8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 event reported) July 20, 2005

E*TRADE Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware	1-11921	94-2844166
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

135 East 57th Street New York, New York	10022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code

646-521-4300

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02: RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition.”

On July 20, 2005, the Company announced its second quarter earnings for fiscal year 2005. 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.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(c)    Exhibits

99.1    Earnings Press Release, dated July 20, 2005

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, 2005	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 ANNOUNCES STRONG SECOND QUARTER RESULTS;

RAISES 2005 EARNINGS GUIDANCE

• GAAP Net Income of $101.6 million, or $0.27 per share

• Total Net Revenue of $391.3 million

• Operating Margin⁽¹⁾ of 36 percent

• Total Client Assets of $96.8 billion

• Net Interest Income of $208.2 million

• Total Daily Average Revenue Trades of 115,300

• Raises low end of 2005 guidance and tightens range to $0.96 - $1.06

New York, July 20, 2005 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its second quarter ended June 30, 2005, reporting net income of $101.6 million, or $0.27 per diluted share. Consolidated net revenue for the second quarter increased 3 percent to $391.3 million from $381.5 million a year ago. The Company continued to see significant growth in net interest income, which increased 35 percent year over year to $208.2 million and represented 53 percent of Total Net Revenue. Total retail client assets increased to $96.8 billion, including $18.7 billion in retail customer cash, representing a 10 percent increase over the year ago period. Retail customer margin debt balances at quarter end also increased 10 percent from a year ago to $2.28 billion.

In the second quarter, the Company made the strategic decision to exit the proprietary and hybrid trading business within E*TRADE Professional, and is in negotiations to sell its RV and marine loan origination and servicing business. The results of these businesses in the second quarter of 2005 are presented as a $6.7 million after-tax loss from discontinued operations. Therefore, net income from continuing operations increased to $0.29 in the second quarter from $0.26 a year ago. Prior periods presented have been adjusted for the discontinuation of these businesses.

The Company increased and narrowed its 2005 GAAP earnings guidance range to $0.96 - $1.06 per share.

“We continue to drive strong and steady performance by appealing to new customers with integrated product solutions, leveraging our ability to monetize customer cash across our Retail and Institutional segments and controlling operating expenses,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Through this discipline, we have made decisions and delivered results that have put the Company on track to deliver a third consecutive year of record results, while moving us closer to our goal of delivering a consolidated return on equity of nearly 20 percent and an operating margin of 40 percent in fiscal 2006.”

(more)

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 2

Other selected highlights from the second quarter of 2005:

• Added 204,000 gross new retail accounts, with 142,000 in trading/investing and 62,000 in deposit/lending accounts

• Increased products per customer 11 percent to 2.0 from 1.8 a year ago and total segment income per customer by 2 percent to $48 from $47 a year ago

• Upgraded 1.4 million customer accounts to E*TRADE Complete

• Issued and activated over 10,000 Digital Security ID tokens through our two-factor authentication program for customers

• Launched retail brokerage services in France and Estonia, increasing global presence to 14 countries

Historical monthly metric data from January 2003 to June 2005 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 provides financial services including trading, investing, banking and lending for Retail 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 are registered trademarks or trademarks 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 FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption “Risk Factors”) and quarterly reports on Form 10-Q.

© 2005 E*TRADE FINANCIAL Corporation. All rights reserved.

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 3

Financial Statements

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues:
Commissions	$	102,051		$	105,319		$	216,227		$	248,032
Principal transactions		21,753			33,947			51,754			67,026
Gain on sales of loans and securities, net		17,256			46,222			62,271			78,663
Service charges and fees		34,531			26,692			67,903			51,592
Other revenues		20,585			22,901			44,797			47,456
Interest income		387,807			273,926			724,390			529,560
Interest expense		(179,640	)		(120,038	)		(328,431	)		(240,764	)
Net interest income		208,167			153,888			395,959			288,796
Provision for loan losses		(12,997	)		(7,501	)		(25,037	)		(16,556	)
Net interest income after provision for loan losses		195,170			146,387			370,922			272,240
Total net revenues		391,346			381,468			813,874			765,009
Expenses excluding interest:
Compensation and benefits		85,917			91,695			179,623			184,325
Occupancy and equipment		17,787			17,790			36,071			35,967
Communications		19,817			17,394			37,245			35,813
Professional services		16,201			14,989			35,608			28,809
Commissions, clearance and floor brokerage		34,344			39,399			70,158			81,042
Advertising and market development		26,482			13,700			53,069			36,520
Servicing and other banking expenses		11,499			8,714			21,678			17,012
Fair value adjustments of financial derivatives		1,748			(2,395	)		2,636			(2,121	)
Depreciation and amortization		18,246			19,829			35,572			39,433
Amortization of other intangibles		4,649			5,078			9,894			10,602
Facility restructuring and other exit charges		407			(34	)		964			(1,006	)
Other		14,849			20,517			40,577			44,581
Total expenses excluding interest		251,946			246,676			523,095			510,977
Income before other income, income taxes and discontinued operations		139,400			134,792			290,779			254,032
Other income:
Corporate interest income		2,425			1,694			4,387			3,057
Corporate interest expense		(11,625	)		(12,540	)		(23,192	)		(23,878	)
Gain on sale and impairment of investments		30,688			31,728			46,230			60,277
Loss on early extinguishment of debt		—			(4,357	)		—			(4,357	)
Equity in income of investments and venture funds		1,398			440			4,039			2,992
Total other income		22,886			16,965			31,464			38,091
Income before income taxes and discontinued operations		162,286			151,757			322,243			292,123
Income tax expense		54,019			48,848			112,209			98,795
Minority interest in subsidiaries		6			89			56			829
Income from continuing operations		108,261			102,820			209,978			192,499
Discontinued operations, net of tax:
Loss from discontinued operations		(4,103	)		(11,158	)		(13,826	)		(12,362	)
Gain (loss) on disposal of discontinued operations		(2,591	)		31,244			(2,591	)		31,244
Net income (loss) from discontinued operations		(6,694	)		20,086			(16,417	)		18,882
Net income	$	101,567		$	122,906		$	193,561		$	211,381
Basic income per share from continuing operations	$	0.30		$	0.28		$	0.57		$	0.53
Basic income (loss) per share from discontinued operations		(0.02	)		0.06			(0.04	)		0.05
Basic net income per share	$	0.28		$	0.34		$	0.53		$	0.58
Diluted income per share from continuing operations	$	0.29		$	0.26		$	0.55		$	0.50
Diluted income (loss) per share from discontinued operations		(0.02	)		0.05			(0.04	)		0.04
Diluted net income per share	$	0.27		$	0.31		$	0.51		$	0.54
Shares used in computation of per share data:
Basic		365,180			365,072			365,643			364,939
Diluted (2)		376,345			416,713			377,511			420,841

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 4

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	June 30, 2005			March 31, 2005			June 30, 2004
Revenues:
Commissions	$	102,051		$	114,176		$	105,319
Principal transactions		21,753			30,001			33,947
Gain on sales of loans and securities, net		17,256			45,015			46,222
Service charges and fees		34,531			33,372			26,692
Other revenues		20,585			24,212			22,901
Interest income		387,807			336,583			273,926
Interest expense		(179,640	)		(148,791	)		(120,038	)
Net interest income		208,167			187,792			153,888
Provision for loan losses		(12,997	)		(12,040	)		(7,501	)
Net interest income after provision for loan losses		195,170			175,752			146,387
Total net revenues		391,346			422,528			381,468
Expenses excluding interest:
Compensation and benefits		85,917			93,706			91,695
Occupancy and equipment		17,787			18,284			17,790
Communications		19,817			17,428			17,394
Professional services		16,201			19,407			14,989
Commissions, clearance and floor brokerage		34,344			35,814			39,399
Advertising and market development		26,482			26,587			13,700
Servicing and other banking expenses		11,499			10,179			8,714
Fair value adjustments of financial derivatives		1,748			888			(2,395	)
Depreciation and amortization		18,246			17,326			19,829
Amortization of other intangibles		4,649			5,245			5,078
Facility restructuring and other exit charges		407			557			(34	)
Other		14,849			25,728			20,517
Total expenses excluding interest		251,946			271,149			246,676
Income before other income, income taxes and discontinued operations		139,400			151,379			134,792
Other income:
Corporate interest income		2,425			1,962			1,694
Corporate interest expense		(11,625	)		(11,567	)		(12,540	)
Gain on sale and impairment of investments		30,688			15,542			31,728
Loss on early extinguishment of debt		—			—			(4,357	)
Equity in income of investments and venture funds		1,398			2,641			440
Total other income		22,886			8,578			16,965
Income before income taxes and discontinued operations		162,286			159,957			151,757
Income tax expense		54,019			58,190			48,848
Minority interest in subsidiaries		6			50			89
Income from continuing operations		108,261			101,717			102,820
Discontinued operations, net of tax:
Loss from discontinued operations		(4,103	)		(9,723	)		(11,158	)
Gain (loss) on disposal of discontinued operations		(2,591	)		—			31,244
Net income (loss) from discontinued operations		(6,694	)		(9,723	)		20,086
Net income	$	101,567		$	91,994		$	122,906
Basic income per share from continuing operations	$	0.30		$	0.28		$	0.28
Basic income (loss) per share from discontinued operations		(0.02	)		(0.03	)		0.06
Basic net income per share	$	0.28		$	0.25		$	0.34
Diluted income per share from continuing operations	$	0.29		$	0.27		$	0.26
Diluted income (loss) per share from discontinued operations		(0.02	)		(0.03	)		0.05
Diluted net income per share	$	0.27		$	0.24		$	0.31
Shares used in computation of per share data:
Basic		365,180			366,130			365,072
Diluted (2)		376,345			378,734			416,713

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 5

Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

	June 30, 2005			December 31, 2004
ASSETS
Cash and equivalents	$	1,095,378		$	939,906
Cash and investments required to be segregated under Federal or other regulations		1,461,706			724,026
Brokerage receivables, net		3,459,047			3,034,548
Trading securities		213,816			593,245
Available-for-sale mortgage-backed and investment securities		11,065,629			12,543,818
Other investments		52,004			46,269
Loans receivable, net		15,706,553			11,505,755
Loans held-for-sale, net		125,657			279,280
Property and equipment, net		306,611			302,291
Goodwill		396,282			395,043
Other intangibles, net		126,980			134,121
Other assets		931,648			534,281
Total assets	$	34,941,311		$	31,032,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Brokerage payables	$	4,695,629		$	3,618,892
Deposits		13,057,010			12,302,974
Securities sold under agreements to repurchase		9,350,983			9,897,191
Other borrowings by Bank subsidiary		4,087,749			1,760,732
Senior notes		400,258			400,452
Convertible subordinated notes		185,165			185,165
Accounts payable, accrued and other liabilities		854,729			638,975
Total liabilities		32,631,523			28,804,381
Shareholders’ equity:
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at June 30, 2005 and December 31, 2004		—			—
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,300,301 at June 30, 2005 and 1,302,801 at December 31, 2004		13			13
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 369,264,680 at June 30, 2005 and 369,623,604 at December 31, 2004		3,693			3,696
Additional paid-in-capital		2,217,522			2,234,093
Deferred stock compensation		(22,089	)		(18,419	)
Retained earnings		343,579			150,018
Accumulated other comprehensive loss		(232,930	)		(141,199	)
Total shareholders’ equity		2,309,788			2,228,202
Total liabilities and shareholders’ equity	$	34,941,311		$	31,032,583

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 6

Segment Reporting

	Three Months Ended June 30, 2005
	Retail			Institutional			Elimination (3)			Total
	(In thousands)
Revenues:
Commissions	$	74,428		$	27,623					$	102,051
Principal transactions		—			21,753						21,753
Gain on sales of loans and securities, net		17,834			(578	)					17,256
Service charges and fees		30,253			4,278						34,531
Other revenues		27,136			1,418			(7,969	)		20,585
Interest income		153,697			330,965			(96,855	)		387,807
Interest expense		(55,174	)		(221,321	)		96,855			(179,640	)
Net interest income		98,523			109,644			—			208,167
Provision for loan losses		—			(12,997	)					(12,997	)
Net interest income after provision for loan losses		98,523			96,647			—			195,170
Total net revenues		248,174			151,141			(7,969	)		391,346
Expenses excluding interest:
Compensation and benefits		55,890			30,027						85,917
Occupancy and equipment		14,723			3,064						17,787
Communications		17,197			2,620						19,817
Professional services		12,372			3,829						16,201
Commissions, clearance and floor brokerage		11,287			24,983			(1,926	)		34,344
Advertising and market development		24,294			2,188						26,482
Servicing and other banking expenses		1,600			15,942			(6,043	)		11,499
Fair value adjustments of financial derivatives		—			1,748						1,748
Depreciation and amortization		14,526			3,720						18,246
Amortization of other intangibles		2,383			2,266						4,649
Facility restructuring and other exit charges		435			(28	)					407
Other		5,407			9,442						14,849
Total expenses excluding interest		160,114			99,801			(7,969	)		251,946
Segment income	$	88,060		$	51,340		$	—		$	139,400

	Three Months Ended March 31, 2005
	Retail			Institutional			Elimination (3)			Total
	(In thousands)
Revenues:
Commissions	$	84,970		$	29,206					$	114,176
Principal transactions		—			29,840			161			30,001
Gain on sales of loans and securities, net		16,378			28,637						45,015
Service charges and fees		29,654			3,718						33,372
Other revenues		28,230			4,093			(8,111	)		24,212
Interest income		135,159			290,277			(88,853	)		336,583
Interest expense		(43,184	)		(194,298	)		88,691			(148,791	)
Net interest income		91,975			95,979			(162	)		187,792
Provision for loan losses		—			(12,040	)					(12,040	)
Net interest income after provision for loan losses		91,975			83,939			(162	)		175,752
Total net revenues		251,207			179,433			(8,112	)		422,528
Expenses excluding interest:
Compensation and benefits		59,382			34,324						93,706
Occupancy and equipment		14,355			3,929						18,284
Communications		14,803			2,625						17,428
Professional services		14,150			5,257						19,407
Commissions, clearance and floor brokerage		10,757			27,517			(2,460	)		35,814
Advertising and market development		23,192			3,395						26,587
Servicing and other banking expenses		1,472			14,359			(5,652	)		10,179
Fair value adjustments of financial derivatives		—			888						888
Depreciation and amortization		15,126			2,200						17,326
Amortization of other intangibles		2,875			2,370						5,245
Facility restructuring and other exit charges		(335	)		892						557
Other		14,988			10,740						25,728
Total expenses excluding interest		170,765			108,496			(8,112	)		271,149
Segment income	$	80,442		$	70,937		$	—		$	151,379

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 7

	Three Months Ended June 30, 2004
	Retail			Institutional			Elimination (3)			Total
	(In thousands)
Revenues:
Commissions	$	79,156		$	26,163					$	105,319
Principal transactions		—			33,947						33,947
Gain on sales of loans and securities, net		31,508			14,714						46,222
Service charges and fees		22,971			3,721						26,692
Other revenues		27,382			3,832			(8,313	)		22,901
Interest income		119,605			226,937			(72,616	)		273,926
Interest expense		(40,535	)		(152,119	)		72,616			(120,038	)
Net interest income		79,070			74,818			—			153,888
Provision for loan losses		—			(7,501	)					(7,501	)
Net interest income after provision for loan losses		79,070			67,317			—			146,387
Total net revenues		240,087			149,694			(8,313	)		381,468
Expenses excluding interest:
Compensation and benefits		60,542			31,153						91,695
Occupancy and equipment		14,846			2,944						17,790
Communications		15,483			1,911						17,394
Professional services		9,277			5,712						14,989
Commissions, clearance and floor brokerage		16,691			25,973			(3,265	)		39,399
Advertising and market development		12,421			1,279						13,700
Servicing and other banking expenses		1,773			11,989			(5,048	)		8,714
Fair value adjustments of financial derivatives		—			(2,395	)					(2,395	)
Depreciation and amortization		16,797			3,032						19,829
Amortization of other intangibles		3,493			1,585						5,078
Facility restructuring and other exit charges		128			(162	)					(34	)
Other		10,772			9,745						20,517
Total expenses excluding interest		162,223			92,766			(8,313	)		246,676
Segment income	$	77,864		$	56,928		$	—		$	134,792

2005 GAAP Earnings Guidance and Key Driver Assumptions

							2H05 Estimate				FY2005 Estimate
	Q105A		Q205A		1H05A		Low		High		Low		High
Earnings per share	$	0.24	$	0.27	$	0.51	$	0.45	$	0.55	$	0.96	$	1.06
Total DARTs						124,798		115,000		125,000		120,000		125,000
Average margin debt ($B)					$	2.2	$	2.2	$	2.4	$	2.2	$	2.3
Average commission per revenue trade					$	10.22	$	9.50	$	9.70	$	9.85	$	9.95
Bank interest rate spread (basis points)						221		222		225		222		223
Average interest-earnings assets ($B)					$	26.3	$	29.0	$	31.0	$	27.5	$	28.5

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 8

Key Performance Metrics ⁽⁴⁾

Corporate Metrics	Qtr ended 6/30/05			Qtr ended 3/31/05			Qtr ended 6/30/05 vs. Qtr ended 3/31/05		Qtr ended 6/30/04			Qtr ended 6/30/05 vs. Qtr ended 6/30/04
Operating margin % (1)
Consolidated		36	%		36	%	0	%		35	%	1	%
Retail		35	%		32	%	3	%		32	%	3	%
Institutional		34	%		40	%	(6	)%		38	%	(4	)%
Employees		3,131			3,273		(4	)%		3,394		(8	)%
Consultants and other		375			515		(27	)%		419		(11	)%
Total headcount		3,506			3,788		(7	)%		3,813		(8	)%
Revenue per headcount	$	111,622		$	111,544		0	%	$	100,044		12	%
Revenue per compensation and benefits dollar	$	4.55		$	4.51		1	%	$	4.16		9	%
Book value per share	$	6.23		$	6.20		0	%	$	5.65		10	%
Tangible book value per share	$	4.82		$	4.77		1	%	$	4.30		12	%
Cash & equivalents ($MM)	$	1,095.4		$	721.0		52	%	$	1,243.6		(12	)%
Free cash ($MM)	$	727.6		$	689.9		5	%	$	717.0		1	%
Earnings before interest, taxes, depreciation & amortization ($MM)
Net income from continuing operations	$	108.3		$	101.7		6	%	$	102.8		5	%
Tax expense		54.0			58.2		(7	)%		48.8		11	%
Depreciation & amortization		22.9			22.6		1	%		24.9		(8	)%
Corporate interest expense		11.6			11.6		0	%		12.5		(7	)%
EBITDA	$	196.8		$	194.0		1	%	$	189.1		4	%
Interest coverage		16.9			16.8		1	%		15.1		12	%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 9

Key Performance Metrics ⁽⁴⁾

Retail Metrics	Qtr ended 6/30/05			Qtr ended 3/31/05			Qtr ended 6/30/05 vs. Qtr ended 3/31/05		Qtr ended 6/30/04			Qtr ended 6/30/05 vs. Qtr ended 6/30/04
Trading days		64.0			61.0		5	%		62.0		3	%
Daily Average Revenue Trades (DARTs)
Total Retail		80,869			88,075		(8	)%		79,675		1	%
- US		68,256			74,133		(8	)%		69,073		(1	)%
- International		12,613			13,942		(10	)%		10,602		19	%
Professional		34,425			46,695		(26	)%		47,758		(28	)%
Total DARTs		115,294			134,770		(14	)%		127,433		(10	)%
Total retail trades (MM)		7.4			8.2		(10	)%		7.9		(7	)%
Average commission per trade	$	10.09		$	10.34		(2	)%	$	10.02		1	%
End of period margin debt ($B)	$	2.28		$	2.27		1	%	$	2.07		10	%
Average margin debt ($B)	$	2.20		$	2.24		(2	)%	$	2.13		3	%
Gross new trading/investing accounts		142,010			133,951		6	%		130,793		9	%
Gross new deposit/lending accounts		62,099			58,454		6	%		37,726		65	%
Inactive accounts		(115,957	)		(100,921	)	(15	)%		(98,052	)	(18	)%
Customer closed accounts		(61,972	)		(56,239	)	(10	)%		(65,436	)	5	%
Net new retail accounts		26,180			35,245		(26	)%		5,031		420	%
End of period trading/investing accounts		2,990,586			2,975,744		0	%		2,901,140		3	%
End of period deposit/lending accounts		653,602			642,264		2	%		627,567		4	%
End of period retail accounts		3,644,188			3,618,008		1	%		3,528,707		3	%
Net new customers		5,176			8,584		(40	)%		(6,577	)	179	%
End of period total retail customers		2,901,201			2,896,025		0	%		2,868,771		1	%
End of period assets per customer	$	33,377		$	32,605		2	%	$	30,800		8	%
Consolidated net revenue per customer	$	135		$	146		(8	)%	$	133		1	%
Consolidated segment income per customer	$	48		$	52		(8	)%	$	47		2	%
Products per customer		2.0			1.9		1	%		1.8		11	%
Total Retail Client Assets ($B)
Security holdings	$	52.5		$	50.8		3	%	$	47.0		12	%
Cash (including money market funds)		6.1			6.3		(3	)%		6.4		(5	)%
Unexercised options (vested)		25.6			25.2		2	%		23.5		9	%
Client assets in trading/investing accounts		84.2			82.3		2	%		76.9		9	%
Sweep Deposit Account		6.4			6.3		2	%		4.8		33	%
Transaction accounts		4.0			3.7		8	%		4.2		(5	)%
CDs		2.2			2.1		5	%		2.5		(12	)%
Client assets in deposit accounts		12.6			12.1		4	%		11.5		10	%
Total retail client assets	$	96.8		$	94.4		3	%	$	88.4		10	%
Total customer cash and deposits	$	18.7		$	18.4		2	%	$	17.9		4	%
Unexercised options (unvested) ($B)	$	16.0		$	14.8		8	%	$	17.1		(6	)%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 10

Key Performance Metrics ⁽⁴⁾

Institutional Metrics	Qtr ended 6/30/05			Qtr ended 3/31/05			Qtr ended 6/30/05 vs. Qtr ended 3/31/05		Qtr ended 6/30/04			Qtr ended 6/30/05 vs. Qtr ended 6/30/04
Market Making
Equity shares traded (MM)		30,584			57,385		(47	)%		89,792		(66	)%
Average revenue capture per 1,000 equity shares	$	0.515		$	0.329		56	%	$	0.274		88	%
% of Bulletin Board equity shares to total equity shares		87.8	%		93.3	%	(6	)%		96.1	%	(8	)%
Bank Asset Portfolio Detail ($MM)
Cash & equivalents	$	323		$	60		438	%	$	260		24	%
Trading securities		195			203		(4	)%		764		(74	)%
Investment securities, available-for-sale		2,077			3,317		(37	)%		3,029		(31	)%
Mortgage securities, available-for-sale		8,865			8,346		6	%		8,406		5	%
Loans receivable, net including loans held-for-sale:
- Mortgage and home equity loans, net		11,672			8,969		30	%		5,713		104	%
- Consumer loans, net		4,131			4,257		(3	)%		4,290		(4	)%
- Other		29			12		142	%		1		2800	%
Other assets		977			831		18	%		736		33	%
Total assets	$	28,269		$	25,995		9	%	$	23,199		22	%
Bank net interest spread (basis points)		222			220		1	%		205		8	%
Bank interest-earning assets, average ($MM)	$	27,325		$	25,280		8	%	$	21,574		27	%
Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.27	%		0.26	%	0.01	%		0.29	%	(0.02	)%
Provision as a % of average held-for-investment loans, net (annualized)		0.37	%		0.40	%	(0.03	)%		0.34	%	0.03	%
Allowance as a % of total ending gross held-for-investment loans		0.35	%		0.40	%	(0.05	)%		0.43	%	(0.08	)%
Total non-performing loans, net, as a % of total gross held- for-investment loans		0.15	%		0.18	%	(0.03	)%		0.18	%	(0.03	)%
Total loan loss allowance as a % of total non-performing loans, net		239	%		228	%	11	%		232	%	7	%
Tier 1 Capital Ratio (5)		5.93	%		6.06	%	(0.13	)%		5.98	%	(0.05	)%
Risk Weighted Capital Ratio (5)		11.03	%		11.27	%	(0.24	)%		11.81	%	(0.78	)%
Other
Banking revenue ($MM)	$	168.3		$	185.9		(9	)%	$	161.4		4	%
Brokerage revenue (net of SDA elimination) ($MM)		223.0			236.6		(6	)%		220.1		1	%
Total revenue ($MM)	$	391.3		$	422.5		(7	)%	$	381.5		3	%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

Page 11

Activity in Allowance for Loan Losses

	Three Months Ended June 30, 2005
	Mortgage			Consumer			Total
	(in thousands)
Allowance for loan losses, ending 3/31/05	$	22,152		$	29,732		$	51,884
Provision for loan losses		4,828			8,169			12,997
Charge-offs, net		(1,388	)		(8,075	)		(9,463	)
Allowance for loan losses, ending 6/30/05	$	25,592		$	29,826		$	55,418

Bank Average Balance Data

	Three Months Ended June 30, 2005						Three Months Ended June 30, 2004
	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	$	14,289,236	$	183,999	5.15	%	$	9,323,548	$	111,862	4.80	%
Mortgage-backed and related available-for- sale securities		9,449,551		98,855	4.18	%		8,282,552		83,728	4.04	%
Available-for-sale investment securities		3,168,220		40,953	5.17	%		2,981,826		27,973	3.75	%
Trading securities		215,438		2,328	4.32	%		771,775		6,131	3.18	%
Other		202,188		2,104	4.17	%		214,603		1,899	3.56	%
Total interest-earning banking assets (6)		27,324,633	$	328,239	4.81	%		21,574,304	$	231,593	4.29	%
Non-interest-earning banking assets		365,151						571,327
Total banking assets	$	27,689,784					$	22,145,631
Interest-bearing banking liabilities:
Retail deposits	$	12,248,939	$	49,629	1.63	%	$	11,512,007	$	42,928	1.50	%
Brokered certificates of deposit		456,724		3,782	3.32	%		359,265		2,287	2.56	%
Repurchase agreements and other borrowings		10,409,125		87,507	3.33	%		7,906,398		60,222	3.01	%
FHLB advances		3,001,297		27,500	3.62	%		967,297		10,467	4.28	%
Total interest-bearing banking liabilities		26,116,085	$	168,418	2.59	%		20,744,967	$	115,904	2.24	%
Non-interest bearing banking liabilities		314,882						346,829
Total banking liabilities		26,430,967						21,091,796
Total banking shareholder’s equity		1,258,817						1,053,835
Total banking liabilities and shareholder’s equity	$	27,689,784					$	22,145,631
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income	$	1,208,548					$	829,337
Net interest spread			$	159,821	2.22	%			$	115,689	2.05	%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2005

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 consolidated operating margins, free cash, EBITDA and interest coverage are appropriate measures of evaluating the operating and liquidity performance of the Company. We believe that the elimination of certain items from these measures is helpful to analysts and investors who may wish to use some or all of this information to analyze our current performance, prospects and valuation. Our management uses non-GAAP information internally to evaluate our operating performance and in formulating our budget for future periods.

Consolidated Operating Margin

Consolidated operating margin is defined as income before other income, income taxes and discontinued operations divided by net revenues. Operating margin for Retail and Institutional is based on segment results. Our consolidated statements of operations contain a reconciliation of income before other income, income taxes and discontinued operations to net income.

Free Cash

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.

EBITDA

EBITDA represents net income from continuing operations before corporate interest expense, taxes and depreciation and amortization. Management believes that EBITDA provides a useful additional measure of our performance by excluding certain non-cash charges and expenses that are not directly related to the performance of our business.

Interest Coverage

Interest coverage represents EBITDA divided by corporate interest expense. Management believes that by excluding the charges and expenses that are excluded from EBITDA, interest coverage provides a useful additional measure of our ability to continue to meet our interest obligations and our liquidity.

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. For complete information on the items excluded from these non-GAAP measures, please see our financial statements and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.

(1) Operating margin is defined as income before other income, income taxes and discontinued operations divided by net revenues. Operating margin for Retail and Institutional is based on segment results.

(2) For the three and six months ended June 30, 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, respectively. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 39.9 million and 42.7 million, respectively. For all other periods presented the ‘if converted’ method is not used as its effect would be anti-dilutive.

(3) Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and orderflow rebates.

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

(5) Q205 estimate.

(6) Amounts include a taxable equivalent increase in interest income of $2.7 million and $1.4 million for the three months ended June 30, 2005 and 2004, respectively.