8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest reported) July 20, 2004

E*TRADE Financial Corporation (Exact name of registrant as specified in its chapter)
Delaware (State or other jurisdiction of incorporation)	1-11921 (Commission File Number)	94-2844166 (IRS Employer Identification No.)
135 East 57th Street, New York, New York (Address of principal executive offices)		10022 (Zip Code)

Registrant’s telephone number, including area code	646-521-4300
(Former name or former address, if changed since last report)

ITEM 9: REGULATION FD DISCLOSURE

ITEM 12: RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following information is furnished pursuant to Item 9, “Regulation FD Disclosure” and Item 12, “Results of Operations and Financial Condition.”

On July 20, 2004, the Company announced its second-quarter earnings for fiscal year 2004. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

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

Exhibit Index

99.1    Earnings Press Release, dated July 20, 2004

SIGNATURE

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

Date: July 20, 2004	E*TRADE Financial Corporation
	By:	/s/    Russell S. Elmer
		Russell S. Elmer
		Corporate Secretary

EX-99.1

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

703-236-8719

adam.townsend@etrade.com

E*TRADE FINANCIAL CORPORATION REPORTS

Q2 EARNINGS OF $0.31 PER SHARE AND RAISES GUIDANCE

• Reported second quarter earnings of $0.31 per share on net income of $123 million

• Raised 2004 GAAP earnings guidance to between $0.87 and $0.97 per share from $0.75 to $0.90 per share

• Reported Total Daily Average Revenue Trades of 127,400 in Q2, an increase of 9 percent year over year and a decrease of 19 percent quarter over quarter

• Increased average margin debt to $2.13 billion, an increase of 107 percent year over year and 8 percent quarter over quarter

• Improved bank spread to 205 basis points from 145 basis points in Q203 and 185 basis points in Q104

New York, July 20, 2004 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its second quarter ended June 30, 2004, reporting net income of $123 million, or $0.31 per diluted share, compared to net income of $13 million, or $0.03 per share, in the same quarter a year ago. Net revenues totaled $381 million, a three percent increase over the year ago period.

The Company’s 2004 GAAP earnings guidance of $0.75 to $0.90 per share is being increased and narrowed to between $0.87 and $0.97 to reflect a $0.07 per share gain on the sale of E*TRADE Access, the Company’s ATM business, strong year-to-date results and the Company’s outlook for the remainder of the year.

“Amid ongoing macroeconomic uncertainty, we remain focused on building a premier franchise that delivers strong financial performance and long-term shareholder value,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Our second quarter earnings demonstrate the ability of our integrated brokerage and bank model to generate superior results in the short term while we continue to build for future growth.”

(more)

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 2

Other selected highlights from the second quarter of 2004:

• Launched redesigned website with improved navigation and functionality

• Offered proprietary stock index funds with the lowest expense ratios in the industry

• Added nearly 21,000 net new brokerage accounts

• Completed a $400 million senior note offering

• Deleveraged the balance sheet through the call/redemption of subordinated convertible notes

• Recorded a 54 percent increase in international DARTs year over year

• Ranked second out of fifteen in the premium discount category in Smart Money magazine’s annual brokerage survey

“The tremendous progress we have made in the first half of the year toward achieving 2004 goals along with the Company’s modified assumptions for the second half of the year gives us the confidence to raise and tighten the guidance range,” said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. “In addition to de-leveraging the balance sheet to create $0.02 in annual earnings accretion and achieving a 205 basis point spread through the continued integration of bank and brokerage, we have broadened the appeal of our value proposition by enhancing functionality, service and pricing for our customers.”

Historical monthly metric data from January 2003 to June 2004 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.

^© 2004 E*TRADE FINANCIAL Corporation. All rights reserved.

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 3

Financial Statements

E * T R A D E    F I N A N C I A L    C O R P O R A T I O N    A N D    S U B S I D I A R I E S

C o n s o l i d a t e d    S t a t e m e n t s    o f    O p e r a t i o n s

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Brokerage revenues:
Commissions	$	79,156		$	85,780		$	191,386		$	146,668
Principal transactions		67,447			58,640			136,876			100,850
Other brokerage-related revenues		41,798			45,269			84,955			87,165
Brokerage interest income		43,707			34,868			84,960			69,188
Brokerage interest expense		(4,134	)		(1,877	)		(7,254	)		(4,390	)
Net brokerage revenues		227,974			222,680			490,923			399,481
Banking revenues:
Banking interest income		230,228			181,891			444,612			369,277
Banking interest expense		(115,904	)		(117,954	)		(233,510	)		(239,287	)
Provision for loan losses		(7,501	)		(7,828	)		(16,556	)		(18,161	)
Gain on sales of originated loans		21,475			62,025			48,575			118,420
Gain on sales of loans held-for-sale and securities, net		14,891			20,940			28,953			36,155
Other banking-related revenues		9,690			7,412			18,331			15,701
Net banking revenues		152,879			146,486			290,405			282,105
Total net revenues		380,853			369,166			781,328			681,586
Expenses excluding interest:
Compensation and benefits		99,896			98,061			199,358			189,707
Occupancy and equipment		19,119			21,517			39,114			44,773
Communications		18,093			19,490			37,535			40,799
Professional services		15,672			24,921			30,036			35,121
Commissions, clearing and floor brokerage		41,926			38,554			85,853			68,696
Advertising and market development		14,773			18,914			38,827			35,400
Servicing and other banking expenses		8,984			11,063			17,450			21,268
Fair value adjustments of financial derivatives		(2,395	)		7,923			(2,121	)		14,738
Depreciation and amortization		20,546			23,087			41,069			48,726
Amortization of other intangibles		6,777			6,570			13,696			13,371
Facility restructuring and other exit charges		48			75,468			(911	)		78,338
Acquisition-related expenses		62			1,015			124			2,322
Other		21,450			21,837			46,439			45,019
Total expenses excluding interest		264,951			368,420			546,469			638,278
Income before other corporate items		115,902			746			234,859			43,308
Other income (loss):
Corporate interest income		1,694			1,882			3,057			3,503
Corporate interest expense		(12,540	)		(11,431	)		(23,878	)		(22,878	)
Gain on sale and impairment of investments		31,728			22,346			60,277			21,720
Loss on early extinguishment of debt		(4,357	)		—			(4,357	)		—
Equity in income of investments and venture funds		462			810			3,064			3,623
Total other income		16,987			13,607			38,163			5,968
Income before income taxes and discontinued operations		132,889			14,353			273,022			49,276
Income tax expense		41,195			6,100			91,003			20,855
Minority interest in subsidiaries		89			(5,640	)		829			(5,132	)
Income from continuing operations		91,605			13,893			181,190			33,553
Discontinued operations:
Income (loss) from discontinued operations, net		56			(1,206	)		(1,054	)		616
Gain on disposal of discontinued operations, net		31,244			—			31,244			—
Net income (loss) from discontinued operations		31,300			(1,206	)		30,190			616
Net income	$	122,905		$	12,687		$	211,380		$	34,169
Basic income per share from continuing operations	$	0.25		$	0.04		$	0.50		$	0.10
Basic income (loss) per share from discontinued operations		0.09			(0.00	)		0.08			0.00
Basic net income per share	$	0.34		$	0.04		$	0.58		$	0.10
Diluted income per share from continuing operations	$	0.24		$	0.03		$	0.47		$	0.09
Diluted income (loss) per share from discontinued operations		0.07			(0.00	)		0.07			0.00
Diluted net income per share	$	0.31		$	0.03		$	0.54		$	0.09
Shares used in computation of per share data:
Basic		365,072			356,237			364,939			355,475
Diluted (1)		416,713			363,697			420,841			361,072

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 4

E * T R A D E    F I N A N C I A L    C O R P O R A T I O N    A N D    S U B S I D I A R I E S

C o n s o l i d a t e d    S t a t e m e n t s    o f    O p e r a t i o n s

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	June 30, 2004			March 31, 2004			June 30, 2003
Brokerage revenues:
Commissions	$	79,156		$	112,230		$	85,780
Principal transactions		67,447			69,429			58,640
Other brokerage-related revenues		41,798			43,157			45,269
Brokerage interest income		43,707			41,253			34,868
Brokerage interest expense		(4,134	)		(3,120	)		(1,877	)
Net brokerage revenues		227,974			262,949			222,680
Banking revenues:
Banking interest income		230,228			214,384			181,891
Banking interest expense		(115,904	)		(117,606	)		(117,954	)
Provision for loan losses		(7,501	)		(9,055	)		(7,828	)
Gain on sales of originated loans		21,475			27,100			62,025
Gain on sales of loans held-for-sale and securities, net		14,891			14,062			20,940
Other banking-related revenues		9,690			8,641			7,412
Net banking revenues		152,879			137,526			146,486
Total net revenues		380,853			400,475			369,166
Expenses excluding interest:
Compensation and benefits		99,896			99,462			98,061
Occupancy and equipment		19,119			19,995			21,517
Communications		18,093			19,442			19,490
Professional services		15,672			14,364			24,921
Commissions, clearing and floor brokerage		41,926			43,927			38,554
Advertising and market development		14,773			24,054			18,914
Servicing and other banking expenses		8,984			8,466			11,063
Fair value adjustments of financial derivatives		(2,395	)		274			7,923
Depreciation and amortization		20,546			20,523			23,087
Amortization of other intangibles		6,777			6,919			6,570
Facility restructuring and other exit charges		48			(959	)		75,468
Acquisition-related expenses		62			62			1,015
Other		21,450			24,989			21,837
Total expenses excluding interest		264,951			281,518			368,420
Income before other corporate items		115,902			118,957			746
Other income (loss):
Corporate interest income		1,694			1,363			1,882
Corporate interest expense		(12,540	)		(11,338	)		(11,431	)
Gain on sale and impairment of investments		31,728			28,549			22,346
Loss on early extinguishment of debt		(4,357	)		—			—
Equity in income of investments and venture funds		462			2,602			810
Total other income		16,987			21,176			13,607
Income before income taxes and discontinued operations		132,889			140,133			14,353
Income tax expense		41,195			49,808			6,100
Minority interest in subsidiaries		89			740			(5,640	)
Income from continuing operations		91,605			89,585			13,893
Discontinued operations:
Income (loss) from discontinued operations, net		56			(1,110	)		(1,206	)
Gain on disposal of discontinued operations, net		31,244			—			—
Net income (loss) from discontinued operations		31,300			(1,110	)		(1,206	)
Net income	$	122,905		$	88,475		$	12,687
Basic income per share from continuing operations	$	0.25		$	0.24		$	0.04
Basic income (loss) per share from discontinued operations		0.09			(0.00	)		(0.00	)
Basic net income per share	$	0.34		$	0.24		$	0.04
Diluted income per share from continuing operations	$	0.24		$	0.23		$	0.03
Diluted income (loss) per share from discontinued operations		0.07			(0.00	)		(0.00	)
Diluted net income per share	$	0.31		$	0.23		$	0.03
Shares used in computation of per share data:
Basic		365,072			365,045			356,237
Diluted (1)		416,713			425,155			363,697

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 5

E * T R A D E    F I N A N C I A L    C O R P O R A T I O N    A N D    S U B S I D I A R I E S

C o n s o l i d a t e d    B a l a n c e    S h e e t s

(dollars in thousands)

(unaudited)

	June 30, 2004			March 31, 2004			December 31, 2003
ASSETS
Cash and equivalents	$	1,243,571		$	845,447		$	921,364
Cash and investments required to be segregated under Federal or other regulations		1,362,755			1,263,813			1,644,605
Brokerage receivables, net		3,639,541			3,717,793			2,297,778
Trading securities		776,734			817,299			832,889
Available-for-sale mortgage-backed and investment securities		11,630,652			10,078,971			9,826,940
Other investments		51,043			48,081			49,272
Loans receivable, net		9,557,278			8,311,301			8,130,906
Loans held-for-sale, net		446,297			400,101			1,000,487
Property and equipment, net		284,146			286,001			287,097
Goodwill		392,520			393,355			392,845
Other intangibles, net		115,444			119,707			126,032
Net assets of discontinued operations		6,899			49,424			47,785
Other assets		731,578			578,025			491,216
Total assets	$	30,238,458		$	26,909,318		$	26,049,216
LIABILITIES AND SHAREHOLDERS’ EQUITY
Brokerage payables	$	4,710,976		$	4,715,428		$	3,696,225
Deposits		11,837,898			11,975,689			12,514,486
Securities sold under agreements to repurchase		8,412,010			5,607,065			5,283,609
Other borrowings by Bank subsidiary		1,476,091			1,166,742			1,203,554
Accounts payable, accrued and other liabilities		708,994			754,562			724,681
Net liabilities of discontinued operations		45,821			16,701			13,037
Convertible subordinated notes		532,783			695,330			695,330
Senior notes		400,000			—			—
Total liabilities		28,124,573			24,931,517			24,130,922
Shareholders’ equity:
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at June 30, 2004, March 31, 2004 and December 31, 2003		—			—			—
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,326,125 at June 30, 2004 and at March 31, 2004 and 1,386,125 at December 31, 2003		13			13			14
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 372,503,216 at June 30, 2004, 367,267,118 at March 31, 2004 and 366,636,406 at December 31, 2003		3,725			3,673			3,666
Additional paid-in-capital		2,275,745			2,229,190			2,247,930
Deferred stock compensation		(18,192	)		(13,207	)		(12,874	)
Accumulated deficit		(19,085	)		(141,990	)		(230,465	)
Accumulated other comprehensive loss		(128,321	)		(99,878	)		(89,977	)
Total shareholders’ equity		2,113,885			1,977,801			1,918,294
Total liabilities and shareholders’ equity	$	30,238,458		$	26,909,318		$	26,049,216

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 6

Segment Reporting

	Three Months Ended June 30, 2004
	Brokerage			Banking			Elimination (2)			Total
	(unaudited, in thousands)
Net revenues:
Commissions	$	79,156		$	—					$	79,156
Principal transactions		67,447			—						67,447
Interest income		43,707			230,228						273,935
Interest expense		(4,134	)		(115,904	)					(120,038	)
Gain on sales of originated loans		—			21,475						21,475
Gain on sales of loans held-for-sale and securities, net		—			14,891						14,891
Provision for loan losses		—			(7,501	)					(7,501	)
Other revenues		53,163			9,690			(11,365	)		51,488
Net revenues		239,339			152,879			(11,365	)		380,853
Expenses excluding interest:
Compensation and benefits		62,212			37,684						99,896
Occupancy and equipment		12,763			6,356						19,119
Communications		16,785			1,308						18,093
Professional services		8,033			7,639						15,672
Commissions, clearing and floor brokerage		41,925			1						41,926
Advertising and market development		8,814			17,324			(11,365	)		14,773
Servicing and other banking expenses		(68	)		9,052						8,984
Fair value adjustments of financial derivatives		—			(2,395	)					(2,395	)
Depreciation and amortization		15,332			5,214						20,546
Amortization of other intangibles		4,949			1,828						6,777
Facility restructuring and other exit charges		(27	)		75						48
Acquisition-related expenses		—			62						62
Other		11,898			9,552						21,450
Total expenses excluding interest		182,616			93,700			(11,365	)		264,951
Income before other corporate items	$	56,723		$	59,179		$	—		$	115,902

	Three Months Ended March 31, 2004
	Brokerage			Banking			Elimination (2)			Total
	(unaudited, in thousands)
Net revenues:
Commissions	$	112,230		$	—					$	112,230
Principal transactions		69,429			—						69,429
Interest income		41,253			214,384						255,637
Interest expense		(3,120	)		(117,606	)					(120,726	)
Gain on sales of originated loans		—			27,100						27,100
Gain on sales of loans held-for-sale and securities, net		—			14,062						14,062
Provision for loan losses		—			(9,055	)					(9,055	)
Other revenues		54,130			8,641			(10,973	)		51,798
Net revenues		273,922			137,526			(10,973	)		400,475
Expenses excluding interest:
Compensation and benefits		59,209			40,253						99,462
Occupancy and equipment		13,592			6,403						19,995
Communications		17,575			1,867						19,442
Professional services		6,583			7,781						14,364
Commissions, clearing and floor brokerage		43,926			1						43,927
Advertising and market development		17,489			17,538			(10,973	)		24,054
Servicing and other banking expenses		534			7,932						8,466
Fair value adjustments of financial derivatives		—			274						274
Depreciation and amortization		14,942			5,581						20,523
Amortization of other intangibles		5,054			1,865						6,919
Facility restructuring and other exit charges		(751	)		(208	)					(959	)
Acquisition-related expenses		—			62						62
Other		16,458			8,531						24,989
Total expenses excluding interest		194,611			97,880			(10,973	)		281,518
Income before other corporate items	$	79,311		$	39,646		$	—		$	118,957

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 7

	Three Months Ended June 30, 2003
	Brokerage			Banking			Total
	(unaudited, in thousands)
Net revenues:
Commissions	$	85,780		$	—		$	85,780
Principal transactions		58,640			—			58,640
Interest income		34,868			181,891			216,759
Interest expense		(1,877	)		(117,954	)		(119,831	)
Gain on sales of originated loans		—			62,025			62,025
Gain on sales of loans held-for-sale and securities, net		—			20,940			20,940
Provision for loan losses		—			(7,828	)		(7,828	)
Other revenues		45,269			7,412			52,681
Net revenues		222,680			146,486			369,166
Expenses excluding interest:
Compensation and benefits		56,555			41,506			98,061
Occupancy and equipment		16,492			5,025			21,517
Communications		18,083			1,407			19,490
Professional services		18,659			6,262			24,921
Commissions, clearing and floor brokerage		38,516			38			38,554
Advertising and market development		4,767			14,147			18,914
Servicing and other banking expenses		86			10,977			11,063
Fair value adjustments of financial derivatives		—			7,923			7,923
Depreciation and amortization		18,156			4,931			23,087
Amortization of other intangibles		4,970			1,600			6,570
Facility restructuring and other exit charges		68,378			7,090			75,468
Acquisition-related expenses		787			228			1,015
Other		12,365			9,472			21,837
Total expenses excluding interest		257,814			110,606			368,420
Income (loss) before other corporate items	$	(35,134	)	$	35,880		$	746

2004 GAAP Earnings Guidance

Revised Key Driver Assumptions	1H04 Actual		2H04 Estimate				Revised FY04 Estimate
			Low		High		Low		High
Brokerage
Total DARTs		143,000		105,000		143,000		124,000		143,000
Average margin debt ($B)	$	2.1	$	1.9	$	2.1	$	2.0	$	2.1
Average commission per revenue trade	$	10.85	$	10.00	$	10.50	$	10.43	$	10.68
Bank
Direct mortgage originations ($B)	$	2.4	$	1.0	$	2.0	$	3.4	$	4.4
Consumer loan originations, incl HELOCs ($B)	$	1.5	$	1.0	$	1.5	$	2.5	$	3.0
Bank interest rate spread (basis points)		195		205		210		200		203
Average interest earning banking assets ($B)	$	21.2	$	23.0	$	24.0	$	22.0	$	23.0
EPS	$	0.54	$	0.33	$	0.43	$	0.87	$	0.97

Original Key Driver Assumptions (Est. Dec. 2003)	Original FY04 Estimate
	Low		High
Brokerage
Total DARTs		145,000		160,000
Average margin debt ($B)	$	1.4	$	1.8
Average commission per revenue trade	$	11.00	$	11.26
Bank
Direct mortgage originations ($B)	$	3.4	$	4.4
Consumer loan originations, incl HELOCs ($B)	$	3.7	$	4.8
Bank interest rate spread (basis points)		175		195
Average interest earning banking assets ($B)	$	20.0	$	21.0
2004 EPS Guidance History
Established December 2003	$	0.70	$	0.85
Revised April 2004	$	0.75	$	0.90
Current Guidance	$	0.87	$	0.97

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 8

Key Performance Metrics ⁽³⁾

Corporate Metrics	Qtr ended 6/30/04		Qtr ended 3/31/04		Qtr ended 6/30/04 vs. Qtr ended 3/31/04	Qtr ended 6/30/03		Qtr ended 6/30/04 vs. Qtr ended 6/30/03
Operating margin%(4)
Consolidated		30 %		30 %	0 %		0 %	30 %
Brokerage		24 %		29 %	(5)%		(16)%	40 %
Bank		39 %		29 %	10 %		24 %	15 %
Employees		3,394		3,374	1 %		3,546	(4)%
Consultants and other		419		415	1 %		454	(8)%
Total headcount		3,813		3,789	1 %		4,000	(5)%
Revenue per headcount	$	99,883	$	105,694	(5)%	$	92,292	8 %
Revenue per compensation and benefits dollar	$	3.81	$	4.03	(5)%	$	3.76	1 %
Book value per share	$	5.65	$	5.37	5 %	$	4.60	23 %
Tangible book value per share	$	4.30	$	3.97	8 %	$	3.02	42 %
Cash & equivalents ($MM)	$	1,243.6	$	845.4	47 %	$	882.2	41 %
Free cash ($MM)	$	717.0	$	704.6	2 %	$	452.0	59 %
Earnings before interest, taxes, depreciation & amortization ($MM)
Net income from continuing operations	$	91.6	$	89.6	2 %	$	13.9	559 %
Tax expense	$	41.2	$	49.8	(17)%	$	6.1	575 %
Depreciation & amortization	$	27.3	$	27.4	0 %	$	29.7	(8)%
Corporate interest expense	$	12.5	$	11.3	11 %	$	11.4	10 %
EBITDA	$	172.7	$	178.2	(3)%	$	61.1	183 %
Interest coverage		13.8		15.7	(12)%		5.4	157 %
Active retail brokerage accounts		2,901,140		2,880,436	1 %		2,870,685	1 %
Active banking accounts		627,567		643,240	(2)%		673,308	(7)%
Total active accounts end of period		3,528,707		3,523,676	0 %		3,543,993	0 %
Total customer households end of period		2,699,857		2,697,951	0 %		2,609,736	3 %
Gross new accounts		168,519		203,355	N.M.		262,745	N.M.
Inactive accounts		(98,052)		(92,579)	N.M.		(958,843)	N.M.
Customer closed accounts		(65,436)		(74,070)	N.M.		(58,458)	N.M.
Net new accounts		5,031		36,706	N.M.		(754,556)	N.M.
Net new households		1,906		41,926	N.M.		(575,978)	N.M.
Total client assets in investing accounts ($B)	$	76.9	$	75.2	2 %	$	56.7	36 %
Total deposits in banking accounts ($B)	$	11.8	$	12.0	(1)%	$	9.1	30 %
Total assets / deposits in customer accounts ($B)	$	88.7	$	87.2	2 %	$	65.8	35 %
Average assets per household	$	32,869	$	32,326	2 %	$	25,194	30 %

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 9

Brokerage Metrics	Qtr ended 6/30/04		Qtr ended 3/31/04		Qtr ended 6/30/04 vs. Qtr ended 3/31/04	Qtr ended 6/30/03		Qtr ended 6/30/04 vs. Qtr ended 6/30/03
Trading days		62.0		62.0	N.M.		63.0	N.M.
Daily Average Revenue Trades (DARTs)
Total Retail		79,675		103,052	(23)%		76,163	5 %
—US		69,073		88,601	(22)%		69,263	0 %
—International		10,602		14,451	(27)%		6,900	54 %
Professional		47,758		53,983	(12)%		40,500	18 %
Total DARTs		127,433		157,035	(19)%		116,663	9 %
Total revenue trades (MM)		7.9		9.7	(19)%		7.3	7 %
Average commission per revenue trade	$	10.02	$	11.53	(13)%	$	11.67	(14)%
Market Making
Equity shares traded (MM)		89,792		34,696	159 %		13,598	560 %
Average revenue capture per 1,000 equity shares	$	0.274	$	0.768	(64)%	$	1.558	(82)%
% of Bulletin Board equity shares to total equity shares		96.1%		86.4%	10 %		67.8%	28 %
End of period margin debt ($B)	$	2.07	$	2.14	(3)%	$	1.18	75 %
Average margin debt ($B)	$	2.13	$	1.98	8 %	$	1.03	107 %
Active retail brokerage accounts		2,901,140		2,880,436	1 %		2,870,685	1 %
Gross new brokerage accounts		130,793		141,717	N.M.		144,190	N.M.
Inactive accounts		(98,052)		(92,579)	N.M.		(980,677)	N.M.
Customer closed accounts		(12,037)		(17,327)	N.M.		(13,845)	N.M.
Net new brokerage accounts		20,704		31,811	N.M.		(850,332)	N.M.
New client assets ($MM)	$	3,846	$	3,371	14 %	$	4,214	(9)%
Client asset outflow from closed accounts ($MM)	$	(492)	$	(570)	14 %	$	(342)	(44)%
Net new client assets ($MM)	$	3,354	$	2,801	20 %	$	3,872	(13)%
Total Client Assets ($B)
Security holdings	$	47.7	$	47.7	0 %	$	34.2	39 %
Cash (including money market funds)	$	5.7	$	6.0	(5)%	$	9.9	(42)%
Unexercised options (vested)	$	23.5	$	21.5	9 %	$	12.6	87 %
Total client assets in investing accounts	$	76.9	$	75.2	2 %	$	56.7	36 %
Total client assets per active account	$	26,508	$	26,120	1 %	$	19,751	34 %
Unexercised options (unvested) ($B)	$	17.1	$	15.3	12 %	$	8.3	105 %

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 10

Banking Metrics	Qtr ended 6/30/04		Qtr ended 3/31/04		Qtr ended 6/30/04 vs. Qtr ended 3/31/04	Qtr ended 6/30/03		Qtr ended 6/30/04 vs. Qtr ended 6/30/03
Gross new banking accounts		37,726		61,638	N.M.		118,555	N.M.
Inactive accounts		—		—	N.M.		21,834	N.M.
Customer closed accounts		(53,399)		(56,743)	N.M.		(44,613)	N.M.
Net new banking accounts		(15,673)		4,895	N.M.		95,776	N.M.
Direct mortgage originations ($B)	$	1.3	$	1.1	17 %	$	2.9	(56)%
Correspondent mortgage originations ($B)	$	1.7	$	0.7	167 %	$	1.0	69 %
Consumer loan originations, incl HELOCs ($B)	$	0.8	$	0.7	12 %	$	0.6	19 %
Acquired consumer loans ($B)	$	0.2	$	0.1	100 %	$	0.5	(58)%
Mortgage pipeline (end of period) ($B)	$	0.3	$	0.9	(68)%	$	1.7	(83)%
Bank Asset Portfolio Detail ($MM)
Cash & equivalents	$	260	$	165	58 %	$	287	(9)%
Trading securities	$	764	$	809	(6)%	$	449	70 %
Investment securities, available-for-sale	$	3,029	$	2,850	6 %	$	2,092	45 %
Mortgage securities, available-for-sale	$	8,406	$	7,000	20 %	$	6,612	27 %
Loans receivable, net including loans held-for-sale:
—Mortgage and home equity loans, net	$	5,713	$	4,580	25 %	$	2,889	98 %
—Consumer loans, net	$	4,290	$	4,130	4 %	$	4,362	(2)%
—Other	$	1	$	1	0 %	$	2	(50)%
Other assets	$	736	$	675	9 %	$	847	(13)%
Total assets	$	23,199	$	20,210	15 %	$	17,540	32 %
Bank Deposit Portfolio Detail ($MM)
Transaction accounts	$	8,929	$	8,767	2 %	$	4,699	90 %
CDs	$	2,909	$	3,209	(9)%	$	4,396	(34)%
Total	$	11,838	$	11,976	(1)%	$	9,094	30 %
Bank interest rate spread (basis points)		205		185	11 %		145	41 %
Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.29 %		0.34 %	(0.05)%		0.49 %	(0.20)%
Provision as a % of average held-for-investment loans, net (annualized)		0.34 %		0.44 %	(0.10)%		0.55 %	(0.21)%
Allowance as a % of total ending gross held-for-investment loans		0.43 %		0.48 %	(0.05)%		0.52 %	(0.09)%
Total non-performing loans, net, as a % of total gross held-for-investment loans		0.18 %		0.26 %	(0.08)%		0.37 %	(0.19)%
Total loan loss allowance as a % of total non-performing loans, net		232 %		186 %	46 %		140 %	92 %
Tier 1 Capital Ratio (5)		5.98 %		6.21 %	(0.23)%		5.94 %	0.04 %
Risk Weighted Capital Ratio (5)		11.81 %		11.69 %	0.12 %		11.80 %	0.01 %

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 11

Activity in Allowance for Loan Losses

	Three Months Ended June 30, 2004
	Mortgage		Consumer			Total
	(in thousands)
Allowance for loan losses, ending 3/31/04	$	7,862	$	31,889		$	39,751
Provision for loan losses		2,461		5,040			7,501
Charge-offs, net		316		(6,630	)		(6,314	)
Allowance for loan losses, ending 6/30/04	$	10,639	$	30,299		$	40,938

Bank Average Balance Data

	Three Months Ended June 30, 2004						Three Months Ended June 30, 2003
	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	$	9,323,548	$	111,862	4.80	%	$	7,161,143	$	92,113	5.15	%
Interest-bearing deposits		114,143		1,021	3.60	%		156,776		1,014	2.59	%
Mortgage-backed and related available-for-sale securities		8,282,552		83,728	4.04	%		6,610,007		62,053	3.76	%
Available-for-sale investment securities		2,981,826		27,973	3.75	%		2,119,655		22,907	4.32	%
Investment in FHLB stock		100,460		878	3.52	%		79,401		759	3.83	%
Trading securities		771,775		6,131	3.18	%		385,972		3,611	3.74	%
Total interest-earning banking assets (6)		21,574,304	$	231,593	4.29	%		16,512,954	$	182,457	4.42	%
Non-interest-earning banking assets		571,327						863,412
Total banking assets	$	22,145,631					$	17,376,366
Interest-bearing banking liabilities:
Retail deposits	$	11,512,007	$	42,928	1.50	%	$	8,473,951	$	68,542	3.24	%
Brokered certificates of deposit		359,265		2,287	2.56	%		425,849		2,976	2.80	%
FHLB advances		967,297		10,467	4.28	%		956,300		11,194	4.63	%
Other borrowings		7,906,398		60,222	3.01	%		6,061,342		35,242	2.30	%
Total interest-bearing banking liabilities		20,744,967	$	115,904	2.24	%		15,917,442	$	117,954	2.97	%
Non-interest bearing banking liabilities		346,829						603,413
Total banking liabilities		21,091,796						16,520,855
Total banking shareholder’s equity		1,053,835						855,511
Total banking liabilities and shareholder’s equity	$	22,145,631					$	17,376,366
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income	$	829,337	$	115,689			$	595,512	$	64,503
Net interest spread					2.05	%					1.45	%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

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 operating margins, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company.

Free Cash, EBITDA 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.

Additionally, management utilizes EBITDA and interest coverage to measure business performance. EBITDA is defined as net income (loss) from continuing operations before corporate interest expense, taxes and depreciation & amortization. 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, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP.

(1) For the three and six months ended June 30, 2004 and the three months ended March 31, 2004, diluted earnings per share is 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, net of tax, of $7.4 million and $15.1 million for the three and six months ended June 30, 2004, respectively and $7.6 million for the three months ended March 31, 2004. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million for the three months ended March 31, 2004, 39.9 million for the three months ended June 30, 2004 and 42.7 million for the six months ended June 30, 2004. For the three and six months ended June 30, 2003, the ‘if converted’ method is not used as its effect would be anti-dilutive.

(2) 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 advertising and market development expense and Brokerage reflects this payment as other revenues.

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

(4) Consolidated operating margin is defined as income before other corporate items divided by net revenues. Operating margin for Brokerage and Bank is based on segment results.

(5) Q2’04 estimate.

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2004

Page 13

(6) Amounts include a taxable equivalent increase in interest income of $1.4 million for the three months ended June 30, 2004 and $0.6 million for the three months ended June 30, 2003.