Earnings Press Release dated January 21, 2004

EX-99.1 3 dex991.htm EARNINGS PRESS RELEASE DATED JANUARY 21, 2004 Earnings Press Release dated January 21, 2004

Exhibit 99.1

FOR IMMEDIATE RELEASE

E*TRADE FINANCIAL Media Contact

Pam Erickson

E*TRADE FINANCIAL Corporation

617-296-6080

pam.erickson@etrade.com

E*TRADE FINANCIAL Investor Relations Contact

Adam Townsend

E*TRADE FINANCIAL Corporation

916-463-2889

adam.townsend@etrade.com

E*TRADE FINANCIAL CORPORATION REPORTS RECORD

Q4 2003 GAAP EARNINGS OF $0.27 PER SHARE, COMPLETING

STRONGEST YEAR IN COMPANY’S HISTORY

Reported fourth quarter GAAP earnings of $0.27 per share on net income of $107 million, and $0.18 per share on $68 million in net income from Ongoing Operations ⁽¹⁾

Generated 2003 GAAP earnings of $0.55 per share on net income of $203 million, and $0.59 per share on $215 million in net income from Ongoing Operations

Increased US Daily Average Revenue Trades by 10 percent and Total Daily Average Revenue Trades by 6 percent over the third quarter results

Increased margin debt to $1.8 billion at quarter end, compared to $1.5 billion at the end of the third quarter

Improved bank spread to 169 basis points from 133 basis points in the third quarter

New York, N.Y., January 21, 2004 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its fourth quarter ended December 31, 2003, reporting GAAP net income of $107 million, or $0.27 per diluted share, compared to GAAP net income of $30 million, or $0.08 per share, in the same quarter a year ago. Earnings from Ongoing Operations in the fourth quarter totaled $0.18 per share or $68 million, compared to $0.14 per share or $52 million, in the same quarter a year ago.

For the year, E*TRADE FINANCIAL reported GAAP earnings of $0.55 per share compared to a loss of $0.52 per share in 2002. Also for the year, the Company reported earnings of $0.59 per share from Ongoing Operations, compared to $0.45 per share a year ago.

The Company affirmed its 2004 GAAP earnings guidance of between $0.70 and $0.85 per share on Total Net Revenue of $1.5 billion to $1.7 billion.

“In 2003, we generated the best results in the Company’s history,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “We strengthened our financial position considerably, increased operational efficiencies and produced record earnings, all while extending the breadth of our product portfolio and enhancing our customer experience.”

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 2

Other selected highlights from the fourth quarter of 2003:

International DARTs increased 3 percent sequentially to 8,900 per day and increased 67 percent versus the year ago period, representing continued strong growth in our international operations

Free cash ⁽²⁾ increased by $120 million to $650 million

Total customer assets increased to $83.3 billion from $71.8 billion in the third quarter

“2003 was a pivotal year for us. E*TRADE FINANCIAL is the challenger brand that is seizing the opportunities in this growth segment,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “The operating leverage in our model continues to turn improving market conditions into higher profits and wider margins. Our market share gains throughout the year and our consistently strong results underscore the power of our integrated brokerage and banking model and the leverage of our scalable infrastructure.”

Historical monthly metric data from January 2003 to December 2003 can be found on the E*TRADE FINANCIAL investor relations site at www.etrade.com.

About E*TRADE FINANCIAL

The E*TRADE FINANCIAL family of companies provide financial services including brokerage, banking and lending for retail, corporate and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.

# # #

Important Notice

E*TRADE FINANCIAL and the E*TRADE FINANCIAL logo is a registered trademark or trademark of E*TRADE FINANCIAL Corporation. The statements contained in this news release that are forward-looking are based on current expectations that are subject to a number of uncertainties and risks, and actual results may differ materially. The uncertainties and risks include, but are not limited to, changes in market activity, anticipated increases in the rate of new customer acquisition, the conversion of new visitors to the site to customers, the activity of customers and assets held at the institution, seasonality, the development and enhancement of products and services, competitive pressures (including price competition), system failures, economic and political conditions, changes in consumer behavior and the introduction of competing products having technological and/or other advantages. Further information about these risks and uncertainties can be found in the information included in the annual reports previously filed by E*TRADE Group, Inc. or E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption “Risk Factors”) and quarterly reports on Form 10-Q.

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 3

Financial Statements

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
	2003			2002			2003			2002
Brokerage revenues:
Commissions	$	97,915		$	73,152		$	337,468		$	294,791
Principal transactions		64,822			59,662			229,846			223,531
Other brokerage-related revenues		44,232			48,590			177,682			174,263
Brokerage interest income		38,308			35,335			144,379			182,103
Brokerage interest expense		(3,473	)		(2,852	)		(10,305	)		(12,515	)

Net brokerage revenues		241,804			213,887			879,070			862,173
Banking revenues:
Gain on sales of originated loans		20,739			50,469			192,467			128,506
Gain on sale of loans held-for-sale and securities, net		28,287			17,625			97,559			83,953
Other banking-related revenues		20,350			17,351			80,730			50,665
Banking interest income		202,996			182,512			748,229			763,890
Banking interest expense		(119,056	)		(129,801	)		(475,824	)		(548,659	)
Provision for loan losses		(12,374	)		(2,723	)		(38,523	)		(14,664	)

Net banking revenues		140,942			135,433			604,638			463,691

Total net revenues		382,746			349,320			1,483,708			1,325,864

Cost of services		152,354			147,156			618,385			567,224

Operating expenses:
Selling and marketing		39,618			45,649			173,066			203,613
Technology development		15,350			12,637			60,741			55,712
General and administrative		62,140			53,614			255,709			210,645
Amortization of other intangibles		11,393			7,086			33,023			28,258
Acquisition-related expenses		(997	)		1,378			1,859			11,473
Restructuring and other exit activity		8,855			12,421			134,561			16,519
Executive agreement		—			—			—			(23,485	)

Total operating expenses		136,359			132,785			658,959			502,735

Total cost of services and operating expenses		288,713			279,941			1,277,344			1,069,959

Operating income		94,033			69,379			206,364			255,905

Non-operating income (expense):
Corporate interest income		1,572			2,715			6,538			12,655
Corporate interest expense		(11,319	)		(11,714	)		(45,569	)		(47,740	)
Gain (loss) on investments		84,894			(3,688	)		147,471			(18,507	)
Equity in income of investments		4,607			3,653			14,834			9,071
Unrealized losses on venture funds		(1,257	)		(221	)		(5,640	)		(9,683	)
Fair value adjustments of financial derivatives		398			(4,939	)		(15,338	)		(11,662	)
Gain on early extinguishment of debt, net		—			—			—			5,346
Other		832			167			1,694			(1,444	)

Total non-operating income (expense)		79,727			(14,027	)		103,990			(61,964	)

Pre-tax income		173,760			55,352			310,354			193,941
Income tax expense		66,277			24,580			112,388			85,122
Minority interest in subsidiaries		28			408			(5,061	)		1,555

Income before cumulative effect of accounting change		107,455			30,364			203,027			107,264
Cumulative effect of accounting change		—			—			—			(293,669	)

Net income (loss)	$	107,455		$	30,364		$	203,027		$	(186,405	)

Income before cumulative effect of accounting change per share:
Basic	$	0.30		$	0.09		$	0.57		$	0.30

Diluted ⁽³⁾	$	0.27		$	0.08		$	0.55		$	0.30

Net income (loss) per share:
Basic	$	0.30		$	0.09		$	0.57		$	(0.52	)

Diluted ⁽³⁾	$	0.27		$	0.08		$	0.55		$	(0.52	)

Shares used in computation of per share data:
Basic		362,944			356,500			358,320			355,090
Diluted ⁽³⁾		421,121			360,566			367,361			361,051

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 4

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	December 31, 2003			September 30, 2003			December 31, 2002
Brokerage revenues:
Commissions	$	97,915		$	92,885		$	73,152
Principal transactions		64,822			64,174			59,662
Other brokerage-related revenues		44,232			46,285			48,590
Brokerage interest income		38,308			36,883			35,335
Brokerage interest expense		(3,473	)		(2,442	)		(2,852	)

Net brokerage revenues		241,804			237,785			213,887
Banking revenues:
Gain on sales of originated loans		20,739			53,308			50,469
Gain on sale of loans held-for-sale and securities, net		28,287			32,819			17,625
Other banking-related revenues		20,350			23,008			17,351
Banking interest income		202,996			176,254			182,512
Banking interest expense		(119,056	)		(117,481	)		(129,801	)
Provision for loan losses		(12,374	)		(7,988	)		(2,723	)

Net banking revenues		140,942			159,920			135,433

Total net revenues		382,746			397,705			349,320

Cost of services		152,354			156,190			147,156

Operating expenses:
Selling and marketing		39,618			43,282			45,649
Technology development		15,350			16,125			12,637
General and administrative		62,140			72,163			53,614
Amortization of other intangibles		11,393			8,582			7,086
Acquisition-related expenses		(997	)		534			1,378
Restructuring and other exit activity		8,855			47,057			12,421

Total operating expenses		136,359			187,743			132,785

Total cost of services and operating expenses		288,713			343,933			279,941

Operating income		94,033			53,772			69,379

Non-operating income (expense):
Corporate interest income		1,572			1,481			2,715
Corporate interest expense		(11,319	)		(11,395	)		(11,714	)
Gain (loss) on investments		84,894			40,985			(3,688	)
Equity in income of investments		4,607			2,938			3,653
Unrealized losses on venture funds		(1,257	)		(749	)		(221	)
Fair value adjustments of financial derivatives		398			(998	)		(4,939	)
Other		832			279			167

Total non-operating income (expense)		79,727			32,541			(14,027	)

Pre-tax income		173,760			86,313			55,352
Income tax expense		66,277			24,867			24,580
Minority interest in subsidiaries		28			43			408

Net income	$	107,455		$	61,403		$	30,364

Net income per share:
Basic	$	0.30		$	0.17		$	0.09

Diluted ⁽³⁾	$	0.27		$	0.17		$	0.08

Shares used in computation of per share data:
Basic		362,944			359,432			356,500
Diluted ⁽³⁾		421,121			371,173			360,566

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 5

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

(Unaudited)

	December 31,
	2003			2002
ASSETS
Cash and equivalents	$	921,439		$	773,605
Cash and investments required to be segregated under Federal or other regulations		1,644,605			1,449,062
Brokerage receivables, net		2,297,932			1,421,766
Mortgage-backed securities		7,157,389			6,932,394
Loans receivable, net		8,130,906			5,552,981
Loans held-for-sale, net		1,000,487			1,812,739
Investments		3,551,746			1,770,447
Property and equipment, net		301,258			370,944
Goodwill		402,315			385,144
Other intangible assets, net		143,990			157,892
Other assets		484,688			828,951

Total assets	$	26,036,755		$	21,455,925

LIABILITIES AND SHAREHOLDERS’ EQUITY
Brokerage payables	$	3,691,176		$	2,713,687
Deposits		12,514,486			8,400,333
Securities sold under agreements to repurchase		5,283,609			5,628,338
Other borrowings by bank subsidiary		1,203,554			1,600,584
Accounts payable, accrued and other liabilities		730,306			768,499
Convertible subordinated notes		695,330			695,330

Total liabilities		24,118,461			19,806,771

Mandatorily redeemable preferred capital securities		—			143,365

Shareholders’ equity:
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at December 31, 2003 and December 31, 2002		—			—
Shares exchangeable into common stock, $.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,386,125 at December 31, 2003 and 1,627,265 at December 31, 2002		14			16
Common stock, $.01 par value, shares authorized: 600,000,000; issued and outstanding: 366,636,406 at December 31, 2003 and 358,044,317 at December 31, 2002		3,666			3,580
Additional paid-in-capital		2,247,930			2,190,200
Deferred stock compensation		(12,874	)		(23,058	)
Accumulated deficit		(230,465	)		(433,492	)
Accumulated other comprehensive loss		(89,977	)		(231,457	)

Total shareholders’ equity		1,918,294			1,505,789

Total liabilities and shareholders’ equity	$	26,036,755		$	21,455,925

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 6

Reconciliation of Reported Results to Results from Ongoing Operations and Ongoing Operating Margin ^{(1) (4)}

	Three Months Ended									Twelve Months Ended
	12/31/2003			9/30/2003			12/31/2002			12/31/2003			12/31/2002
	(dollars in millions, except per share amounts)
Summary of GAAP Financial Information
Income (loss) as reported:
Pre-tax income	$	173.8		$	86.3		$	55.4		$	310.4		$	193.9
Net income (loss)	$	107.5		$	61.4		$	30.4		$	203.0		$	(186.4	)
Diluted earnings (loss) per share	$	0.27		$	0.17		$	0.08		$	0.55		$	(0.52	)

Reconciliation of GAAP Income to Income from Ongoing Operations
Pre-tax income per GAAP	$	173.8		$	86.3		$	55.4		$	310.4		$	193.9
Amortization of other intangibles		11.4			8.6			7.1			33.0			28.3
Acquisition-related expenses		(1.0	)		0.5			1.4			1.9			11.5
Restructuring and other exit activity		8.9			47.1			12.4			134.6			16.5
Unrealized losses on venture funds		1.3			0.7			0.2			5.6			9.7
(Gain) loss on investments		(84.9	)		(41.0	)		3.7			(147.5	)		18.5
Fair value adjustments of financial derivatives		(0.4	)		1.0			4.9			15.3			11.7
Gain on early extinguishment of debt		—			—			—			—			(5.3	)
Executive agreement		—			—			—			—			(23.5	)

Pre-tax income from ongoing operations	$	109.0		$	103.2		$	85.1		$	353.3		$	261.2

Income from ongoing operations—after tax	$	68.0		$	63.0		$	52.7		$	216.8		$	162.6

Minority interest per GAAP	$	—		$	(0.1	)	$	(0.4	)	$	5.1		$	(1.6	)
Adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit activity and tax expense	$	—		$	—		$	—		$	(6.7	)	$	—

Income from ongoing after-tax and minority interest	$	68.0		$	62.9		$	52.3		$	215.1		$	161.1

EPS from ongoing operations on a diluted basis	$	0.18		$	0.17		$	0.14		$	0.59		$	0.45

Reconciliation of Ongoing Operating Margin
Operating income	$	94.0		$	53.8		$	69.4		$	206.4		$	255.9
Amortization of other intangibles		11.4			8.6			7.1			33.0			28.3
Acquisition-related expenses		(1.0	)		0.5			1.4			1.9			11.5
Restructuring and other exit activity		8.9			47.1			12.4			134.6			16.5
Executive agreement		—			—			—			—			(23.5	)

Ongoing operating margin	$	113.3		$	110.0		$	90.3		$	375.9		$	288.7
Ongoing operating margin as a percentage of net revenues		30%			28%			26%			25%			22%

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 7

Segment Reporting

	Three Months Ended December 31, 2003
	Brokerage			Banking			Elimination (5)			Total
	(Unaudited, in thousands)
Commissions	$	97,915		$	—		$	—		$	97,915
Principal transactions		64,822			—						64,822
Interest income		38,308			202,996						241,304
Interest expense		(3,473	)		(119,056	)					(122,529	)
Gain on sales of originated loans		—			20,739						20,739
Gain on sale of loans held-for-sale and securities, net		—			28,287						28,287
Provision for loan losses		—			(12,374	)					(12,374	)
Other revenues		51,958			20,350			(7,726	)		64,582

Net revenues		249,530			140,942			(7,726	)		382,746

Cost of services		106,170			46,184						152,354
Selling and marketing		30,333			17,011			(7,726	)		39,618
Technology development		11,481			3,869						15,350
General and administrative		33,303			28,837						62,140
Amortization of other intangibles		6,910			4,483						11,393
Acquisition-related expenses		471			(1,468	)					(997	)
Restructuring and other exit activity		7,209			1,646						8,855

Total cost of services and operating expenses		195,877			100,562			(7,726	)		288,713

Operating income	$	53,653		$	40,380		$	—		$	94,033


	Three Months Ended September 30, 2003
	Brokerage			Banking			Elimination (5)			Total
	(Unaudited, in thousands)
Commissions	$	92,885		$	—		$	—		$	92,885
Principal transactions		64,174			—						64,174
Interest income		36,883			176,254						213,137
Interest expense		(2,442	)		(117,481	)					(119,923	)
Gain on sales of originated loans		—			53,308						53,308
Gain on sale of loans held-for-sale and securities, net		—			32,819						32,819
Provision for loan losses		—			(7,988	)					(7,988	)
Other revenues		47,334			23,008			(1,049	)		69,293

Net revenues		238,834			159,920			(1,049	)		397,705

Cost of services		103,808			52,382						156,190
Selling and marketing		30,941			13,390			(1,049	)		43,282
Technology development		12,493			3,632						16,125
General and administrative (6)		34,149			38,014						72,163
Amortization of other intangibles		4,445			4,137						8,582
Acquisition-related expenses		472			62						534
Restructuring and other exit activity		30,505			16,552						47,057

Total cost of services and operating expenses		216,813			128,169			(1,049	)		343,933

Operating income	$	22,021		$	31,751		$	—		$	53,772


	Three Months Ended December 31, 2002
	Brokerage			Banking			Total
	(Unaudited, in thousands)
Commissions	$	73,152		$	—		$	73,152
Principal transactions		59,662			—			59,662
Interest income		35,335			182,512			217,847
Interest expense		(2,852	)		(129,801	)		(132,653	)
Gain on sales of originated loans		—			50,469			50,469
Gain on sale of loans held-for-sale and securities, net		—			17,625			17,625
Provision for loan losses		—			(2,723	)		(2,723	)
Other revenues		48,590			17,351			65,941

Net revenues		213,887			135,433			349,320

Cost of services		93,689			53,467			147,156
Selling and marketing		35,463			10,186			45,649
Technology development		10,564			2,073			12,637
General and administrative		32,220			21,394			53,614
Amortization of other intangibles		4,234			2,852			7,086
Acquisition-related expenses		668			710			1,378
Restructuring and other exit activity		11,327			1,094			12,421

Total cost of services and operating expenses		188,165			91,776			279,941

Operating income	$	25,722		$	43,657		$	69,379

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 8

Key Performance Metrics ⁽⁴⁾

	Qtr ended 12/31/03			Qtr ended 9/30/03			Qtr ended 12/31/03 vs. Qtr ended 9/30/03		Qtr ended 12/31/02			Qtr ended 12/31/03 vs. Qtr ended 12/31/02		Year ended 12/31/03			Year ended 12/31/02			Year ended 12/31/03 vs. Year ended 12/31/02
Corporate Metrics

Gross margin %		60	%		61	%	(1	)%		58	%	2	%		58	%		57	%	1	%
Operating margin %		25	%		14	%	11	%		20	%	5	%		14	%		19	%	(5	)%
Ongoing operating margin % ⁽¹⁾		30	%		28	%	2	%		26	%	4	%		25	%		22	%	3	%

Employees		3,455			3,528		(2	)%		3,478		(1	)%		3,455			3,478		(1	)%
Consultants and other		314			382		(18	)%		279		13	%		314			279		13	%

Total headcount		3,769			3,910		(4	)%		3,757		0	%		3,769			3,757		0	%

Revenue per headcount	$	101,551		$	101,715		0	%	$	92,978		9	%	$	393,661		$	352,905		12	%

Compensation and benefits ($MM)	$	97.1		$	103.2		(6	)%	$	82.0		18	%	$	386.0		$	315.1		22	%
Revenue per compensation and benefits dollar	$	3.94		$	3.86		2	%	$	4.26		(7	)%	$	3.84		$	4.21		(9	)%

Book value per share	$	5.21		$	4.68		11	%	$	4.19		24	%	$	5.21		$	4.19		24	%
Tangible book value per share	$	3.73		$	3.12		20	%	$	2.68		39	%	$	3.73		$	2.68		39	%

Cash & equivalents ($MM)	$	921.4		$	990.2		(7	)%	$	773.6		19	%	$	921.4		$	773.6		19	%
Free cash ($MM) ⁽²⁾	$	649.6		$	530.1		23	%	$	367.0		77	%	$	649.6		$	367.0		77	%

Earnings before interest, taxes, depreciation & amortization ($MM) ⁽²⁾
Net income (loss)	$	107.5		$	61.4		75	%	$	30.4		253	%	$	203.0		$	(186.4	)	209	%
Cumulative effect of accounting change	$	—		$	—		N.M.		$	—		N.M.		$	—		$	293.7		N.M.
Tax expense	$	66.3		$	24.9		167	%	$	24.6		169	%	$	112.4		$	85.1		32	%
Depreciation & amortization	$	31.9		$	29.7		8	%	$	36.0		(11	)%	$	123.5		$	141.3		(13	)%
Corporate interest expense	$	11.3		$	11.4		(1	)%	$	11.7		(3	)%	$	45.6		$	47.7		(4	)%

EBITDA	$	217.0		$	127.3		70	%	$	102.7		111	%	$	484.4		$	381.4		27	%

Interest coverage ⁽²⁾		19.2			11.2		72	%		8.8		118	%		10.6			8.0		33	%

Active retail brokerage accounts		2,848,625			2,854,900		0	%		3,690,916		(23	)%		2,848,625			3,690,916		(23	)%
Active banking accounts		638,345			657,646		(3	)%		511,298		25	%		638,345			511,298		25	%

Total active accounts end of period		3,486,970			3,512,546		(1	)%		4,202,214		(17	)%		3,486,970			4,202,214		(17	)%

Total customer households end of period		2,656,025			2,678,409		(1	)%		3,132,024		(15	)%		2,656,025			3,132,024		(15	)%

Gross new accounts		154,298			169,593		N.M.			204,796		N.M.			821,468			783,987		N.M.
Inactive accounts		(105,214	)		(128,002	)	N.M.			(119,283	)	N.M.			(1,273,914	)		(341,576	)	N.M.
Customer closed accounts		(74,660	)		(73,038	)	N.M.			(53,626	)	N.M.			(262,798	)		(243,051	)	N.M.

Net new accounts		(25,576	)		(31,447	)	N.M.			31,887		N.M.			(715,244	)		199,360		N.M.

Net new households		(22,384	)		68,673		N.M.			40,471		N.M.			(475,999	)		127,003		N.M.

Total client assets in investing accounts ($B)	$	70.8		$	60.3		17	%	$	41.6		70	%	$	70.8		$	41.6		70	%
Total deposits in banking accounts ($B)	$	12.5		$	11.5		9	%	$	8.4		49	%	$	12.5		$	8.4		49	%

Total assets / deposits in customer accounts ($B)	$	83.3		$	71.8		16	%	$	50.0		67	%	$	83.3		$	50.0		67	%

Average assets per household	$	31,376		$	26,809		17	%	$	15,978		96	%	$	31,376		$	15,978		96	%

Acquisition marketing costs ($MM)	$	10.1		$	16.0		(37	)%	$	14.1		(28	)%	$	61.3		$	72.8		(16	)%

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 9

	Qtr ended 12/31/03			Qtr ended 9/30/03			Qtr ended 12/31/03 vs. Qtr ended 9/30/03		Qtr ended 12/31/02			Qtr ended 12/31/03 vs. Qtr ended 12/31/02		Year ended 12/31/03			Year ended 12/31/02			Year ended 12/31/03 vs. Year ended 12/31/02
Brokerage Metrics

Trading days		62.5			63.5		(2	)%		63.0		(1	)%		250.0			250.0		0	%

Daily Average Revenue Trades (DARTs)
US		83,081			75,605		10	%		57,645		44	%		69,623			62,200		12	%
International		8,891			8,624		3	%		5,321		67	%		7,429			4,388		69	%
Professional		48,154			48,332		0	%		33,203		45	%		42,208			20,876		102	%

Total DARTs		140,126			132,561		6	%		96,169		46	%		119,260			87,464		36	%

Total revenue trades (MM)		8.8			8.4		4	%		6.1		45	%		29.8			21.9		36	%

Average commission per revenue trade	$	11.18		$	11.03		1	%	$	12.07		(7	)%	$	11.32		$	13.48		(16	)%

Market Making
Equity shares traded (MM)		26,190			18,460		42	%		8,477		209	%		69,070			46,577		48	%
Average revenue capture per 1,000 equity shares	$	0.912		$	1.167		(22	)%	$	2.650		(66	)%	$	1.180		$	1.993		(41	)%
% of Bulletin Board equity shares to total equity shares		82.9	%		77.2	%	6	%		60.0	%	23	%		77.0	%		74.2	%	3	%

End of period margin debt ($B)	$	1.76		$	1.45		21	%	$	0.97		81	%	$	1.76		$	0.97		81	%
Average margin debt ($B)	$	1.64		$	1.24		33	%	$	0.91		80	%	$	1.22		$	1.25		(2	)%

Active retail brokerage accounts		2,848,625			2,854,900		0	%		3,690,916		(23	)%		2,848,625			3,690,916		(23	)%

Gross new brokerage accounts		112,275			127,384		N.M.			162,885		N.M.			501,606			590,980		N.M.
Inactive accounts		(105,214	)		(129,963	)	N.M.			(115,820	)	N.M.			(1,288,479	)		(338,113	)	N.M.
Customer closed accounts		(13,336	)		(13,206	)	N.M.			(15,777	)	N.M.			(55,418	)		(73,892	)	N.M.

Net new brokerage accounts		(6,275	)		(15,785	)	N.M.			31,288		N.M.			(842,291	)		178,975		N.M.

New client assets ($MM)	$	3,266		$	2,385		37	%		N.A.		N.A.		$	12,788			N.A.		N.A.
Client asset outflow from closed accounts	$	(400	)	$	(410	)	2	%		N.A.		N.A.		$	(1,461	)		N.A.		N.A.

Net new client assets	$	2,867		$	1,975		45	%		N.A.		N.A.		$	11,327			N.A.		N.A.

Total Client Assets ($B)
Security holdings	$	43.9		$	38.0		16	%	$	26.2		68	%	$	43.9		$	26.2		68	%
Cash (including money market funds)	$	6.2		$	7.6		(18	)%	$	8.9		(30	)%	$	6.2		$	8.9		(30	)%
Unexercised options (vested)	$	20.7		$	14.7		41	%	$	6.5		218	%	$	20.7		$	6.5		218	%

Total client assets in investing accounts	$	70.8		$	60.3		17	%	$	41.6		70	%	$	70.8		$	41.6		70	%

Total client assets per active account	$	24,861		$	21,122		18	%	$	11,271		121	%	$	24,854		$	11,271		121	%

Unexercised options (unvested) ($B)	$	14.9		$	10.8		38	%	$	3.0		393	%	$	14.9		$	3.0		393	%

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 10

	Qtr ended 12/31/03			Qtr ended 9/30/03			Qtr ended 12/31/03 vs. Qtr ended 9/30/03		Qtr ended 12/31/02			Qtr ended 12/31/03 vs. Qtr ended 12/31/02		Year ended 12/31/03			Year ended 12/31/02			Year ended 12/31/03 vs. Year ended 12/31/02
Banking Metrics

Gross new banking accounts		42,023			42,209		N.M.			41,911		N.M.			319,862			193,007		N.M.
Inactive accounts		—			1,961		N.M.			(3,463	)	N.M.			14,565			(3,463	)	N.M.
Customer closed accounts		(61,324	)		(59,832	)	N.M.			(37,849	)	N.M.			(207,380	)		(169,159	)	N.M.

Net new banking accounts		(19,301	)		(15,662	)	N.M.			599		N.M.			127,047			20,385		N.M.

Direct mortgage originations ($B)	$	0.9		$	2.4		(61	)%	$	2.1		(55	)%	$	8.8		$	6.1		43	%
Correspondent mortgage originations ($B)	$	1.2		$	1.7		(28	)%	$	1.4		(12	)%	$	5.2		$	5.5		(6	)%
Consumer loan originations, incl HELOCs ($B)	$	0.7		$	0.7		(4	)%	$	0.1		468	%	$	2.6		$	0.2		960	%
Acquired consumer loans ($B)	$	0.7		$	—		N.M.		$	1.8		(60	)%	$	1.2		$	2.6		(53	)%
Mortgage pipeline (end of period) ($B)	$	0.3		$	0.5		(37	)%	$	1.1		(73	)%	$	0.3		$	1.1		(73	)%

Automated teller machines (ATMs)		15,057			15,217		(1	)%		11,586		30	%		15,057			11,586		30	%

Bank Asset Portfolio Detail ($MM)
Cash & equivalents	$	276		$	383		(28	)%	$	279		(1	)%	$	276		$	279		(1	)%
Trading securities	$	821		$	774		6	%	$	392		109	%	$	821		$	392		109	%
Investment securities, available-for-sale	$	2,413		$	2,094		15	%	$	1,258		92	%	$	2,413		$	1,258		92	%
Mortgage securities, available-for-sale	$	7,157		$	6,972		3	%	$	6,932		3	%	$	7,157		$	6,932		3	%
Loans receivable, net including loans held-for-sale:
- Mortgage and home equity loans, net	$	4,847		$	3,207		51	%	$	3,846		26	%	$	4,847		$	3,846		26	%
- Consumer loans, net	$	4,284		$	4,314		(1	)%	$	3,517		22	%	$	4,284		$	3,517		22	%
- Other	$	1		$	1		(23	)%	$	2		(50	)%	$	1		$	2		(50	)%
Other assets	$	587		$	643		(9	)%	$	907		(35	)%	$	587		$	907		(35	)%

Total assets	$	20,386		$	18,388		11	%	$	17,133		19	%	$	20,386		$	17,133		19	%

Bank Deposit Portfolio Detail ($MM)
Transaction accounts	$	8,988		$	7,546		19	%	$	4,279		110	%	$	8,988		$	4,279		110	%
CDs	$	3,527		$	3,988		(12	)%	$	4,122		(14	)%	$	3,527		$	4,122		(14	)%

Total	$	12,514		$	11,534		9	%	$	8,400		49	%	$	12,514		$	8,400		49	%

Bank interest rate spread (basis points)		169			133		27	%		140		21	%		150			144		4	%

Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.44	%		0.44	%	0.00	%		0.51	%	(0.07	)%		0.50	%		0.36	%	0.14	%
Provision as a % of average held-for-investment loans, net (annualized)		0.65	%		0.51	%	0.14	%		0.27	%	0.38	%		0.61	%		0.25	%	0.36	%
Allowance as a % of total ending gross held-for-investment loans		0.46	%		0.50	%	(0.05	)%		0.50	%	(0.05	)%		0.46	%		0.50	%	(0.05	)%
Total non-performing loans, net, as a % of total gross held-for-investment loans		0.30	%		0.32	%	(0.02	)%		0.47	%	(0.17	)%		0.30	%		0.47	%	(0.17	)%
Total loan loss allowance as a % of total non-performing loans, net		154	%		156	%	(2	)%		104	%	49	%		154	%		104	%	49	%

Tier 1 Capital Ratio ⁽⁷⁾		5.92	%		6.16	%	(0.24	)%		5.67	%	0.25	%		5.92	%		5.67	%	0.25	%
Risk Weighted Capital Ratio ⁽⁷⁾		11.30	%		12.50	%	(1.20	)%		11.70	%	(0.40	)%		11.30	%		11.70	%	(0.40	)%

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 11

Activity in Allowance for Loan Losses

	Three Months Ending December 31, 2003
	Mortgage			Consumer			Total
	(in thousands)
Allowance for loan losses, ending 9/30/03	$	3,328		$	30,680		$	34,008
Provision for loan losses		2,457			9,917			12,374
Charge-offs, net		(123	)		(8,412	)		(8,535	)

Allowance for loan losses, ending 12/31/03	$	5,662		$	32,185		$	37,847

Bank Average Balance Data

	Three Months Ended December 31, 2003						Three Months Ended December 31, 2002
	Average Balance		Interest Income/ Expense		Average Annualized Yield/Cost		Average Balance		Interest Income/ Expense		Average Annualized Yield/Cost
	(in thousands)
Interest-earning banking assets:
Loans receivable, net	$	8,608,426	$	101,423	4.71	%	$	7,386,005	$	111,184	6.02	%
Interest-bearing deposits		166,573		1,047	2.49	%		193,968		1,230	2.52	%
Mortgage-backed and related available-for-sale securities		7,151,508		70,315	3.93	%		5,568,696		54,797	3.94	%
Available-for-sale investment securities		2,303,438		24,247	4.21	%		1,041,517		11,725	4.50	%
Investment in FHLB stock		79,236		693	3.47	%		83,053		1,130	5.40	%
Trading securities		786,006		5,995	3.05	%		365,320		2,668	2.92	%

Total interest-earning banking assets (8)		19,095,187	$	203,720	4.27	%		14,638,559	$	182,734	4.99	%

Non-interest-earning banking assets		761,853						732,360

Total banking assets	$	19,857,040					$	15,370,919

Interest-bearing banking liabilities:
Retail deposits	$	11,331,066	$	58,496	2.05	%	$	7,890,993	$	75,642	3.80	%
Brokered certificates of deposit		243,210		1,742	2.84	%		406,322		3,030	2.96	%
FHLB advances		927,761		11,593	4.89	%		1,244,353		14,639	4.60	%
Other borrowings		5,798,868		47,225	3.19	%		4,794,141		36,490	2.98	%

Total interest-bearing banking liabilities		18,300,905	$	119,056	2.58	%		14,335,809	$	129,801	3.59	%

Non-interest bearing banking liabilities		596,475						240,016

Total banking liabilities		18,897,380						14,575,825
Total banking shareholder’s equity		959,660						795,094

Total banking liabilities and shareholder’s equity	$	19,857,040					$	15,370,919

Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income	$	794,282	$	84,664			$	302,750	$	52,933

Net interest spread					1.69	%					1.40	%

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 12

SUPPLEMENTAL INFORMATION AND ENDNOTES

Explanation of Non-GAAP Measures and Certain Metrics

In order to better assess the Company’s financial operating results, management believes results from ongoing operations, ongoing operating margin, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company.

⁽¹⁾Results From Ongoing Operations, Ongoing Operating Margin

Results from ongoing operations exclude gain or loss on early extinguishment of debt, amortization of other intangibles, acquisition-related expenses, the gain or loss on investments, unrealized losses on venture funds, the fair value adjustments of financial derivatives related to the impact of Statement of Financial Accounting Standards (SFAS) No. 133, executive agreement, restructuring and other exit activity, the cumulative effect of accounting changes and the adjustment to minority interest for the consolidating impact of E*TRADE FINANCIAL Advisor on restructuring and other exit activity and tax expense. Ongoing operating margin excludes, in addition to the above, corporate interest income, corporate interest expense, equity in income of investments and other non-operating items. Management believes this measure to be appropriate in determining the operating performance of the Company’s core business on an ongoing basis and represents the measure used by analysts and the investment community historically to evaluate company performance. As previously announced, however, beginning in calendar year 2004, management will not report this measure.

⁽²⁾ Free Cash and Interest Coverage

Free cash as reported by the Company represents cash held at Parent and non-Bank or Brokerage subsidiaries less discretionary reserves and excess capital at Bank and Brokerage after regulatory capital requirements and the Company’s own regulatory capital guidelines. The Company believes that free cash is a useful measure of the Company’s liquidity as it excludes cash reflected on the balance sheet that may not be freely available to the Company. Interest coverage is defined as EBITDA divided by corporate interest expense.

It is important to note these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as a substitute for, or superior to, net income, operating margin, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.

(3) For the three months ended December 31, 2003, diluted income before cumulative effect of accounting change per share and net income per share are calculated using the ‘if converted’ method, which includes the additional dilutive impact assuming conversion of the Company’s subordinated convertible debt. Under the ‘if converted’ method the per share numerator excludes the interest expense and related amortization of offering costs from the convertible debt of $7.2 million, net of tax, and the denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million. For all other periods, the ‘if converted’ method is not used as its effect would be anti-dilutive.

E*TRADE FINANCIAL Results for the Quarter Ended December 31, 2003

Page 13

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

(5) Eliminates intercompany payment made by Bank to Brokerage related to Sweep Deposit Account (SDA) relationships, swept daily from Brokerage to Bank, which began in the third quarter of 2003. Under this relationship, Bank pays Brokerage a negotiated rate that approximates market on the average SDA balance. Bank reflects this payment as selling and marketing expense and Brokerage reflects this payment as other revenues.

(6) Included in general and administrative for the quarter ended September 30, 2003, is a $6 million charge related to a litigation settlement in the Banking Segment related to claims for employee overtime.

(7) Q4’03 estimate

(8) Amount includes a taxable equivalent increase in interest income of $0.7 million for the quarter ended December 31, 2003, and $0.2 million for the quarter ended December 31, 2002.