December 31, 2017, 2016 and 2015, respectively. In addition, during 2017 and 2016, fees and service charges benefited fromincreased order flow revenue from higher trading activity and higher revenue from advisor management fees driven by an increased averagebalance of assets under management.E*TRADE 2017 10-K | Page 43 Table of Contents Gains (Losses) on Securities and Other, NetThe components of gains (losses) on securities and other, net and the resulting variances are as follows (dollars in millions): Year Ended December 31, Variance Variance 2017 vs. 2016 2016 vs. 2015 2017 2016 2015 Amount % Amount %Reclassification of deferred losses on cashflow hedges$— $— $(370) $— * $370 (100)%Gains on available-for-sale securities, net: Gains on available-for-sale securities40 54 58 $(14) (26)% $(4) (7)%Losses on available-for-sale securities— (1) (20) 1 (100)% 19 (95)%Subtotal40 5338 (13) (25)% 15 39 %Hedge ineffectiveness(14) (6) (1) (8) 133 % (5) 500 %Equity method investment income (loss) andother2 (5) 9 7 (140)% (14) (156)%Gains (losses) on securities and other, net$28 $42 $(324) $(14) (33)% $366 **Percentage not meaningful.Gains (losses) on securities and other, net was $28 million, $42 million and $(324) million for the years ended December 31, 2017, 2016 and 2015,respectively. Gains (losses) on securities and other, net for the year ended December 31, 2015 included $370 million of losses reclassified fromaccumulated other comprehensive loss related to cash flow hedges as a result of the termination of legacy wholesale funding obligations during2015.Provision (Benefit) for Loan LossesWe recognized a benefit for loan losses of $168 million, $149 million and $40 million for the years ended December 31, 2017, 2016 and 2015,respectively. The timing and magnitude of the provision (benefit) for loan losses is affected by many factors that could result in variability. Thesebenefits reflected better than expected performance of our portfolio as well as recoveries in excess of prior expectations, including recoveries ofprevious charge-offs that were not included in our loss estimates, as well as payoffs on loans converting to amortizing. These benefits alsoreflected the following enhancements to our allowance for loan loss modeling approach during the periods presented:•The benefit for loan losses for the year ended December 31, 2017 reflected approximately $70 million of benefit resulting from refineddefault assumptions based on the sustained outperformance of converted mortgage loans that were previously interest-only and had nowbeen amortizing for 12 months or longer.•The benefit for loan losses for the year ended December 31, 2016 included a $25 million benefit resulting from updated expectations basedon the sustained outperformance of a substantial volume of high-risk HELOCs.•The benefit for loan losses during the year ended December 31, 2015 reflected a decrease in the allowance for loan losses that waspartially offset by the impact of enhancements to our modeling practices.For additional information on management's estimate of the allowance for loan losses, see MD&A—Summary of Critical Accounting Policies andEstimates.E*TRADE 2017 10-K | Page 44 Table of Contents Non-Interest ExpenseThe components of non-interest expense and the resulting variances are as follows (dollars in millions): Year Ended December 31, Variance Variance 2017 vs. 2016 2016 vs. 2015 2017 2016 2015 Amount % Amount %Compensation and benefits$546 $501 $466 $45 9 % $35 8 %Advertising and market development166 131 124 35 27 % 7 6 %Clearing and servicing124 105 95 19 18 % 10 11 %Professional services99 97 103 2 2 % (6) (6)%Occupancy and equipment116 98 88 18 18 % 10 11 %Communications121 87 90 34 39 % (3) (3)%Depreciation and amortization82 79 81 3 4 % (2) (2)%FDIC insurance premiums31 25 41 6 24 % (16) (39)%Amortization of other intangibles36 23 20 13 57 % 3 15 %Restructuring and acquisition-relatedactivities15 35 17 (20) (57)% 18 106 %Losses on early extinguishment of debt, net58 — 112 58 100 % (112) (100)%Other non-interest expenses76 71 82 5 7 % (11) (13)%Total non-interest expense$1,470 $1,252 $1,319 $218 17 % $(67) (5)%Compensation and BenefitsCompensation and benefits expense increased 9% to $546 million for the year ended December 31, 2017 compared to 2016, and increased 8% to$501 million for the year ended December 31, 2016 compared to 2015. The expense increase in 2017 was primarily driven by higher incentivecompensation reflecting improved overall Company performance. The increase in 2016 was primarily driven by a headcount increase of 5% as wehired additional customer service professionals and financial consultants consistent with our key business objective of accelerating growth of thecore brokerage business. Headcount during 2016 was also impacted by the acquisition of OptionsHouse. The impact of increased headcount waspartially offset by the reversal of share-based compensation and other incentive compensation that will not vest due to the Company'srestructuring activities during the second half of 2016.Advertising and Market DevelopmentAdvertising and market development expense increased 27% to $166 million for the year ended December 31, 2017 compared to 2016, andincreased 6% to $131 million for the year ended December 31, 2016 compared to 2015. The increase in in both periods was primarily due toinvestments to drive customer acquisition and deepen engagement, and in 2017 was also driven by higher spending as we launched our newadvertising campaign during the second quarter of 2017.CommunicationsCommunications expense increased 39% to $121 million for the year ended December 31, 2017 compared to 2016, and decreased 3% to $87million for the year ended December 31, 2016 compared to 2015. The increase in 2017 was primarily driven by increased market data feesresulting from higher trading activity. Additionally, during 2017 we updated our accrual estimate for professional users of real time market data andrecognized $8 million related to previous usage.E*TRADE 2017 10-K | Page 45 Table of Contents Restructuring and Acquisition-Related ActivitiesRestructuring and acquisition-related activities expense decreased 57% to $15 million, for the year ended December 31, 2017 compared to 2016,and increased 106% to $35 million for the year ended December 31, 2016 compared to 2015. Restructuring and acquisition-related activities for theyear ended December 31, 2017 primarily related to the OptionsHouse integration costs. Restructuring and acquisition-related activities during theyear ended December 31, 2016 reflected $28 million of restructuring costs related to the realignment of our core brokerage business and $7 millionof acquisition-related expense from the OptionsHouse acquisition.Losses on Early Extinguishment of Debt, NetLosses on early extinguishment of debt, net were $58 million for the year ended December 31, 2017 compared to no losses for the year endedDecember 31, 2016 and $112 million for the year ended December 31, 2015.•During the third quarter of 2017, we issued $600 million of 2.95% Senior Notes due 2022 and $400 million of 3.80% Senior Notes due 2027and used the net proceeds, along with existing corporate cash, to redeem our outstanding $540 million of 5.375% Senior Notes and $460million of 4.625% Senior Notes, which resulted in a $58 million loss on early extinguishment of debt.•The $112 million net loss on early extinguishment of debt during the year ended December 31, 2015 included a $73 million loss on theredemption of 6.375% Senior Notes during the first quarter and a $43 million loss on the termination of legacy wholesale fundingobligations during the third quarter, offset by a $4 million gain on the extinguishment of certain trust preferred securities.Operating MarginOperating margin was 45% for the year ended December 31, 2017, compared to 43% for the same period in 2016, and 7% for the same period in2015. Adjusted operating margin, a non-GAAP measure, was 40% for the year ended December 31, 2017 compared to 35% in 2016 and 31% in2015.Adjusted operating margin is a non-GAAP measure calculated by dividing adjusted income before income tax expense by adjusted total netrevenue. Adjusted income before income tax expense excludes provision (benefit) for loan losses, losses on early extinguishment of debt, net andthe loss on termination of legacy wholesale funding obligations recognized in Gains (losses) on securities and other, net during the year endedDecember 31, 2015. The following table provides a reconciliation of adjusted income before income tax expense and adjusted operating margin,non-GAAP measures, to the most directly comparable GAAP measures (dollars in millions): Year Ended December 31, 2017 2016 2015 Amount OperatingMargin % Amount OperatingMargin % Amount OperatingMargin %Income before income tax expense / operating margin$1,064 45% $838 43% $91 7%Add back impact of pre-tax items: Loss included in Gains (losses) on securities and other, net— — 370 Provision (benefit) for loan losses(168) (149) (40) Losses on early extinguishment of debt, net58 — 112 Subtotal(110) (149) 442 Adjusted income before income tax expense / adjustedoperating margin$954 40% $689 35% $533 31%E*TRADE 2017 10-K | Page 46 Table of Contents Adjusted total net revenue excludes the loss on termination of legacy wholesale funding obligations from total net revenue. The following tableprovides a reconciliation of adjusted total net revenue, a non-GAAP measure, to the most directly comparable GAAP measure (dollars in millions): Year Ended December 31, 2017 2016 2015Total net revenue$2,366 $1,941 $1,370Add back impact of termination of legacy wholesale funding obligations: Loss included in Gains (losses) on securities and other, net— — 370Adjusted total net revenue$2,366 $1,941 $1,740Income Tax Expense (Benefit)Income tax expense (benefit) was $450 million, $286 million and $(177) million for the years ended December 31, 2017, 2016, and 2015,respectively. The effective tax rate was 42%, 34% and (195%) for the same periods.•The effective tax rate of 42% for the year ended December 31, 2017 includes the impact of federal tax reform. The Tax Cuts and Jobs Actwas enacted on December 22, 2017, which resulted in a reduction in the value of our net federal deferred tax assets using the newstatutory federal corporate income tax rate of 21%. As a result, we recognized $58 million of additional tax expense for the year endedDecember 31, 2017. The effective tax rate also includes the impact of adopting amended accounting guidance for employee share-basedcompensation. See Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies for additionalinformation on the adoption of the amended accounting guidance.•The effective tax rate of 34% for the year ended December 31, 2016 was impacted by a $25 million tax benefit related to the release ofvaluation allowances against certain state deferred tax assets.•The effective tax rate of (195%) for the year ended December 31, 2015 was primarily driven by the settlement of the IRS examination ofour 2007, 2009 and 2010 federal tax returns resulting in the recognition of a $220 million income tax benefit. The income tax benefitresulted from the release of related reserves for uncertain tax positions, the majority of which increased our net deferred tax assets.For additional information, see Note 15—Income Taxes.E*TRADE 2017 10-K | Page 47 Table of Contents BALANCE SHEET OVERVIEWThe following table sets forth the significant components of the consolidated balance sheet (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %Assets: Cash and equivalents$931 $1,950 $(1,019) (52)%Segregated cash872 1,460 (588) (40)%Securities(1)44,518 29,643 14,875 50 %Margin receivables9,071 6,731 2,340 35 %Loans receivable, net2,654 3,551 (897) (25)%Receivables from brokers, dealers and clearingorganizations1,178 1,056 122 12 %Goodwill and other intangibles, net2,654 2,690 (36) (1)%Deferred tax assets, net251 756 (505) (67)%Other(2)1,236 1,162 74 6 %Total assets$63,365 $48,999 $14,366 29 %Liabilities and shareholders’ equity: Deposits$42,742 $31,682 $11,060 35 %Customer payables9,449 8,159 1,290 16 %Payables to brokers, dealers and clearing organizations1,542 983 559 57 %Other borrowings910 409 501 122 %Corporate debt991 994 (3) — %Other liabilities800 500 300 60 %Total liabilities56,434 42,727 13,707 32 %Shareholders’ equity6,931 6,272 659 11 %Total liabilities and shareholders’ equity$63,365 $48,999 $14,366 29 %(1)Includes balance sheet line items available-for-sale and held-to-maturity securities.(2)Includes balance sheet line items property and equipment, net and other assets.Cash and EquivalentsCash and equivalents decreased 52% to $931 million during the year ended December 31, 2017 and includes corporate cash, a non-GAAPmeasure, of $541 million as of December 31, 2017. Cash and equivalents will fluctuate based on a variety of factors, including, among otherdrivers, liquidity needs at the parent, customer activity at our regulated subsidiaries, and the timing of investments at E*TRADE Bank. Foradditional information on our use of cash and equivalents, including corporate cash, see MD&A—Liquidity and Capital Resources.E*TRADE 2017 10-K | Page 48 Table of Contents Segregated CashCash required to be segregated under federal or other regulations decreased 40% to $872 million during the year ended December 31, 2017. Thelevel of segregated cash is driven largely by customer payables and securities lending balances we hold as liabilities compared with the amount ofmargin receivables and securities borrowed balances we hold as assets. The excess represents customer cash that we are required by ourregulators to segregate for the exclusive benefit of our brokerage customers. At December 31, 2017 and 2016, $800 million and $500 million,respectively, of reverse repurchase agreements between E*TRADE Securities and E*TRADE Bank, representing investments that weresegregated under federal or other regulations by E*TRADE Securities, were eliminated in consolidation.SecuritiesAvailable-for-sale and held-to-maturity securities are summarized as follows (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %Available-for-sale securities: Debt securities: Agency mortgage-backed securities$19,195 $12,634 $6,561 52%Other debt securities1,477 1,251 226 18%Total debt securities20,672 13,885 6,787 49%Publicly traded equity securities(1)7 7 — —%Total available-for-sale securities$20,679 $13,892 $6,787 49%Held-to-maturity securities: Agency mortgage-backed securities$20,502 $12,868 $7,634 59%Other debt securities3,337 2,883 454 16%Total held-to-maturity securities$23,839 $15,751 $8,088 51%Total investments in securities$44,518 $29,643 $14,875 50%(1)Consists of Community Reinvestment Act investments in a mutual fund.Securities represented 70% and 60% of total assets at December 31, 2017 and 2016, respectively. We classify debt securities as available-for-sale or held-to-maturity based on our investment strategy and management’s assessment of our intent and ability to hold the debt securities untilmaturity.The increase in total investments in securities during the year ended December 31, 2017 was primarily due to net purchases of investmentsecurities as a result of our efforts to grow the balance sheet by transferring customer cash held by third parties to our balance sheet.Margin ReceivablesMargin receivables increased 35% to $9.1 billion during the year ended December 31, 2017. The increase in margin receivables was primarilydriven by improved market sentiment. During the third quarter of 2017, we also transferred $0.4 billion of customer margin balances held by a thirdparty clearing firm to E*TRADE Securities in connection with the integration of OptionsHouse.E*TRADE 2017 10-K | Page 49 Table of Contents Loans Receivable, NetLoans receivable, net is summarized as follows (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %One- to four-family$1,432 $1,950 $(518) (27)%Home equity1,097 1,556 (459) (29)%Consumer and other(1)188 250 (62) (25)%Total loans receivable2,717 3,756 (1,039) (28)%Unamortized premiums, net11 16 (5) (31)%Subtotal2,728 3,772 (1,044) (28)%Less: Allowance for loan losses74 221 (147) (67)%Total loans receivable, net$2,654 $3,551 $(897) (25)%(1)In the third quarter of 2017 we introduced E*TRADE Line of Credit, a securities-based lending product, where customers can borrow up to 50% of the market value ofsecurities pledged as collateral. The drawn amount and unused credit line amount totaled $12 million and $35 million, respectively, as of December 31, 2017.Loans receivable, net decreased 25% to $2.7 billion during the year ended December 31, 2017. In addition to payoff activity during the year, thefollowing added to the decrease:•The Company sold certain loans with a carrying value of $41 million for proceeds that approximated book value.•The Company transferred loans with a carrying value of $17 million to held-for-sale. These loans are reflected within other assets on theconsolidated balance sheet at December 31, 2017.We expect the remaining legacy mortgage and consumer loan portfolio to continue its run-off for the foreseeable future. As our portfolio hasseasoned and substantially all interest-only loans have converted to amortizing, we continue to assess underlying performance, the economicenvironment, and the value of the portfolio in the marketplace. While it is our intention to hold these loans, if the markets improve our strategycould change. For additional information on management's estimate of the allowance for loan losses, see Note 7—Loans Receivable, Net.Deferred Tax Assets, NetDeferred tax assets, net decreased 67% to $251 million during the year ended December 31, 2017. The decrease in net deferred tax assets wasprimarily driven by our earnings, which resulted in the utilization of net operating losses. Additionally, we recognized a $58 million reduction invalue related to tax reform and the new statutory federal corporate income tax rate of 21%. See Note 15—Income Taxes for additional information.E*TRADE 2017 10-K | Page 50 Table of Contents DepositsDeposits are summarized as follows (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %Sweep deposits$37,734 $26,362 $11,372 43 %Savings deposits2,912 3,185 (273) (9)%Other deposits2,096 2,135 (39) (2)%Total deposits$42,742 $31,682 $11,060 35 %Deposits represented 76% and 74% of total liabilities at December 31, 2017 and 2016, respectively. At December 31, 2017, approximately 92% ofour customer deposits were covered by FDIC insurance. Deposits increased $11.1 billion during the year ended December 31, 2017 primarily as aresult of transferring customer cash held by third parties to our balance sheet.Brokerage Related CashThe majority of the deposits balance, specifically sweep deposits, is included in brokerage related cash, which is reported as a customer activitymetric. Total brokerage related cash is summarized as follows (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %Sweep deposits$37,734 $26,362 $11,372 43 %Customer payables9,449 8,159 1,290 16 %Subtotal - on balance sheet47,18334,521 12,662 37 %Customer cash held by third parties: Sweep deposits held by unaffiliated financial institutions4,724 14,943 (10,219) (68)%Customer cash held by third party clearing firm(1)— 1,634 (1,634) (100)%Money market funds and other1,016 271 745 275 %Subtotal - off balance sheet5,740 16,848 (11,108) (66)%Total brokerage related cash$52,923 $51,369 $1,554 3 % (1)At December 31, 2016, includes OptionsHouse customer cash held by a third party clearing firm that was transferred to E*TRADE Securities during the third quarter of2017 in connection with the integration of OptionsHouse.Sweep deposits are held at bank subsidiaries and are included in the deposits line item on our consolidated balance sheet. We offer an extendedinsurance sweep deposit account (ESDA) program to our brokerage customers. The ESDA program utilizes our bank subsidiaries, in combinationwith additional third party program banks, to allow customers the ability to have aggregate deposits they hold in the ESDA program insured up to$1,250,000 for each category of legal ownership. As of December 31, 2017, approximately 99% of sweep deposits were in the ESDA program.Customer cash held by third parties is maintained at unaffiliated financial institutions. Customer cash held by third parties is not reflected on ourconsolidated balance sheet and is not immediately available for liquidity purposes. As of December 31, 2017, approximately $1.8 billion ofcustomer cash held by third parties was available for balance sheet growth. The timing of our balance sheet growth will be impacted by a varietyof factors, including the capital requirements applicable to both the Company and E*TRADE Bank.E*TRADE 2017 10-K | Page 51 Table of Contents Other BorrowingsOther borrowings are summarized as follows (dollars in millions): Variance December 31, 2017 vs. 2016 2017 2016 Amount %FHLB advances$500 $— $500 100%Trust preferred securities410 409 1 —%Total other borrowings$910 $409 $501 122%Other borrowings increased $501 million during the year ended December 31, 2017, as we utilized Federal Home Loan Bank (FHLB) advances forshort-term liquidity and funding requirements. See MD&A—Liquidity and Capital Resources for additional information on liquidity and fundingsources at E*TRADE Bank.Shareholders' EquityShareholders' equity increased 11% to $6.9 billion during the year ended December 31, 2017, primarily driven by increased net income and othercomprehensive income as well as the issuance of Series B preferred stock in anticipation of funding the TCA acquisition, partially offset by sharerepurchases. See Note 16—Shareholders' Equity for additional information.LIQUIDITY AND CAPITAL RESOURCESWe have established liquidity and capital policies to support the successful execution of our business strategy, while maintaining ongoing andsufficient liquidity through the business cycle. We believe liquidity is of critical importance to the Company and especially important for E*TRADEBank and E*TRADE Securities. The objective of our policies is to ensure that we can meet our corporate, banking and broker-dealer liquidity needsunder both normal operating conditions and under periods of stress in the financial markets.LiquidityOur corporate liquidity needs are primarily driven by capital needs at E*TRADE Bank and E*TRADE Securities as well as by the interest due onour corporate debt and the amount of dividend payments on our preferred stock. Our banking and brokerage subsidiaries' liquidity needs are drivenprimarily by the level and volatility of our customer activity. Management maintains a set of liquidity sources and monitors certain business trendsand market metrics closely in an effort to ensure we have sufficient liquidity. Potential loans by E*TRADE Bank to the parent company and theparent company's other non-bank subsidiaries are subject to various quantitative, arm’s length, collateralization, capital and other requirements.Parent Company LiquidityThe parent company's primary source of liquidity is corporate cash. Corporate cash, a non-GAAP measure, is a component of cash andequivalents; see the consolidated statement of cash flows within Financial Statements and Supplementary Data for information on cash andequivalents activity. We define corporate cash as cash held at the parent company and subsidiaries, excluding bank, broker-dealer, and FCMsubsidiaries that require regulatory approval or notification prior to the payment of certain dividends to the parent company.E*TRADE 2017 10-K | Page 52 Table of Contents We believe corporate cash is a useful measure of the parent company’s liquidity as it is the primary source of capital above and beyond the capitaldeployed in our regulated subsidiaries. Corporate cash can fluctuate in any given quarter and is impacted primarily by the following:•Dividends from and investments in subsidiaries•Non-cumulative preferred stock dividends•Share repurchases•Debt service costs•Acquisitions and other investments•Reimbursements from subsidiaries for the use of the parent company's deferred tax assets•Parent company overhead less reimbursements through cost sharing arrangements with subsidiariesThe following chart provides a roll forward of corporate cash at December 31, 2016 to corporate cash at December 31, 2017 (dollars in millions):The following table provides a reconciliation of consolidated cash and equivalents to corporate cash, a non-GAAP measure (dollars in millions): December 31, 2017 2016 2015Consolidated cash and equivalents$931 $1,950 $2,233Less: Cash at regulated subsidiaries(1)(390) (1,489) (1,786)Corporate cash$541 $461 $447(1) Reported net of corporate cash on deposit at E*TRADE Bank that is eliminated in consolidation.E*TRADE 2017 10-K | Page 53 Table of Contents Corporate cash increased $80 million to $541 million during the year ended December 31, 2017 primarily due to the following:•$345 million received in dividends from E*TRADE Securities•$300 million received from the preferred stock issuance related to the planned TCA acquisition•$108 million received from subsidiaries for the use of the parent company’s deferred tax assets•$362 million used for share repurchases•$122 million used primarily for parent company overhead less reimbursements from subsidiaries under overhead cost sharing arrangements•$103 million used for corporate debt activity, including $58 million to refinance our senior notes and $45 million in interest payments•$61 million used for investments in subsidiaries, driven by a $50 million investment in E*TRADE Bank related primarily to the impact of taxreformCorporate cash is monitored as part of our liquidity risk management and our current corporate cash target is $250 million. This target coversapproximately 18 months of parent company fixed costs, which includes preferred stock dividends, debt service and other overhead costs. TheCompany maintains $300 million of additional liquidity through an unsecured committed revolving credit facility. The parent has the ability to borrowagainst the credit facility for working capital and general corporate purposes. At December 31, 2017, there was no outstanding balance under thisrevolving credit facility. See Risk Management for additional information about our liquidity risk management approach.E*TRADE Bank LiquidityE*TRADE Bank, including its subsidiary E*TRADE Savings Bank, relies on bank cash and deposits for liquidity needs. Management believes thatwithin deposits, sweep deposits are of particular importance as they are a stable source of liquidity for E*TRADE Bank. We have the ability togenerate liquidity in the form of additional deposits by raising the yield on our customer deposit products and by bringing additional deposits ontoour balance sheet. Sweep deposits on our balance sheet as of December 31, 2017 increased $11.4 billion compared to December 31, 2016. Weutilize our sweep deposit platform to efficiently manage our balance sheet size.We may utilize wholesale funding sources for short-term liquidity and contingency funding requirements. Our ability to borrow these funds isdependent upon the continued availability of funding in the wholesale borrowings market. In addition, we can borrow from the Federal ReserveBank of Richmond's discount window to meet short-term liquidity requirements, although it is not viewed as a primary source of funding. AtDecember 31, 2017, E*TRADE Bank had approximately $6.2 billion and $0.8 billion in additional collateralized borrowing capacity with the FHLBand the Federal Reserve Bank of Richmond, respectively.E*TRADE Securities LiquidityE*TRADE Securities relies on customer payables, securities lending, and internal and external lines of credit to provide liquidity and to fund marginlending. At December 31, 2017, E*TRADE Securities' external liquidity lines totaled approximately $1.1 billion and included the following:•A 364-day, $450 million senior unsecured committed revolving credit facility with a syndicate of banks, with a maturity date of June 2018 anda commitment fee of 0.35% on unused balances•Secured committed lines of credit with two unaffiliated banks, aggregating to $175 million, with a maturity date of June 2018 and acommitment fee of 0.15% on unused balancesE*TRADE 2017 10-K | Page 54 Table of Contents •Unsecured uncommitted lines of credit with three unaffiliated banks, aggregating to $125 million, of which $50 million matures in June 2018and the remaining lines have no maturity date•Secured uncommitted lines of credit with several unaffiliated banks, aggregating to $375 million with no maturity dateThe revolving credit facility contains certain covenants, including maintenance covenants related to E*TRADE Securities' minimum consolidatedtangible net worth and regulatory net capital ratio. There were no outstanding balances for any of these lines at December 31, 2017. E*TRADESecurities also maintains lines of credit with the parent company and E*TRADE Bank.Capital ResourcesThe Company seeks to manage capital levels in support of our business strategy of generating and effectively deploying capital for the benefit ofour shareholders, governed by the Company's risk management framework. For additional information on our bank and brokerage capitalrequirements, see Note 18—Regulatory Requirements.Bank Capital RequirementsThe Dodd-Frank Act requires all companies, including savings and loan holding companies, that directly or indirectly control an insured depositoryinstitution, to serve as a source of strength for the institution. There are bank regulatory capital requirements applicable to the Company andE*TRADE Bank, some of which are still subject to phase-in periods, including certain deductions from and adjustments to regulatory capital. Mostof these requirements are currently scheduled to be fully implemented in 2018. For additional information on bank regulatory requirements andphase-in periods, see Business—Regulation.At December 31, 2017, our regulatory capital ratios for E*TRADE Financial were well above the minimum ratios required to be "well capitalized."E*TRADE Financial's current Tier 1 Leverage ratio threshold of 6.5% was reduced from 7.0% in July 2017. E*TRADE Financial's capital ratios areas follows:E*TRADE 2017 10-K | Page 55 Table of Contents E*TRADE Financial's capital ratios are calculated as follows (dollars in millions): December 31, 2017 2016 2015E*TRADE Financial shareholders’ equity$6,931 $6,272 $5,799Deduct: Preferred stock(689) (394) —E*TRADE Financial Common Equity Tier 1 capital before regulatory adjustments$6,242 $5,878 $5,799Add: (Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax26 139 101Deduct: Goodwill and other intangible assets, net of deferred tax liabilities(2,191) (2,029) (1,419)Disallowed deferred tax assets(304) (505) (838)Other(1)— — 104E*TRADE Financial Common Equity Tier 1 capital3,773 3,483 3,747Add: Preferred stock689 394 —Deduct: Disallowed deferred tax assets(76) (267) —E*TRADE Financial Tier 1 capital$4,386 $3,610 $3,747Add: Allowable allowance for loan losses74 124 129Non-qualifying capital instruments subject to phase-out (trust preferred securities)(1)414 414 310E*TRADE Financial total capital$4,874 $4,148 $4,186 E*TRADE Financial average assets for leverage capital purposes$62,095 $49,113 $44,016Deduct: Goodwill and other intangible assets, net of deferred tax liabilities(2,191) (2,029) (1,419)Disallowed deferred tax assets(380) (772) (839)Other(1)— — 104E*TRADE Financial adjusted average assets for leverage capital purposes$59,524 $46,312 $41,862 E*TRADE Financial total risk-weighted assets(2)$11,115 $9,422 $9,536 E*TRADE Financial Tier 1 leverage ratio(1) (Tier 1 capital / Adjusted average assets for leverage capitalpurposes)7.4% 7.8% 9.0%E*TRADE Financial Common Equity Tier 1 capital / Total risk-weighted assets(2)33.9% 37.0% 39.3%E*TRADE Financial Tier 1 capital / Total risk-weighted assets39.5% 38.3% 39.3%E*TRADE Financial total capital / Total risk-weighted assets43.8% 44.0% 43.9%(1) As a result of applying the transition provisions under Basel III in 2015, the Company included 25% of the TRUPs in the calculation of E*TRADE Financial’s Tier 1 capitaland 75% of the TRUPs in the calculation of E*TRADE Financial’s total capital. In accordance with the transition provisions, the TRUPs were fully phased out of E*TRADEFinancial’s Tier 1 capital in 2016.(2) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned toone of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category isthen multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.E*TRADE 2017 10-K | Page 56 Table of Contents At December 31, 2017, our regulatory capital ratios for E*TRADE Bank were well above the minimum ratios required to be "well capitalized."E*TRADE Bank's current Tier 1 Leverage ratio threshold of 7.5% was reduced to 7.0% in January 2018. E*TRADE Bank's capital ratios are asfollows:E*TRADE 2017 10-K | Page 57 Table of Contents E*TRADE Bank's capital ratios are calculated as follows (dollars in millions): December 31, 2017 2016 2015E*TRADE Bank shareholder's equity$3,703 $3,153 $3,181Add: (Gains) losses in other comprehensive income on available-for-sale debt securities, net of tax26 139 101Deduct: Goodwill and other intangible assets, net of deferred tax liabilities(38) (38) (38)Disallowed deferred tax assets(71) (122) (169)E*TRADE Bank Common Equity Tier 1 capital / Tier 1 capital3,620 3,132 3,075Add: Allowable allowance for loan losses74 105 110E*TRADE Bank total capital$3,694 $3,237 $3,185 E*TRADE Bank average assets for leverage capital purposes$47,992 $35,885 $31,785Deduct: Goodwill and other intangible assets, net of deferred tax liabilities(38) (38) (38)Disallowed deferred tax assets(71) (122) (169)E*TRADE Bank adjusted average assets for leverage capital purposes$47,883 $35,725 $31,578 E*TRADE Bank total risk-weighted assets(1)$10,147 $8,187 $8,424 E*TRADE Bank Tier 1 leverage ratio (Tier 1 capital / Adjusted average assets for leverage capital purposes)7.6% 8.8% 9.7%E*TRADE Bank Common Equity Tier 1 capital / Total risk-weighted assets35.7% 38.3% 36.5%E*TRADE Bank Tier 1 capital / Total risk-weighted assets35.7% 38.3% 36.5%E*TRADE Bank total capital / Total risk-weighted assets36.4% 39.5% 37.8%(1) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-balance sheet items are assigned toone of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate dollar amount in each risk category isthen multiplied by the risk weight associated with that category. The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.Broker-Dealer and FCM Capital RequirementsOur broker-dealer and FCM subsidiaries are subject to capital requirements determined by their respective regulators. At December 31, 2017,these subsidiaries met their minimum net capital requirements. We continue to assess our ability to distribute excess net capital to the parentwhile maintaining adequate capital at the broker-dealer and FCM subsidiaries. E*TRADE Securities paid dividends of $345 million to the parentcompany during the year ended December 31, 2017. For additional information on our broker-dealer and FCM capital requirements, see Note 18—Regulatory Requirements.Off-Balance Sheet ArrangementsWe enter into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of our customers and toreduce our own exposure to interest rate risk. These arrangements include firm commitments to extend credit. Additionally, we enter intoguarantees and other similar arrangements as part of transactions in the ordinary course of business. For additional information on thesearrangements, see Note 20—Commitments, Contingencies and Other Regulatory Matters.E*TRADE 2017 10-K | Page 58 Table of Contents Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations at December 31, 2017 and the effect such obligations are expected to have on ourliquidity and cash flow in future periods (dollars in millions): Payments Due by Period Less Than 1Year 1-3 Years 3-5 Years Thereafter TotalCorporate debt(1)$33 $66 $660 $470 $1,229Trust preferred securities(2)(3)16 33 33 607 689Leases(4)27 55 37 55 174Purchase obligations(5)96 40 10 5 151Certificates of deposit(2)(6)21 5 3 — 29Uncertain tax positions6 5 8 6 25Total contractual obligations$199 $204 $751 $1,143 $2,297 (1)Includes annual interest payments.(2)Includes annual interest based on the contractual features of each security, using market rates at December 31, 2017. Interest rates are assumed to remain at currentlevels over the life of all adjustable rate instruments.(3)For these subordinated debentures, does not assume early redemption under current conversion provisions.(4)Includes future minimum lease payments for non-cancelable operating leases, including a sale-leaseback that is accounted for as a financing, with initial or remainingterms in excess of one year, net of sublease proceeds.(5)Includes material purchase obligations for goods and services covered by non-cancelable contracts and contracts with termination clauses. Includes contracts throughthe termination date, even if the contract is renewable.(6)Does not include sweep deposits, savings deposits, money market or checking deposits as there are no stated maturity dates and/or scheduled contractual payments.The Company also had $99 million in unfunded investment commitments to partnerships, companies and other similar entities, including tax creditpartnerships and community development related entities, which are not required to be consolidated, at December 31, 2017. Additional informationrelated to commitments and contingent liabilities is detailed in Note 20—Commitments, Contingencies and Other Regulatory Matters.RISK MANAGEMENTThe identification, mitigation and management of existing and potential risks is critical to effective enterprise risk management. There are certainrisks inherent to our industry (e.g. execution of transactions) and certain risks that will surface through the conduct of our business operations. Weseek to monitor and manage our significant risk exposures by operating under a set of Board-approved limits and by monitoring certain riskindicators. Our governance framework is designed to comply with applicable requirements and requires regular reporting on metrics and significantrisks and exposures to senior management and the Board of Directors.We have a Board-approved Enterprise Risk Appetite Statement (RAS) that is provided to all employees. The RAS specifies significant riskexposures and addresses the Company's tolerance of those risks, which are categorized as follows, with further information provided below:•Credit Risk—the risk of loss arising from the failure of a borrower or counterparty to meet its credit obligations.•Liquidity Risk—the potential inability to meet in a timely and cost-effective manner contractual and contingent financial obligations, either on-or off-balance sheet, as they come due.•Market Risk—the risk that asset values or income streams will be adversely affected by changes in market conditions.E*TRADE 2017 10-K | Page 59 Table of Contents •Operational Risk—the risk of losses or near misses due to failure of people, processes, and systems, or damage to physical assets.•Information Security Risk—the risk of loss of customer or company data, integrity, or availability of systems through the compromise of ourdigital media (e.g., computers, mobile devices, etc.).•Data Management Risk—the risk of impairment to or loss of data assets through ineffective governance over the creation, usage, quality,inventory, storage, security and disposal of data assets.•Strategic Risk—the risk of loss of market size, market share, or margin in our business, leading to lost revenues and potentially significantreductions to net income and/or market value.•Reputational Risk—the potential that negative perceptions regarding our conduct or business practices or capacity to conduct business willadversely affect valuation, profitability, operations, or the customer base, or require costly litigation or other measures.•Legal Risk—the risk to earnings or capital arising from violations of, or non-conformance with, laws or ethical standards, as well asuncertainties surrounding the interpretation or application of laws.•Regulatory and Compliance Risk—the risk to earnings or capital arising from violations of, or non-conformance with, regulations, applicableguidance, and internal policies, as well as risk associated with ambiguous, changing, or untested rules governing certain regulated products oractivities.We are also subject to other risks that could affect our business, financial condition, results of operations or cash flows in future periods. Foradditional information see Item 1A.— Risk Factors.We manage risk through a governance structure of risk committees, which consist of members of senior management, to help ensure thatbusiness decisions are executed within our stated risk profile and consistent with the RAS. A variety of methodologies and measures are used tomonitor, quantify, assess and forecast risk. Measurement criteria, methodologies and calculations are reviewed periodically to ensure that risksare represented appropriately. Certain risks are described in the RAS and related policies which establish processes and limits. The RAS andthese policies are reviewed, challenged, and approved by certain risk committees and/or the Board of Directors, where applicable, at leastannually.The Risk Oversight Committee (ROC), which consists of independent members of the Board of Directors, reviews, challenges and approves theRAS and certain risk policies each year, receives regular reports on the status of certain limits and KRIs and discusses certain key risks. Inaddition to this Board-level committee, various management committees and subcommittees throughout the Company aid in the identification,measurement and management of risks, including but not limited to:•Enterprise Risk Management Committee (ERMC)—the ERMC is the senior-most risk management committee and has primary responsibilityfor approving risk limits and monitoring risk management activities. The ERMC also resolves issues escalated by the other risk managementcommittees and in certain instances approves exceptions to risk policies.•Asset Liability Committee (ALCO)—the ALCO has primary responsibility for monitoring of market, interest rate, and liquidity risk, and approvesrelated risk limits or recommends related risk limits to be approved by the ERMC.•Credit Committee—the Credit Committee has responsibility for monitoring credit risks and approving risk limits or recommending related risklimits to be approved by the ERMC.•Margin Risk Committee (MRC)—the MRC has responsibility for identifying, monitoring and mitigating, where necessary, risks arising frommargin lending activities, including the associated credit risk.•Operational Risk and Control Committee (ORCC)—the ORCC has responsibility for the oversight and management of the operational risks inall business lines, legal entities, and departments, including theE*TRADE 2017 10-K | Page 60 Table of Contents development and reporting of key operational risk metrics. The ORCC has oversight of operational risk management in the existing enterpriserisk categories, including: transactions execution risk, information security and other security risks, legal and regulatory risks, systems andinformation technology risks, and employment risks.•Technology Risk Committee (TRC)—the TRC provides oversight to ensure that all information security objectives and requirements are metand that policies, programs and plans are implemented.•Data Governance Committee (DGC)—the DGC is responsible for setting a vision for a clearly defined data governance framework for theCompany.Credit Risk ManagementWe are exposed to credit risk in the following areas:•We hold credit risk exposure in our loan portfolio. While the legacy portfolio is running off, performance is subject to variability in any givenquarter and we cannot state with certainty that the declining loan loss trend will continue.•We offer securities-based lending products to our brokerage customers, including margin loans and collateralized lines of credit, whichexposes us to the risk of credit losses in the event a customer's assets are depleted due to adverse market conditions, leaving the accountwith an unsecured debit that the customer is not able or willing to cover.•We engage in financial transactions with counterparties, which expose us to counterparty credit losses or collateral losses in the event acounterparty cannot meet its obligations. These financial transactions include our invested cash, securities lending, repurchase and reverserepurchase agreements, and derivatives portfolios, as well as the settlement of trades.•There is a risk of deterioration in market value of the Company’s Real Estate Owned (REO) portfolio, in the event of declining property values.Such deterioration will likely coincide with an increase in REO balances driven by incremental defaults in the Company's mortgage loanportfolios.Credit risk is monitored by the Credit Committee and the MRC. The Credit Committee's objective is to evaluate current and expected creditperformance of our loans, investments, borrowers and counterparties relative to market conditions and the probable impact on our financialperformance. It establishes credit risk guidelines in accordance with our strategic objectives and existing policies, and reviews investment andlending activities with credit risk to ensure consistency with those established guidelines. These reviews involve an analysis of portfolio balances,delinquencies, losses, recoveries, default management and collateral liquidation performance, as well as any credit risk mitigation efforts relatingto the portfolios. In addition, the Credit Committee reviews and approves credit related counterparties engaged in financial transactions with us.The MRC is responsible for corporate governance and oversight with regard to margin risk. The MRC identifies, monitors and mitigates wherenecessary market, operational and credit risks related to our margin lending activities.Loss Mitigation on the Loan PortfolioOur credit risk team manages the mitigation of credit risk within the loan portfolio. We continue to have loan modification programs that wereestablished to minimize potential losses in the mortgage portfolios by targeting borrowers experiencing financial difficulties. During the years endedDecember 31, 2017 and 2016, these programs were utilized to modify $19 million and $13 million, respectively, of one- to four-family loans, and$15 million and $24 million, respectively, of home equity loans. These modifications were classified as TDRs. We also process minormodifications on certain loans in the normal course of servicing delinquent accounts. Minor modifications resulting in an insignificant delay in thetiming of payments are not considered economic concessions and therefore are not classified as TDRs. At December 31, 2017 andE*TRADE 2017 10-K | Page 61 Table of Contents 2016, we had $10 million and $15 million, respectively, of mortgage loans with minor modifications that were not considered TDRs. We currently donot have any active loan modification programs for consumer loans.Currently, our entire mortgage loan portfolio is serviced by third parties. To reduce vendor, operational and regulatory risks, we have assessed ourservicing relationships and, where appropriate, consolidated providers or transferred certain mortgage loans to servicers that specialize inmanaging troubled assets. At December 31, 2017, $1.7 billion gross unpaid principal balance of our mortgage loans were held at servicers thatspecialize in managing troubled assets. We believe this initiative has improved and will continue to improve the credit performance of the loanstransferred compared to the expected credit performance of these same loans if they had not been transferred.During 2016, we completed our review of the mortgage loan portfolio that was aimed at identifying seller-misrepresented loans to be repurchasedby the originator. A total of $464 million of loans, recognized as recoveries to the allowance for loan losses, have been repurchased by or settledwith third party mortgage originators since we began the review process in 2008. We do not expect any future repurchases or settlements on themortgage loan portfolio.Liquidity Risk ManagementLiquidity risk is monitored by the ALCO, the ERMC and the ROC. We have in place a comprehensive set of liquidity and funding policies as wellas contingency funding plans that are intended to maintain our flexibility to address liquidity events specific to us or the market in general. SeeMD&A—Liquidity and Capital Resources for additional information.Market Risk ManagementMarket risk is monitored by the MRC, the ALCO, the ERMC and the ROC. The ALCO monitors current and expected market conditions and theirprobable impact on the Company and provides oversight for interest rate risk. Risks associated with the margin portfolio are reviewed monthly bythe MRC. See Quantitative and Qualitative Disclosures about Market Risk for additional information about our market risks.Operational Risk ManagementOperational risk is reviewed, challenged and monitored by the ORCC, the ERMC and the ROC. Operational risk exists in most areas of theCompany from processing a transaction to customer service. We are also exposed to fraud risk from unauthorized use of customer and corporatefunds and resources. We monitor customer transactions and use scoring tools which prevent a significant number of fraudulent transactions on adaily basis. However, new techniques and strategies are constantly being developed by perpetrators to commit fraud. In order to minimize thisthreat, we offer our customers various security measures, including a token based multi-factor verification system.The failure of a third party vendor to adequately meet its responsibilities, which could result in financial loss and impact our reputation, is anothersignificant operational risk. We have a Vendor Management Committee that reports to the ORCC and monitors our vendor relationships. Thevendor risk identification process includes reviews of contracts, financial soundness of providers, information security, business continuity andrisk management scoring.Information Security Risk ManagementInformation security risk is reviewed, challenged and monitored by the TRC, the ORCC, the ERMC and the ROC. These risks include potential:•Cyber-attacks on systems that directly or indirectly impact our operations and customersE*TRADE 2017 10-K | Page 62 Table of Contents •Compromised systems from inappropriate use or user access by colleagues or customers•Vulnerability of customers' computers and mobile devices to the loss of customer information (i.e., through identity theft) or other types offraud that can have monetary consequences•Reduced availability or loss of customer facing systems due to a cyber-incident, such as a DDoS attack•System vulnerabilities resulting in a risk of a loss of customer data or data integrityData Management RiskData management risk is reviewed, challenged and monitored by the DGC, the ERMC, and the ROC. These risks include, but are not limited to,risks that:•Data values are unacceptable or incorrect•Records are not uniquely identifiable and represented (e.g. duplicates exist) or not all record identifiers refer back to a master record (e.g.orphan records)•Data is not populated for the entirety of the relevant population, data is inconsistent within records, across records and over time, or the datais stored and presented in an inconsistent format•Data is not up-to-date•Data is not available in a timely manner, does not exist or exists but is inaccessible•Key internal controls designed to prevent and detect data errors failStrategic Risk ManagementStrategic risk is reviewed, challenged and monitored by the ERMC and the ROC. These risks include, but are not limited to:•Not having a strategy appropriately defined•Failure to implement the defined strategy•Lack of appropriate reaction mechanisms to adapt to changes in the business or regulatory environment•Potential loss of customers or adverse changes in customer mix in the brokerage business, which could lead to decreased trading activity aswell as decreased securities lending and margin lending•Changes in business, economic, or political conditions that negatively impact global financial markets which could reduce trading volumes andmargin lending•New entrants into the discount brokerage market which could put pressure on revenues and marginsReputational Risk ManagementReputational risks are reviewed, challenged and monitored by the ERMC and the ROC. We recognize that reputational risk can manifest itself in allareas of our business often due to negative publicity associated with other risk types. We acknowledge that there is particular reputational riskfrom many factors including, but not limited to:•Business disruption and system failures, system breaches, identity theft, vendor, or other cyber related eventsE*TRADE 2017 10-K | Page 63 Table of Contents •Impact of investigations and lawsuits (with or without merit)•Publication of regulatory findings•Conflicts of interest•Unethical behavior of any employee of the Company or members of the Boards•Failure of controls supporting the accuracy of financial reports and disclosures•Failure of third party vendors to adequately meet their responsibilities•Errors in public communication•Public regulatory findingsLegal Risk ManagementLegal risks are reviewed, challenged and monitored by the ERMC and the ROC. The following areas of legal risk are particularly pertinent:•Investigations as a result of alleged or actual business practices, changes in laws or regulatory expectations•Threatened or actual lawsuits as a result of business disputes as well as alleged or actual business practices•Failure to respond appropriately to protect assets (for example, intellectual property) owned by the institution that could lead to a loss infranchise value•Failure to comply with applicable broker-dealer, securities and banking laws, either domestically or internationally, exposing the Company todisciplinary actions, monetary or other penalties, or restrictions that could significantly harm its businessRegulatory and Compliance Risk ManagementRegulatory and compliance risk is the risk to earnings or capital arising from violations of, or nonconformance with regulations, applicable guidanceand internal policies. Regulatory and compliance risk also arises in situations where the rules governing certain regulated products or activitiesmay be ambiguous, untested, or in the process of significant change or revision. This risk exposes the Company to fines, civil money penalties,diminished reputation, reduced franchise value, limited business opportunities and reduced expansion potential. Regulatory and compliance risk isreviewed, challenged and monitored by the ERMC and the ROC. The following areas of regulatory and compliance risk are particularlypertinent: •Extensive government regulation, including broker-dealer, banking and securities rules and regulations, which could restrict our businesspractices.•Changes in regulation may have a material impact on our operations. In addition, if we are unable to meet these new requirements, theCompany could face negative regulatory consequences, which could have a material negative effect on our business.•Failure to comply with regulations, domestically or internationally, could subject us to disciplinary actions, monetary or other penalties orrestrictions that could significantly harm our business.•Failure to maintain the capital levels required by regulators could subject us to prompt corrective actions, increasingly strong sanctions,cease-and-desist orders, and ultimately FDIC receivership.E*TRADE 2017 10-K | Page 64 Table of Contents These risks also arise in situations where the laws or rules governing certain regulated products or activities may be ambiguous, untested, or inthe process of significant change or revision. These risks can expose us to fines, civil money penalties, payment of damages, and the voiding ofcontracts. In addition, they can lead to diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potentialand an inability to enforce contracts.CONCENTRATIONS OF CREDIT RISKOur mortgage loan portfolio represents our most significant credit risk exposure. See MD&A—Risk Management for additional information on ourmanagement of credit risk.One- to Four-Family Interest-Only LoansOne- to four-family loans include loans with a five to ten year interest-only period, followed by an amortizing period ranging from 20 to 25 years. AtDecember 31, 2017, nearly 100% of these loans were amortizing and the portfolio will be fully converted in 2018.Home Equity LoansThe home equity loan portfolio consists of home equity installment loans (HEILs) and home equity lines of credit (HELOCs) and is primarilysecond lien loans on residential real estate properties that have a higher level of credit risk than first lien mortgage loans. Approximately 10% ofthe home equity loan portfolio was in the first lien position and we held both the first and second lien positions in less than 1% of the home equityloan portfolio at December 31, 2017. The home equity loan portfolio consists of approximately 18% of HEILs and approximately 82% of HELOCsat December 31, 2017. HEILs are primarily fixed rate and fixed term, fully amortizing loans that do not offer the option of an interest-only payment.The majority of HELOCs had an interest-only draw period at origination and converted to amortizing loans at the end of the draw period, whichtypically ranged from five to ten years. At December 31, 2017, nearly 100% of the HELOC portfolio had converted from the interest-only drawperiod and the portfolio will be fully converted in 2019.SecuritiesWe focus primarily on security type and credit rating to monitor credit risk in our securities portfolios. We consider securities backed by the USgovernment or its agencies to have low credit risk as the long-term debt rating of the US government is AA+ by S&P and Aaa by Moody’s andFitch at December 31, 2017. The amortized cost of these securities accounted for over 99% of our total securities portfolio at December 31, 2017.We review the remaining debt securities that were not backed by the US government or its agencies according to their credit ratings from S&P,Moody’s and Fitch where available. At December 31, 2017, all municipal bonds in our securities portfolio were rated investment grade (defined as arating equivalent to a Moody’s rating of "Baa3" or higher, or an S&P or Fitch rating of "BBB-" or higher).E*TRADE 2017 10-K | Page 65 Table of Contents SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which havebeen prepared in conformity with GAAP. Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies contains asummary of our significant accounting policies, many of which require the use of estimates and assumptions that affect the amounts reported inthe consolidated financial statements and related notes for the periods presented.Critical Accounting EstimatesWe believe that certain accounting estimates are critical because they require complex and subjective judgments by management. Changes inthese estimates or assumptions could materially impact our financial condition and results of operations, and actual results could differ from ourestimates. Our critical accounting estimates are described below.Allowance for Loan LossesThe allowance for loan losses is management's estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Indetermining the adequacy of the allowance, we perform ongoing evaluations of the loan portfolio and loss assumptions. For loans that are notTDRs, we establish a general allowance and evaluate the adequacy of the allowance for loan losses by loan portfolio segment: one- to four-family,home equity and consumer. For modified loans accounted for as TDRs that are valued using the discounted cash flow model, we establish aspecific allowance by estimating losses, including economic concessions to borrowers, over the estimated remaining life of these loans. See Note1—Organization, Basis of Presentation and Summary of Significant Accounting Policies and Note 7—Loans Receivable, Net for additionalinformation on the allowance methodology and the quantitative and qualitative factors considered in determination of the allowance for loan losses.Determining the adequacy of the allowance is complex and requires judgment by management about the effect of matters that are inherentlyuncertain. We recognized a benefit to provision for loan losses of $168 million for the year ended December 31, 2017 and have recognized netbenefits for loan losses for 10 consecutive quarters since June 30, 2015. The benefits recognized reflected better than expected performance ofour portfolio as well as recoveries in excess of prior expectations, including recoveries of previous charge-offs that were not included in our lossestimates, and payoffs on loans converting to amortizing. These benefits also reflected enhancements to our allowance for loan loss modelingapproach during the periods presented. For example, approximately $70 million of benefit was recognized resulting from default assumptionsrevised during the second quarter of 2017 based on the sustained outperformance of converted mortgage loans that were previously interest-onlyand had been amortizing for 12 months or longer.It is difficult to estimate how potential changes in the quantitative and qualitative factors might impact the allowance for loan losses. Subsequentevaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan losses in futureperiods. Our underlying assumptions and judgments could prove to be inaccurate, which could materially impact our regulatory capital position andresults of operations in future periods.E*TRADE 2017 10-K | Page 66 Table of Contents Valuation and Impairment of Goodwill and Acquired Intangible AssetsGoodwill is recognized as a result of business combinations and represents the excess of the purchase price over the fair value of net tangibleassets and identifiable intangible assets. Goodwill and other intangible assets are evaluated for impairment on an annual basis as of November 30and in interim periods when events or changes indicate the carrying value may not be recoverable, such as a significant deterioration in theoperating environment. See Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies and Note 10—Goodwilland Other Intangibles, Net for additional information on the valuation and impairment policies governing goodwill and acquired intangible assets.The valuation of goodwill and acquired intangible assets requires significant judgment and estimates by management. For example, the valuationof finite lived intangible assets acquired in the OptionsHouse transaction was performed under the income approach, which required managementto make estimates about future earnings and cash flows. The useful life of the finite lived intangible assets was determined based onmanagement's estimate of the period over which those intangible assets are expected to provide economic benefit to the Company. Managementalso applies judgment in conducting impairment testing for goodwill and finite lived intangible assets, including estimates of fair value based on theincome or market approach and estimates required to determine the useful lives of finite lived intangible assets.If our estimates of fair value change due to future events differing significantly from the forecasts used to determine fair value, changes in ourbusiness or other factors, the Company may be required to recognize an impairment of its goodwill or acquired intangible assets, which could havea material adverse effect on our financial condition and results of operations. If the Company's publicly traded equity were to experience asignificant decrease in market capitalization, goodwill would be tested for impairment. Intangible assets with finite lives are amortized over theirestimated useful lives therefore changes in the estimated useful lives could result in the recognition of an impairment or a change in the remaininglife.Estimates of Effective Tax Rates, Deferred Taxes and Valuation AllowancesIn preparing the consolidated financial statements, we calculate income tax expense (benefit) based on our interpretation of the tax laws in thevarious jurisdictions where we conduct business. This requires us to estimate current tax obligations and the realizability of uncertain positions toassess temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, which result indeferred tax assets and liabilities. We must also assess the likelihood that the deferred tax assets will be realized and recognize valuationallowances based on our estimates of the amount that is not realizable. See Note 1—Organization, Basis of Presentation and Summary ofSignificant Accounting Policies and Note 15—Income Taxes for additional information on tax accounting policies.Management must make judgments to determine income tax expense (benefit), deferred tax assets and liabilities and any valuation allowance tobe recorded against deferred tax assets. For example, management determined that our expectations regarding future earnings are objectivelyverifiable based on management-approved forecasts and therefore concluded that the federal deferred tax assets would be fully realized. Valuationallowances against certain state deferred tax assets reflect management's assessment of realizability within those specific jurisdictions. Changesalso occur periodically in our estimates due to changes in tax rates, changes in business operations, implementation of tax planning strategies,the expiration of relevant statutes of limitations, resolution with taxing authorities of uncertain tax positions, and newly enacted statutory, judicialand regulatory guidance.It is difficult to estimate how potential changes in tax law, interpretations and inputs to the valuation allowance process might impact our estimatesof effective tax rate, deferred taxes and valuation allowances. For example, if future events differ significantly from current management-approvedforecasts, a valuation allowance may need to be established or increased, which could have a material adverse effect on our financial conditionand results of operations.E*TRADE 2017 10-K | Page 67 Table of Contents STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIESThe following table outlines the information required by the "SEC’s Industry Guide 3, Statistical Disclosure by Bank Holding Companies." Required DisclosurePageDistribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential Average Balance Sheet and Analysis of Net Interest Income41Net Interest Income—Volumes and Rates Analysis69Investment Portfolio Investment Portfolio—Book Value and Fair Value73Investment Portfolio Maturity74Loan Portfolio Loans by Type70Loan Maturities70Loan Sensitivities70Risk Elements Nonaccrual, Past Due and Restructured Loans71Past Due Interest71Policy for Nonaccrual95Potential Problem Loans125Summary of Loan Loss Experience Analysis of Allowance for Loan Losses71Allocation of the Allowance for Loan Losses72Deposits Average Balance and Average Rates Paid41Time Deposit Maturities59Return on Equity and Assets42Short-Term Borrowings75E*TRADE 2017 10-K | Page 68 Table of Contents Interest Rates and Interest DifferentialIncreases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets andinterest-bearing liabilities, as well as changes in average interest rates (rate). The following table shows the effect that these factors had on theinterest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of rate changes is calculated bymultiplying the change in average yield/cost by the current year’s volume, with the remaining change applied to volume (dollars in millions): 2017 Compared to 2016Increase (Decrease) Due To 2016 Compared to 2015Increase (Decrease) Due To Volume Rate Total Volume Rate TotalInterest-earning assets: Cash and equivalents$(3) $5 $2 $— $4 $4Cash required to be segregated under federal orother regulation(1) 7 6 2 355Available-for-sale securities103 21 124 14 7 21Held-to-maturity securities153 (6) 147 85 (6)7979Margin receivables42 29 71 (45) 18 (27)Loans(1) (51) 17 (34) (53) 14 (39)Broker-related receivables and other1 1 2 1 (3) (2)Subtotal interest-earning assets244 74 318 4 37 41Other interest revenue(2) 20 (24) Total interest-earning assets(3)244 74 338 4 37 17 Interest-bearing liabilities: Deposits1 — 1 1 (2) (1)Customer payables1 (1) — 1 (1) —Other borrowings11 (7) 4 (103) 4 (99)Corporate debt— (6) (6) (4) (1) (5)Subtotal interest-bearing liabilities13 (14) (1) (105) — (105)Other interest expense(4) 2 (4) Total interest-bearing liabilities13 (14) 1 (105) — (109)Change in net interest income(3)$231 $88 $337 $109 $37 $126(1)Nonaccrual loans are included in the average loan balances. Interest payments received on nonaccrual loans are recognized on a cash basis in operating interestincome until it is doubtful that full payment will be collected, at which point payments are applied to principal.(2)Represents interest income on securities loaned.(3)Amount included a taxable equivalent increase in interest income of less than $1 million for the years ended December 31, 2017 and 2016 and $1 million for the yearended December 31, 2015.(4)Represents interest expense on securities borrowed.E*TRADE 2017 10-K | Page 69 Table of Contents Lending ActivitiesThe following table presents the balance and associated percentage of each major loan category (dollars in millions): December 31, 2017 2016 2015 2014 2013 Balance % Balance % Balance % Balance % Balance %One- to four-family$1,432 53% $1,950 52% $2,488 50% $3,060 48% $4,475 53%Home equity1,097 40 1,556 41 2,114 43 2,834 45 3,454 40Consumer and other188 7 250 7 341 7 455 7 602 7Total loans receivable2,717 100% 3,756 100% 4,943 100% 6,349 100% 8,531 100%Adjustments: Unamortized premiums, net11 16 23 34 45 Allowance for loan losses(74) (221) (353) (404) (453) Total adjustments(63) (205) (330) (370) (408) Loans receivable, net$2,654 $3,551 $4,613 $5,979 $8,123 The following table shows the contractual maturities of the loan portfolio at December 31, 2017, including scheduled principal repayments. Thistable does not, however, include any estimate of prepayments. These prepayments could significantly shorten the average loan lives and causethe actual timing of the loan repayments to differ from those shown in the following table (dollars in millions): Due in(1) < 1 Year 1-5 Years >5 Years TotalOne- to four-family$50 $221 $1,161 $1,432Home equity51 240 806 1,097Consumer and other38 122 28 188Total loans receivable$139 $583 $1,995 $2,717(1)Estimated scheduled principal repayments are calculated using weighted-average interest rate and weighted-average remaining maturity of each loan portfolio. Loanswith no contractual maturity are reflected within the < 1 Year category.The following table shows the distribution of those loans that mature in more than one year between fixed and adjustable interest rate loans atDecember 31, 2017 (dollars in millions): Interest Rate Type Fixed Adjustable TotalOne- to four-family$200 $1,182 $1,382Home equity180 866 1,046Consumer and other150 — 150Total loans receivable$530 $2,048 $2,578E*TRADE 2017 10-K | Page 70 Table of Contents Nonperforming AssetsWe classify loans as nonperforming when they are no longer accruing interest, which includes loans that are 90 days and greater past due, TDRsthat are on nonaccrual status for all classes of loans (including loans in bankruptcy) and certain junior liens that have a delinquent senior lien. Thefollowing table shows comparative data for nonperforming loans and assets for the past five years (dollars in millions): December 31, 2017 2016 2015 2014 2013One- to four-family$192 $215 $263 $294 $526Home equity98 136 154 165 164Consumer and other— 1 1 1 3Total nonperforming loans receivable290 352 418 460 693Real estate owned and other repossessedassets, net27 36 29 38 53Total nonperforming assets, net$317 $388 $447 $498 $746During the year ended December 31, 2017, we recognized $15 million of interest income on loans that were nonperforming at December 31, 2017.If our nonperforming loans at December 31, 2017 had been performing in accordance with their terms, we would have recorded additional interestincome of approximately $14 million for the year ended December 31, 2017. At December 31, 2017 there were no commitments to lend additionalfunds to any of these borrowers.The following table provides an analysis of net charge-offs for the past five years (dollars in millions): Year Ended December 31, 2017 2016 2015 2014 2013Allowance for loan losses, beginning of period$221 $353 $404 $453 $481Provision (benefit) for loan losses(168) (149) (40) 36 143Charge-offs: One- to four-family— (1) (2) (44) (41)Home equity(7) (17) (31) (65) (157)Consumer and other(6) (7) (11) (17) (33)Total Charge-offs(13) (25) (44) (126) (231)Recoveries:(1) One- to four-family8 8 — 11 14Home equity23 29 26 24 34Consumer and other3 5 7 6 12Total recoveries34 42 33 41 60Net (charge-offs) recoveries21 17 (11) (85) (171)Allowance for loan losses, end of period$74 $221 $353 $404 $453Net charge-offs (recoveries) to average loans receivableoutstanding(0.7)% (0.4)% 0.2% 1.2% 1.8%(1) Recoveries include the impact of mortgage originator settlements.E*TRADE 2017 10-K | Page 71 Table of Contents The following table allocates the allowance for loans losses by loan category for the past five years (dollars in millions): December 31, 2017 2016 2015 2014 2013 Amount %(1) Amount %(1) Amount %(1) Amount %(1) Amount %(1)One-to fourfamily$24 53% $45 52% $40 50% $27 48% $102 52%Home equity46 40 171 41 307 43 367 45 326 41Consumerand other4 7 5 7 6 7 10 7 25 7Totalallowance forloan losses$74 100% $221 100% $353 100% $404 100% $453 100%(1) Represents percentage of loans receivable in the category to total loans receivable, excluding premiums (discounts).SecuritiesOur investment portfolio includes a mortgage-backed securities portfolio, other debt securities and equity securities that are classified into thefollowing categories: available-for-sale or held-to-maturity.Our mortgage-backed securities portfolio is primarily composed of:•Fannie Mae participation certificates, guaranteed by Fannie Mae•Freddie Mac participation certificates, guaranteed by Freddie Mac•Ginnie Mae participation certificates, guaranteed by Ginnie Mae, which is backed by the full faith and credit of the US Government•CMOs, which are guaranteed by one of the three above organizationsOur other debt securities include agency debt securities guaranteed by the Small Business Administration, agency debentures which areunsecured senior debt offered by Fannie Mae, Freddie Mac and other government agencies and US Treasuries.Available-for-sale securities are carried at fair value with the unrealized gains and losses, after applicable hedge accounting adjustments, reflectedas a component of accumulated other comprehensive loss, net of tax. Held-to-maturity securities are carried at amortized cost based on theCompany’s intent and ability to hold these securities to maturity.E*TRADE 2017 10-K | Page 72 Table of Contents The following table shows the amortized cost and fair value of securities that we held and classified as available-for-sale or held-to-maturity(dollars in millions): December 31, 2017 2016 2015 AmortizedCost Fair Value AmortizedCost Fair Value AmortizedCost Fair ValueAvailable-for-sale securities:(1) Debt securities: Agency mortgage-backed securities$19,395 $19,195 $12,946 $12,634 $11,888 $11,763Agency debentures939 966 791 788 551 557US Treasuries452 458 452 407 147 143Agency debt securities34 33 25 24 55 55Municipal bonds20 20 32 32 35 35Corporate bonds— — — — 5 4Total debt securities20,840 20,672 14,246 13,885 12,681 12,557Publicly traded equity securities(2)7 7 7 7 33 32Total available-for-sale securities$20,847 $20,679 $14,253 $13,892 $12,714 $12,589Held-to-maturity securities:(1) Agency mortgage-backed securities$20,502 $20,404 $12,868 $12,839 $10,353 $10,444Agency debentures710 708 29 29 127 125Agency debt securities2,615 2,595 2,854 2,848 2,523 2,544Other12 12 — — 10 10Total held-to-maturity securities$23,839 $23,719 $15,751 $15,716 $13,013 $13,123(1)Securities with a fair value of approximately $492 million were transferred from available-for-sale securities to held-to-maturity securities, during the year endedDecember 31, 2016 pursuant to an evaluation of our investment strategy and an assessment by management about our intent and ability to hold those particularsecurities until maturity.(2)Consists of investments in a mutual fund related to the Community Reinvestment Act.E*TRADE 2017 10-K | Page 73 Table of Contents The following table shows the scheduled maturities, carrying values and current yields for the Company’s available-for-sale and held-to-maturityinvestment portfolio at December 31, 2017 (dollars in millions): Within One Year One to Five Years Five to Ten Years After Ten Years TotalBalanceDue WeightedAverageYield BalanceDue WeightedAverageYield BalanceDue WeightedAverageYield BalanceDue WeightedAverageYield BalanceDue WeightedAverageYieldAvailable-for-sale debtsecurities: Agency mortgage-backedsecurities$— —% $363 1.85% $8,400 2.68% $10,632 2.57% $19,395 2.60%Agency debentures— —% — —% 288 3.53% 651 3.09% 939 3.23%US Treasuries— —% — —% — —% 452 2.83% 452 2.83%Agency debt securities— —% — —% 25 2.05% 9 2.81% 34 2.25%Municipal bonds— —% — —% — —% 20 3.73% 20 3.73%Total available-for-saledebt securities$— $363 $8,713 $11,764 $20,840 Held-to-maturity debtsecurities: Agency mortgage-backedsecurities$160 2.89% $1,602 2.87% $3,818 2.80% $14,922 2.95% $20,502 2.92%Agency debentures— —% 18 2.13% 605 2.52% 87 3.30% 710 2.60%Agency debt securities— —% 395 2.72% 1,086 2.58% 1,134 2.85% 2,615 2.72%Other— —% 12 1.71% — — — — 12 1.71%Total held-to-maturitydebt securities$160 $2,027 $5,509 $16,143 $23,839 BorrowingsDeposits represent our most significant and stable source of funding. In addition, we have utilized trust preferred securities and wholesale fundingsources such as FHLB advances and repurchase agreements.We are a member of, and own capital stock in, the FHLB system. The FHLB provides us with reserve credit capacity and authorizes us to applyfor advances based on the security of pledged mortgage loans and other assets—principally agency-backed securities—provided we meet certaincreditworthiness standards.We also have raised funds by entering into agreements to repurchase the same or similar securities. The counterparties to these agreements holdthe securities in custody. We account for repurchase agreements as borrowings and secure them with designated fixed- and variable-rate debtsecurities. We also participated in the Federal Reserve Bank of Richmond’s term investment option and treasury, tax and loan borrowingprograms. We have used the proceeds from these transactions to meet our cash flow or asset/liability matching needs.E*TRADE 2017 10-K | Page 74 Table of Contents The following table sets forth information regarding the weighted average interest rates and the highest and average month-end balances ofrepurchase agreements, FHLB advances and trust preferred securities (dollars in millions): EndingBalance WeightedAverage InterestRate (1) MaximumAmount atMonth-End Weighted Average Balance InterestRate (2)At or for the year ended December 31, 2017: Securities sold under agreements to repurchase$— —% $400 $109 1.01%FHLB advances$500 1.40% $500 $146 1.19%Trust preferred securities$410 4.10% $410 $409 3.96%At or for the year ended December 31, 2016: Securities sold under agreements to repurchase$— —% $— $7 0.38%Trust preferred securities$409 3.55% $409 $409 3.45%At or for the year ended December 31, 2015: Securities sold under agreements to repurchase$82 0.14% $3,829 $2,490 2.76%FHLB advances$— —% $884 $588 5.50%Trust preferred securities$409 3.04% $428 $422 3.09% (1)Weighted average interest rates are based on ending balances and exclude hedging costs.(2)Weighted average interest rates are based on average balances and include hedging costs.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe following discussion about market risk includes forward-looking statements. Actual results could differ materially from those projected in theforward-looking statements as a result of certain factors, including, but not limited to, those set forth in Risk Factors in this report.Interest Rate RiskOur exposure to interest rate risk is related primarily to interest-earning assets and interest-bearing liabilities. Managing interest rate risk isessential to profitability. The primary objective of the management of interest rate risk is to control exposure to interest rates within the Board-approved limits and with limited exposure to earnings volatility resulting from interest rate fluctuations. Our general strategies to manage interestrate risk include balancing variable-rate and fixed-rate assets and liabilities and utilizing derivatives to help manage exposures to changes ininterest rates. Exposure to interest rate risk requires management to make complex assumptions regarding maturities, market interest rates andcustomer behavior. Changes in interest rates, including the following, could impact interest income and expense:•Interest-earning assets and interest-bearing liabilities may re-price at different times or by different amounts, creating a mismatch.•The yield curve may steepen, flatten or otherwise change shape, which could affect the spread between short- and long-term rates. Wideningor narrowing spreads could impact net interest income.•Market interest rates may influence prepayments, resulting in maturity mismatches. In addition, prepayments could impact yields aspremiums and discounts amortize.Exposure to interest rate risk is dependent upon the distribution and composition of interest-earning assets, interest-bearing liabilities andderivatives. The differing risk characteristics of each product are managed toE*TRADE 2017 10-K | Page 75 Table of Contents mitigate our exposure to interest rate fluctuations. At December 31, 2017, 93% of our total assets were interest-earning assets and we had nosecurities classified as trading.At December 31, 2017, approximately 67% of total assets were available-for-sale and held-to-maturity mortgage-backed securities and residentialreal estate loans. The values of these assets are sensitive to changes in interest rates as well as expected prepayment levels. As interest ratesincrease, fixed-rate residential mortgages and mortgage-backed securities tend to exhibit lower prepayments. The inverse is true in a falling rateenvironment.When real estate loans are prepaid, unamortized premiums and/or discounts are recognized immediately in interest income. Depending on thetiming of the prepayment, these adjustments to income would impact anticipated yields. The Company reviews estimates of the impact ofchanging market rates on prepayments. This information is incorporated into our interest rate risk management strategy.Our liability structure consists of two central sources of funding: deposits and customer payables, both of which re-price at management’sdiscretion. We may utilize wholesale funding sources as needed for short-term liquidity and contingency funding requirements.Derivative InstrumentsWe use derivative instruments to help manage interest rate risk using designated hedge relationships. Interest rate swaps involve the exchange offixed-rate and variable-rate interest payments between two parties based on a contractual underlying notional amount, but do not involve theexchange of the underlying notional amounts. See Note 8—Derivative Instruments and Hedging Activities for additional information about our useof derivative contracts.Scenario AnalysisScenario analysis is an advanced approach to estimating interest rate risk exposure. The Company monitors interest rate risk using the EconomicValue of Equity (EVE) approach and the Earnings-at-Risk (EAR) approach.Under the EVE approach, the present value of expected cash flows of all existing interest-earning assets, interest-bearing liabilities, derivativesand forward commitments are estimated and combined to produce an EVE figure. The change in EVE is a long-term sensitivity measure ofinterest rate risk. The approach values only the current balance sheet in which the most significant assumptions are the prepayment rates of theloan portfolio and mortgage-backed securities and the repricing of deposits. This approach does not incorporate assumptions related to businessgrowth, or liquidation and re-investment of instruments. This approach provides an indicator of future earnings and capital levels because changesin EVE indicate the anticipated change in the value of future cash flows. The sensitivity of this value to changes in interest rates is thendetermined by applying alternative interest rate scenarios. The change in EVE amounts fluctuate based on instantaneous parallel shifts in interestrates primarily due to the change in timing of cash flows, which considers prepayment estimates, in the Company’s residential loan and mortgage-backed securities portfolios.EAR is a short-term sensitivity measure of interest rate risk and illustrates the impact of alternative interest rate scenarios on net interest income,including corporate interest expense, over a twelve month time frame. In measuring the sensitivity of net interest income to changes in interestrates, we assume instantaneous parallel interest rate shocks applied to the forward curve. In addition, we assume that cash flows from loanpayoffs are reinvested in mortgage-backed securities, we exclude revenue from off-balance sheet customer cash and we assume no balancesheet growth.E*TRADE 2017 10-K | Page 76 Table of Contents The sensitivity of EVE and EAR at the consolidated E*TRADE Financial level at December 31, 2017 and 2016 is as follows (dollars in millions):Instantaneous ParallelChange in Interest Rates(basis points) (1) Economic Value of Equity Earnings-at-Risk December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 Amount Percentage Amount Percentage Amount Percentage Amount Percentage+200 $(172) (2.1)% $(129) (2.1)% $197 11.5 % $169 13.9 %+100 $(23) (0.3)% $59 0.9 % $113 6.6 % $109 9.0 %-50 $(225) (2.7)% $(106) (1.7)% $(102) (6.0)% $(73) (6.0)%(1)These scenario analyses assume a balance sheet size as of the dates indicated. Any changes in size would cause the amounts to vary.We actively manage interest rate risk positions. As interest rates change, we will adjust our strategy and mix of assets, liabilities and derivativesto optimize our position. For example, a 100 basis points increase in rates may not result in a change in value as indicated above. We comparethe instantaneous parallel shift in interest rate changes in EVE and EAR to the established limits set by the Board of Directors in order to assessinterest rate risk. In the event that the percentage change in EVE or EAR exceeds the Board limits, our Chief Executive Officer, Chief RiskOfficer, Chief Financial Officer and Treasurer must all be promptly notified in writing and decide upon a plan of remediation. In addition, the Boardof Directors must be notified of the exception and the planned resolution. At December 31, 2017, the EVE and EAR percentage changes werewithin our Board limits.Market RiskEquity Securities RiskWe are indirectly exposed to equity securities risk in connection with securities collateralizing margin receivables and amounts borrowed under ourline of credit product, as well as risk related to our securities lending and borrowing activities. We manage risk on margin and line of credit lendingby requiring customers to maintain collateral in compliance with internal and, as applicable, regulatory guidelines. We monitor required marginlevels daily and require our customers to deposit additional collateral, or to reduce positions, when necessary. We continuously monitor customeraccounts to detect excessive concentration, large orders or positions, and other activities that indicate increased risk to us. We manage risksassociated with our securities lending and borrowing activities by requiring credit approvals for counterparties, by monitoring the market value ofsecurities loaned and collateral values for securities borrowed on a daily basis and requiring additional cash as collateral for securities loaned orreturn of collateral for securities borrowed when necessary, and by participating in a risk-sharing program offered through the Options ClearingCorporation.E*TRADE 2017 10-K | Page 77 Table of Contents KEY TERMSActive customers—Customers that have an account with a balance of $25 or more or a trade in the last six months.Active trader—Customers that execute 30 or more trades per quarter.Agency—US Government sponsored enterprises and federal agencies, such as Federal National Mortgage Association, Federal Home LoanMortgage Corporation, Government National Mortgage Association, the Small Business Administration, the Export-Import Bank and the FederalHome Loan Bank.Average commission per trade—Total commissions revenue divided by total trades.Basel III—Global regulatory standards for bank capital adequacy and liquidity as issued by the international Basel Committee on BankingSupervision.Basis point—One one-hundredth of a percentage point.Brokerage account attrition rate—The brokerage account attrition rate is calculated by dividing attriting brokerage accounts by total brokerageaccounts from the previous period end, and is presented on an annualized basis. Attriting brokerage accounts are derived by subtracting net newbrokerage accounts from gross new brokerage accounts.Brokerage related cash—Customer sweep deposits held at banking subsidiaries, customer payables and customer cash held by third parties.CFTC—Commodity Futures Trading Commission.Charge-off—The result of removing a loan or portion of a loan from an entity’s balance sheet because the loan is considered to be uncollectible.CLTV—Combined loan-to-value ratio.CMOs—Collateralized mortgage obligations.Common Equity Tier 1 Capital—A measurement of the Company's core equity capital used in the calculation of capital adequacy ratios.Common Equity Tier 1 Capital equals: total shareholders' equity, less preferred stock and related surplus, plus/(less) unrealized losses (gains) oncertain available-for-sale securities, less goodwill and certain other intangible assets, less certain disallowed deferred tax assets and subject tocertain other applicable adjustments.Consolidated financial statements—Refers to the consolidated financial statements prepared in accordance with GAAP as included in theCompany's annual report on Form 10-K, and the condensed consolidated financial statements included in the Company's interim reports on Form10-Q.Corporate cash—Cash held at the parent company as well as cash held in certain subsidiaries that can distribute cash to the parent companywithout any regulatory approval or notification.Customer assets—Market value of all customer assets held by the Company including security holdings, sweep and other deposits, customercash held by third parties, customer payables and vested unexercised stock plan holdings.Daily average revenue trades (DARTs)—Total revenue trades in a period divided by the number of trading days during that period.Derivative—A financial instrument or other contract which includes one or more underlying securities, notional amounts, or payment provisions.The contract generally requires no initial net investment and is settled on a net basis.E*TRADE 2017 10-K | Page 78 Table of Contents Derivative DARTs—Options and futures revenue trades in a period divided by the number of trading days during that period.Earnings at Risk (EAR)—The sensitivity of GAAP net interest income to changes in interest rates over a twelve month horizon. It is a short-termmeasurement of interest rate risk and does not consider risks beyond the simulation time horizon. In addition, it requires reinvestment, funding,and hedging assumptions for the horizon.Economic Value of Equity (EVE)—The sensitivity of the value of existing assets and liabilities, including derivatives and forward commitments,to changes in interest rates. It is a long-term measurement of interest rate risk and requires assumptions that include prepayment rates on the loanportfolio and mortgage-backed securities and the repricing of deposits.ESDA—Extended insurance sweep deposit accounts.Fair value—The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants atthe measurement date.Fair value hedge—A derivative instrument designated in a hedging relationship that mitigates exposure to changes in the fair value of arecognized asset or liability or a firm commitment.FASB—Financial Accounting Standards Board.FDIC—Federal Deposit Insurance Corporation.Federal Reserve—Federal Reserve System, including the Federal Reserve Board of Governors of the Federal Reserve system and the twelveregional Federal Reserve Banks.FHLB—Federal Home Loan Bank.FICO—Fair Isaac Credit Organization.FINRA—Financial Industry Regulatory Authority.FCM—Futures Commission Merchant.Generally Accepted Accounting Principles (GAAP)—Accounting principles generally accepted in the United States of America.Gross loans receivable—Includes unpaid principal balances and premiums (discounts).HEIL—Home equity installment loan.HELOC—Home equity lines of credit.HQLA—High-quality liquid assets.Interest-bearing liabilities—Liabilities such as deposits, customer payables, other borrowings, corporate debt and certain customer creditbalances and securities lending balances on which the Company pays interest; excludes customer balances held by third parties.Interest-earning assets—Assets such as available-for-sale securities, held-to-maturity securities, margin receivables, loans, securities borrowedbalances and cash and investments required to be segregated under regulatory guidelines that earn interest for the Company.Interest rate swaps—Contracts that are entered into primarily as an asset/liability management strategy to reduce interest rate risk. Interest rateswap contracts are exchanges of interest rate payments, such as fixed-rate payments for floating-rate payments, based on notional amounts.E*TRADE 2017 10-K | Page 79 Table of Contents Junior stock—Any class or series of capital stock of the Company that ranks junior to the series of preferred stock as to the payment ofdividends or the distribution of assets upon liquidation, dissolution or winding up the Company. The Company's common stock is junior stock.LCR—Liquidity coverage ratio. The purpose of the LCR is to require banking organizations to hold minimum amounts of HQLA based on apercentage of their net cash outflows over a 30-day period.LIBOR—London Interbank Offered Rate. LIBOR is the interest rate at which banks borrow funds from other banks in the London wholesale moneymarket (or interbank market).LLC—Limited liability company.LTV—Loan-to-value ratio.NASDAQ—National Association of Securities Dealers Automated Quotations.Net interest income—A measure of interest revenue, net interest income is equal to interest income less interest expense.Net interest margin—A measure of the net yield on our average interest-earning assets. Net interest margin is calculated for a given period bydividing the annualized sum of net interest income by average interest-earning assets.Net new brokerage assets—The total inflows to all new and existing brokerage customer accounts less total outflows from all closed and existingbrokerage customer accounts, excluding the effects of market movements in the value of brokerage customer assets.NFA—National Futures Association.Nonperforming assets—Assets originally acquired to earn income (nonperforming loans) and those not intended to earn income (real estateowned). Loans are classified as nonperforming when they are no longer accruing interest, which includes loans that are 90 days and greater pastdue, TDRs that are on nonaccrual status for all classes of loans (including loans in bankruptcy) and certain junior liens that have a delinquentsenior lien.Notional amount—The specified dollar amount underlying a derivative on which the calculated payments are based.OCC—Office of the Comptroller of the Currency.Options—Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to either purchase or sell the associatedfinancial instrument at a set price during a period or at a specified date in the future.RAS—Risk Appetite Statement.Real estate owned and other repossessed assets—Ownership or physical possession of real property by the Company, generally acquired as aresult of foreclosure or repossession.Recovery—Represents cash proceeds received on a loan that had been previously charged off.Repurchase agreement—An agreement giving the transferor of an asset the right or obligation to repurchase the same or similar securities at aspecified price on a given date from the transferee. These agreements are generally collateralized by mortgage-backed or investment-gradesecurities. From the transferee's perspective the arrangement is referred to as a reverse repurchase agreement.RIA—Registered Investment Adviser.E*TRADE 2017 10-K | Page 80 Table of Contents Risk-weighted assets—Primarily computed by the assignment of specific risk-weightings to assets and off-balance sheet instruments for capitaladequacy calculations.S&P—Standard & Poor’s.SEC—US Securities and Exchange Commission.Sweep deposit accounts—Accounts with the functionality to transfer customer cash balances to and from an FDIC insured account.TCA—Trust Company of America, Inc.Tier 1 capital—Adjusted equity capital used in the calculation of capital adequacy ratios. Tier 1 capital equals: Common Equity Tier 1 capital plusqualifying preferred stock and related surplus, subject to certain other applicable adjustments.Troubled Debt Restructuring (TDR)—A loan modification that involves granting an economic concession to a borrower who is experiencingfinancial difficulty, and loans that have been charged-off due to bankruptcy notification.TRUPs—Trust preferred securities.VIE—Variable interest entity.Wholesale borrowings—Borrowings that consist of repurchase agreements and FHLB advances.E*TRADE 2017 10-K | Page 81 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAManagement Report on Internal Controls Over Financial Reporting83Reports of Independent Registered Public Accounting Firm84Consolidated Statement of Income86Consolidated Statement of Comprehensive Income87Consolidated Balance Sheet88Consolidated Statement of Shareholders’ Equity89Consolidated Statement of Cash Flows90Notes to Consolidated Financial Statements92Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies92Note 2—Restructuring and Other Acquisition-Related Activities107Note 3—Interest Income and Interest Expense109Note 4—Fair Value Disclosures110Note 5—Offsetting Assets and Liabilities119Note 6—Available-for-Sale and Held-to-Maturity Securities121Note 7—Loans Receivable, Net125Note 8—Derivative Instruments and Hedging Activities132Note 9—Property and Equipment, Net134Note 10—Goodwill and Other Intangibles, Net136Note 11—Receivables From and Payables To Brokers, Dealers and Clearing Organizations137Note 12—Deposits138Note 13—Other Borrowings138Note 14—Corporate Debt139Note 15—Income Taxes141Note 16—Shareholders' Equity145Note 17—Earnings Per Share150Note 18—Regulatory Requirements150Note 19—Lease Arrangements153Note 20—Commitments, Contingencies and Other Regulatory Matters153Note 21—Condensed Financial Information (Parent Company Only)157Note 22—Quarterly Data (Unaudited)159Note 23—Subsequent Event159E*TRADE 2017 10-K | Page 82 Table of Contents MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGThe Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company'sinternal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fairpresentation of published financial statements. Internal control over financial reporting, as defined in Rules 13a-15(f) promulgated under theSecurities Exchange Act of 1934, is a process designed by, or under the supervision of, the Company’s principal executive and principal financialofficers, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generallyaccepted accounting principles (GAAP) and includes those policies and procedures that:•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of theCompany’s assets•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withGAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’smanagement and directors•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assetsthat could have a material effect on the consolidated financial statementsBecause of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper managementoverride of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of anyevaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting using the criteria establishedin Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based onthis assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2017 to providereasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance withGAAP.E*TRADE Financial Corporation’s Independent Registered Public Accounting Firm, Deloitte & Touche LLP, has issued an audit report regarding theCompany’s internal control over financial reporting, which appears on page 84.E*TRADE 2017 10-K | Page 83 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofE*TRADE Financial CorporationNew York, New YorkOpinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of E*TRADE Financial Corporation and subsidiaries (the “Company”) as of December31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated February 21, 2018,expressed an unqualified opinion on those financial statements.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ Deloitte & Touche LLPMcLean, VirginiaFebruary 21, 2018E*TRADE 2017 10-K | Page 84 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofE*TRADE Financial CorporationNew York, New YorkOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of E*TRADE Financial Corporation and subsidiaries (the "Company") as ofDecember 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, foreach of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In ouropinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity withaccounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2018,expressed an unqualified opinion on the Company's internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company'sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, aswell as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Deloitte & Touche LLPMcLean, VirginiaFebruary 21, 2018We have served as the Company’s auditor since 1994.E*TRADE 2017 10-K | Page 85 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED STATEMENT OF INCOME(In millions, except share data and per share amounts) Year Ended December 31, 2017 2016 2015Revenue: Interest income$1,571 $1,233 $1,215Interest expense(86) (85) (194)Net interest income1,485 1,148 1,021Commissions441 442 424Fees and service charges369 268 210Gains (losses) on securities and other, net28 42 (324)Other revenue43 41 39Total non-interest income881 793 349Total net revenue2,366 1,941 1,370Provision (benefit) for loan losses(168) (149) (40)Non-interest expense: Compensation and benefits546 501 466Advertising and market development166 131 124Clearing and servicing124 105 95Professional services99 97 103Occupancy and equipment116 98 88Communications121 87 90Depreciation and amortization82 79 81FDIC insurance premiums31 25 41Amortization of other intangibles36 23 20Restructuring and acquisition-related activities15 35 17Losses on early extinguishment of debt, net58 — 112Other non-interest expenses76 71 82Total non-interest expense1,470 1,252 1,319Income before income tax expense (benefit)1,064 838 91Income tax expense (benefit)450 286 (177)Net income$614 $552 $268Preferred stock dividends25 — —Net income available to common shareholders$589 $552 $268Basic earnings per common share$2.16 $1.99 $0.92Diluted earnings per common share$2.15 $1.98 $0.91Shares used in computation of per common share data: Basic (in thousands)273,190 277,789 290,762Diluted (in thousands)274,352 279,048 295,011See accompanying notes to the consolidated financial statementsE*TRADE 2017 10-K | Page 86 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(In millions) Year Ended December 31, 2017 2016 2015Net income$614 $552 $268Other comprehensive income (loss), net of tax Available-for-sale securities: Unrealized gains (losses), net137 (5) (84)Reclassification into earnings, net(24) (33) (24)Net change from available-for-sale securities113 (38) (108)Cash flow hedging instruments: Unrealized losses, net— — (10)Reclassification into earnings, net— — 271Net change from cash flow hedging instruments— — 261Foreign currency translation: Foreign currency translation losses, net— — (3)Reclassification into earnings, net(2) — —Net change from foreign currency translation(2) — (3)Other comprehensive income (loss)111 (38) 150Comprehensive income$725 $514 $418See accompanying notes to the consolidated financial statementsE*TRADE 2017 10-K | Page 87 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED BALANCE SHEET(In millions, except share data) December 31, 2017 2016ASSETS Cash and equivalents$931 $1,950Cash required to be segregated under federal or other regulations872 1,460Available-for-sale securities20,679 13,892Held-to-maturity securities (fair value of $23,719 and $15,716 at December 31, 2017 and 2016,respectively)23,839 15,751Margin receivables9,071 6,731Loans receivable, net (net of allowance for loan losses of $74 and $221 at December 31, 2017 and2016, respectively)2,654 3,551Receivables from brokers, dealers and clearing organizations1,178 1,056Property and equipment, net253 239Goodwill2,370 2,370Other intangibles, net284 320Deferred tax assets, net251 756Other assets983 923Total assets$63,365 $48,999LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits$42,742 $31,682Customer payables9,449 8,159Payables to brokers, dealers and clearing organizations1,542 983Other borrowings910 409Corporate debt991 994Other liabilities800 500Total liabilities56,434 42,727Commitments and contingencies (see Note 20) Shareholders’ equity: Preferred stock, $0.01 par value, 1,000,000 shares authorized, 403,000 and 400,000 shares issued andoutstanding at December 31, 2017 and 2016, respectively; aggregate liquidation preference of $700and $400 at December 31, 2017 and 2016, respectively689 394Common stock, $0.01 par value, 400,000,000 shares authorized, 266,827,881 and 273,963,415 sharesissued and outstanding at December 31, 2017 and 2016, respectively3 3Additional paid-in-capital6,582 6,921Accumulated deficit(317) (909)Accumulated other comprehensive loss(26) (137)Total shareholders’ equity6,931 6,272Total liabilities and shareholders’ equity$63,365 $48,999See accompanying notes to the consolidated financial statementsE*TRADE 2017 10-K | Page 88 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY(In millions) AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveLoss TotalShareholders’Equity PreferredStock Common Stock Amount Shares Amount Balance, December 31, 2014$— 289 $3 $7,350 $(1,729) $(249) $5,375Net income— — — — 268 — 268Other comprehensive income— — — — — 150 150Conversion of convertible debentures— 3 — 30 — — 30Exercise of stock options and related tax effects— — — 2 — — 2Repurchases of common stock— (2) — (50) — — (50)Issuance of common stock for share-basedcompensation, net of shares withheld to paytaxes— 1 — (10) — — (10)Share-based compensation— — — 34 — — 34Balance at December 31, 2015$— 291 $3 $7,356 $(1,461) $(99) $5,799Net income— — — — 552 — 552Other comprehensive loss— — — — — (38) (38)Conversion of convertible debentures— 1 — 5 — — 5Exercise of stock options and related tax effects— — — 4 — — 4Issuance of preferred stock - Series A394 — — — — — 394Repurchases of common stock— (19) — (452) — — (452)Issuance of common stock for share-basedcompensation, net of shares withheld to paytaxes— 1 — (22) — — (22)Share-based compensation— — — 30 — — 30Balance at December 31, 2016$394 274 $3 $6,921 $(909) $(137) $6,272Cumulative effect of accounting change— — — — 3 — 3Net income— — — — 614 — 614Other comprehensive income— — — — — 111 111Conversion of convertible debentures— — — 3 — — 3Exercise of stock options— — — 1 — — 1Issuance of preferred stock - Series B295 — — — — — 295Preferred stock dividends— — — — (25) — (25)Repurchases of common stock— (9) — (362) — — (362)Issuance of common stock for share-basedcompensation, net of shares withheld to paytaxes— 2 — (22) — — (22)Share-based compensation— — — 41 — — 41Balance at December 31, 2017$689 267 $3 $6,582 $(317) $(26) $6,931See accompanying notes to the consolidated financial statementsE*TRADE 2017 10-K | Page 89 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWS(In millions) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net income$614 $552 $268Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for loan losses(168) (149) (40)Depreciation and amortization (including discount amortization and accretion)262 239 325(Gains) losses on securities and other, net(28) (42) 324Losses on early extinguishment of debt, net9 — 37Share-based compensation41 30 34Deferred tax expense (benefit)450 275 (176)Other(7) (5) 1Net effect of changes in assets and liabilities: Decrease (increase) in cash required to be segregated under federal or other regulations588 (403) (502)(Increase) decrease in receivables from brokers, dealers and clearing organizations(134) (528) 364(Increase) decrease in margin receivables(2,340) 667 277(Increase) decrease in other assets(49) 2 (22)Increase (decrease) in payables to brokers, dealers and clearing organizations559 (593) (123)Increase in customer payables1,290 1,615 89Increase (decrease) in other liabilities34 (14) (13)Net cash provided by operating activities1,121 1,646 843Cash flows from investing activities: Purchases of available-for-sale securities(9,819) (6,705) (6,150)Proceeds from sales of available-for-sale securities1,645 3,194 3,905Proceeds from maturities of and principal payments on available-for-sale securities1,588 1,540 1,667Purchases of held-to-maturity securities(10,519) (4,389) (2,614)Proceeds from maturities of and principal payments on held-to-maturity securities2,556 2,068 1,788Proceeds from sale of loans40 — 40Decrease in loans receivable983 1,176 1,337Capital expenditures for property and equipment(102) (75) (70)Proceeds from sale of real estate owned and repossessed assets29 20 28Acquisition of OptionsHouse, net of cash acquired— (723) —Net cash flow from derivative contracts66 (109) (2)Other(43) (1) 73Net cash (used in) provided by investing activities(13,576) (4,004) 2E*TRADE 2017 10-K | Page 90 Table of Contents E*TRADE FINANCIAL CORPORATIONCONSOLIDATED STATEMENT OF CASH FLOWS(In millions) Year Ended December 31, 2017 2016 2015Cash flows from financing activities: Increase in deposits$11,060 $2,237 $4,555Preferred stock dividends(25) — —Net decrease in securities sold under agreements to repurchase— (82) (3,590)Advances from FHLB1,850 — 960Payments on advances from FHLB(1,350) — (1,880)Proceeds from issuance of senior notes999 — 460Payments on senior notes(1,000) — (800)Repurchases of trust preferred securities— — (15)Proceeds from issuance of preferred stock300 400 —Repurchases of common stock(362) (452) (50)Net cash flow from derivatives hedging liabilities— — (16)Other(36) (28) (19)Net cash provided by (used in) financing activities11,436 2,075 (395)(Decrease) increase in cash and equivalents(1,019) (283) 450Cash and equivalents, beginning of period1,950 2,233 1,783Cash and equivalents, end of period$931 $1,950 $2,233Supplemental disclosures: Cash paid for interest(1)$126 $77 $212Cash paid for income taxes, net of refunds$8 $6 $8Non-cash investing and financing activities: Transfers of loans held-for-investment to loans held-for-sale$57 $— $39Transfers from loans to other real estate owned and repossessed assets$27 $34 $27Conversion of convertible debentures to common stock$3 $5 $30Transfer of available-for-sale securities to held-to-maturity securities$— $492 $—(1)Includes early redemption premium of $49 million and $75 million paid in connection with debt extinguishment transactions during the year ended December 31, 2017 and2015, respectively.See accompanying notes to the consolidated financial statementsE*TRADE 2017 10-K | Page 91 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1—ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIESOrganizationE*TRADE Financial Corporation is a financial services company that provides brokerage and related products and services primarily to individualretail investors under the brand "E*TRADE Financial." The Company also provides investor-focused banking products, primarily sweep deposits, toretail investors. The Company's most significant, wholly-owned subsidiaries are described below:•E*TRADE Securities is a registered broker-dealer that clears and settles customer securities transactions.•E*TRADE Bank is a federally chartered savings bank that provides FDIC insurance on qualifying amounts of customer deposits and providesother banking and cash management capabilities.•E*TRADE Savings Bank, a subsidiary of E*TRADE Bank, is a federally chartered savings bank that provides FDIC insurance on qualifyingamounts of customer deposits.•E*TRADE Futures is a registered non-clearing FCM that provides clearing and settlement services for customer futures transactions.•E*TRADE Capital Management is a registered investment adviser, through which the Company offers investment advisory services.•E*TRADE Financial Corporate Services is a provider of software and services for managing equity compensation plans to corporate clients.Basis of PresentationThe consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries as determined under the votinginterest model. Entities in which the Company has the ability to exercise significant influence but in which the Company does not possess controlare generally accounted for by the equity method. Entities in which the Company does not have the ability to exercise significant influence aregenerally carried at cost. Investments in marketable equity securities where the Company does not have the ability to exercise significantinfluence over the entities are accounted for as available-for-sale equity securities. The Company also evaluates its initial and continuinginvolvement with certain entities to determine if the Company is required to consolidate the entities under the variable interest entity (VIE) model.This evaluation is based on a qualitative assessment of whether the Company is the primary beneficiary of the VIE, which requires the Companyto possess both: 1) the power to direct the activities that most significantly impact the economic performance of the VIE; and 2) the obligation toabsorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The consolidated financial statements donot include any consolidated VIEs for all periods presented.The Company's consolidated financial statements are prepared in accordance with GAAP. Intercompany accounts and transactions are eliminatedin consolidation. These consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary to presentfairly the financial position, results of operations and cash flows for the periods presented.E*TRADE 2017 10-K | Page 92 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUse of EstimatesPreparing the Company's consolidated financial statements in accordance with GAAP requires management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements and related notes for the periods presented. Actual results could differfrom management’s estimates. Certain significant accounting policies are critical because they are based on estimates and assumptions thatrequire complex and subjective judgments by management. Changes in these estimates or assumptions could materially impact the Company’sfinancial condition and results of operations. Material estimates in which management believes changes could reasonably occur include: allowancefor loan losses, valuation of goodwill and acquired intangible assets and estimates of effective tax rates, deferred taxes and valuation allowance.Summary of Significant Accounting PoliciesCash and EquivalentsThe Company considers all highly liquid investments with original or remaining maturities of three months or less at the time of purchase that arenot required to be segregated under federal or other regulations to be cash and equivalents. Cash and equivalents included $490 million and $1.1billion at December 31, 2017 and 2016, respectively, of overnight cash deposits, a portion of which the Company is required to maintain with theFederal Reserve Bank.Cash Required to be Segregated Under Federal or Other RegulationsCertain cash balances that are required to be segregated for the exclusive benefit of the Company’s brokerage and futures customers are includedin the cash required to be segregated under federal or other regulations line item.Available-for-Sale SecuritiesAvailable-for-sale securities are composed principally of debt securities, primarily residential mortgage-backed securities and agency debtsecurities. Securities classified as available-for-sale are carried at fair value, with the unrealized gains and losses, after applicable hedgeaccounting adjustments, reflected as a component of accumulated other comprehensive loss, net of tax. Realized and unrealized gains or losseson available-for-sale debt and equity securities are computed using the specific identification method. Interest earned on available-for-salesecurities is included in interest income. Amortization or accretion of premiums and discounts on available-for-sale debt securities is alsorecognized in interest income using the effective interest method over the contractual life of the security and is adjusted to reflect actualprepayments. Realized gains and losses on available-for-sale debt and equity securities, with the exception of other-than-temporary impairment(OTTI) if applicable, are included in the gains (losses) on securities and other, net line item. Available-for-sale securities that have an unrealizedloss (impaired securities) are evaluated for OTTI at each balance sheet date. There was no OTTI recognized for the periods presented.Held-to-Maturity SecuritiesHeld-to-maturity securities consist of debt securities, primarily residential mortgage-backed securities and agency debt securities. Held-to-maturitysecurities are carried at amortized cost based on the Company’s intent and ability to hold these securities to maturity. Interest earned on held-to-maturity debt securities is included in interest income. Amortization or accretion of premiums and discounts is also recognized in interest incomeusing the effective interest method over the contractual life of the security and is adjusted toE*TRADE 2017 10-K | Page 93 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSreflect actual prepayments. Held-to-maturity securities that have an unrecognized loss (impaired securities) are evaluated for OTTI at eachbalance sheet date. There was no OTTI recognized for the periods presented.Margin ReceivablesMargin receivables represent credit extended to customers to finance their purchases of securities by borrowing against securities the customersown. Securities owned by customers are held as collateral for amounts due on the margin receivables, the value of which is not reflected in theconsolidated balance sheet. The Company is permitted to sell or re-pledge these securities held as collateral and to use the securities to enter intosecurities lending transactions, to collateralize borrowings or for delivery to counterparties to cover customer short positions. Revenues earnedfrom the securities lending transactions are included in interest income and expenses incurred are included in interest expense.Loans Receivable and related Allowance for Loan LossesLoans Receivable, NetLoans receivable, net consists of real estate, consumer loans and collateralized lines of credit that management has the intent and ability to holdfor the foreseeable future or until maturity, also known as loans held-for-investment. Loans held-for-investment are carried at amortized costadjusted for unamortized premiums or discounts on purchased loans, deferred fees or costs on originated loans, net charge-offs, and theallowance for loan losses. Premiums or discounts on purchased loans and deferred fees or costs on originated loans are recognized in interestincome using the effective interest method over the contractual life of the loans and are adjusted for actual prepayments. The Company’s classesof loans are one- to four-family, home equity and consumer loans and other.Impaired LoansThe Company considers a loan to be impaired when it meets the definition of a TDR. Impaired loans exclude smaller-balance homogeneous one-to four-family, home equity and consumer loans that have not been modified as TDRs and are collectively evaluated for impairment. Delinquencystatus is the primary measure the Company uses to evaluate the performance of loans modified as TDRs.Troubled Debt RestructuringsLoan modifications completed under the Company’s loss mitigation programs in which economic concessions were granted to borrowersexperiencing financial difficulty are considered TDRs. TDRs also include loans that have been charged-off based on the estimated current value ofthe underlying property less estimated selling costs due to bankruptcy notification even if the loan has not been modified under the Company’sprograms. Upon being classified as a TDR, such loan is categorized as an impaired loan and is considered impaired until maturity regardless ofwhether the borrower performs under the terms of the loan. The Company also processes minor modifications on a number of loans throughtraditional collections actions taken in the normal course of servicing delinquent accounts. Minor modifications resulting in an insignificant delay inthe timing of payments are not considered economic concessions and therefore are not classified as TDRs.Impairment on loan modifications is measured on an individual loan level basis, generally using a discounted cash flow model. When certaincharacteristics of the modified loan cast substantial doubt on the borrower’s ability to repay the loan, the Company identifies the loan as collateraldependent and charges-off the amount of the modified loan balance in excess of the estimated current value of the underlying propertyE*TRADE 2017 10-K | Page 94 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSless estimated selling costs. Collateral dependent TDRs are identified based on the terms of the modification, which includes assigning a higherlevel of risk to loans in which the LTV or CLTV is greater than 110% or 125%, respectively, a borrower’s credit score is less than 600 and certaintypes of modifications, such as interest-only payments. TDRs that are not identified as higher risk using this risk assessment process and forwhich impairment is measured using a discounted cash flow model, continue to be evaluated in the event that they become higher risk collateraldependent TDRs.Nonperforming LoansThe Company classifies loans as nonperforming when they are no longer accruing interest, which includes loans that are 90 days and greater pastdue, TDRs that are on nonaccrual status for all classes of loans (including loans in bankruptcy) and certain junior liens that have a delinquentsenior lien. Interest previously accrued, but not collected, is reversed against current income when a loan is placed on nonaccrual status. Interestpayments received on nonperforming loans are recognized on a cash basis in interest income until it is doubtful that full payment will be collected,at which point payments are applied to principal. The recognition of deferred fees or costs on originated loans and premiums or discounts onpurchased loans in interest income is discontinued for nonperforming loans.Nonperforming loans return to accrual status based on the following policy:•Nonperforming loans, excluding TDRs and certain junior liens that have a delinquent senior lien, return to accrual status when the loanbecomes less than 90 days past due.•TDRs, excluding loans in bankruptcy, are classified as nonperforming loans at the time of modification. Such TDRs return to accrual statusafter six consecutive payments are made in accordance with the modified terms. Accruing TDRs that subsequently become delinquent willimmediately return to nonaccrual status.•Bankruptcy loan TDRs are classified as nonperforming loans within 60 days of bankruptcy notification and remain on nonaccrual statusregardless of the payment performance.Delinquent LoansLoans delinquent 180 days and greater have been written down to the estimated current value of the underlying property less estimated sellingcosts. Loans delinquent 90 to 179 days generally have not been written down to the estimated current value of the underlying property lessestimated selling costs (unless they are in process of bankruptcy or are modifications for which there is substantial doubt as to the borrower’sability to repay the loan), but present a risk of future charge-off. Additional charge-offs on loans delinquent 180 days and greater are possible ifhome prices decline beyond current estimates.The Company monitors loans in which a borrower’s current credit history casts doubt on their ability to repay a loan. Loans are classified asspecial mention when they are between 30 and 89 days past due. The trend in special mention loan balances is generally indicative of theexpected trend for charge-offs in future periods, as these loans have a greater propensity to migrate into nonaccrual status and ultimately charge-off. One- to four-family loans are generally secured in a first lien position by real estate assets, reducing the potential loss when compared to anunsecured loan. Home equity loans are generally secured by real estate assets; however, the majority of these loans are secured in a second lienposition, which substantially increases the potential loss when compared to a first lien position.E*TRADE 2017 10-K | Page 95 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAllowance for Loan LossesThe allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio as of the balance sheet date. Indetermining the adequacy of the allowance, the Company performs ongoing evaluations of the loan portfolio and loss assumptions. Loan lossesare recognized when, based on management's estimate, it is probable that a loss has been incurred. The property value for both one- to four-familyand home equity loans is assessed when the loan has been delinquent for 180 days or when the Company has received bankruptcy notification,regardless of whether or not the property is in foreclosure, and the amount of the loan balance in excess of the estimated current value of theunderlying property less estimated selling costs is recognized as a charge-off to the allowance for loan losses. Modified loans considered TDRsare charged off when they are identified as collateral dependent based on certain terms of the modification. Closed-end consumer loans arecharged off when the loan has been 120 days delinquent or when it is determined that collection is not probable.Determining the adequacy of the allowance is complex and requires judgment by management about the effect of matters that are inherentlyuncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance forloan losses in future periods. For loans that are not TDRs, the Company establishes a general allowance and evaluates the adequacy of theallowance for loan losses by loan portfolio segment: one- to four-family, home equity and consumer and other. For modified loans accounted for asTDRs that are valued using the discounted cash flow model, a specific allowance is established by forecasting losses, including economicconcessions to borrowers, over the estimated remaining life of these loans.The estimate of the allowance for loan losses is based on a variety of quantitative and qualitative factors, including:•The composition and quality of the portfolio•Delinquency levels and trends•Current and historical charge-off and loss experience•The Company's historical loss mitigation experience•The condition of the real estate market and geographic concentrations within the loan portfolio•The interest rate climate•The overall availability of housing credit•General economic conditions, including the impact of weather-related eventsThe allowance for loan losses is typically equal to management’s forecast of loan losses in the 18 months following the balance sheet date as wellas the forecasted losses, including economic concessions to borrowers, over the estimated remaining life of loans modified as TDRs. Thequantitative allowance methodology also includes the identification of higher risk mortgage loans and the period of loan losses captured within thegeneral allowance includes the total probable loss over the remaining life of these loans.The general allowance for loan losses also includes a qualitative component to account for a variety of factors that present additional uncertaintythat may not be fully considered in the quantitative loss model but are factors that may impact the level of credit losses. The Company utilizes aqualitative factor framework whereby, on a quarterly basis, the risk associated with the following three primary sets of factors are evaluated:external factors, internal factors, and portfolio specific factors. The uncertainty related to theseE*TRADE 2017 10-K | Page 96 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSfactors may expand over time, temporarily increasing the qualitative component in advance of the more precise identification of these probablelosses being captured within the quantitative component of the general allowance.Receivables from and Payables to Brokers, Dealers and Clearing OrganizationsReceivables from brokers, dealers and clearing organizations include deposits paid for securities borrowed, clearing deposits and net receivablesarising from unsettled trades. Payables to brokers, dealers and clearing organizations include deposits received for securities loaned and netpayables arising from unsettled trades.Deposits paid for securities borrowed and deposits received for securities loaned are recorded at the amount of cash collateral advanced orreceived. Securities borrowing transactions require the Company to deposit cash with the lender whereas securities lending transactions result inthe Company receiving collateral in the form of cash, with both requiring cash in an amount generally in excess of the market value of thesecurities. Interest income and interest expense are recorded on an accrual basis. The Company monitors the market value of the securitiesborrowed and loaned on a daily basis, with additional collateral obtained or refunded, as necessary.Property and Equipment, NetProperty and equipment is carried at cost and depreciated on a straight-line basis over their estimated useful lives, generally three to seven years.Leasehold improvements are depreciated over the lesser of their estimated useful lives or lease terms. An impairment loss is recognized if thecarrying amount of the long-lived asset is not recoverable and exceeds its fair value.The costs of internally developed software that qualify for capitalization are included in the property and equipment, net line item. For qualifyinginternal-use software costs, capitalization begins when the conceptual formulation, design and testing of possible software project alternatives arecomplete and management authorizes and commits to funding the project. The Company does not capitalize pilot projects and projects where itbelieves that future economic benefits are less than probable. Technology development costs incurred in the development and enhancement ofsoftware used in connection with services provided by the Company that do not otherwise qualify for capitalization treatment are expensed asincurred. Completed projects, as well as other purchased software, are carried at cost and are amortized on a straight-line basis over theirestimated useful lives. The estimated useful life of internally developed software is four years.Goodwill and Other Intangibles, NetGoodwill is recognized as a result of business combinations and represents the excess of the purchase price over the fair value of net tangibleassets and identifiable intangible assets. The Company evaluates goodwill for impairment on an annual basis as of November 30 and in interimperiods when events or changes indicate the carrying value may not be recoverable. The Company has the option of performing a qualitativeassessment of goodwill to determine whether it is more likely than not that the fair value of its equity is less than the carrying value. If it is morelikely than not that the fair value exceeds the carrying value, then no further testing is necessary; otherwise, the Company must perform a two-step quantitative assessment of goodwill. The Company may elect to bypass the qualitative assessment and proceed directly to performing a two-step quantitative assessment.For the years ended December 31, 2017 and 2016, the Company elected to perform a qualitative analysis to determine whether it was more likelythan not that the fair value of its equity was less than the carryingE*TRADE 2017 10-K | Page 97 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSvalue. As a result of this qualitative assessment, the Company determined that it was not necessary to perform a quantitative impairment test andconcluded that there were no impairments to the carrying value of the Company's goodwill during the years ended December 31, 2017 and 2016.The Company currently does not have any intangible assets with indefinite lives other than goodwill. The Company evaluates intangible assetswith finite lives for impairment on an annual basis or when events or changes indicate the carrying value may not be recoverable. The Companyalso evaluates the remaining useful lives of intangible assets with finite lives each reporting period to determine whether events and circumstanceswarrant a revision to the remaining period of amortization. Customer relationship intangibles are amortized on an accelerated basis, whiletechnology and trade name intangibles are amortized on a straight-line basis.For additional information on goodwill and other intangibles, net, see Note 10—Goodwill and Other Intangibles, Net.Income TaxesDeferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement purposes than for taxpurposes. Deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect.Valuation allowances for deferred tax assets are established if it is determined, based on evaluation of available evidence at the time thedetermination is made, that it is more likely than not that some or all of the deferred tax assets will not be realized. Income tax expense (benefit)includes (1) deferred tax expense (benefit), which generally represents the net change in the deferred tax asset or liability balance during the yearplus any change in valuation allowances, and (2) current tax expense (benefit), which represents the amount of tax currently payable to orreceivable from a taxing authority. Uncertain tax positions are only recognized to the extent it is more likely than not that the uncertain tax positionwill be sustained upon examination. For uncertain tax positions, a tax benefit is recognized for cases in which it is more than fifty percent likely ofbeing sustained on ultimate settlement. Interest and penalties, if any, related to income tax matters are recognized as income tax expense in theperiod they are incurred or such changes are enacted. For additional information on income taxes, see Note 15—Income Taxes.Real Estate Owned and Repossessed AssetsReal estate owned and repossessed assets are included in the other assets line item in the consolidated balance sheet. Real estate ownedrepresents real estate acquired through foreclosure and also includes those properties acquired through a deed in lieu of foreclosure or similar legalagreement. Both real estate owned and repossessed assets are carried at the lower of carrying value or fair value, less estimated selling costs.Equity Method, Cost Method and Other InvestmentsThe Company’s equity method, cost method and other investments are generally limited liability investments in partnerships, companies and othersimilar entities, including tax credit partnerships and community development entities, that are not required to be consolidated. These investmentsare reported in the other assets line item in the consolidated balance sheet. Under the equity method, the Company recognizes its share of theinvestee’s net income or loss in the gains (losses) on securities and other, net line item in the consolidated statement of income. The Company’sother investments include those accounted for using the proportional amortization method, whereby the initial cost of the investment is amortizedin proportion to the tax credits and other tax benefits received and the net investmentE*TRADE 2017 10-K | Page 98 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSperformance is recognized in the consolidated statement of income as a component of income tax expense. The Company recognizes a liabilityfor all legally binding unfunded equity commitments to the investees in the other liabilities line item in the consolidated balance sheet.The Company evaluates its equity and cost method investments for impairment when events or changes indicate the carrying value may not berecoverable. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss in the gains (losses) onsecurities and other, net line item equal to the difference between the expected realizable value and the carrying value of the investment.The Company is a member of, and owns capital stock in, the FHLB system. As a condition of its membership in the FHLB, the Company isrequired to maintain a FHLB stock investment which totaled $36 million at December 31, 2017 and $15 million at December 31, 2016. TheCompany accounts for its investment in FHLB stock as a cost method investment.Deposits and Customer PayablesDeposits are primarily composed of sweep deposits held at bank subsidiaries, which represent uninvested cash balances in certain customerbrokerage accounts. Customer payables represent credit balances in customer brokerage accounts arising from deposits of funds and sales ofsecurities and other funds pending completion of securities transactions. Customer payables primarily represent customer cash held by E*TRADESecurities. The Company pays interest on certain deposits and customer payables balances.Other BorrowingsOther borrowings includes securities sold under agreements to repurchase, FHLB advances, TRUPs and borrowings from lines of credit.Securities sold under agreements to repurchase the same or similar securities, also known as repurchase agreements, are collateralized by fixed-and variable-rate mortgage-backed securities or investment grade securities. Repurchase agreements are treated as secured borrowings forfinancial statement purposes and the obligations to repurchase securities sold are therefore reflected as liabilities in the consolidated balancesheet.The FHLB provides the Company with reserve credit capacity and authorizes advances based on the security of pledged home mortgages andother assets (principally securities that are obligations of, or guaranteed by, the US Government) provided the Company meets certaincreditworthiness standards.Prior to 2008, E*TRADE Bank's parent company ETB Holdings, Inc. (ETBH) raised capital through the formation of trusts, which sold TRUPs inthe capital markets. The capital securities must be redeemed in whole at the due date, which is generally 30 years after issuance. The trusts usedthe proceeds from the sale of issuances to purchase subordinated debentures issued by ETBH presented in the other borrowings line item.For additional information on other borrowings, see Note 13—Other Borrowings.Other LiabilitiesOther liabilities includes accrued operating expenses and contingent liabilities. These liabilities are impacted by estimates for litigation andregulatory matters as well as estimates related to general operating expenses, such as incentive compensation and market data usage withincommunications expense.E*TRADE 2017 10-K | Page 99 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSManagement estimates reflect the probable liability as of the balance sheet date. In determining the adequacy of estimated liabilities, theCompany performs ongoing evaluations based on available information.Comprehensive IncomeThe Company’s comprehensive income is composed of net income, the noncredit portion of OTTI on debt securities, unrealized gains (losses) onavailable-for-sale securities, the effective portion of the unrealized gains (losses) on derivatives in cash flow hedge relationships and foreigncurrency translation gains (losses), net of reclassification adjustments and related tax.Interest IncomeInterest income is recognized as earned through holding interest-earning assets, such as available-for-sale and held-to-maturity securities, marginreceivables, loans and cash, and from securities lending activities. Interest income also includes the impact of the Company’s derivativetransactions related to interest-earning assets.Interest ExpenseInterest expense is recognized as incurred through holding interest-bearing liabilities, such as corporate debt, other borrowings, customer payablesand deposits, and from securities lending activities. Interest expense also includes the impact of the Company’s derivative transactions related tointerest-bearing liabilities.CommissionsCommissions are derived from the Company’s customers and are impacted by both trade type and trade mix. Commissions from securitiestransactions are recognized on a trade-date basis.Fees and Service ChargesFees and service charges consist of order flow revenue, mutual fund service fees, advisor management fees, foreign exchange revenue,reorganization fees and other fees and service charges. Fees and service charges also includes revenue earned on customer cash held by thirdparties.Gains (Losses) on Securities and Other, NetGains (losses) on securities and other, net includes gains or losses resulting from the sale of available-for-sale securities; gains or losses resultingfrom sales of loans; hedge ineffectiveness and reclassification of deferred losses on cash flow hedges; gains or losses recognized on equityinvestments; and gains or losses on derivative instruments that are not accounted for as hedging instruments. Gains or losses resulting from thesale of available-for-sale securities are recognized at the trade-date, based on the difference between the anticipated proceeds and the amortizedcost of the specific securities sold.OTTIThe Company evaluates available-for-sale securities and held-to-maturity debt securities for OTTI on a quarterly basis. The Company considersOTTI for an available-for-sale or held-to-maturity debt security to have occurred if one of the following conditions are met: the Company intends tosell the impaired debtE*TRADE 2017 10-K | Page 100 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSsecurity; it is more likely than not that the Company will be required to sell the impaired debt security before recovery of the security’s amortizedcost basis; or the Company does not expect to recover the entire amortized cost basis of the security.For impaired debt securities that the Company does not intend to sell and it is not more likely than not that the Company will be required to sellbefore recovery of the security’s amortized cost basis, the Company uses both qualitative and quantitative valuation measures to evaluatewhether the Company expects to recover the entire amortized cost basis of the security. If the Company does not expect to recover the entireamortized cost basis of these securities then the Company will separate OTTI into two components: 1) the amount related to credit loss,recognized in earnings; and 2) the noncredit portion of OTTI, recognized through other comprehensive income.If the Company intends to sell an impaired debt security or if it is more likely than not that the Company will be required to sell the impaired debtsecurity before recovery of the security’s amortized cost basis, the Company will recognize OTTI in earnings equal to the entire differencebetween the security’s amortized cost basis and the security’s fair value.The Company considers OTTI for an available-for-sale equity security to have occurred if the decline in the security’s fair value below its costbasis is deemed other than temporary based on evaluation of both qualitative and quantitative valuation measures. If impairment is determined tobe other-than-temporary, the Company will recognize OTTI in earnings equal to the entire difference between the security’s amortized cost basisand the security’s fair value. If the Company intends to sell an impaired equity security and the Company does not expect to recover the entirecost basis of the security prior to the sale, the Company will recognize OTTI in the period the decision to sell is made.Other RevenuesOther revenues primarily consist of fees from software and services for managing equity compensation plans, which are recognized in accordancewith software revenue recognition accounting guidance.Advertising and Market DevelopmentAdvertising and market development includes production and placement of advertisements as well as customer promotions. Advertising productioncosts are expensed when the initial advertisement is run.Earnings Per ShareBasic earnings per share is computed by dividing net income available to common shareholders by the weighted-average common sharesoutstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock. The Company excludes from the calculation of diluted earnings per share stockoptions, unvested restricted stock awards and units, unvested performance share units and shares related to convertible debentures that wouldhave been anti-dilutive.Derivative Instruments and Hedging ActivitiesThe Company enters into derivative transactions primarily to protect against interest rate risk on the value of certain assets, liabilities and futurecash flows. Each derivative instrument is recorded on the consolidated balance sheet at fair value as a freestanding asset or liability.E*TRADE 2017 10-K | Page 101 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAccounting for derivatives differs depending on whether a derivative is designated as a hedge based on the applicable accounting guidance and, ifdesignated as a hedge, the type of hedge designation. Derivative instruments designated in hedging relationships that mitigate the exposure to thevariability in expected future cash flows or other forecasted transactions are considered cash flow hedges. Derivative instruments in hedgingrelationships that mitigate exposure to changes in the fair value of assets or liabilities are considered fair value hedges. In order to qualify forhedge accounting, the Company formally documents at inception all relationships between hedging instruments and hedged items and the riskmanagement objective and strategy for each hedge transaction.Fair value hedge ineffectiveness is measured on a quarterly basis and reflects the difference between the change in fair value on the derivativeand the change in fair value on the hedged item, both of which are recognized within gains (losses) on securities and other, net on the consolidatedstatement of income. Ineffectiveness on cash flow hedges is also recorded to gains (losses) on securities and other, net. Cash flows fromderivative instruments in hedging relationships are classified in the same category on the consolidated statement of cash flows as the cash flowsfrom the items being hedged.Hedge accounting is discontinued for fair value hedges if a derivative instrument is sold, terminated or otherwise de-designated. If fair value hedgeaccounting is discontinued, the previously hedged item is no longer adjusted for changes in fair value through the consolidated statement ofincome and the cumulative net gain or loss on the hedged asset or liability at the time of de-designation is amortized to interest income or interestexpense using the effective interest method over the expected remaining life of the hedged item. Changes in the fair value of the derivativeinstruments after de-designation of fair value hedge accounting are recorded in the gains (losses) on securities and other, net line item in theconsolidated statement of income.The Company also recognizes certain contracts and commitments as derivatives if the characteristics of those contracts and commitments meetthe definition of a derivative. For additional information on derivative instruments and hedging activities, see Note 8—Derivative Instruments andHedging Activities.Fair ValueFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. The Company determines the fair value for its financial instruments and for nonfinancial assets andnonfinancial liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. In addition, theCompany determines the fair value for nonfinancial assets and nonfinancial liabilities on a nonrecurring basis as required during impairment testingor by other accounting guidance. For additional information on fair value, see Note 4—Fair Value Disclosures.Share-Based PaymentsIn 2015, the Company adopted and the shareholders approved the 2015 Omnibus Incentive Plan (2015 Plan), which replaced the 2005 StockIncentive Plan (2005 Plan). The 2015 Plan provides the Company the ability to grant equity awards to officers, directors, employees andconsultants, including, but not limited to, nonqualified or incentive stock options, restricted stock awards, restricted stock units and deferredrestricted stock units at a price based on the date of the grant approved by the Board. The Company typically issues new shares upon exercise ofstock options and vesting of other equity awards and intends to continue doing so.Through 2011, the Company issued options to directors and to certain of the Company's officers and employees. Options generally vest ratablyover a two- to four-year period from the date of grant and expireE*TRADE 2017 10-K | Page 102 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSwithin seven to ten years from the date of grant. Certain options provide for accelerated vesting upon a change of control. The Company measurescompensation expense based on the exercise price which is equal to the fair value of the shares on the grant date. As of December 31, 2017,there were less than 0.1 million options outstanding and no unrecognized compensation expense related to non-vested stock options.The Company issues restricted stock awards and deferred restricted stock units to directors and restricted stock units to certain of the Company'sofficers and employees. Each restricted stock unit can be converted into one share of the Company’s common stock upon vesting. These sharesof restricted stock and restricted stock units are issued at the fair value on the date of grant and vest ratably over the requisite service period,generally one to four years. Beginning in 2015, the Company also issued performance share units to certain of the Company’s officers. Eachperformance share unit can be converted into one share of the Company’s common stock upon vesting. Vesting of performance share units iscontingent upon achievement of certain predefined individual and Company performance targets over the performance period. These performanceshare units are issued at the fair value on the date of grant and vest on a graded basis over the requisite service period, generally one to threeyears.As of December 31, 2017, there were 2.5 million restricted stock awards and units outstanding and $37 million of total unrecognized compensationexpense related to non-vested restricted stock awards and units. This cost is expected to be recognized over a weighted-average period of 1.4years. As of December 31, 2017, there were also 0.2 million performance share units outstanding. The total fair value of restricted stock awards,restricted stock units and performance share units vested was $58 million, $48 million and $28 million for the years ended December 31, 2017,2016 and 2015, respectively.The Company recognized $41 million, $30 million and $34 million in expense for its options, restricted stock awards, restricted stock units andperformance share units for the years ended December 31, 2017, 2016 and 2015, respectively.Under the 2015 Plan, the remaining unissued authorized shares of the 2005 Plan that are not subject to outstanding awards thereunder wereauthorized for issuance. Additionally, any shares that had been awarded but remained unissued under the 2005 Plan that were subsequentlycanceled, forfeited, or reacquired by the Company would be authorized for issuance under the 2015 Plan. As of December 31, 2017, 8.9 millionshares were available for grant under the 2015 Plan.The Company records share-based compensation expense in accordance with the stock compensation accounting guidance. The Companyrecognizes compensation expense at the grant date fair value of a share-based payment award over the requisite service period less estimatedforfeitures. Forfeitures are based on the Company's historical experience and revised as needed based on actual forfeitures. Compensationexpense for performance share units is also adjusted based on the Company’s estimated outcome of meeting the performance conditions. Share-based compensation expense is generally included in the compensation and benefits line item.E*TRADE 2017 10-K | Page 103 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAdoption of New Accounting StandardsAccounting for Employee Share-Based PaymentsIn March 2016, the FASB amended the accounting guidance on employee share-based payments. Relevant changes in the amended guidanceinclude the requirement to recognize all excess tax benefits and deficiencies upon exercise or vesting as income tax expense or benefit in theconsolidated statement of income; to treat excess tax benefits and deficiencies as discrete items in the reporting period they occur; to not delayrecognition of excess tax benefits until the tax benefit is realized through a reduction in current taxes payable; and to make an accounting policyelection to either estimate forfeitures or account for them as they occur. The Company adopted the amended accounting guidance as of January1, 2017 and recognized a $3 million deferred tax asset and cumulative-effect adjustment to equity as of the beginning of the period. In addition, forthe years ended December 31, 2016 and 2015, the Company reclassified $21 million and $11 million, respectively, related to shares withheld topay taxes from cash flows from operating activities to the other line item within cash flows from financing activities. Forfeitures continue to beestimated consistent with the Company's prior accounting policies. The impact to the Company's financial condition, results of operations andcash flows will vary based on, among other factors, the market price of the Company's common stock. During the year ended December 31, 2017,the Company recognized a $7 million income tax benefit in accordance with the new guidance.New Accounting Standards Not Yet AdoptedRevenue Recognition on Contracts with CustomersIn May 2014, the FASB amended the guidance on revenue recognition on contracts with customers. The new standard outlines a singlecomprehensive model for entities to apply in accounting for revenue arising from contracts with customers. The Company's accounting for netinterest income is not impacted by the new standard. The FASB issued supplemental amendments to the new standard to clarify certain guidanceand to provide narrow scope improvements and practical expedients during 2016. The amended guidance became effective on January 1, 2018and the Company adopted the guidance on a modified retrospective basis. This adoption did not have a material impact on the Company’sfinancial condition, results of operations or cash flows as the satisfaction of performance obligations under the new guidance is materiallyconsistent with the Company's previous revenue recognition policies. Similarly, the amended guidance did not have a material impact on therecognition of costs incurred to obtain new contracts. The Company has evaluated the new guidance, including considerations relating to financialstatement presentation, disclosures and controls and the amended presentation and disclosures will be reflected in interim reporting beginning inthe first quarter of 2018.E*TRADE 2017 10-K | Page 104 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSClassification and Measurement of Financial InstrumentsIn January 2016, the FASB amended the accounting and disclosure guidance on the classification and measurement of financial instruments.Relevant changes in the amended guidance include the requirement that equity investments, excluding those accounted for under the equitymethod of accounting or those resulting in consolidation of the investee, be measured at fair value in the consolidated balance sheet with changesin fair value recognized in net income. For disclosure purposes, the Company will no longer be required to disclose the methods and significantassumptions used to estimate fair value for financial instruments measured at amortized cost in the consolidated balance sheet. The amendedguidance became effective on January 1, 2018, and was applied on a modified retrospective basis. The adoption did not have a material impact onthe Company’s financial condition, results of operations or cash flows as debt securities represent the majority of the Company's investmentportfolio.Accounting for LeasesIn February 2016, the FASB amended the guidance on accounting for leases. The new standard requires lessees to recognize assets andliabilities on the balance sheet for the rights and obligations created by all qualifying leases with terms of more than twelve months. Therecognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains substantially unchanged anddepends on classification as a finance or operating lease. The new standard also requires quantitative and qualitative disclosures that provideinformation about the amounts related to leasing arrangements recorded in the consolidated financial statements. The new guidance will beeffective for interim and annual periods beginning on January 1, 2019, and is required to be applied on a modified retrospective basis to the earliestperiod presented, which includes practical expedient options in certain circumstances. The Company is in the process of evaluating the newaccounting guidance, which includes the assessment of whether certain executory contracts contain embedded leases. The Company has 30regional financial centers and 8 corporate locations which are leased. The right of use asset and corresponding lease liability for these leases willbe recognized on the Company's balance sheet upon adoption.Accounting for Credit LossesIn June 2016, the FASB amended the accounting guidance on accounting for credit losses. The amended guidance requires measurement of allexpected credit losses for financial instruments, including loans and debt securities, and other commitments to extend credit held at the reportingdate. For financial assets measured at amortized cost, factors such as historical experience, current conditions, and reasonable and supportableforecasts will be used to estimate expected credit losses. The amended guidance will also change the manner in which credit losses arerecognized on debt securities classified as available-for-sale. The new guidance will be effective for interim and annual periods beginning January1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the new accounting guidance on the Company's financialcondition, results of operations and cash flows. The Company does not expect the amended accounting guidance to have as significant of animpact as it could have if the Company were originating or purchasing mortgage loans. Our evaluation contemplates the recent performance of theCompany's run-off legacy mortgage and consumer loan portfolio and the credit profile of the current investment securities portfolio; however, theimpact of the new guidance will depend on the current and expected macroeconomic conditions and the nature and characteristics of financialassets held by us on the date of adoption.E*TRADE 2017 10-K | Page 105 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSClassification of Certain Cash Receipts and Cash PaymentsIn August 2016, the FASB amended the guidance on the presentation and classification of certain cash receipts and cash payments in theconsolidated statement of cash flows to eliminate current diversity in practice. The new guidance became effective on January 1, 2018, and theretrospective transition method will be applied to each period presented. Among other changes, the Company will begin classifying debtextinguishment costs within cash flows from financing activities.Classification of Restricted CashIn November 2016, the FASB amended the guidance on the presentation and classification of changes in restricted cash in the consolidatedstatement of cash flows to eliminate current diversity in practice. The amended guidance requires the consolidated statement of cash flows toexplain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash and restricted cashequivalents. The new guidance became effective on January 1, 2018 and will be applied using a retrospective transition method to each periodpresented. The Company concluded that cash required to be segregated under federal or other regulations is considered restricted cash and willpresent the segregated cash activity on the consolidated statement of cash flows.Clarifying the Definition of a BusinessIn January 2017, the FASB issued guidance to clarify the definition of a business in order to assist companies in the evaluation of whethertransactions should be accounted for as acquisitions or disposals of assets or businesses. The guidance became effective on January 1, 2018,and will be applied prospectively.Simplifying the Test for Goodwill ImpairmentIn January 2017, the FASB issued guidance to simplify the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test.The amended guidance requires the Company to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with itscarrying amount. An impairment charge should be recognized at the amount by which the carrying amount exceeds the fair value of the reportingunit; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects resulting fromany tax deductible goodwill should be considered when measuring the goodwill impairment loss, if applicable. The Company will still have theoption to perform a qualitative assessment to conclude whether it is more likely than not that the carrying amount of the Company exceeds its fairvalue. The guidance will be effective for interim and annual periods beginning January 1, 2020, and must be applied prospectively. Early adoptionis permitted.Premium Amortization on Purchased Callable Debt SecuritiesIn March 2017, the FASB issued guidance to amend the amortization period for certain callable debt securities held at a premium. The amendedguidance shortens the amortization period for these securities by requiring the premium to be amortized to the earliest call date. The guidancedoes not amend the accounting for securities held at a discount. The Company early adopted this guidance beginning January 1, 2018, and it willbe applied on a modified retrospective basis. A cumulative-effect adjustment to retained earnings was not required upon adoption since theCompany did not hold any callable debt securities at a premium as of January 1, 2018.E*TRADE 2017 10-K | Page 106 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSTargeted Improvements to Accounting for Hedging ActivitiesIn August 2017, the FASB issued guidance to update the recognition and presentation of hedging relationships. Among other changes, the newguidance eases hedge documentation requirements and allows additional types of hedge accounting strategies. The Company early adopted thisguidance beginning January 1, 2018. The Company applied the guidance on a modified retrospective basis, which resulted in a $7 millioncumulative-effect adjustment to increase retained earnings. In addition, the guidance provided a one-time transition election to transfer certain debtsecurities from held-to-maturity to available-for-sale. The Company transferred agency mortgage-backed and agency debt securities with a fairvalue of $4.7 billion, and recognized a net pre-tax gain of $7 million within other comprehensive income.Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeIn February 2018, the FASB issued guidance to address certain income tax effects in Accumulated Other Comprehensive Income (AOCI) resultingfrom the tax reform enacted in 2017. The amended guidance provides an option to reclassify tax effects within AOCI to retained earnings in theperiod in which the effect of the tax reform is recorded. The amendments are effective for fiscal years beginning after December 15, 2018,including interim periods. Early adoption is permitted. The Company adopted the amended guidance in the first quarter of 2018 and recorded a $14million increase to retained earnings.NOTE 2—RESTRUCTURING AND OTHER ACQUISITION-RELATED ACTIVITIESOptionsHouse AcquisitionOn September 12, 2016, the Company completed its acquisition of all of the outstanding equity of Aperture New Holdings, Inc., the ultimate parentcompany of OptionsHouse, from Aperture Holdings, L.P. for $725 million. The Company recorded goodwill of $578 million which primarily includesthe synergies expected to result from combining operations with OptionsHouse and coupling its derivatives platform with the Company's existingproduct offerings. The Company also recorded intangible assets of $169 million, which are subject to amortization over their estimated useful lives: Estimated Fair Value (dollars inmillions) Estimated Useful Life (In Years)Customer relationships$118 14Technology48 7Trade name3 2Total intangible assets$169 E*TRADE 2017 10-K | Page 107 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table shows the components of restructuring and acquisition-related activities expense (dollars in millions): Year Ended December 31, 2017 2016 2015Restructuring activities$12 $28 $17Acquisition-related costs3 7 —Total restructuring and acquisition-related activities$15 $35 $17Restructuring and acquisition-related costs during the year ended December 31, 2017, primarily includes costs incurred in connection with theintegration of OptionsHouse as well as costs from the planned acquisition of TCA. Restructuring and acquisition-related activities during the yearended December 31, 2016 primarily related to employee severance from the realignment of the Company's core brokerage business andorganizational structure as well as costs in connection with its purchase of OptionsHouse. Restructuring activities during the year ended December31, 2015 includes costs related to department and business reorganizations, such as the shutdown of certain of the Company's internationaloperations, and approximately $6 million of executive severance for a position that was eliminated during the year.E*TRADE 2017 10-K | Page 108 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3—INTEREST INCOME AND INTEREST EXPENSEThe following table shows the components of interest income and interest expense (dollars in millions): Year Ended December 31, 2017 2016 2015Interest income: Cash and equivalents $9 $7 $3Cash required to be segregated under federal or other regulations 12 6 1Available-for-sale securities 390 266 244Held-to-maturity securities 572 425 346Margin receivables 320 249 276Loans 157 191 230Broker-related receivables and other 3 1 3Subtotal interest income 1,463 1,145 1,103Other interest revenue(1) 108 88 112Total interest income(2) 1,571 1,233 1,215Interest expense: Deposits (4) (3) (4)Customer payables (5) (5) (5)Other borrowings (22) (18) (117)Corporate debt (48) (54) (59)Subtotal interest expense (79) (80) (185)Other interest expense(3) (7) (5) (9)Total interest expense(4) (86) (85) (194)Net interest income $1,485 $1,148 $1,021(1)Represents interest income on securities loaned.(2)Interest income reflects $(59) million, $(35) million, and $(42) million recognized on hedges that qualify for hedge accounting for the years ended December 31, 2017,2016, and 2015, respectively.(3)Represents interest expense on securities borrowed.(4)Interest expense reflects $(74) million recognized on hedges that qualify for hedge accounting for the year ended December 31, 2015.E*TRADE 2017 10-K | Page 109 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 4—FAIR VALUE DISCLOSURESFair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date. In determining fair value, the Company may use various valuation approaches, including market, incomeand/or cost approaches. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. Fair value is a market-based measure considered from the perspective of a market participant.Accordingly, even when market assumptions are not readily available, the Company’s own assumptions reflect those that market participantswould use in pricing the asset or liability at the measurement date. The fair value measurement accounting guidance describes the following threelevels used to classify fair value measurements:•Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company•Level 2 - quoted prices for similar assets and liabilities in an active market, quoted prices in markets that are not active or for which allsignificant inputs are observable, either directly or indirectly•Level 3 - unobservable inputs that are significant to the fair value of the assets or liabilitiesThe availability of observable inputs can vary and in certain cases, the inputs used to measure fair value may fall into different levels of the fairvalue hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair valuemeasurement. The Company’s assessment of the significance of a particular input to a fair value measurement requires judgment andconsideration of factors specific to the asset or liability.Recurring Fair Value Measurement TechniquesMortgage-backed SecuritiesThe Company’s mortgage-backed securities portfolio is comprised of agency mortgage-backed securities which are guaranteed by US governmentsponsored enterprises and federal agencies. The fair value of agency mortgage-backed securities was determined using a market approach withquoted market prices, recent transactions and spread data for identical or similar instruments. Agency mortgage-backed securities werecategorized in Level 2 of the fair value hierarchy.Other Debt SecuritiesThe Company's fair value level classification of US Treasuries is based on the original maturity dates of the securities and whether the securitiesare the most recent issuances of a given maturity. US Treasuries with original maturities less than one year are classified as Level 1. USTreasuries with original maturities longer than one year are classified as Level 1 if they represent the most recent issuance of a given maturity;otherwise, these securities are classified as Level 2.The fair value measurements of agency debentures and agency debt securities were determined using market and income approaches along withthe Company’s own trading activities for identical or similar instruments and were categorized in Level 2 of the fair value hierarchy.All of the Company’s municipal bonds were rated investment grade at December 31, 2017. These securities were valued using a market approachwith pricing service valuations corroborated by recent marketE*TRADE 2017 10-K | Page 110 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTStransactions for identical or similar bonds. Municipal bonds and corporate bonds were categorized in Level 2 of the fair value hierarchy.Publicly Traded Equity SecuritiesThe fair value measurements of the Company's publicly traded equity securities were classified as Level 1 of the fair value hierarchy as they werebased on quoted prices in active markets.Derivative InstrumentsInterest rate swaps were valued with an income approach using pricing models that are commonly used by the financial services industry. Themarket observable inputs used in the pricing models include the swap curve, the volatility surface, and prime or overnight indexed swap basis froma financial data provider. The Company does not consider these models to involve significant judgment on the part of management, and theCompany corroborated the fair value measurements with counterparty valuations. The Company’s derivative instruments were categorized in Level2 of the fair value hierarchy. The consideration of credit risk, the Company’s or the counterparty’s, did not result in an adjustment to the valuationof its derivative instruments in the periods presented.Nonrecurring Fair Value Measurement TechniquesCertain other assets are recorded at fair value on a nonrecurring basis: 1) one- to four-family and home equity loans in which the amount of theloan balance in excess of the estimated current value of the underlying property less estimated selling costs has been charged-off; and 2) realestate owned that is carried at the lower of the property’s carrying value or fair value less estimated selling costs.The Company evaluates and reviews assets that have been subject to fair value measurement requirements on a quarterly basis in accordancewith policies and procedures that were designed to be in compliance with guidance from the Company’s regulators. These policies and proceduresgovern the frequency of the review, the use of acceptable valuation methods, and the consideration of estimated selling costs.Loans ReceivableLoans that have been delinquent for 180 days or that are in bankruptcy and certain TDR loan modifications are charged-off based on the estimatedcurrent value of the underlying property less estimated selling costs. Property valuations for these one- to four-family and home equity loans arebased on the most recent "as is" property valuation data available, which may include appraisals, broker price opinions, automated valuationmodels or updated values using home price indices. These property valuations are updated on a monthly, quarterly or semi-annual basisdepending on the type of valuation initially used. If the valuation data obtained is significantly different from the valuation previously received, theCompany reviews additional property valuation data to corroborate or update the valuation. If the value of the underlying property has declined, anadditional charge-off is recorded. If the value of the underlying property has increased, previously charged-off amounts are not reversed.Recoveries of previously charged-off amounts are recognized within the allowance for loan losses when received.E*TRADE 2017 10-K | Page 111 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSReal Estate OwnedProperty valuations for real estate owned are based on the lowest value of the most recent property valuation data available, which may includeappraisals, listing prices or approved offer prices.Nonrecurring fair value measurements on one- to four-family loans, home equity loans and real estate owned were classified as Level 3 of the fairvalue hierarchy as the valuations included unobservable inputs that were significant to the fair value. The following table presents additionalinformation about significant unobservable inputs used in the valuation of assets measured at fair value on a nonrecurring basis that werecategorized in Level 3 of the fair value hierarchy at December 31, 2017 and 2016: Unobservable Inputs Average RangeDecember 31, 2017 Loans receivable: One- to four-familyAppraised value $520,700 $60,000 - $1,200,000Home equityAppraised value $317,300 $38,000 - $2,066,000Real estate ownedAppraised value $355,200 $4,500 - $2,000,000 December 31, 2016 Loans receivable: One- to four-familyAppraised value $408,100 $50,000 - $1,490,000Home equityAppraised value $312,000 $6,000 - $2,500,000Real estate ownedAppraised value $342,300 $21,500 - $1,800,000E*TRADE 2017 10-K | Page 112 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecurring and Nonrecurring Fair Value MeasurementsAssets and liabilities measured at fair value at December 31, 2017 and 2016 are summarized in the following tables (dollars in millions): Level 1 Level 2 Level 3 TotalFair ValueDecember 31, 2017: Recurring fair value measurements: Assets Available-for-sale securities: Debt securities: Agency mortgage-backed securities$— $19,195 $— $19,195Agency debentures— 966 — 966US Treasuries— 458 — 458Agency debt securities— 33 — 33Municipal bonds— 20 — 20Total debt securities— 20,672 — 20,672Publicly traded equity securities7 — — 7Total available-for-sale securities7 20,672 — 20,679Receivables from brokers, dealers and clearing organizations: US Treasuries300 — — 300Other assets: Derivative assets(1)— 131 — 131Total assets measured at fair value on a recurring basis(2)$307 $20,803 $— $21,110Liabilities Other liabilities: Derivative liabilities(1)$— $14 $— $14Total liabilities measured at fair value on a recurring basis(2)$— $14 $— $14Nonrecurring fair value measurements: Loans receivable, net: One- to four-family$— $— $22 $22Home equity— — 13 13Total loans receivable— — 35 35Other assets: Loans held-for-sale— 17 — 17Real estate owned— — 26 26Total assets measured at fair value on a nonrecurring basis(3)$— $17 $61 $78 (1)All derivative assets and liabilities were interest rate contracts at December 31, 2017. Information related to derivative instruments is detailed in Note 8—DerivativeInstruments and Hedging Activities.(2)Assets and liabilities measured at fair value on a recurring basis represented 33% and less than 1% of the Company’s total assets and total liabilities, respectively, atDecember 31, 2017.(3)Represents the fair value of assets prior to deducting estimated selling costs that were carried on the consolidated balance sheet at December 31, 2017, and for which afair value measurement was recorded during the period.E*TRADE 2017 10-K | Page 113 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 1 Level 2 Level 3 TotalFair ValueDecember 31, 2016: Recurring fair value measurements: Assets Available-for-sale securities: Debt securities: Agency mortgage-backed securities$— $12,634 $— $12,634Agency debentures— 788 — 788US Treasuries— 407 — 407Agency debt securities— 24 — 24Municipal bonds— 32 — 32Total debt securities— 13,885 — 13,885Publicly traded equity securities7 — — 7Total available-for-sale securities7 13,885 — 13,892Other assets: Derivative assets(1)— 165 — 165Total assets measured at fair value on a recurring basis(2)$7 $14,050 $— $14,057Liabilities Other liabilities: Derivative liabilities(1)$— $31 $— $31Total liabilities measured at fair value on a recurring basis(2)$— $31 $— $31Nonrecurring fair value measurements: Loans receivable, net: One- to four-family$— $— $25 $25Home equity— — 21 21Total loans receivable— — 46 46Other assets: Real estate owned— — 35 35Total assets measured at fair value on a nonrecurring basis(3)$— $— $81 $81 (1)All derivative assets and liabilities were interest rate contracts at December 31, 2016. Information related to derivative instruments is detailed in Note 8—DerivativeInstruments and Hedging Activities.(2)Assets and liabilities measured at fair value on a recurring basis represented 29% and less than 1% of the Company’s total assets and total liabilities, respectively, atDecember 31, 2016.(3)Represents the fair value of assets prior to deducting estimated selling costs that were carried on the consolidated balance sheet at December 31, 2016, and for which afair value measurement was recorded during the period.E*TRADE 2017 10-K | Page 114 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents losses recognized on assets measured at fair value on a nonrecurring basis during the years ended December 31,2017 and 2016 (dollars in millions): Year Ended December 31, 2017 2016 2015One- to four-family$4 $4 $7Home equity5 12 14Total losses on loans receivable measured at fair value$9 $16 $21Transfers Between Levels 1, 2 and 3For assets and liabilities measured at fair value on a recurring basis, the Company’s transfers between levels of the fair value hierarchy aredeemed to have occurred at the beginning of the reporting period on a quarterly basis. The Company had no transfers between levels during theyears ended December 31, 2017 and 2016.Recurring Fair Value Measurements Categorized within Level 3For the periods presented, no assets or liabilities measured at fair value on a recurring basis were categorized within Level 3 of the fair valuehierarchy.E*TRADE 2017 10-K | Page 115 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFair Value of Financial Instruments Not Carried at Fair ValueThe following table summarizes the carrying values, fair values and fair value hierarchy level classification of financial instruments that are notcarried at fair value on the consolidated balance sheet at December 31, 2017 and 2016 (dollars in millions): December 31, 2017 CarryingValue Level 1 Level 2 Level 3 TotalFair ValueAssets Cash and equivalents$931 $931 $— $— $931Cash required to be segregated under federal or other regulations$872 $872 $— $— $872Held-to-maturity securities: Agency mortgage-backed securities$20,502 $— $20,404 $— $20,404Agency debentures710 — 708 — 708Agency debt securities2,615 — 2,595 — 2,595Other12 — — 12 12Total held-to-maturity securities$23,839 $— $23,707 $12 $23,719Margin receivables(1)$9,071 $— $9,071 $— $9,071Loans receivable, net: One- to four-family$1,417 $— $— $1,463 $1,463Home equity1,051 — — 1,055 1,055Consumer and other186 — — 187 187Total loans receivable, net(2)$2,654 $— $— $2,705 $2,705Receivables from brokers, dealers and clearing organizations(1)$878 $— $878 $— $878Other assets(1)(3)$18 $— $18 $— $18Liabilities Deposits$42,742 $— $42,741 $— $42,741Customer payables$9,449 $— $9,449 $— $9,449Payables to brokers, dealers and clearing organizations$1,542 $— $1,542 $— $1,542Other borrowings: FHLB advances$500 $— $500 $— $500Trust preferred securities$410 $— $— $379 $379Total other borrowings$910$—$500$379$879Corporate debt$991 $— $992 $— $992(1)The fair value of securities that the Company received as collateral in connection with margin receivables and securities borrowing activities, including the fully paidlending program, where the Company is permitted to sell or re-pledge the securities, was approximately $12.8 billion at December 31, 2017. Of this amount, $3.2 billionhad been pledged or sold in connection with securities loaned and deposits with clearing organizations at December 31, 2017.(2)The carrying value of loans receivable, net includes the allowance for loan losses of $74 million and loans that are recorded at fair value on a nonrecurring basis atDecember 31, 2017.(3)The $18 million in other assets at December 31, 2017 represents securities borrowing from customers under the fully paid lending program.E*TRADE 2017 10-K | Page 116 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2016 CarryingValue Level 1 Level 2 Level 3 TotalFair ValueAssets Cash and equivalents$1,950 $1,950 $— $— $1,950Cash required to be segregated under federal or other regulations$1,460 $1,460 $— $— $1,460Held-to-maturity securities: Agency mortgage-backed securities$12,868 $— $12,839 $— $12,839Agency debentures29 — 29 — 29Agency debt securities2,854 — 2,848 — 2,848Total held-to-maturity securities$15,751 $— $15,716 $— $15,716Margin receivables(1)$6,731 $— $6,731 $— $6,731Loans receivable, net: One- to four-family$1,918 $— $— $1,942 $1,942Home equity1,385 — — 1,311 1,311Consumer and other248 — — 249 249Total loans receivable, net(2)$3,551 $— $— $3,502 $3,502Receivables from brokers, dealers and clearing organizations$1,056 $— $1,056 $— $1,056Liabilities Deposits$31,682 $— $31,681 $— $31,681Customer Payables$8,159 $— $8,159 $— $8,159Payables to brokers, dealers and clearing organizations$983 $— $983 $— $983Trust preferred securities$409 $— $— $288 $288Corporate debt$994 $— $1,050 $— $1,050 (1)The fair value of securities that the Company received as collateral in connection with margin receivables and securities borrowing activities, where the Company ispermitted to sell or re-pledge the securities, was approximately $9.8 billion at December 31, 2016. Of this amount, $2.0 billion had been pledged or sold in connection withsecurities loaned and deposits with clearing organizations at December 31, 2016.(2)The carrying value of loans receivable, net includes the allowance for loan losses of $221 million and loans that are recorded at fair value on a nonrecurring basis atDecember 31, 2016.The fair value measurement techniques for financial instruments not carried at fair value on the consolidated balance sheet are summarized asfollows:Cash and equivalents, cash required to be segregated under federal or other regulations, margin receivables, receivables from brokers, dealers andclearing organizations, customer payables, payables to brokers, dealers and clearing organizations and other assets—Due to their short termnature, fair value is estimated to be carrying value.Held-to-maturity securities—Fair value of held-to-maturity securities is determined in a manner consistent with the pricing of available-for-salesecurities described above.Loans receivable, net—Fair value is estimated using a discounted cash flow model. Loans are differentiated based on their individual portfoliocharacteristics, such as product classification, loan category and pricing features. Assumptions for expected losses, prepayments, cash flows anddiscount rates are adjusted toE*TRADE 2017 10-K | Page 117 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSreflect the individual characteristics of the loans, such as credit risk, coupon, lien position, and payment characteristics, as well as the secondarymarket conditions for these types of loans.Although the market for one- to four-family and home equity loan portfolios has improved, given the lack of observability of valuation inputs, thesefair value measurements cannot be determined with precision and changes in the underlying assumptions used, including discount rates, couldsignificantly affect the results of current or future fair value estimates. In addition, the amount that would be realized in a forced liquidation, anactual sale or immediate settlement could be lower than both the carrying value and the estimated fair value of the portfolio.Deposits—Fair value of certificates of deposit is estimated using a discounted cash flow model. For the remainder of deposits, fair value is theamount payable on demand at the reporting date.Securities sold under agreements to repurchase and FHLB advances—Fair value for securities sold under agreements to repurchase and FHLBadvances was determined by discounting future cash flows using discount factors derived from current observable rates implied for other similarinstruments with similar remaining maturities.Trust preferred securities—Fair value is estimated by discounting future cash flows at the yield implied by dealer pricing quotes.Corporate debt—Fair value is estimated using dealer pricing quotes.Fair Value of Commitments and ContingenciesIn the normal course of business, the Company makes various commitments to extend credit and incur contingent liabilities that are not reflectedin the consolidated balance sheet. Changes in the economy or interest rates may influence the impact that these commitments and contingencieshave on the Company in the future. The Company does not estimate the fair value of those commitments. Information related to suchcommitments and contingent liabilities is included in Note 20—Commitments, Contingencies and Other Regulatory Matters.E*TRADE 2017 10-K | Page 118 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 5—OFFSETTING ASSETS AND LIABILITIESFor financial statement purposes, the Company does not offset derivative instruments or securities borrowing and securities lending transactions.These activities are generally transacted under master agreements that are widely used by counterparties and that may allow for net settlementsof payments in the normal course, as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of thetwo parties to the transaction. The following table presents information about the Company's derivative instruments, securities borrowing andsecurities lending transactions which are transacted under master agreements to enable the users of the Company’s consolidated financialstatements to evaluate the potential effect of rights of set-off between these recognized assets and liabilities at December 31, 2017 and 2016(dollars in millions): Gross Amounts Not Offset in theConsolidated Balance Sheet Gross Amountsof RecognizedAssets andLiabilities Gross AmountsOffset in theConsolidatedBalance Sheet Net Amounts Presentedin the ConsolidatedBalance Sheet (1) FinancialInstruments CollateralReceived orPledged(IncludingCash) Net AmountDecember 31, 2017 Assets: Deposits paid for securitiesborrowed (2)$759 $— $759 $(251) $(483) $25 Total$759 $— $759 $(251) $(483) $25 Liabilities: Deposits received for securitiesloaned (3)$1,373 $— $1,373 $(251) $(1,004) $118 Derivative liabilities (4)(5)5 — 5 — (5) — Total$1,378 $— $1,378 $(251) $(1,009) $118 December 31, 2016 Assets: Deposits paid for securitiesborrowed (2)$774 $— $774 $(192) $(560) $22 Total$774 $— $774 $(192) $(560) $22 Liabilities: Deposits received for securitiesloaned (3)$926 $— $926 $(192) $(661) $73 Derivative liabilities (4)(5)6 — 6 — (6) — Total$932 $— $932 $(192) $(667) $73(1)Net amount of deposits paid for securities borrowed are reflected in the receivables from brokers, dealers and clearing organizations and other assets line items in theconsolidated balance sheet. Net amount of deposits received for securities loaned and derivative liabilities are reflected in the payables to brokers, dealers and clearingorganizations and other liabilities line items in the consolidated balance sheet, respectively.E*TRADE 2017 10-K | Page 119 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(2)Included in the gross amounts of deposits paid for securities borrowed was $347 million and $307 million at December 31, 2017 and 2016, respectively, transactedthrough a program with a clearing organization, which guarantees the return of cash to the Company. For presentation purposes, these amounts presented are based onthe counterparties under the Company’s master securities loan agreements.(3)Included in the gross amounts of deposits received for securities loaned was $821 million and $546 million at December 31, 2017 and 2016, respectively, transactedthrough a program with a clearing organization, which guarantees the return of securities to the Company. For presentation purposes, these amounts presented arebased on the counterparties under the Company’s master securities loan agreements.(4)Excludes net accrued interest payable of $2 million at both December 31, 2017 and 2016.(5)Collateral pledged included held-to-maturity securities at amortized cost at both December 31, 2017 and 2016.Securities Lending TransactionsDeposits paid for securities borrowed and deposits received for securities loaned are recorded at the amount of cash collateral advanced orreceived. Securities borrowing transactions require the Company to deposit cash with the lender whereas securities lending transactions result inthe Company receiving collateral in the form of cash, with both requiring cash in an amount generally in excess of the market value of thesecurities. These transactions have overnight or continuous remaining contractual maturities.Securities lending transactions expose the Company to counterparty credit risk and market risk. To manage the counterparty risk, the Companymaintains internal standards for approving counterparties, reviews and analyzes the credit rating of each counterparty, and monitors its positionswith each counterparty on an ongoing basis. In addition, for certain of the Company's securities lending transactions, the Company uses a programwith a clearing organization that guarantees the return of securities. The Company monitors the market value of the securities borrowed and loanedusing collateral arrangements that require additional collateral to be obtained from or excess collateral to be returned to the counterparties basedon changes in market value, to maintain specified collateral levels.Derivative TransactionsCertain types of derivatives that the Company utilizes in its hedging activities are subject to derivatives clearing agreements (cleared derivativescontracts) under the Dodd-Frank Act. These cleared derivatives contracts enable clearing by a derivatives clearing organization through a clearingmember. Under the contracts, the clearing member typically has a one-way right to offset all contracts in the event of the Company's default orbankruptcy. Collateral exchanged under these contracts is not included in the table above as the contracts may not qualify as master nettingagreements. At December 31, 2017 and 2016, the Company had $131 million and $165 million, respectively, of cleared derivative contract assets.At December 31, 2017 and 2016, the Company had $9 million and $25 million, respectively, of cleared derivative contract liabilities.In January 2017, a clearing organization through which the Company executes certain of its derivative contracts amended its rulebook to legallycharacterize variation margin payments as settlements of the derivatives' exposure rather than collateral against the exposure. For thesecontracts, amounts exchanged with counterparties are reflected as a reduction of the related derivative assets or liabilities, including accruedinterest, on the consolidated balance sheet. At December 31, 2017, the Company had derivative assets and liabilities of $6 million and $18 million,respectively, excluding accrued interest, that were settled by variation margin payments and are therefore excluded from the table above.E*TRADE 2017 10-K | Page 120 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 6—AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIESThe amortized cost and fair value of available-for-sale and held-to-maturity securities at December 31, 2017 and 2016 are shown in the followingtables (dollars in millions): AmortizedCost GrossUnrealized /UnrecognizedGains GrossUnrealized /UnrecognizedLosses Fair ValueDecember 31, 2017: Available-for-sale securities: Debt securities: Agency mortgage-backed securities$19,395 $47 $(247) $19,195Agency debentures939 39 (12) 966US Treasuries452 10 (4) 458Agency debt securities34 — (1) 33Municipal bonds20 — — 20Total debt securities20,840 96 (264) 20,672Publicly traded equity securities(1)7 — — 7Total available-for-sale securities$20,847 $96 $(264) $20,679Held-to-maturity securities: Agency mortgage-backed securities$20,502 $95 $(193) $20,404Agency debentures710 — (2) 708Agency debt securities2,615 15 (35) 2,595Other12 — — 12Total held-to-maturity securities$23,839 $110 $(230) $23,719 December 31, 2016: Available-for-sale securities:(2) Debt securities: Agency mortgage-backed securities$12,946 $24 $(336) $12,634Agency debentures791 18 (21) 788US Treasuries452 — (45) 407Agency debt securities25 — (1) 24Municipal bonds32 — — 32Total debt securities14,246 42 (403) 13,885Publicly traded equity securities(1)7 — — 7Total available-for-sale securities$14,253 $42 $(403) $13,892Held-to-maturity securities:(2) Agency mortgage-backed securities$12,868 $123 $(152) $12,839Agency debentures29 — — 29Agency debt securities2,854 26 (32) 2,848Total held-to-maturity securities$15,751 $149 $(184) $15,716(1)Consists of investments in a mutual fund related to the Community Reinvestment Act.E*TRADE 2017 10-K | Page 121 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(2)Securities with a fair value of approximately $492 million were transferred from available-for-sale securities to held-to-maturity securities during the year ended December31, 2016 pursuant to an evaluation of our investment strategy and an assessment by management about our intent and ability to hold those particular securities untilmaturity.Contractual MaturitiesThe contractual maturities of all available-for-sale and held-to-maturity debt securities at December 31, 2017 are shown in the following table(dollars in millions): Amortized Cost Fair ValueAvailable-for-sale debt securities: Due within one year$— $—Due within one to five years363 353Due within five to ten years8,713 8,647Due after ten years11,764 11,672Total available-for-sale debt securities$20,840 $20,672Held-to-maturity debt securities: Due within one year$160 $159Due within one to five years2,027 2,039Due within five to ten years5,509 5,486Due after ten years16,143 16,035Total held-to-maturity debt securities$23,839 $23,719At December 31, 2017 and 2016, the Company had pledged $5.5 billion and $0.5 billion, respectively, of held-to-maturity debt securities, and $352million and $6 million, respectively, of available-for-sale securities, as collateral for FHLB advances, derivatives and other purposes.E*TRADE 2017 10-K | Page 122 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSInvestments with Unrealized or Unrecognized LossesThe following tables show the fair value and unrealized or unrecognized losses on available-for-sale and held-to-maturity securities, aggregated byinvestment category, and the length of time that individual securities have been in a continuous unrealized or unrecognized loss position atDecember 31, 2017 and 2016 (dollars in millions): Less than 12 Months 12 Months or More Total Fair Value Unrealized /UnrecognizedLosses Fair Value Unrealized /UnrecognizedLosses Fair Value Unrealized /UnrecognizedLossesDecember 31, 2017: Available-for-sale securities: Debt securities: Agency mortgage-backed securities$4,638 $(23) $8,027 $(224) $12,665 $(247)Agency debentures— — 283 (12) 283 (12)US Treasuries— — 147 (4) 147 (4)Agency debt securities9 — 24 (1) 33 (1)Municipal bonds— — 11 — 11 —Publicly traded equity securities7 — — — 7 —Total temporarily impaired available-for-salesecurities$4,654 $(23) $8,492 $(241) $13,146 $(264)Held-to-maturity securities: Agency mortgage-backed securities$9,982 $(78) $4,906 $(115) $14,888 $(193)Agency debentures597 (2) 9 — 606 (2)Agency debt securities373 (3) 1,345 (32) 1,718 (35)Total temporarily impaired held-to-maturitysecurities$10,952 $(83) $6,260 $(147) $17,212 $(230) December 31, 2016: Available-for-sale securities: Debt securities: Agency mortgage-backed securities$9,281 $(279) $1,620 $(57) $10,901 $(336)Agency debentures454 (21) — — 454 (21)US Treasuries407 (45) — — 407 (45)Agency debt securities24 (1) — — 24 (1)Municipal bonds13 — — — 13 —Publicly traded equity securities7 — — — 7 —Total temporarily impaired available-for-salesecurities$10,186 $(346) $1,620 $(57) $11,806 $(403)Held-to-maturity securities: Agency mortgage-backed securities$5,929 $(123) $1,272 $(29) $7,201 $(152)Agency debentures18 — — — 18 —Agency debt securities1,739 (32) 18 — 1,757 (32)Total temporarily impaired held-to-maturitysecurities$7,686 $(155) $1,290 $(29) $8,976 $(184)E*TRADE 2017 10-K | Page 123 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Company does not believe that any individual unrealized loss in the available-for-sale portfolio or unrecognized loss in the held-to-maturityportfolio as of December 31, 2017 represents a credit loss. The Company does not intend to sell the debt securities in an unrealized orunrecognized loss position as of the balance sheet date and it is not more likely than not that the Company will be required to sell the debtsecurities before the anticipated recovery of its remaining amortized cost of the debt securities in an unrealized or unrecognized loss position atDecember 31, 2017.There were no impairment losses recognized in earnings on available-for-sale or held-to-maturity securities during the years ended December31, 2017, 2016 and 2015.The credit loss component of debt securities held by the Company that had a noncredit loss component previously recognized in othercomprehensive income was $136 million at both December 31, 2017 and December 31, 2016, decreasing from $152 million at December 31, 2015.Gains (Losses) on Securities and Other, NetThe following table shows the components of the gains (losses) on securities and other, net line item on the consolidated statement of income forthe years ended December 31, 2017, 2016 and 2015 (dollars in millions): Year Ended December 31, 2017 2016 2015Reclassification of deferred losses on cash flow hedges$— $— $(370)Gains on available-for-sale securities, net: Gains on available-for-sale securities40 54 58Losses on available-for-sale securities— (1) (20)Subtotal40 53 38Hedge ineffectiveness(14) (6) (1)Equity method investment income (loss) and other2 (5) 9Gains (losses) on securities and other, net$28 $42 $(324)E*TRADE 2017 10-K | Page 124 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 7—LOANS RECEIVABLE, NETThe following table presents loans receivable at December 31, 2017 and 2016 disaggregated by delinquency status (dollars in millions): Days Past Due Current30-8990-179180+TotalUnamortized premiums,netAllowance for loanslossesLoans Receivable, NetDecember 31, 2017 One- to four-family$1,269$59$22$82$1,432$9$(24)$1,417Home equity1,0143615321,097—(46)1,051Consumer and other1853——1882(4)186Total loans receivable$2,468$98$37$114$2,717$11$(74)$2,654 December 31, 2016 One- to four-family$1,774$67$23$86$1,950$13$(45)$1,918Home equity1,4424318531,556—(171)1,385Consumer and other24541—2503(5)248Total loans receivable$3,461$114$42$139$3,756$16$(221)$3,551During the year ended December 31, 2017, the Company sold certain loans with a carrying value of $41 million for proceeds that approximatedbook value. The Company also transferred loans with a carrying value of $17 million to held-for-sale during the year ended December 31, 2017.These loans are reflected within other assets on the consolidated balance sheet at December 31, 2017.At December 31, 2017, the Company pledged $2.2 billion and $0.2 billion of loans as collateral to the FHLB and Federal Reserve Bank ofRichmond, respectively. At December 31, 2016, the Company pledged $3.1 billion and $0.3 billion of loans as collateral to the FHLB and FederalReserve Bank of Richmond, respectively.E*TRADE 2017 10-K | Page 125 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCredit Quality and Concentrations of Credit RiskThe Company tracks and reviews factors to predict and monitor credit risk in its mortgage loan portfolio on an ongoing basis. The following tablesshow the distribution of the Company’s mortgage loan portfolios by credit quality indicator at December 31, 2017 and 2016 (dollars in millions): One- to Four-Family Home Equity December 31, December 31,Current LTV/CLTV(1)2017 2016 2017 2016<=80%$1,031 $1,308 $531 $68680%-100%256 413 291 414100%-120%91 143 176 274>120%54 86 99 182Total mortgage loans receivable$1,432 $1,950 $1,097 $1,556Average estimated current LTV/CLTV (2)70% 73% 84% 87%Average LTV/CLTV at loan origination (3)71% 71% 81% 81% (1)Current CLTV calculations for home equity loans are based on the maximum available line for HELOCs and outstanding principal balance for HEILs. For home equity loansin the second lien position, the original balance of the first lien loan at origination date and updated valuations on the property underlying the loan are used to calculateCLTV. Current property value estimates are updated on a quarterly basis.(2)The average estimated current LTV/CLTV ratio reflects the outstanding balance at the balance sheet date and the maximum available line for HELOCs, divided by theestimated current value of the underlying property.(3)Average LTV/CLTV at loan origination calculations are based on LTV/CLTV at time of purchase for one- to four-family purchased loans, HEILs and the maximum availableline for HELOCs. One- to Four-Family Home Equity December 31, December 31,Current FICO2017 2016 2017 2016>=720$805 $1,121 $548 $778719 - 700138 179 106 156699 - 680105 153 93 141679 - 66078 121 79 117659 - 620122 154 103 149<620184 222 168 215Total mortgage loans receivable$1,432 $1,950 $1,097 $1,556One- to four-family loans include loans with an interest-only period, followed by an amortizing period. At December 31, 2017, nearly 100% of theseloans were amortizing and this portfolio will be fully converted in 2018. The home equity loan portfolio consists of HEILs and HELOCs. HEILs areprimarily fully amortizing loans that do not offer the option of an interest-only payment. The majority of HELOCs had an interest only draw period atorigination and converted to amortizing loans at the end of the draw period. At December 31, 2017, nearly 100% of the HELOC portfolio hadconverted from the interest-only draw period and will be fully converted in 2019.The weighted average age of our mortgage and consumer loans receivable was 11.8 and 10.8 years at December 31, 2017 and 2016, respectively.Approximately 34% and 36% of the Company’s mortgage loans receivable were concentrated in California at December 31, 2017 and 2016,respectively. No other state had concentrations of mortgage loans that represented 10% or more of the Company’s mortgage loans receivable atDecember 31, 2017 and 2016.E*TRADE 2017 10-K | Page 126 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNonperforming LoansThe Company classifies loans as nonperforming when they are no longer accruing interest. The following table shows the comparative data fornonperforming loans at December 31, 2017 and 2016 (dollars in millions): December 31, 2017 2016One- to four-family$192 $215Home equity98 136Consumer and other— 1Total nonperforming loans receivable$290 $352At December 31, 2017 and 2016, the Company held $26 million and $35 million, respectively, of real estate owned that were acquired throughforeclosure or through a deed in lieu of foreclosure or similar legal agreement. The Company held $101 million and $112 million of loans for whichformal foreclosure proceedings were in process at December 31, 2017 and 2016, respectively.Allowance for Loan LossesThe allowance for loan losses is management’s estimate of probable losses inherent in the loan portfolio at the balance sheet date, as well as theforecasted losses, including economic concessions to borrowers, over the estimated remaining life of loans modified as TDRs. The generalallowance for loan losses includes a qualitative component to account for a variety of factors that present additional uncertainty that may not befully considered in the quantitative loss model but are factors we believe may impact the level of credit losses.The following table presents the allowance for loan losses by loan portfolio at December 31, 2017 and 2016 (dollars in millions): One- to Four-Family Home Equity Consumer and other Total December 31, December 31, December 31, December 31, 2017 2016 2017 2016 2017 2016 2017 2016General reserve: Quantitativecomponent$15 $34 $14 $118 $4 $5 $33 $157Qualitativecomponent3 4 3 2 — — 6 6Specific valuationallowance6 7 29 51 — — 35 58Total allowance forloan losses$24 $45 $46 $171 $4 $5 $74 $221Allowance as a % ofloansreceivable(1)1.6%2.3% 4.2% 11.0% 2.1% 1.9% 2.7% 5.8%(1)Allowance as a percentage of loans receivable is calculated based on the gross loans receivable including net unamortized premiums for each respective category.E*TRADE 2017 10-K | Page 127 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table provides a roll forward by loan portfolio of the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015(dollars in millions): Year Ended December 31, 2017 One- toFour-Family HomeEquity Consumer and other TotalAllowance for loan losses, beginning of period$45 $171 $5 $221Provision (benefit) for loan losses(29) (141) 2 (168)Charge-offs— (7) (6) (13)Recoveries8 23 3 34Net (charge-offs) recoveries8 16 (3) 21Allowance for loan losses, end of period$24 $46 $4 $74 Year Ended December 31, 2016 One- toFour-Family HomeEquity Consumer and other TotalAllowance for loan losses, beginning of period$40 $307 $6 $353Provision (benefit) for loan losses(2) (148) 1 (149)Charge-offs(1) (17) (7) (25)Recoveries8 29 5 42Net (charge-offs) recoveries7 12 (2) 17Allowance for loan losses, end of period$45 $171 $5 $221 Year Ended December 31, 2015 One- toFour-Family HomeEquity Consumer and other TotalAllowance for loan losses, beginning of period$27 $367 $10 $404Provision (benefit) for loan losses15 (55) — (40)Charge-offs(2) (31) (11) (44)Recoveries— 26 7 33Net (charge-offs) recoveries(2) (5) (4) (11)Allowance for loan losses, end of period$40 $307 $6 $353Total loans receivable designated as held-for-investment decreased $0.9 billion during the year ended December 31, 2017. The allowance for loanlosses was $74 million, or 2.7% of total loans receivable, as of December 31, 2017 compared to $221 million, or 5.8% of total loans receivable, asof December 31, 2016. Net recoveries for the year ended December 31, 2017 were $21 million compared to $17 million in the same period in 2016.The benefit for loan losses of $168 million for the year ended December 31, 2017 reflected approximately $70 million of benefit recognized duringthe second quarter of 2017 resulting from refined default assumptions based on the sustained outperformance of converted mortgage loans thathad been amortizing for 12 months or longer. At the time of this refinement in the second quarter of 2017, more than 50% of these converted loanshad been amortizing 12 months or longer. This actual performance data was better than prior performance assumptions and, combined with thesubstantial performance history, the uncertainty with respect to the population of converting loans had significantly decreased. In order to refinethe default assumptions around the remaining population that had not yet started amortizing or that had notE*TRADE 2017 10-K | Page 128 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSreached 12 months post conversion, the Company evaluated whether the credit quality and performance of these loans was consistent with theseasoned amortizing portfolio. The Company determined that FICO scores, LTV/CLTVs and delinquency rates were comparable to the seasonedportfolio, and therefore applied the refined default assumptions to this remaining population.The benefits to provision for loan losses also reflect recoveries in excess of prior estimates, including recoveries of previous charge-offs. Thetiming and magnitude of charge-offs and recoveries are affected by many factors and we anticipate variability from quarter to quarter.The following table presents the total recorded investment in loans receivable and allowance for loan losses by loans that have been collectivelyevaluated for impairment and those that have been individually evaluated for impairment by loan class at December 31, 2017 and 2016 (dollars inmillions): Recorded Investment Allowance for Loan Losses December 31, December 31, 2017 2016 2017 2016Collectively evaluated for impairment: One- to four-family$1,228 $1,717 $18 $38Home equity932 1,361 17 120Consumer and other190 253 4 5Total collectively evaluated for impairment2,350 3,331 39 163Individually evaluated for impairment: One- to four-family213 246 6 7Home equity165 195 29 51Total individually evaluated for impairment378 441 35 58Total$2,728 $3,772 $74 $221Impaired Loans—Troubled Debt RestructuringsDelinquency status is the primary measure the Company uses to evaluate the performance of loans modified as TDRs. The Company classifiesloans as nonperforming when they are no longer accruing interest. The recorded investment in loans modified as TDRs includes the charge-offsrelated to certain loans that were written down to estimated current value of the underlying property less estimated selling costs.E*TRADE 2017 10-K | Page 129 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table shows a summary of the Company’s recorded investment in TDRs that were on accrual and nonaccrual status, furtherdisaggregated by delinquency status, in addition to the recorded investment in TDRs at December 31, 2017 and 2016 (dollars in millions): Nonaccrual TDRs Accrual TDRs(1) Current(2) 30-89 DaysDelinquent 90-179 DaysDelinquent 180+ DaysDelinquent Total RecordedInvestment in TDRs (3)(4)December 31, 2017 One- to four-family$83 $74 $13 $5 $38 $213Home equity104 34 10 4 13 165Total$187 $108 $23 $9 $51 $378December 31, 2016 One- to four-family$97 $90 $16 $8 $35 $246Home equity119 41 10 4 21 195Total$216 $131 $26 $12 $56 $441(1)Represents loans modified as TDRs that are current and have made six or more consecutive payments.(2)Represents loans modified as TDRs that are current but have not yet made six consecutive payments, bankruptcy loans and certain junior lien TDRs that have adelinquent senior lien.(3)Total recorded investment in TDRs includes premium (discount), as applicable, and is net of charge-offs, which were $67 million and $144 million for one-to four-familyand home equity loans, respectively, as of December 31, 2017 and $79 million and $178 million, respectively, as of December 31, 2016.(4)Total recorded investment in TDRs at December 31, 2017 consisted of $285 million of loans modified as TDRs and $93 million of loans that have been charged off due tobankruptcy notification. Total recorded investment in TDRs at December 31, 2016 consisted of $316 million of loans modified as TDRs and $125 million of loans that havebeen charged off due to bankruptcy notification.The following table shows the average recorded investment and interest income recognized both on a cash and accrual basis for the Company’sTDRs during the years ended December 31, 2017, 2016 and 2015 (dollars in millions): Average Recorded Investment Interest Income Recognized December 31, December 31, 2017 2016 2015 2017 2016 2015One- to four-family$221 $269 $303 $9 $11 $9Home equity179 204 213 16 17 17Total$400 $473 $516 $25 $28 $26E*TRADE 2017 10-K | Page 130 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table shows detailed information related to the Company’s TDRs and specific valuation allowances at December 31, 2017 and 2016(dollars in millions): December 31, 2017 December 31, 2016 RecordedInvestmentin TDRs SpecificValuationAllowance NetInvestmentin TDRs RecordedInvestmentin TDRs SpecificValuationAllowance NetInvestmentin TDRsWith a recorded allowance: One- to four-family$54 $6 $48 $61 $7 $54Home equity$83 $29 $54 $111 $51 $60Without a recorded allowance:(1) One- to four-family$159 $— $159 $185 $— $185Home equity$82 $— $82 $84 $— $84Total: One- to four-family$213 $6 $207 $246 $7 $239Home equity$165 $29 $136 $195 $51 $144(1)Represents loans where the discounted cash flow analysis or collateral value is equal to or exceeds the recorded investment in the loan.The following tables provide the number of loans and post-modification balances immediately after being modified by major class during the yearsended December 31, 2017, 2016 and 2015 (dollars in millions): Interest Rate Reduction Number ofLoans PrincipalForgiven DeferredPrincipal Re-age/Extension/InterestCapitalization Other withInterest RateReduction Other(1) TotalDecember 31, 2017 One- to four-family40 $— $— $13 $1 $4 $18Home equity294 — — 12 1 9 22Total334 $— $— $25 $2 $13 $40 December 31, 2016 One- to four-family47 $1 $— $8 $2 $7 $18Home equity518 — — 8 3 25 36Total565 $1 $— $16 $5 $32 $54 December 31, 2015 One- to four-family34 $— $1 $9 $— $3 $13Home equity367 — — 3 2 19 24Total401 $— $1 $12 $2 $22 $37(1)Amounts represent loans whose terms were modified in a manner that did not result in an interest rate reduction, including re-aged loans, extensions, and loans withcapitalized interest.E*TRADE 2017 10-K | Page 131 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 8—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIESThe Company enters into derivative transactions primarily to protect against interest rate risk on the value of certain assets. Each derivativeinstrument is recorded on the consolidated balance sheet at fair value as a freestanding asset or liability. The following table summarizes the fairvalue of derivatives as reported in the consolidated balance sheet at December 31, 2017 and 2016 (dollars in millions): Fair Value(1) Notional Asset(2) Liability(3) Net(4)December 31, 2017 Interest rate contracts: Fair value hedges$8,609 $131 $(14) $117Total derivatives designated as hedging instruments(5)$8,609 $131 $(14) $117December 31, 2016 Interest rate contracts: Fair value hedges$3,862 $165 $(31) $134Total derivatives designated as hedging instruments(5)$3,862 $165 $(31) $134 (1)At December 31, 2017, excludes derivative assets and liabilities of $6 million and $18 million, respectively, that were executed through a central clearing organization andwere settled by variation margin payments. See Note 5—Offsetting Assets and Liabilities for additional information.(2)Reflected in the other assets line item on the consolidated balance sheet.(3)Reflected in the other liabilities line item on the consolidated balance sheet.(4)Represents net fair value of derivative instruments for disclosure purposes only.(5)All derivatives were designated as hedging instruments at December 31, 2017 and 2016.Cash Flow Hedges The Company terminated $4.4 billion of legacy wholesale funding obligations during 2015 along with the cash flow hedges used to hedge theforecasted transactions related to these obligations. As the Company's intent changed and the hedged forecasted transactions became probableof not occurring, the Company reclassified $370 million of pre-tax losses on cash flow hedges from accumulated other comprehensive loss intoearnings during the year ended December 31, 2015. See Note 13—Other Borrowings for additional information.Fair Value HedgesFair value hedges are used to offset exposure to changes in value of certain fixed-rate assets. Fair value hedges are accounted for by recordingthe fair value of the derivative instrument and the fair value of the asset being hedged on the consolidated balance sheet. To the extent that thehedge is ineffective, the changes in the fair values of both the derivative instruments and the underlying assets will not offset, and the differenceor hedge ineffectiveness, is reflected in the gains (losses) on securities and other, net line item in the consolidated statement of income.E*TRADE 2017 10-K | Page 132 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the effect of interest rate contracts designated as fair value hedges and related hedged items on the consolidatedstatement of income for the year ended December 31, 2017 and 2016 (dollars in millions): Year Ended December 31, 2017 2016 HedgingInstrument HedgedItem HedgeIneffectiveness(1) HedgingInstrument HedgedItem HedgeIneffectiveness(1)Agency debentures$1 $(3) $(2) $28 $(32) $(4)Agency mortgage-backedsecurities36 (48) (12) 42 (44) (2)Total gains (losses)included in earnings$37 $(51) $(14) $70 $(76) $(6) Year Ended December 31, 2015 HedgingInstrument HedgedItem HedgeIneffectiveness(1) Agency debentures$(3) $3 $— Agency mortgage-backedsecurities(4) 3 (1) Total gains (losses)included in earnings$(7) $6 $(1) (1)Reflected in the gains (losses) on securities and other, net line item on the consolidated statement of income.Credit RiskImpact on Fair Value MeasurementsCredit risk is an element of the recurring fair value measurements for certain assets and liabilities, including derivative instruments. Credit risk ismanaged by limiting activity to approved counterparties and setting aggregate exposure limits for each approved counterparty. The Company alsomonitors collateral requirements on derivative instruments through credit support agreements, which reduce risk by permitting the netting oftransactions with the same counterparty upon occurrence of certain events.The Company considered the impact of credit risk on the fair value measurement for derivative instruments, particularly those in net liabilitypositions to counterparties, to be mitigated by the enforcement of credit support agreements, and the collateral requirements therein. TheCompany’s credit risk analysis for derivative instruments also considered the credit loss exposure on derivative instruments in net asset positions.During the year ended December 31, 2017, the consideration of counterparty credit risk did not result in an adjustment to the valuation of theCompany’s derivative instruments.Impact on LiquidityIn the normal course of business, collateral requirements contained in the Company’s derivative contracts are enforced by the Company and itscounterparties. Upon enforcement of the collateral requirements, the amount of collateral requested is typically based on the net fair value of allderivative instruments with the counterparty; that is derivative assets net of derivative liabilities at the counterparty level. If the Company were tobe in violation of certain provisions of the derivative contracts, the counterparties to the derivativeE*TRADE 2017 10-K | Page 133 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSinstruments could request payment or collateralization on the derivative instruments. The Company expects such requests would be based on thefair value of derivative assets net of derivative liabilities at the counterparty level. The fair value of derivative instruments in net liability positionsat the counterparty level was $5 million at December 31, 2017. The fair value of the Company’s agency-backed securities pledged as collateralrelated to derivative contracts in net liability positions to counterparties, was $23 million at December 31, 2017, which exceeded derivativeinstruments in net liability positions at the counterparty level by $18 million.NOTE 9—PROPERTY AND EQUIPMENT, NETProperty and equipment, net consisted of the following asset classes at December 31, 2017 and 2016 (dollars in millions): December 31, 2017 December 31, 2016 GrossAmount AccumulatedDepreciationandAmortization NetAmount GrossAmount AccumulatedDepreciationandAmortization NetAmountSoftware$403 $(289) $114 $449 $(355) $94Leasehold improvements122 (98) 24 119 (97) 22Equipment132 (101) 31 133 (92) 41Buildings72 (32) 40 72 (30) 42Furniture and fixtures7 (4) 3 19 (17) 2Land3 — 3 3 — 3Construction in progress(1)38 — 38 35 — 35Total(2)$777 $(524) $253 $830 $(591) $239(1)Construction in progress includes software in the process of development of $22 million at both December 31, 2017 and 2016.(2)The Company executed a sale-leaseback transaction on its Alpharetta, Georgia office in 2014 and the transaction was accounted for as a financing as it did not qualifyfor leaseback accounting. The related assets continue to be included in the property and equipment, net line item on the consolidated balance sheet.Depreciation and amortization expense related to property and equipment was $82 million, $79 million and $81 million for the years endedDecember 31, 2017, 2016 and 2015, respectively. Software includes capitalized internally developed software costs, net, of $53 million, $46 millionand $42 million for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization of completed and in-service software was $36million, $36 million and $41 million for the years ended December 31, 2017, 2016 and 2015, respectively.E*TRADE 2017 10-K | Page 134 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe obligation for future minimum lease payments and minimum sublease proceeds to be received under the Alpharetta, Georgia lease is asfollows (dollars in millions): Obligation for Minimum LeasePayments Minimum SubleaseProceedsYears ending December 31, 2018$5 $(3)20195 (3)20205 (3)20215 (3)20225 (3)Thereafter9 —Total$34 $(15)E*TRADE 2017 10-K | Page 135 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 10—GOODWILL AND OTHER INTANGIBLES, NETGoodwillAt both December 31, 2017 and 2016, the Company had goodwill of $2.4 billion. There was a $578 million addition to the carrying value of theCompany's goodwill during the year ended December 31, 2016, which was recognized in connection with the OptionsHouse acquisition. There wereno impairments to the carrying value of the Company’s goodwill during the years ended December 31, 2017, 2016 and 2015.At both December 31, 2017 and 2016, goodwill was net of accumulated impairment losses of $243 million.Other Intangibles, NetAt December 31, 2017 and 2016, the Company had other intangible assets of $284 million and $320 million, respectively. There was a $169 millionaddition to other intangible assets during the year ended December 31, 2016, which was recognized in connection with the OptionsHouseacquisition.The following table outlines the Company's other intangible assets with finite lives (dollars in millions): December 31, 2017 Weighted AverageOriginalUseful Life(Years) Weighted AverageRemainingUseful Life(Years) Gross Amount AccumulatedAmortization Net AmountCustomerrelationships18 10 $553 $(309) $244Technology7 6 48 (9) 39Trade name2 1 3 (2) 1Total $604 $(320) $284 December 31, 2016 Weighted AverageOriginalUseful Life(Years) Weighted AverageRemainingUseful Life(Years) Gross Amount AccumulatedAmortization Net AmountCustomerrelationships18 11 $553 $(281) $272Technology7 7 48 (2) 46Trade name2 2 3 (1) 2Total $604 $(284) $320E*TRADE 2017 10-K | Page 136 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAssuming no future impairments of other intangibles or additional acquisitions or dispositions, the following table presents the Company's futureannual amortization expense (dollars in millions):Years ending December 31, 2018$40201939202037202135202233Thereafter100Total future amortization expense$284NOTE 11—RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS AND CLEARINGORGANIZATIONSReceivables from and payables to brokers, dealers and clearing organizations consist of the following (in millions): December 31, 2017 2016Receivables: Securities borrowed$740 $774 Receivables from clearing organizations376 231 Other62 51Total$1,178 $1,056 Payables: Securities loaned$1,373 $926 Payables to clearing organizations123 7 Other46 50Total$1,542 $983E*TRADE 2017 10-K | Page 137 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 12—DEPOSITSDeposits are summarized as follows (dollars in millions): Amount Weighted-Average Rate December 31, December 31, 2017 2016 2017 2016Sweep deposits$37,734 $26,362 0.01% 0.01%Savings deposits2,912 3,185 0.01% 0.01%Other deposits(1)2,096 2,135 0.03% 0.03%Total deposits$42,742 $31,682 0.01% 0.01%(1)Includes checking deposits, money market deposits and certificates of deposit. As of December 31, 2017 and 2016, the Company had $207 million and $177 million innon-interest bearing deposits, respectively.NOTE 13—OTHER BORROWINGSOther borrowings at December 31, 2017 and 2016 are summarized as follows (dollars in millions): December 31, 2017 2016FHLB advances$500 $—Trust preferred securities410 409Total other borrowings$910 $409The face values of outstanding trusts at December 31, 2017 are shown below (dollars in millions). See Note 20—Commitments, Contingencies andOther Regulatory Matters for additional information on the Company's trust preferred securities.Trusts Face Value MaturityDate Annual Interest RateETBH Capital Trust I $20 2031 3.75% above 6-month LIBORETBH Capital Trust V, VI, VIII 51 2032 3.25%-3.65% above 3-month LIBORETBH Capital Trust VII, IX—XII 65 2033 3.00%-3.30% above 3-month LIBORETBH Capital Trust XIII—XVIII, XX 77 2034 2.45%-2.90% above 3-month LIBORETBH Capital Trust XIX, XXI, XXII 60 2035 2.20%-2.40% above 3-month LIBORETBH Capital Trust XXIII—XXIV 45 2036 2.10% above 3-month LIBORETBH Capital Trust XXV—XXX 96 2037 1.90%-2.00% above 3-month LIBORTotal $414 E*TRADE 2017 10-K | Page 138 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSExternal Lines of Credit maintained at E*TRADE SecuritiesE*TRADE Securities' external liquidity lines total approximately $1.1 billion as of December 31, 2017 and include the following:•A 364-day, $450 million senior unsecured committed revolving credit facility with a syndicate of banks, with a maturity date of June 2018•Secured committed lines of credit with two unaffiliated banks, aggregating to $175 million, with a maturity date of June 2018•Unsecured uncommitted lines of credit with three unaffiliated banks aggregating to $125 million, of which $50 million has a maturity date ofJune 2018 and the remaining line has no maturity date•Secured uncommitted lines of credit with several unaffiliated banks aggregating to $375 million with no maturity dateThe revolving credit facility contains maintenance covenants related to E*TRADE Securities' minimum consolidated tangible net worth andregulatory net capital ratio. There were no outstanding balances for these lines at December 31, 2017.NOTE 14—CORPORATE DEBTCorporate debt at December 31, 2017 and 2016 is outlined in the following table (dollars in millions): Face Value Discount NetDecember 31, 2017 Interest-bearing notes: 2.95% Notes, due 2022$600 $(5) $5953.80% Notes, due 2027400 (4) 396Total corporate debt$1,000 $(9) $991December 31, 2016 Interest-bearing notes: 5.375% Notes, due 2022$540 $(5) $5354.625% Notes, due 2023460 (4) 456Total interest-bearing notes1,000 (9) 991Non-interest-bearing debt: 0% Convertible debentures, due 20193 — 3Total corporate debt$1,003 $(9) $994Issuance of Corporate DebtDuring the year ended December 31, 2017, the Company issued $1 billion in aggregate principal amount of Senior Notes in two tranches. The firsttranche of $600 million aggregate principal amount of Senior Notes due 2022 bears interest at an annual rate of 2.95% and will mature on August24, 2022. The second tranche of $400 million aggregate principal amount of Senior Notes due 2027 bears interest at an annual rate of 3.80% andwill mature on August 24, 2027 (together with the first tranche, the “Notes”). The NotesE*TRADE 2017 10-K | Page 139 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSare the Company's general unsecured senior obligations and rank equally with the Company's other unsecured senior indebtedness. The Noteseffectively rank junior to secured indebtedness, if any, to the extent of the collateral securing such indebtedness and all liabilities of theCompany's subsidiaries. The Notes are not guaranteed by the subsidiaries.The net proceeds from the sale of the Notes were used, along with existing corporate cash, to redeem all $540 million aggregate principal amountof the outstanding 5.375% Senior Notes due 2022 and all $460 million aggregate principal amount of the outstanding 4.625% Senior Notes due2023, including associated redemption premiums, accrued interest, and related fees and expenses. In connection with the redemption, theCompany recognized a loss on early extinguishment of debt of $58 million.During the year ended December 31, 2015, the Company used the net proceeds from the issuance of the $460 million aggregate principal amountof 4.625% Senior Notes due 2023, along with existing corporate cash to redeem all of its then outstanding 6.375% Notes, including associatedredemption premiums, accrued interest, and related fees and expenses. This resulted in $73 million in losses on early extinguishment of debt forthe year ended December 31, 2015.Credit FacilityOn June 23, 2017, the Company entered into an unsecured committed revolving credit facility with certain lenders, which replaced the previoussecured committed revolving credit facility entered into in November 2014 and increased the Company's total borrowing capacity under the facilityto $300 million. The Company has the ability to borrow against the credit facility for working capital and general corporate purposes. The creditfacility has terms which include financial maintenance covenants, for which the Company was in compliance at December 31, 2017. Theunsecured committed revolving credit facility will mature on June 23, 2020. At December 31, 2017, there was no outstanding balance under thisrevolving credit facility.Ranking of Debt SeniorityAll of the Company’s notes rank equal in right of payment with all of the Company’s existing and future unsubordinated indebtedness and ranksenior in right of payment to all its existing and future subordinated indebtedness. However, the notes rank effectively junior to the Company'ssecured indebtedness to the extent of the collateral securing such indebtedness.E*TRADE 2017 10-K | Page 140 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 15—INCOME TAXESThe components of income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015 were as follows (dollars in millions): Year Ended December 31, 2017 2016 2015Current income tax expense (benefit): Federal$— $— $(5)State(11) 3 (5)Foreign— 2 5Total current(11) 5 (5)Deferred income tax expense (benefit): Federal399 285 (145)State51 (10) (31)Total deferred450 275 (176)Non-current income tax expense(1)11 6 4Income tax expense (benefit)$450 $286 $(177)(1)Non-current income tax expense primarily relates to amortization for investments in qualified affordable housing projects recognized under the proportional amortizationmethod.The federal tax reform law was enacted on December 22, 2017, which resulted in a remeasurement of certain deferred tax assets and liabilitiesusing the new statutory federal corporate income tax rate of 21%. Accordingly, the Company recognized $58 million of additional tax expense forthe year ended December 31, 2017.E*TRADE 2017 10-K | Page 141 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSUnrecognized Tax BenefitsThe following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31,2017, 2016, and 2015 (dollars in millions): Year Ended December 31, 2017 2016 2015Unrecognized tax benefits, beginning of period$28 $29 $330Additions based on tax positions related to prior years1 1 5Additions based on tax positions related to current year11 4 2Reductions based on tax positions related to prior years(3) (3) (304)Settlements with taxing authorities(6) (1) (3)Statute of limitations lapses(6) (2) (1)Unrecognized tax benefits, end of period$25 $28 $29The unrecognized tax benefits decreased $3 million to $25 million during the year ended December 31, 2017. At December 31, 2017, the Companyhad $20 million, net of federal benefits, of unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate infuture periods. In 2015, the Company settled the IRS examination of its 2007, 2009 and 2010 federal tax returns. As a result, the Companyreleased $303 million of reserves related to the uncertain tax positions in 2015. During 2009, the Company incurred a loss on the exchange of $1.7billion interest-bearing corporate debt for non-interest-bearing convertible debentures. The uncertain tax positions were primarily related to whethercertain components of that loss were considered deductible or non-deductible for tax purposes.The following table summarizes the tax years that are either currently under examination or remain open under the statute of limitations andsubject to examination by the major tax jurisdictions in which the Company operates:JurisdictionOpen Tax YearsHong Kong2011-2017United Kingdom2015-2017United States2014-2017Various states(1)2008-2017(1)Major state tax jurisdictions include California, Georgia, Illinois, New Jersey, New York and Virginia.It is reasonably possible that the Company's unrecognized tax benefits could be reduced by as much as $6 million within the next twelve monthsas a result of settlements of certain examinations or expiration of statutes of limitations.The Company recognizes interest and penalties, if any, related to income tax matters in income tax expense. The Company has total reserves forinterest and penalties of $6 million and $10 million as of December 31, 2017 and 2016, respectively. Tax expense for the year endedDecember 31, 2017 included a $4 million net benefit related to the reduction of interest and penalties, which was primarily due to state settlementswith tax authorities and the expiration of statutes of limitations.E*TRADE 2017 10-K | Page 142 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDeferred Taxes and Valuation AllowancesDeferred income taxes are recorded when revenues and expenses are recognized in different periods for financial statement and tax returnpurposes. The temporary differences and tax carryforwards that created deferred tax assets and deferred tax liabilities at December 31, 2017 and2016 are summarized in the following table (dollars in millions): December 31, 2017 2016Deferred tax assets: Net operating losses$349 $676Reserves and allowances, net155 335Financial instrument valuations35 160Deferred compensation34 43Tax credits68 55Basis differences in investments8 14Other10 26Total deferred tax assets659 1,309Valuation allowance(23) (35)Total deferred tax assets, net of valuation allowance636 1,274Deferred tax liabilities: Depreciation and amortization(385) (518)Total deferred tax liabilities(385) (518)Deferred tax assets, net$251 $756The Company had $1.0 billion of gross federal net operating losses, or $211 million in deferred tax assets related to these losses, at December 31,2017. There is no valuation allowance recorded against federal net operating losses. In addition, the Company had $2.8 billion of gross state netoperating losses, or $135 million in deferred tax assets related to these losses, at December 31, 2017. The Company had a $20 million valuationallowance against state net operating losses. The federal net operating losses have no expiration date and the state net operating losses expirebetween 2018 and 2036.At December 31, 2017, the Company has zero undistributed earnings and profits in foreign subsidiaries.E*TRADE 2017 10-K | Page 143 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table provides a reconciliation of the beginning and ending amount of valuation allowance for the years ended December 31, 2017,2016, and 2015 (dollars in millions): Year Ended December 31, 2017 2016 2015Valuation allowance, beginning of period$(35) $(82) $(91)Additions related to tax reform (reduced federal benefit)(4) — —Reductions related to the wind-down of foreign operations14 — 14Reductions (additions) related to state valuation allowance release2 47 (5)Valuation allowance, end of period$(23) $(35) $(82)The Company's valuation allowance decreased $12 million to $23 million at December 31, 2017 and decreased $47 million to $35 million atDecember 31, 2016. Effective January 1, 2016, the Company elected to treat its broker-dealers, E*TRADE Securities and E*TRADE Clearing, assingle member LLCs for tax purposes. The election to be treated as single member LLCs and future taxable income projections will result in theutilization of certain state deferred tax assets, primarily state net operating losses, against which the Company had recorded valuation allowances.Accordingly, the Company recognized a tax benefit of $25 million for the year ended December 31, 2016.Effective Tax RateThe effective tax rate differed from the federal statutory rate as summarized in the following table for the years ended December 31, 2017, 2016and 2015: Year Ended December 31, 2017 2016 2015Federal statutory rate35.0 % 35.0 % 35.0 %State income taxes, net of federal tax benefit4.2 3.9 0.2Difference between statutory rate and foreign effective tax rate— 0.2 (2.4)Tax exempt income— (0.1) (0.5)Disallowed executive compensation0.1 0.2 6.5Change in valuation allowances(0.1) (5.5) 0.1Tax credits(0.3) (0.7) (3.8)Estimated reserve for uncertain tax positions(0.3) 0.1 4.7Deferred tax adjustments(0.3) 1.3 3.5Tax reform adjustments5.5 — —Excess tax benefit on share-based compensation(0.7) — —Tax on undistributed earnings and profits in certain foreign subsidiaries— — 3.9Settled IRS examination— — (241.5)Other(0.9) (0.3) (0.4)Effective tax rate42.2 % 34.1 % (194.7)%E*TRADE 2017 10-K | Page 144 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 16—SHAREHOLDERS' EQUITYPreferred StockPreferred stock outstanding at December 31, 2017 and 2016 is summarized as follows (in millions except total shares outstanding and per sharedata): Carrying Value atDecember 31, Description IssuanceDate Per Annum Dividend Rate Total SharesOutstanding LiquidationPreference perShare 2017 2016Series A Fixed-to-FloatingRate Non-Cumulative 8/25/2016 5.875% to, but excluding, 9/15/2026; 3-moLIBOR + 4.435% thereafter 400,000 $1,000 $394 $394Series B Fixed-to-FloatingRate Non-Cumulative 12/6/2017 5.30% to, but excluding, 3/15/2023; 3-moLIBOR + 3.16% thereafter 3,000 $100,000 295 —Total 403,000 $689 $394Series AOn August 25, 2016, the Company issued 400,000 shares of Series A fixed-to-floating rate non-cumulative perpetual preferred stock for grossproceeds of $400 million. Net proceeds, after issuance cost, were $394 million. The shares have a par value of $0.01 and liquidation preference of$1,000 per share. Dividends are non-cumulative and are payable semi-annually at a rate of 5.875% from the original issue date to, but excluding,September 15, 2026. Dividends thereafter are payable at a floating rate equal to the three-month US dollar LIBOR on the related dividenddetermination date plus 4.435%. The Company used the proceeds of the issuance, along with existing corporate cash, to fund the acquisition ofOptionsHouse.On February 2, 2017, the Company's Board of Directors declared a dividend of $32.64 per share, or $13 million, to holders of record of the Series Apreferred stock as of February 28, 2017. The dividend was paid on March 15, 2017. On August 2, 2017, the Company's Board of Directorsdeclared a dividend of $29.38 per share, or $12 million, to holders of record of the Series A preferred stock as of August 31, 2017. The dividendwas paid on September 15, 2017. On February 8, 2018, the Company's Board of Directors declared a dividend of $29.38 per share, or $12 million,to holders of record of the Series A preferred stock as of February 28, 2018. The dividend will be paid on March 15, 2018.E*TRADE 2017 10-K | Page 145 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeries BOn December 6, 2017, the Company issued 300,000 depositary shares, each representing 1/100th ownership interest in a share, of Series B fixed-to-floating rate non-cumulative perpetual preferred stock for gross proceeds of $300 million. Net proceeds, after issuance cost, were $295 million.The shares have a par value of $0.01 and liquidation preference of $100,000 per share, equivalent to $1,000 per depositary share. Dividends arenon-cumulative and are payable semi-annually at a rate of 5.30% from the original issue date to, but excluding, March 15, 2023. Dividendsthereafter are payable at a floating rate equal to the three-month US dollar LIBOR on the related dividend determination date plus 3.16%. TheCompany intends to use the proceeds of the issuance to fund the acquisition of TCA in the first half of 2018.Upon the issuance of preferred stock, the Company's ability to declare or pay dividends or distributions on, or repurchase, redeem or otherwiseacquire for consideration, shares of its junior stock became subject to certain restrictions in the event that the Company fails to declare and payfull dividends, or declare and set aside a sum sufficient for the payment thereof, on its preferred stock. Junior stock includes the Company'scommon stock.Share RepurchasesOn July 20, 2017, the Company announced that its Board of Directors authorized the repurchase of up to $1 billion of shares of its common stock.As of December 31, 2017, the Company repurchased a total of $362 million, or 8.5 million shares, of common stock under this program. As ofDecember 31, 2017, $638 million remained available for additional repurchases. As of February 16, 2018, the Company has subsequentlyrepurchased an additional 1.1 million shares of common stock at an average price of $49.99. The Company accounts for share repurchases retiredafter repurchase by allocating the excess repurchase price over par to additional paid-in-capital.E*TRADE 2017 10-K | Page 146 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAccumulated Other Comprehensive LossThe following tables present after-tax changes in each component of accumulated other comprehensive loss for the years ended December 31,2017, 2016 and 2015 (dollars in millions): Available-for-SaleSecurities Foreign CurrencyTranslation TotalBalance, December 31, 2016$(139) $2 $(137)Other comprehensive income before reclassifications137 — 137Amounts reclassified from accumulated othercomprehensive loss(24) (2) (26)Net change113(2)111Balance, December 31, 2017$(26)$—$(26) Available-for-SaleSecurities Foreign CurrencyTranslation TotalBalance, December 31, 2015$(101) $2 $(99)Other comprehensive loss before reclassifications(5) — (5)Amounts reclassified from accumulated othercomprehensive loss(33) — (33)Net change(38) — (38)Balance, December 31, 2016$(139) $2 $(137) Available-for-SaleSecurities Cash Flow HedgingInstruments Foreign CurrencyTranslation TotalBalance, December 31, 2014$7 $(261) $5 $(249)Other comprehensive loss before reclassifications(84) (10) (3) (97)Amounts reclassified from accumulated othercomprehensive loss(24) 271 — 247Net change(108) 261 (3) 150Balance, December 31, 2015$(101) $— $2 $(99)E*TRADE 2017 10-K | Page 147 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents other comprehensive income (loss) activity and the related tax effect for the years ended December 31, 2017, 2016and 2015 (dollars in millions): Year Ended December 31, 2017 2016 2015 Before Tax TaxEffect AfterTax BeforeTax TaxEffect AfterTax BeforeTax TaxEffect AfterTaxOther comprehensive income (loss) Available-for-sale securities: Unrealized gains (losses), net$213 $(76) $137 $(10) $5 $(5) $(136) $52 $(84)Reclassification into earnings, net(39) 15 (24) (53) 20 (33) (39) 15 (24)Net change from available-for-sale securities174(61)113 (63) 25 (38) (175) 67 (108)Cash flow hedging instruments: Unrealized losses, net— — — — — — (17) 7 (10)Reclassification into earnings, net— — — — — — 439 (168) 271Net change from cash flow hedging instruments— — — — — — 422 (161) 261Foreign currency translation: Foreign currency translation losses, net— — — — — — (3) — (3)Reclassification into earnings, net(2) — (2) — — — — — —Net change from foreign currency translation(2) — (2) — — — (3) — (3)Other comprehensive income (loss)$172 $(61) $111 $(63) $25 $(38) $244 $(94) $150E*TRADE 2017 10-K | Page 148 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents the consolidated statement of income line items impacted by reclassifications out of accumulated othercomprehensive loss for the years ended December 31, 2017, 2016 and 2015 (dollars in millions):Accumulated Other Comprehensive LossComponents Amounts Reclassified from Accumulated OtherComprehensive Loss Affected Line Items in the ConsolidatedStatement of Income Year Ended December 31, 2017 2016 2015 Available-for-sale securities: $39 $53 $39 Gains (losses) on securities and other, net (15) (20) (15) Income tax expense $24 $33 $24 Reclassification into earnings, net Cash flow hedging instruments: $— $— $(370) Gains (losses) on securities and other, net — — (69) Interest expense — — (439) Reclassification into earnings, before tax — — 168 Income tax benefit — — (271) Reclassification into earnings, net Foreign currency translation: $2 $— $— Other non-interest expenses $2 $— $— Reclassification into earnings, netFor additional information on the $370 million reclassification during the year ended December 31, 2015, see Note 8—Derivative Instruments andHedging Activities.E*TRADE 2017 10-K | Page 149 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 17—EARNINGS PER SHAREThe following table presents a reconciliation of basic and diluted earnings per common share (in millions, except share data and per shareamounts): Year Ended December 31, 2017 2016 2015 Net income$614 $552 $268Preferred stock dividends25 — —Net income available to common shareholders$589 $552 $268 Share data (in thousands): Basic weighted-average shares outstanding273,190 277,789 290,762Effect of weighted-average dilutive securities: Restricted stock and options1,076 872 1,429Convertible debentures86 387 2,820Diluted weighted-average shares outstanding(1)274,352 279,048 295,011 Basic earnings per common share$2.16 $1.99 $0.92Diluted earnings per common share(1)$2.15 $1.98 $0.91(1)The amount of certain restricted stock and options excluded from the calculations of diluted earnings per share (due to the anti-dilutive effect) was not material for theyears ended December 31, 2017, 2016 and 2015.NOTE 18—REGULATORY REQUIREMENTSBroker-Dealer and FCM Capital RequirementsThe Company's US broker-dealer, E*TRADE Securities, is subject to the Uniform Net Capital Rule under the Securities Exchange Act of 1934administered by the SEC and FINRA, which requires the maintenance of minimum net capital. The minimum net capital requirements can be metunder either the Aggregate Indebtedness method or the Alternative method. Under the Aggregate Indebtedness method, a broker-dealer is requiredto maintain minimum net capital of the greater of 6 2/3% of its aggregate indebtedness, as defined, or a minimum dollar amount. E*TRADESecurities has elected the Alternative method, under which it is required to maintain net capital equal to the greater of $250,000 or 2% of aggregatedebit balances arising from customer transactions. The Company’s international broker-dealer subsidiary is subject to capital requirementsdetermined by its respective regulator.The Company's FCM, E*TRADE Futures, is subject to CFTC net capital requirements, including the maintenance of adjusted net capital equal toor in excess of the greater of (1) $1,000,000, (2) the FCM's risk-based capital requirement, computed as 8% of the total risk margin requirementsfor all positions carried in customer and non-customer accounts, or (3) the amount of adjusted net capital required by the NFA.E*TRADE 2017 10-K | Page 150 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAt December 31, 2017 and 2016, all of the Company’s broker-dealer and FCM subsidiaries met minimum net capital requirements. The table belowsummarizes the minimum capital requirements and excess capital for the Company’s broker-dealer and FCM subsidiaries at December 31, 2017and 2016 (dollars in millions): Required NetCapital Net Capital Excess NetCapitalDecember 31, 2017: E*TRADE Securities(1)$211 $1,213 $1,002E*TRADE Futures(1)4 19 15International broker-dealer— 19 19Total$215 $1,251 $1,036December 31, 2016: E*TRADE Securities$158 $969 $811OptionsHouse(2)1 22 21International broker-dealer— 21 21Total$159 $1,012 $853 (1)E*TRADE Securities paid dividends of $345 million to the parent company during the year ended December 31, 2017 and $125 million in February 2018. In August 2017,all brokerage accounts and brokerage customer-related assets and obligations of OptionsHouse were transferred in connection with the integration. Upon completion ofthis transaction, OptionsHouse was renamed E*TRADE Futures and E*TRADE Securities' futures accounts and futures customer-related assets and obligations weretransferred to E*TRADE Futures.(2)Elected to use the Aggregate Indebtedness method to compute net capital; however, as OptionsHouse was an FCM, the prescribed fixed-dollar minimum capitalrequirement was $1 million.Bank Capital RequirementsE*TRADE Financial and its bank subsidiaries, E*TRADE Bank and E*TRADE Savings Bank, are subject to various regulatory capital requirementsadministered by federal banking agencies. Failure to meet minimum capital requirements can trigger certain mandatory and possibly additionaldiscretionary actions by regulators that, if undertaken, could have a direct material effect on the financial condition and results of operations ofthese entities. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, these entities must meet specificcapital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatoryaccounting practices. In addition, the Company's bank subsidiaries may not pay dividends to the parent company without the non-objection, or incertain cases the approval, of their regulators, and any loans by the bank subsidiaries to the parent company and its other non-bank subsidiariesare subject to various quantitative, arm’s length, collateralization and other requirements. The capital amounts and classifications of these entitiesare also subject to qualitative judgments by the regulators about components, risk weightings and other factors.E*TRADE 2017 10-K | Page 151 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSQuantitative measures established by regulation to ensure capital adequacy require these entities to meet minimum Tier 1 leverage, commonequity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratios. Events beyond management's control, such as deterioration incredit markets, could adversely affect future earnings and their ability to meet future capital requirements. E*TRADE Financial, E*TRADE Bankand E*TRADE Savings Bank were categorized as "well capitalized" under the regulatory framework for prompt corrective action for the periodspresented in the table below (dollars in millions): December 31, 2017 December 31, 2016 Actual Well CapitalizedMinimum Capital ExcessCapital Actual Well CapitalizedMinimum Capital ExcessCapital Amount Ratio Amount Ratio Amount Amount Ratio Amount Ratio AmountE*TRADE Financial(1)Tier 1 leverage$4,386 7.4% $2,976 5.0% $1,410 $3,610 7.8% $2,316 5.0% $1,294Common equity Tier 1capital$3,773 33.9% $722 6.5% $3,051 $3,483 37.0% $612 6.5% $2,871Tier 1 risk-basedcapital$4,386 39.5% $889 8.0% $3,497 $3,610 38.3% $754 8.0% $2,856Total risk-based capital$4,874 43.8% $1,111 10.0% $3,763 $4,148 44.0% $942 10.0% $3,206E*TRADE Bank(1)Tier 1 leverage$3,620 7.6% $2,394 5.0% $1,226 $3,132 8.8% $1,786 5.0% $1,346Common equity Tier 1capital$3,620 35.7% $660 6.5% $2,960 $3,132 38.3% $532 6.5% $2,600Tier 1 risk-basedcapital$3,620 35.7% $812 8.0% $2,808 $3,132 38.3% $655 8.0% $2,477Total risk-based capital$3,694 36.4% $1,015 10.0% $2,679 $3,237 39.5% $819 10.0% $2,418E*TRADE Savings Bank(1)Tier 1 leverage$904 26.6% $170 5.0% $734 $226 12.0% $94 5.0% $132Common equity Tier 1capital$904 111.1% $53 6.5% $851 $226 69.6% $21 6.5% $205Tier 1 risk-basedcapital$904 111.1% $65 8.0% $839 $226 69.6% $26 8.0% $200Total risk-based capital$905 111.2% $81 10.0% $824 $227 69.8% $32 10.0% $195(1)Basel III includes a capital conservation buffer that limits a banking organization’s ability to make capital distributions and discretionary bonus payments to executiveofficers if a banking organization fails to maintain a Common Equity Tier 1 capital conservation buffer of more than 2.5%, on a fully phased-in basis, of total risk-weightedassets above each of the following minimum risk-based capital ratio requirements: Common Equity Tier 1 capital (4.5%), Tier 1 (6.0%), and total risk-based capital(8.0%). This requirement was effective beginning on January 1, 2016, and will be fully phased-in by 2019. See Business—Regulation for additional information.E*TRADE 2017 10-K | Page 152 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 19—LEASE ARRANGEMENTSThe Company has non-cancelable operating leases for facilities through 2029. Future minimum lease payments and sublease proceeds underthese leases with initial or remaining terms in excess of one year, including leases associated with restructuring activities, are as follows (dollarsin millions): Operating LeaseCommitments(1)Years ending December 31, 2018$27201929202023202121202212Thereafter45Total future minimum lease payments$157Sublease proceeds(2)Net lease commitments$155(1) Excludes minimum lease payments and sublease proceeds on the Alpharetta, Georgia lease, which is accounted for as a financing.Certain leases contain provisions for renewal options and rent escalations based on increases in certain costs incurred by the lessor. Rentexpense, net of sublease income, was $26 million, $24 million and $22 million for the years ended December 31, 2017, 2016 and 2015,respectively. Rent expense, which is recorded in the occupancy and equipment line item in the consolidated statement of income, excludes costsrelated to leases associated with restructuring activities, which are recorded in the restructuring and acquisition-related activities line item in theconsolidated statement of income.NOTE 20—COMMITMENTS, CONTINGENCIES AND OTHER REGULATORY MATTERSThe Company reviews its lawsuits, regulatory inquiries and other legal proceedings on an ongoing basis and provides disclosure and records losscontingencies in accordance with the loss contingencies accounting guidance. The Company establishes an accrual for losses at management'sbest estimate when it assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. TheCompany monitors these matters for developments that would affect the likelihood of a loss and the accrued amount, if any, and adjusts theamount as appropriate.Litigation MattersOn October 27, 2000, Ajaxo, Inc. (Ajaxo) filed a complaint in the Superior Court for the State of California, County of Santa Clara. Ajaxo soughtdamages and certain non-monetary relief for the Company’s alleged breach of a non-disclosure agreement with Ajaxo pertaining to certain wirelesstechnology that Ajaxo offered the Company as well as damages and other relief against the Company for their alleged misappropriation of Ajaxo’strade secrets. Following a jury trial, a judgment was entered in 2003 in favor of Ajaxo against the Company for $1 million for breach of the Ajaxonon-disclosure agreement. The trial court subsequently denied Ajaxo’s requests for additional damages and relief following which Ajaxo appealed.Although the Company paid Ajaxo the full amount due on the above-described judgment, the case wasE*TRADE 2017 10-K | Page 153 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSremanded back to the trial court by the California Court of Appeal, and on May 30, 2008, a jury returned a verdict in favor of the Company denyingall claims raised and demands for damages against the Company. After various appeals the case was again remanded back to the trial court.Following the third trial of the matter, in a Judgment and Statement of Decision filed September 16, 2015, the Court denied all claims for royaltiesby Ajaxo. Ajaxo’s post-trial motions were denied. Ajaxo has appealed to the Court of Appeal, Sixth District. The Company will continue to defenditself vigorously in this matter.On May 16, 2011, Droplets Inc., the holder of two patents pertaining to user interface servers, filed a complaint in the US District Court for theEastern District of Texas against E*TRADE Financial Corporation, E*TRADE Securities, E*TRADE Bank and multiple other unaffiliated financialservices firms. The plaintiff contends that the defendants engaged in patent infringement under federal law and seeks unspecified damages and aninjunction against future infringements, plus royalties, costs, interest and attorneys’ fees. On March 28, 2012, a change of venue was granted andthe case was transferred to the United States District Court for the Southern District of New York. The Company's motion for summary judgmenton the grounds of non-infringement was granted by the US District Court in a Decision and Order dated March 9, 2015. All remaining claims arestayed pending resolution of issues on Droplet's remaining patents under review by the Patent Trial and Appeal Board (PTAB). After a hearing, thePTAB deemed Droplets’ putative '115 patent to be “unpatentable” on June 23, 2016. In a separate proceeding, the PTAB has also separatelydeemed Droplets’ putative '838 patent to be “unpatentable.” Droplets has appealed to the Circuit Court of Appeals for the District of Columbia. Thebriefing was completed on July 24, 2017, and an oral argument was heard on February 6, 2018. The Company will continue to defend itselfvigorously in this matter.On April 30, 2013, a putative class action was filed by John Scranton, on behalf of himself and a class of persons similarly situated, againstE*TRADE Financial Corporation and E*TRADE Securities in the Superior Court of California, County of Santa Clara, pursuant to the Californiaprocedures for a private Attorney General action. The complaint alleged that the Company misrepresented through its website that it would alwaysautomatically exercise options that were in-the-money by $0.01 or more on expiration date. The plaintiffs allege violations of the California UnfairCompetition Law, the California Consumer Remedies Act, fraud, misrepresentation, negligent misrepresentation and breach of fiduciary duty andplaintiffs seek unspecified damages. Final judgment was entered in the Company's favor on April 8, 2015, and on December 4, 2017 the Court ofAppeals upheld the dismissal. The matter is now closed.On March 26, 2015, a putative class action was filed in the US District Court for the Northern District of California by Ty Rayner, on behalf ofhimself and all others similarly situated, naming E*TRADE Financial Corporation and E*TRADE Securities as defendants. The complaint allegesthat E*TRADE breached a fiduciary duty and unjustly enriched itself in connection with the routing of its customers’ orders to various market-makers and exchanges. The plaintiff seeks unspecified damages, declaratory relief, restitution, disgorgement of payments received by theCompany, and attorneys’ fees. On April 2, 2017, the District Court dismissed the complaint in Rayner. The plaintiffs in Rayner appealed and theoral argument was heard by the Second Court of Appeals on December 7, 2017. The Company will continue to defend itself vigorously in thesematters.On July 23, 2016, a putative class action was filed in the US District Court for the Southern District of New York by Craig L. Schwab, on behalf ofhimself and others similarly situated, naming E*TRADE Financial Corporation, E*TRADE Securities, and former Company executives asdefendants. The complaint alleges that E*TRADE violated federal securities laws in connection with the routing of its customers’ orders to variousmarket-makers and exchanges. The plaintiff seeks unspecified damages, declaratory relief, restitution, disgorgement of payments received by theCompany, and attorneys’ fees. By stipulation both matters are now venued in the Southern District of New York. On July 10, the Court dismissedthe Schwab claims without prejudice. The plaintiff in Schwab filed a third amended complaint on August 9, 2017, whichE*TRADE 2017 10-K | Page 154 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSE*TRADE moved to dismiss. On January 22, the Court dismissed all claims with prejudice. The Company will continue to defend itself vigorouslyin these matters.In addition to the matters described above, the Company is subject to various legal proceedings and claims that arise in the normal course ofbusiness. In each pending matter, the Company contests liability or the amount of claimed damages. In view of the inherent difficulty of predictingthe outcome of such matters, particularly in cases where claimants seek substantial or indeterminate damages, or where investigation ordiscovery have yet to be completed, the Company is unable to estimate a range of reasonably possible losses on its remaining outstanding legalproceedings; however, the Company believes any losses, both individually or in the aggregate, would not be reasonably likely to have a materialadverse effect on the consolidated financial condition or results of operations of the Company.An unfavorable outcome in any matter could have a material adverse effect on the Company’s business, financial condition, results of operationsor cash flows. In addition, even if the ultimate outcomes are resolved in the Company’s favor, the defense of such litigation could entailconsiderable cost or the diversion of the efforts of management, either of which could have a material adverse effect on the Company’s business,financial condition, results of operations or cash flows.Regulatory MattersThe securities, futures, foreign currency and banking industries are subject to extensive regulation under federal, state and applicable internationallaws. From time to time, the Company has been threatened with or named as a defendant in lawsuits, arbitrations and administrative claimsinvolving securities, banking and other matters. The Company is also subject to periodic regulatory examinations and inspections. Compliance andtrading problems that are reported to regulators, such as the SEC, FINRA, NASDAQ, CFTC, NFA, FDIC, Federal Reserve Bank of Richmond,OCC, or the CFPB by dissatisfied customers or others are investigated by such regulators, and may, if pursued, result in formal claims being filedagainst the Company by customers or disciplinary action being taken against the Company or its employees by regulators. Any such claims ordisciplinary actions that are decided against the Company could have a material impact on the financial results of the Company or any of itssubsidiaries.InsuranceThe Company maintains insurance coverage that management believes is reasonable and prudent. The principal insurance coverage it maintainscovers commercial general liability; property damage; hardware/software damage; cyber liability; directors and officers; employment practicesliability; certain criminal acts against the Company; and errors and omissions. The Company believes that such insurance coverage is adequatefor the purpose of its business. The Company’s ability to maintain this level of insurance coverage in the future, however, is subject to theavailability of affordable insurance in the marketplace.CommitmentsIn the normal course of business, the Company makes various commitments to extend credit and incur contingent liabilities that are not reflectedin the consolidated balance sheet. Significant changes in the economy or interest rates may influence the impact that these commitments andcontingencies have on the Company in the future.The Company’s equity method, cost method and other investments are generally limited liability investments in partnerships, companies and othersimilar entities, including tax credit partnerships andE*TRADE 2017 10-K | Page 155 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTScommunity development entities, which are not required to be consolidated. The Company had $99 million in unfunded commitments with respectto these investments at December 31, 2017.At December 31, 2017, the Company had approximately $21 million of certificates of deposit scheduled to mature in less than one year.GuaranteesIn prior periods when the Company sold loans, the Company provided guarantees to investors purchasing mortgage loans, which are consideredstandard representations and warranties within the mortgage industry. The primary guarantees are that: the mortgage and the mortgage note havebeen duly executed and each is the legal, valid and binding obligation of the Company, enforceable in accordance with its terms; the mortgage hasbeen duly acknowledged and recorded and is valid; and the mortgage and the mortgage note are not subject to any right of rescission, set-off,counterclaim or defense, including, without limitation, the defense of usury, and no such right of rescission, set-off, counterclaim or defense hasbeen asserted with respect thereto. The Company is responsible for the guarantees on loans sold. If these claims prove to be untrue, the investorcan require the Company to repurchase the loan and return all loan purchase and servicing release premiums. Management does not believe thepotential liability exposure will have a material impact on the Company’s results of operations, cash flows or financial condition due to the nature ofthe standard representations and warranties, which have resulted in a minimal amount of loan repurchases.Prior to 2008, ETBH raised capital through the formation of trusts, which sold TRUPs in the capital markets. The capital securities must beredeemed in whole at the due date, which is generally 30 years after issuance. Each trust issued TRUPs at par, with a liquidation amount of$1,000 per capital security. The trusts used the proceeds from the sale of issuances to purchase subordinated debentures issued by ETBH.During the 30-year period prior to the redemption of the TRUPs, ETBH guarantees the accrued and unpaid distributions on these securities, as wellas the redemption price of the securities and certain costs that may be incurred in liquidating, terminating or dissolving the trusts (all of whichwould otherwise be payable by the trusts). At December 31, 2017, management estimated that the maximum potential liability under thisarrangement, including the current carrying value of the trusts, was equal to approximately $416 million or the total face value of these securitiesplus accrued interest payable, which may be unpaid at the termination of the trust arrangement.E*TRADE 2017 10-K | Page 156 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 21—CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)CONDENSED STATEMENT OF COMPREHENSIVE INCOME(In millions) Year Ended December 31, 2017 2016 2015Dividends from subsidiaries(1)$350 $858 $859Other revenues377 328 317Total net revenue727 1,186 1,176Total non-interest expense611 501 560Income before income tax expense (benefit) and equity in income (loss) of consolidated subsidiaries116 685 616Income tax expense (benefit)75 456 (287)Equity in undistributed income (loss) of subsidiaries573 323 (635) Net income (2)614 552 268Other comprehensive income (loss)111 (38) 150Comprehensive income$725 $514 $418(1) Includes $423 million and $281 million from E*TRADE Bank for the years ended December 31, 2016 and 2015, respectively.(2) Net income available to common shareholders was $589 million for the year ended December 31, 2017 and includes the impact of $25 million of preferred stock dividends.CONDENSED BALANCE SHEET(In millions) December 31, 2017 2016ASSETS Cash and equivalents$493 $416Property and equipment, net157 148Investment in consolidated subsidiaries(1) 7,268 6,523Receivable from subsidiaries59 38Other assets202 332Total assets$8,179 $7,457LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Corporate debt$991 $994Other liabilities257 191Total liabilities1,248 1,185Total shareholders’ equity6,931 6,272Total liabilities and shareholders’ equity$8,179 $7,457(1) Includes investment of $3.7 billion and $3.2 billion in E*TRADE Bank as of December 31, 2017 and 2016, respectively.E*TRADE 2017 10-K | Page 157 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSCONDENSED STATEMENT OF CASH FLOWS(In millions) Year Ended December 31, 2017 2016 2015Cash flows from operating activities: Net income$614 $552 $268Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization51 48 44Equity in undistributed (income) loss from subsidiaries(573) (323) 635Losses on early extinguishment of debt9 — 5Other213 585 (152)Net cash provided by operating activities314 862 800Cash flows from investing activities: Capital expenditures for property and equipment(59) (36) (33)Cash contributions to subsidiaries(61) (766) (147)Other6 16 —Net cash used in investing activities(114) (786) (180)Cash flows from financing activities: Net proceeds from issuance of senior notes999 — 460Payments on senior notes(1,000) — (800)Issuance of preferred stock300 400 —Repurchases of common stock(362) (452) (50)Preferred stock dividends(25) — —Other(35) (40) (18)Net cash used in financing activities(123) (92) (408)Increase (decrease) in cash and equivalents77 (16) 212Cash and equivalents, beginning of period416 432 220Cash and equivalents, end of period$493 $416 $432Parent Company GuaranteesGuarantees are contingent commitments issued by the parent for the purpose of guaranteeing the financial obligations of a subsidiary to a thirdparty. The financial obligations of the parent and the relevant subsidiary do not change by the existence of a parent guarantee. Rather, upon theoccurrence of certain events, the guarantee shifts ultimate payment responsibility of an existing financial obligation from the relevant subsidiary tothe parent company. During the year ended December 31, 2017, no claims had been made against the parent for payment under any guaranteesand thus, no obligations have been recognized. The parent has not provided any guarantees that are collateralized.E*TRADE 2017 10-K | Page 158 Table of ContentsE*TRADE FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 22—QUARTERLY DATA (UNAUDITED)The information presented below reflects all adjustments, which, in the opinion of management, are of a normal and recurring nature necessary topresent fairly the results of operations for the quarterly periods presented (dollars in millions, except per share amounts): 2017 2016 First Second Third Fourth First Second Third FourthTotal net revenue$553 $577 $599 $637 $472 $474 $486 $509Net income$145 $193 $147 $129 $153 $133 $139 $127Earnings pershare: Basic$0.48 $0.70 $0.49 $0.48 $0.54 $0.48 $0.51 $0.46Diluted$0.48 $0.70 $0.49 $0.48 $0.53 $0.48 $0.51 $0.46Net income in the second quarter of 2017 included a $99 million pre-tax benefit for loan losses primarily resulting from refined default assumptionsbased on the sustained outperformance of converted mortgage loans that had been amortizing for 12 months or longer. Net income in the thirdquarter of 2017 included a $58 million pre-tax loss on early extinguishment of debt related to the refinancing of higher cost corporate debt. Netincome in the fourth quarter of 2017 included $58 million of additional tax expense due to a remeasurement of certain deferred tax assets andliabilities as a result of the federal tax reform law enacted on December 22, 2017.Net income in the first quarter of 2016 included an income tax benefit related to the release of a valuation allowance against certain state deferredtax assets.NOTE 23—SUBSEQUENT EVENTAcquisition of brokerage accounts from Capital OneIn January 2018, the Company announced an agreement to acquire retail brokerage accounts from Capital One for a purchase price of up to $170million in cash. The Company intends to fund this transaction with existing corporate cash. The acquisition is expected to close by the thirdquarter of 2018, subject to customary closing conditions and regulatory approvals.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURENone.E*TRADE 2017 10-K | Page 159 Table of Contents ITEM 9A. CONTROLS AND PROCEDURES(a)Based on an evaluation under the supervision and with the participation of our management, our Chief Executive Officer and our ChiefFinancial Officer have concluded that the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) under the SecuritiesExchange Act of 1934, as amended (the Exchange Act), were effective as of the end of the period covered by this report to providereasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is(i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules andforms and (ii) accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate to allow timely decisions regarding required disclosure.(b)Management's Report on Internal Controls over Financial Reporting and the attestation report of our independent registered public accountingfirm, Deloitte & Touche LLP, are included in Financial Statements and Supplementary Data and are incorporated herein by reference.(c)There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2017, identified inconnection with management's evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15, that have materially affected,or are reasonably likely to materially affect, the Company’s internal control over financial reporting.ITEM 9B. OTHER INFORMATIONNone.E*TRADE 2017 10-K | Page 160 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item is incorporated by reference from the Company’s definitive proxy statement for its 2018 Annual Meeting ofStockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2017 (the Proxy Statement).ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference from the Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED STOCKHOLDER MATTERSThe information required by this item is incorporated by reference from the Proxy Statement.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCEThe information required by this item is incorporated by reference from the Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference from the Proxy Statement.E*TRADE 2017 10-K | Page 161 Table of Contents PART IV ITEM 15. EXHIBITS(a)The following documents are filed as part of this report:1.Consolidated Financial Statements: The information concerning our consolidated financial statements required by this Item is incorporated byreference herein to Financial Statements and Supplementary Data.2.Financial Statement Schedules:Consolidated Financial Statement Schedules have been omitted because the required information is not applicable, not material or is provided inthe consolidated financial statements or notes thereto.ExhibitNumber Description3.1 Amended and Restated Certificate of Incorporation of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1of the Company’s Form 10-Q filed on August 4, 2010). 3.2 Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 ofthe Company’s Current Report on Form 8-K filed on May 11, 2012). 3.3 Certificate of Designations of Preferences and Rights of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,Series A of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K filed on August 25, 2016). 3.4 Certificate of Designations of Preferences and Rights of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,Series B of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K filed on December 6, 2017). 3.5 Amended and Restated Bylaws of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’sCurrent Report on Form 8-K filed on June 20, 2017). 4.1 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the Company’sRegistration Statement on Form S-1, Registration Statement No. 333-05525, filed on July 22, 1996). 4.2 Indenture dated August 25, 2009 between the Company and The Bank of New York Mellon, as Trustee, relating to the 0.00%Convertible Debentures due 2019 (includes form of note) (incorporated by reference to Exhibit 4.1 of the Company’s CurrentReport on Form 8-K filed on August 25, 2009). 4.3 Third Supplemental Indenture dated June 15, 2011, to the Indenture dated August 25, 2009, among the Company, theguaranteeing subsidiaries party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the0.00% Convertible Debentures due 2019 (incorporated by reference to Exhibit 4.5 of the Company’s Form 10-Q filed on August4, 2011). 4.4 Senior Indenture dated November 14, 2012 between the Company and The Bank of New York Mellon Trust Company, N.A., asTrustee (includes form of note) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed onNovember 14, 2012). E*TRADE 2017 10-K | Page 162 Table of Contents ExhibitNumber Description4.5 Second Supplemental Indenture dated November 17, 2014, to the Senior Indenture dated November 14, 2012, between theCompany and The Bank of New York Mellon Trust Company, N.A., as Trustee, relating to the 5.375% Senior Notes due 2022(incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on November 17, 2014). 4.6 Third Supplemental Indenture dated March 5, 2015, to the Senior Indenture dated November 14, 2012, between the Companyand The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of the Company’sCurrent Report on Form 8-K filed on March 5, 2015). 4.7 Certificate of Designations of Preferences and Rights of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,Series A of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K filed on August 25, 2016). 4.8 Form of Certificate representing the Series A Preferred Stock (incorporated by reference to Exhibit 4.2 of the Company’sCurrent Report on Form 8-K filed on August 25, 2016). 4.9 Indenture, dated as of August 24, 2017, between E*TRADE Financial Corporation and The Bank of New York Mellon TrustCompany, N.A., as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed onAugust 24, 2017). 4.10 First Supplemental Indenture, dated as of August 24, 2017, between E*TRADE Financial Corporation and The Bank of NewYork Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 of the Company’s Current Report onForm 8-K filed on August 24, 2017). 4.11 Second Supplemental Indenture, dated as of August 24, 2017, between E*TRADE Financial Corporation and The Bank of NewYork Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 of the Company’s Current Report onForm 8-K filed on August 24, 2017) 4.12 Certificate of Designations of Preferences and Rights of the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,Series B of E*TRADE Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K filed on December 6, 2017). 4.13 Form of Certificate representing the Series B Preferred Stock (incorporated by reference to Exhibit 4.2 of the Company’sCurrent Report on Form 8-K filed on December 6, 2017). 4.14 Deposit Agreement, dated as of December 6, 2017, among the Company, The Bank of New York Mellon and the holders fromtime to time of the depositary receipts described therein (incorporated by reference to Exhibit 4.3 of the Company’s CurrentReport on Form 8-K filed on December 6, 2017). 4.15 Form of Depositary Receipt (included in Exhibit 4.14). 4.16 Form of 2.950% Senior Notes due 2022 (included in Exhibit 4.10) 4.17 Form of 3.800% Senior Notes due 2027 (included in Exhibit 4.11) 10.1 Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filedon November 2, 2017).+10.2 Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-K filed onFebruary 24, 2010).+10.3 Amended 2005 Equity Incentive Plan of E*TRADE Financial Corporation. (incorporated by reference to Exhibit 10.1 of theCompany’s Current Report on Form 8-K filed on May 14, 2010).+10.4 2015 Omnibus Incentive Plan (incorporated by reference to the Company’s Definitive Proxy Statement on Schedule 14A filedon March 25, 2015).E*TRADE 2017 10-K | Page 163 Table of Contents ExhibitNumber Description+10.5 Form of Executive Restricted Stock Award Agreement for Amended 2005 Equity Incentive Plan (incorporated by reference toExhibit 10.5 of the Company’s Form 10-K filed on February 24, 2015).+10.6 Form of Performance Share Unit Award Agreement for Amended 2005 Equity Incentive Plan (incorporated by reference toExhibit 10.6 of the Company’s Form 10-K filed on February 24, 2015).+10.7 Form of Performance Share Unit Award Agreement for 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 ofthe Company’s Form 10-K filed on February 24, 2016).+10.8 Form of Restricted Stock Agreement for Non-Employee Directors under the 2015 Equity Incentive Plan (incorporated byreference to Exhibit 10.1 of the Company’s Form 10-Q filed on May 4, 2016).+10.9 Form of Deferred Restricted Stock Unit Agreement for Non-Employee Directors under the 2015 Equity Incentive Plan(incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q filed on May 4, 2016).+10.10 Form of Employment Agreement between the Company and each of Michael J. Curcio and Michael A. Pizzi (incorporated byreference to Exhibit 10.16 of the Company’s Form 10-K filed on February 22, 2017).+10.11 Employment Agreement dated September 12, 2016 between the Company and Rodger A. Lawson (incorporated by reference toExhibit 10.1 of the Company’s Form 10-Q filed on November 3, 2016).+10.12 Employment Agreement dated September 12, 2016 between the Company and Karl A. Roessner (incorporated by reference toExhibit 10.2 of the Company’s Form 10-Q filed on November 3, 2016).+10.13 2017 Addendum, dated February 16, 2017, to the Employment Agreement dated September 12, 2016 between the Companyand Karl A. Roessner (incorporated by reference to Exhibit 10.20 of the Company’s Form 10-K filed on February 22, 2017).*+10.14 2018 Addendum, dated February 9, 2018, to the Employment Agreement dated September 12, 2016 between the Companyand Karl A. Roessner.*12.1 Statement of Ratio of Earnings to Fixed Charges. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Independent Registered Public Accounting Firm. *31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INS XBRL Instance Document *101.SCH XBRL Taxonomy Extension Schema Document *101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *101.DEF XBRL Taxonomy Extension Definition Linkbase Document *101.LAB XBRL Taxonomy Extension Label Linkbase Document *101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.E*TRADE 2017 10-K | Page 164 Table of Contents +Exhibit is a management contract or a compensatory plan or arrangement.†Portions of this exhibit were omitted and filed separately with the US Securities and Exchange Commission pursuant to a request forconfidential treatment.ITEM 16. FORM 10-K SUMMARYNone.E*TRADE 2017 10-K | Page 165 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.Dated: February 21, 2018 E*TRADE Financial Corporation(Registrant) By /S/ KARL A. ROESSNER Karl A. Roessner Chief Executive Officer (Principal Executive Officer) By /S/ MICHAEL A. PIZZI Michael A. Pizzi Chief Financial Officer (Principal Financial Officer) By /S/ BRENT B. SIMONICH Brent B. Simonich Corporate Controller (Principal Accounting Officer)E*TRADE 2017 10-K | Page 166 Table of Contents Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /S/ KARL. A ROESSNER Director and Chief Executive Officer(Principal Executive Officer) February 21, 2018Karl A. Roessner /S/ MICHAEL A. PIZZI Chief Financial Officer (PrincipalFinancial Officer) February 21, 2018Michael A. Pizzi /S/ BRENT B. SIMONICH Corporate Controller (Principal AccountingOfficer) February 21, 2018Brent B. Simonich /S/ RODGER A. LAWSON Executive Chairman of the Board February 21, 2018Rodger A. Lawson /S/ RICHARD J. CARBONE Director February 21, 2018Richard J. Carbone /S/ JAMES P. HEALY Director February 21, 2018James P. Healy /S/ KEVIN T. KABAT Director February 21, 2018Kevin T. Kabat /S/ FREDERICK W. KANNER Director February 21, 2018Frederick W. Kanner /S/ JAMES LAM Director February 21, 2018James Lam /S/ SHELLEY B. LEIBOWITZ Director February 21, 2018Shelley B. Leibowitz /S/ REBECCA SAEGER Director February 21, 2018Rebecca Saeger /S/ JOSEPH L. SCLAFANI Director February 21, 2018Joseph L. Sclafani /S/ GARY H. STERN Director February 21, 2018Gary H. Stern /S/ DONNA L. WEAVER Director February 21, 2018Donna L. Weaver E*TRADE 2017 10-K | Page 167 Exhibit 10.142018 Addendum to Employment AgreementThis 2018 Addendum to Employment Agreement (this “Addendum”) is made and entered into by and between E*TRADE Financial Corporation(the “Company”) and Karl A. Roessner (“Executive”), effective as of February 9, 2018.Any capitalized term that is used but not otherwise defined in this Addendum shall have the meaning set forth in the employment agreement by andbetween the Company and Executive, dated as of September 12, 2016 (the “2016 Employment Agreement”). The 2016 Employment Agreement togetherwith that certain addendum to the 2016 Employment Agreement dated February 16, 2017 shall be referred to herein as the “Employment Agreement.”1. The Company and Executive hereby acknowledge and agree that, notwithstanding anything set forth in the Employment Agreement to thecontrary:(a) For purposes of Section 3(a) of the Employment Agreement, Executive’s base salary shall be $1,000,000 per year, subject to applicablewithholding, in accordance with the Company’s normal payroll procedures.(b) For purposes of Section 3(b) of the Employment Agreement, Executive’s annual cash bonus target amount for the 2018 calendar yearis $2,000,000.(c) For purposes of Section 4(b) of the Employment Agreement, Executive’s target equity bonus for the 2018 calendar year is $3,000,000,of which $1,500,000 shall be in the form of PSUs and $1,500,000 shall be in the form of RSUs.2. Except as expressly set forth in this Addendum, the Employment Agreement shall remain in full force and effect in accordance with the termsand conditions thereof as in effect immediately prior to the date hereof.3. This Addendum may be signed in counterparts, each of which shall be deemed an original and which together shall constitute one instrument.IN WITNESS WHEREOF, the parties have executed this Addendum as of the date first set forth above.E*TRADE FINANCIAL CORPORATION__________________________________By: Rodger A. Lawson__________________________________Karl A. Roessner112Exhibit 12.1COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ANDRATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS(in millions, except ratios) For the Year Ended December 31, 2017 2016 2015 2014 2013Fixed charges: Interest expense$84 $82 $191 $314 $349Amortization of debt issue expense2 2 2 4 3Estimated interest within rental expense(1)9 9 8 7 7Total fixed charges$95$93 $201 $325 $359Preferred stock dividend requirements(2)42 — — — —Total combined fixed charges and preferred stockdividends$137 $93 $201 $325 $359 Earnings: Income before income taxes less equity inincome (loss) of investments$1,062 $843 $84 $449 $191Fixed charges9593 201 325 359Earnings, as adjusted$1,157$936 $285 $774 $550 Ratio of earnings to fixed charges(3)12.18 10.06 1.42 2.39 1.53Ratio of earnings to combined fixed charges andpreferred stock dividends(4)8.45 10.06 1.42 2.39 1.53Excess (deficiency) of earnings to fixed charges$1,062$843 $84 $449 $191(1)Calculated as one-third of net rent expense.(2)Represent the pre-tax earnings that would be required to pay the dividends on outstanding preferred stock. Prior to the 2016 issuance of our Series A fixed-to-floatingrate non-cumulative perpetual preferred stock, we had no shares of preferred stock outstanding. Prior to the Series A preferred stock dividends declared and paid in2017, we had not paid dividends on any shares of preferred stock.(3)Calculated by dividing earnings, as adjusted by fixed charges.(4)Calculated by dividing earnings, as adjusted by combined fixed charges and preferred stock dividends.Exhibit 21.1E*TRADE Financial CorporationSubsidiaries of RegistrantCompanyJurisdiction NameCapitol View LLCDelawareDistribution Financial Services RV/Marine Trust 2001-1New YorkE*TRADE BankFederal CharterE*TRADE Capital Management, LLCDelawareE*TRADE Capital Trust XXVIIDelawareE*TRADE Capital Trust XXVIIIDelawareE*TRADE Community Development CorporationDelawareE*TRADE Europe Holdings, B.V.NetherlandsE*TRADE Financial Corporate Services, Inc.DelawareE*TRADE Financial Corporation Capital Statutory Trust VIIIDelawareE*TRADE Financial Corporation Capital Trust VDelawareE*TRADE Financial Corporation Capital Trust VIDelawareE*TRADE Financial Corporation Capital Trust VIIDelawareE*TRADE Financial Corporation Capital Trust XDelawareE*TRADE Financial Corporation Trust IXDelawareE*TRADE Futures LLCDelawareE*TRADE Information Services, LLCDelawareE*TRADE Master TrustDelawareE*TRADE Philippines Holdings CorporationPhilippinesE*TRADE RV and Marine Trust 2004-1New YorkE*TRADE Savings BankFederal CharterE*TRADE Securities LLCDelawareET Canada Holdings Inc.CanadaETB Capital Trust XIDelawareETB Capital Trust XIIDelawareETB Capital Trust XIIIDelawareETB Capital Trust XVDelawareETB Capital Trust XVIDelawareETB Capital Trust XXIXDelawareETB Capital Trust XXVDelawareETB Capital Trust XXVIDelawareETB Holdings, Inc.DelawareETB Holdings, Inc. Capital Trust XIVDelawareETB Holdings, Inc. Capital Trust XIXDelawareETB Holdings, Inc. Capital Trust XVIIDelawareETB Holdings, Inc. Capital Trust XVIIIDelawareETB Holdings, Inc. Capital Trust XXDelawareETB Holdings, Inc. Capital Trust XXIDelawareETB Holdings, Inc. Capital Trust XXIVDelawareETB Holdings, Inc. Statutory Trust XXIIDelawareETB Holdings, Inc. Statutory Trust XXIIIDelawareETCF Asset Funding CorporationNevadaETCM Holdings, LLCDelawareETFC Capital Trust IDelawareETRADE Securities (Hong Kong) LimitedHong KongTIR (Holdings) Limited (Cayman)CaymanCONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements of E*TRADE Financial Corporation of ourreports dated February 21, 2018, relating to the consolidated financial statements of E*TRADE Financial Corporation and subsidiaries(the “Company”) and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report onForm 10-K of E*TRADE Financial Corporation for the year ended December 31, 2017.Filed on Form S-3:Registration Statement No.:333-203953 Filed on Form S-8:Registration Statement Nos.:333-12503, 333-52631, 333-62333, 333-72149, 333-35068, 333-35074, 333-37892, 333-44608, 333-44610, 333-54904, 333-56002, 333-113558, 333-91534, 333-125351, 333-81702,333-159653, 333-168939, 333-204495/s/ Deloitte & Touche LLPMcLean, VirginiaFebruary 21, 2018Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Karl A. Roessner, certify that:1.I have reviewed this Annual Report on Form 10-K of E*TRADE Financial Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: February 21, 2018E*TRADE Financial Corporation(Registrant) By /S/ KARL A. ROESSNER Karl A. RoessnerChief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Michael A. Pizzi, certify that:1.I have reviewed this Annual Report on Form 10-K of E*TRADE Financial Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Dated: February 21, 2018E*TRADE Financial Corporation(Registrant) By /S/ MICHAEL A. PIZZI Michael A. PizziChief Financial Officer(Principal Financial Officer)Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002The certification set forth below is being submitted in connection with this Annual Report on Form 10-K of E*TRADE Financial Corporation (the“Annual Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) andSection 1350 of Chapter 63 of Title 18 of the United States Code.Karl A. Roessner, the Chief Executive Officer and Michael A. Pizzi, the Chief Financial Officer of E*TRADE Financial Corporation, each certifies that,to the best of their knowledge:1.the Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and2.the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations ofE*TRADE Financial Corporation.Dated: February 21, 2018/S/ KARL A. ROESSNER Karl A. RoessnerChief Executive Officer(Principal Executive Officer) /S/ MICHAEL A. PIZZIMichael A. PizziChief Financial Officer(Principal Financial Officer)

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