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) October 19, 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 October 19, 2005, the Company announced its third 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 October 19, 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: October 19, 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 THIRD QUARTER EARNINGS OF

$0.28 PER SHARE ON RECORD REVENUE; RAISES 2005 EARNINGS GUIDANCE

• GAAP Net Income of $107.5 million, or $0.28 per share

• Total Net Revenue of a record $422.8 million

• Operating Margin⁽¹⁾ of 35.7 percent

• Total Client Assets increase to a record $106.4 billion

• Net Interest Income of $217 million

• Bank net interest spread of 223 basis points

• Total Daily Average Revenue Trades of 125,500

• Raises and narrows 2005 earnings guidance to $1.04 - $1.09 per share

New York, October 19, 2005 - E*TRADE FINANCIAL Corporation (NYSE: ET) today announced results for its third quarter ended September 30, 2005, reporting net income of $107.5 million, or $0.28 per diluted share, compared to $79.3 million, or $0.21 per diluted share a year ago. Consolidated net revenue for the third quarter increased 26 percent to a record $422.8 million from $335.1 million a year ago. Total segment income(1) increased 35 percent to $151.1 million from $111.7 million a year ago, generating a consolidated operating margin of 35.7 percent compared to 33.3 percent in the year ago period. Total client assets increased 28 percent year over year to $106.4 billion, including a record $19.5 billion in total customer cash and deposits. In the third quarter, net interest income represented 48 percent of total net revenue, up from 46 percent a year ago. Bank net interest spread increased one basis point sequentially and 10 basis points year over year to 223 basis points - contributing to annual growth in net interest income of 32 percent. Total DARTs increased 29 percent year over year to 125,534, with retail DART volumes up 50 percent.

The Company raised and narrowed its 2005 earnings guidance range to $1.04 - $1.09 per share from the previous range of $0.96 - $1.06. This range implies results of $0.25 - $0.30 per share in the fourth quarter. The revised guidance specifically excludes a net $0.05 per share gain resulting from the sale of E*TRADE Consumer Finance, partially offset by costs associated with the Company’s acquisition of Harrisdirect, including incremental interest expense, restructuring and other deal-related costs.

(more)

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

Page 2

“Our strong operating and financial performance, combined with the power of consolidation, has strengthened the franchise -- accelerating our growth goals and delivering value to customers and shareholders,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “In the third quarter we broadened and deepened our customer relationships through the continued adoption of E*TRADE Complete, creating growth in all of the key drivers of our business including assets, cash, borrowings and transactions.”

Other selected highlights from the third quarter of 2005:

• Added 223,900 gross new Retail accounts, with 155,300 in trading/investing and 68,600 in deposit/lending accounts

• Increased total net revenue per customer by 23 percent and total segment income per customer by 32 percent over the year ago period

• Began expensing stock options through the adoption of FAS No.123(R) resulting in an increase of consolidated compensation and benefits of approximately $8 million

• Announced the acquisition of Harrisdirect from Bank of Montreal, which closed on October 6th, gaining 430,000 customer accounts with average balances over $75,000, $34 billion in assets, $5 billion in customer cash, $900 million in margin debt balances and approximately 15,000 DARTs

• Announced the planned acquisition of BrownCo from JPMorgan Chase, gaining 200,000 customer accounts with average balances of $145,000, $29 billion in assets, $3.4 billion in customer cash, $3.2 billion in margin debt balances, and approximately 28,000 DARTs

• Announced the planned acquisition of Kobren Insight Management to offer personalized wealth management services to retail customers, executing on the Company’s regional investment advisor strategy

Historical monthly metric data from January 2003 to September 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 September 30, 2005

Page 3

Financial Statements

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues:
Commissions	$	117,165		$	84,869		$	333,392		$	332,901
Principal transactions		23,793			24,391			75,547			91,417
Gain on sales of loans and securities, net		21,850			28,415			84,121			107,078
Service charges and fees		32,960			21,653			100,863			73,245
Other revenues		22,920			20,798			67,717			68,254
Interest income		424,142			293,004			1,148,532			822,564
Interest expense		(207,101	)		(128,852	)		(535,532	)		(369,616	)
Net interest income		217,041			164,152			613,000			452,948
Provision for loan losses		(12,909	)		(9,145	)		(37,946	)		(25,701	)
Net interest income after provision for loan losses		204,132			155,007			575,054			427,247
Total net revenues		422,820			335,133			1,236,694			1,100,142
Expenses excluding interest:
Compensation and benefits		103,310			82,061			282,933			266,386
Occupancy and equipment		16,546			18,119			52,617			54,086
Communications		18,609			18,075			55,854			53,888
Professional services		16,144			16,581			51,752			45,390
Commissions, clearance and floor brokerage		36,557			28,350			106,715			109,392
Advertising and market development		21,188			9,293			74,257			45,813
Servicing and other banking expenses		12,989			9,069			34,667			26,081
Fair value adjustments of financial derivatives		1,269			(696	)		3,905			(2,817	)
Depreciation and amortization		19,011			19,940			54,583			59,373
Amortization of other intangibles		4,644			4,615			14,538			15,217
Facility restructuring and other exit charges		(469	)		(227	)		495			(1,233	)
Other		21,969			18,290			62,546			62,871
Total expenses excluding interest		271,767			223,470			794,862			734,447
Income before other income, income taxes and discontinued operations		151,053			111,663			441,832			365,695
Other income:
Corporate interest income		3,409			1,698			7,796			4,755
Corporate interest expense		(13,783	)		(11,873	)		(36,975	)		(35,751	)
Gain on sale and impairment of investments		22,092			47,229			68,322			107,506
Loss on early extinguishment of debt		—			(18,615	)		—			(22,972	)
Equity in income of investments and venture funds		3,103			84			7,142			3,076
Total other income		14,821			18,523			46,285			56,614
Income before income taxes and discontinued operations		165,874			130,186			488,117			422,309
Income tax expense		57,263			43,016			169,472			141,599
Minority interest in subsidiaries		—			47			56			876
Income from continuing operations		108,611			87,123			318,589			279,834
Discontinued operations, net of tax:
Loss from discontinued operations		(2,937	)		(8,013	)		(16,763	)		(20,587	)
Gain (loss) on disposal of discontinued operations		171			164			(2,420	)		31,408
Net income (loss) from discontinued operations		(2,766	)		(7,849	)		(19,183	)		10,821
Cumulative effect of accounting change, net of tax		1,646			—			1,646			—
Net income	$	107,491		$	79,274		$	301,052		$	290,655
Basic income per share from continuing operations	$	0.29		$	0.23		$	0.87		$	0.76
Basic income (loss) per share from discontinued operations		(0.00	)		(0.02	)		(0.05	)		0.03
Basic income per share from cumulative effect of accounting change		0.00			0.00			0.00			0.00
Basic net income per share	$	0.29		$	0.21		$	0.82		$	0.79
Diluted income per share from continuing operations	$	0.28		$	0.23		$	0.84		$	0.72
Diluted income (loss) per share from discontinued operations		(0.00	)		(0.02	)		(0.05	)		0.03
Diluted income per share from cumulative effect of accounting change		0.00			0.00			0.00			0.00
Diluted net income per share	$	0.28		$	0.21		$	0.79		$	0.75
Shares used in computation of per share data:
Basic		367,342			369,103			366,215			366,244
Diluted (2)		382,031			380,557			379,768			411,073

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

Page 4

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	September 30, 2005			June 30, 2005			September 30, 2004
Revenues:
Commissions	$	117,165		$	102,051		$	84,869
Principal transactions		23,793			21,753			24,391
Gain on sales of loans and securities, net		21,850			17,256			28,415
Service charges and fees		32,960			34,531			21,653
Other revenues		22,920			20,585			20,798
Interest income		424,142			387,807			293,004
Interest expense		(207,101	)		(179,640	)		(128,852	)
Net interest income		217,041			208,167			164,152
Provision for loan losses		(12,909	)		(12,997	)		(9,145	)
Net interest income after provision for loan losses		204,132			195,170			155,007
Total net revenues		422,820			391,346			335,133
Expenses excluding interest:
Compensation and benefits		103,310			85,917			82,061
Occupancy and equipment		16,546			17,787			18,119
Communications		18,609			19,817			18,075
Professional services		16,144			16,201			16,581
Commissions, clearance and floor brokerage		36,557			34,344			28,350
Advertising and market development		21,188			26,482			9,293
Servicing and other banking expenses		12,989			11,499			9,069
Fair value adjustments of financial derivatives		1,269			1,748			(696	)
Depreciation and amortization		19,011			18,246			19,940
Amortization of other intangibles		4,644			4,649			4,615
Facility restructuring and other exit charges		(469	)		407			(227	)
Other		21,969			14,849			18,290
Total expenses excluding interest		271,767			251,946			223,470
Income before other income, income taxes and discontinued operations		151,053			139,400			111,663
Other income:
Corporate interest income		3,409			2,425			1,698
Corporate interest expense		(13,783	)		(11,625	)		(11,873	)
Gain on sale and impairment of investments		22,092			30,688			47,229
Loss on early extinguishment of debt		—			—			(18,615	)
Equity in income of investments and venture funds		3,103			1,398			84
Total other income		14,821			22,886			18,523
Income before income taxes and discontinued operations		165,874			162,286			130,186
Income tax expense		57,263			54,019			43,016
Minority interest in subsidiaries		—			6			47
Income from continuing operations		108,611			108,261			87,123
Discontinued operations, net of tax:
Loss from discontinued operations		(2,937	)		(4,103	)		(8,013	)
Gain (loss) on disposal of discontinued operations		171			(2,591	)		164
Net loss from discontinued operations		(2,766	)		(6,694	)		(7,849	)
Cumulative effect of accounting change, net of tax		1,646			—			—
Net income	$	107,491		$	101,567		$	79,274
Basic income per share from continuing operations	$	0.29		$	0.30		$	0.23
Basic loss per share from discontinued operations		(0.00	)		(0.02	)		(0.02	)
Basic income per share from cumulative effect of accounting change		0.00			0.00			0.00
Basic net income per share	$	0.29		$	0.28		$	0.21
Diluted income per share from continuing operations	$	0.28		$	0.29		$	0.23
Diluted loss per share from discontinued operations		(0.00	)		(0.02	)		(0.02	)
Diluted income per share from cumulative effect of accounting change		0.00			0.00			0.00
Diluted net income per share	$	0.28		$	0.27		$	0.21
Shares used in computation of per share data:
Basic		367,342			365,180			369,103
Diluted (2)		382,031			376,345			380,557

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

Page 5

Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

	September 30, 2005			December 31, 2004
ASSETS
Cash and equivalents	$	1,389,562		$	939,906
Cash and investments required to be segregated under Federal or other regulations		199,463			724,026
Brokerage receivables, net		4,102,553			3,034,548
Trading securities		227,381			593,245
Available-for-sale mortgage-backed and investment securities		11,174,666			12,543,818
Other investments		45,281			46,269
Loans receivable, net		17,534,081			11,505,755
Loans held-for-sale, net		151,247			279,280
Property and equipment, net		306,601			302,291
Goodwill		397,671			395,043
Other intangibles, net		120,752			134,121
Other assets		891,356			534,281
Total assets	$	36,540,614		$	31,032,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Brokerage payables	$	4,072,702		$	3,618,892
Deposits		14,550,696			12,302,974
Securities sold under agreements to repurchase		9,072,914			9,897,191
Other borrowings by Bank subsidiary		4,594,813			1,760,732
Senior notes		853,654			400,452
Convertible subordinated notes		185,165			185,165
Accounts payable, accrued and other liabilities		696,376			638,975
Total liabilities		34,026,320			28,804,381
Shareholders’ equity:
Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at September 30, 2005 and December 31, 2004		—			—
Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,300,085 at September 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: 372,961,819 at September 30, 2005 and 369,623,604 at December 31, 2004		3,729			3,696
Additional paid-in-capital		2,237,421			2,234,093
Deferred stock compensation		—			(18,419	)
Retained earnings		451,070			150,018
Accumulated other comprehensive loss		(177,939	)		(141,199	)
Total shareholders’ equity		2,514,294			2,228,202
Total liabilities and shareholders’ equity	$	36,540,614		$	31,032,583

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

Page 6

Segment Reporting

	Three Months Ended September 30, 2005
	Retail			Institutional			Eliminations (3)			Total
	(in thousands)
Revenues:
Commissions	$	86,642		$	30,523		$	—		$	117,165
Principal transactions		—			23,793			—			23,793
Gain on sales of loans and securities, net		17,534			4,316			—			21,850
Service charges and fees		27,000			5,960			—			32,960
Other revenues		27,929			2,901			(7,910	)		22,920
Interest income		175,357			362,548			(113,763	)		424,142
Interest expense		(63,223	)		(257,641	)		113,763			(207,101	)
Net interest income		112,134			104,907			—			217,041
Provision for loan losses		—			(12,909	)		—			(12,909	)
Net interest income after provision for loan losses		112,134			91,998			—			204,132
Total net revenues		271,239			159,491			(7,910	)		422,820
Expenses excluding interest:
Compensation and benefits		59,125			44,185			—			103,310
Occupancy and equipment		14,568			1,978			—			16,546
Communications		15,788			2,821			—			18,609
Professional services		10,550			5,594			—			16,144
Commissions, clearance and floor brokerage		11,282			27,315			(2,040	)		36,557
Advertising and market development		19,363			1,825			—			21,188
Servicing and other banking expenses		1,603			17,256			(5,870	)		12,989
Fair value adjustments of financial derivatives		—			1,269			—			1,269
Depreciation and amortization		14,947			4,064			—			19,011
Amortization of other intangibles		2,455			2,189			—			4,644
Facility restructuring and other exit charges		(270	)		(199	)		—			(469	)
Other		13,439			8,530			—			21,969
Total expenses excluding interest		162,850			116,827			(7,910	)		271,767
Segment income	$	108,389		$	42,664		$	—		$	151,053
	Three Months Ended June 30, 2005
	Retail			Institutional			Eliminations (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

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

Page 7

	Three Months Ended September 30, 2004
	Retail			Institutional			Eliminations (3)			Total
	(in thousands)
Revenues:
Commissions	$	64,005		$	20,864		$	—		$	84,869
Principal transactions		—			24,391			—			24,391
Gain on sales of loans and securities, net		17,170			11,245			—			28,415
Service charges and fees		18,117			3,536			—			21,653
Other revenues		24,772			3,394			(7,368	)		20,798
Interest income		121,327			247,226			(75,549	)		293,004
Interest expense		(40,296	)		(164,105	)		75,549			(128,852	)
Net interest income		81,031			83,121			—			164,152
Provision for loan losses		—			(9,145	)		—			(9,145	)
Net interest income after provision for loan losses		81,031			73,976			—			155,007
Total net revenues		205,095			137,406			(7,368	)		335,133
Expenses excluding interest:
Compensation and benefits		56,843			25,218			—			82,061
Occupancy and equipment		15,198			2,921			—			18,119
Communications		16,078			1,997			—			18,075
Professional services		10,816			5,765			—			16,581
Commissions, clearance and floor brokerage		10,892			19,738			(2,280	)		28,350
Advertising and market development		8,485			808			—			9,293
Servicing and other banking expenses		2,230			11,927			(5,088	)		9,069
Fair value adjustments of financial derivatives		—			(696	)		—			(696	)
Depreciation and amortization		17,099			2,841			—			19,940
Amortization of other intangibles		2,411			2,204			—			4,615
Facility restructuring and other exit charges		(64	)		(163	)		—			(227	)
Other		11,130			7,160			—			18,290
Total expenses excluding interest		151,118			79,720			(7,368	)		223,470
Segment income	$	53,977		$	57,686		$	—		$	111,663

Revised 2005 GAAP Earnings Guidance

									FY2005 Estimate
	Q105A		Q205A		3Q05A		YTD ( thru 9/30/05)		Low		High
Earnings per share	$	0.24	$	0.27	$	0.28	$	0.79	$	1.04	$	1.09

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

Page 8

Key Performance Metrics ⁽⁴⁾

Corporate Metrics	Qtr ended 9/30/05			Qtr ended 6/30/05			Qtr ended 9/30/05 vs. Qtr ended 6/30/05		Qtr ended 9/30/04			Qtr ended 9/30/05 vs. Qtr ended 9/30/04
Operating margin % (1)
Consolidated		36	%		36	%	0	%		33	%	3	%
Retail		40	%		35	%	5	%		26	%	14	%
Institutional		27	%		34	%	(7	)%		42	%	(15	)%
Employees		3,039			3,131		(3	)%		3,325		(9	)%
Consultants and other		413			375		10	%		443		(7	)%
Total headcount		3,452			3,506		(2	)%		3,768		(8	)%
Revenue per headcount	$	122,486		$	111,622		10	%	$	88,942		38	%
Revenue per compensation and benefits dollar	$	4.09		$	4.55		(10	)%	$	4.08		0	%
Book value per share	$	6.72		$	6.23		8	%	$	5.76		17	%
Tangible book value per share	$	5.33		$	4.82		11	%	$	4.33		23	%
Cash & equivalents ($MM)	$	1,389.6		$	1,095.4		27	%	$	731.0		90	%
Free cash ($MM)	$	784.3		$	727.6		8	%	$	713.0		10	%
Earnings before interest, taxes, depreciation & amortization ($MM)
Net income from continuing operations	$	108.6		$	108.3		0	%	$	87.1		25	%
Tax expense		57.3			54.0		6	%		43.0		33	%
Depreciation & amortization		23.7			22.9		3	%		24.6		(4	)%
Corporate interest expense		13.8			11.6		19	%		11.9		16	%
EBITDA	$	203.4		$	196.8		3	%	$	166.6		22	%
Interest coverage		14.8			16.9		(13	)%		14.0		5	%

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

Page 9

Key Performance Metrics ⁽⁴⁾

Retail Metrics	Qtr ended 9/30/05			Qtr ended 6/30/05			Qtr ended 9/30/05 vs. Qtr ended 6/30/05		Qtr ended 9/30/04			Qtr ended 9/30/05 vs. Qtr ended 9/30/04
Trading days		64.0			64.0		0	%		64.0		0	%
Daily Average Revenue Trades (DARTs)
Total Retail		93,876			80,869		16	%		62,771		50	%
- US		79,257			68,256		16	%		53,050		49	%
- International		14,619			12,613		16	%		9,721		50	%
Professional		31,658			34,425		(8	)%		34,633		(9	)%
Total DARTs		125,534			115,294		9	%		97,404		29	%
Total retail trades (MM)		8.0			7.4		9	%		6.2		29	%
Average commission per trade	$	10.78		$	10.09		7	%	$	10.27		5	%
End of period margin debt ($B)	$	2.44		$	2.28		7	%	$	2.04		19	%
Average margin debt ($B)	$	2.29		$	2.20		4	%	$	2.04		12	%
Gross new trading/investing accounts		155,304			142,010		9	%		105,870		47	%
Gross new deposit/lending accounts		68,560			62,099		10	%		60,998		12	%
Inactive accounts		(121,107	)		(115,957	)	(4	)%		(103,090	)	(17	)%
Customer closed accounts		(54,029	)		(61,972	)	13	%		(65,051	)	17	%
Net new retail accounts		48,728			26,180		86	%		(1,273	)	N.M.
End of period trading/investing accounts		3,014,467			2,990,586		1	%		2,895,106		4	%
End of period deposit/lending accounts		678,449			653,602		4	%		632,328		7	%
End of period retail accounts		3,692,916			3,644,188		1	%		3,527,434		5	%
Net new customers		33,205			5,176		542	%		(9,759	)	N.M.
End of period total retail customers		2,934,406			2,901,201		1	%		2,859,012		3	%
End of period assets per customer	$	36,276		$	33,377		9	%	$	29,066		25	%
Consolidated net revenue per customer	$	144		$	135		7	%	$	117		23	%
Consolidated segment income per customer	$	51		$	48		7	%	$	39		32	%
Products per customer		2.0			2.0		2	%		1.9		6	%
Total Retail Client Assets ($B)
Security holdings	$	57.2		$	52.5		9	%	$	45.0		27	%
Cash (including money market funds)		5.4			6.1		(11	)%		5.5		(2	)%
Unexercised options (vested)		29.8			25.6		16	%		20.9		43	%
Client assets in trading/investing accounts		92.4			84.2		10	%		71.4		29	%
Sweep Deposit Account		7.4			6.4		16	%		5.6		32	%
Transaction accounts		4.2			4.0		5	%		3.8		11	%
CDs		2.4			2.2		9	%		2.3		4	%
Client assets in deposit accounts		14.0			12.6		11	%		11.7		20	%
Total retail client assets	$	106.4		$	96.8		10	%	$	83.1		28	%
Total customer cash and deposits	$	19.5		$	18.7		4	%	$	17.2		13	%
Unexercised options (unvested) ($B)	$	18.7		$	16.0		17	%	$	13.9		34	%

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

Page 10

Key Performance Metrics ⁽⁴⁾

Institutional Metrics	Qtr ended 9/30/05			Qtr ended 6/30/05			Qtr ended 9/30/05 vs. Qtr ended 6/30/05		Qtr ended 9/30/04			Qtr ended 9/30/05 vs. Qtr ended 9/30/04
Market Making
Equity shares traded (MM)		35,125			30,584		15	%		65,037		(46	)%
Average revenue capture per 1,000 equity shares	$	0.535		$	0.515		4	%	$	0.234		128	%
% of Bulletin Board equity shares to total equity shares		86.0	%		87.8	%	(2	)%		95.4	%	(9	)%
Bank Asset Portfolio Detail ($MM)
Cash & equivalents	$	99		$	323		(69	)%	$	41		141	%
Trading securities		200			195		3	%		625		(68	)%
Investment securities, available-for-sale		1,684			2,077		(19	)%		3,251		(48	)%
Mortgage securities, available-for-sale		9,359			8,865		6	%		8,658		8	%
Loans receivable, net including loans held-for-sale:
- Mortgage and home equity loans, net		13,556			11,672		16	%		6,468		110	%
- Consumer loans, net		4,081			4,131		(1	)%		4,437		(8	)%
- Other		48			29		66	%		—		N.M.
Other assets		954			977		(2	)%		710		34	%
Total assets	$	29,981		$	28,269		6	%	$	24,190		24	%
Bank net interest spread (basis points)		223			222		0	%		213		5	%
Bank interest-earning assets, average ($MM)	$	28,303		$	27,325		4	%	$	23,091		23	%
Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.20	%		0.27	%	(0.07	)%		0.35	%	(0.15	)%
Provision as a % of average held-for-investment loans, net (annualized)		0.30	%		0.37	%	(0.07	)%		0.37	%	(0.07	)%
Allowance as a % of total ending gross held-for-investment loans		0.34	%		0.35	%	(0.01	)%		0.41	%	(0.07	)%
Total non-performing loans, net, as a % of total gross held-for-investment		0.13	%		0.15	%	(0.02	)%		0.17	%	(0.04	)%
Total loan loss allowance as a % of total non-performing loans, net		256	%		239	%	17	%		240	%	16	%
Tier 1 Capital Ratio (5)		5.87	%		5.93	%	(0.06	)%		5.94	%	(0.07	)%
Risk Weighted Capital Ratio (5)		11.12	%		11.03	%	0.09	%		11.24	%	(0.12	)%
Other
Banking revenue ($MM)	$	179.0		$	168.3		6	%	$	152.5		17	%
Brokerage revenue (net of SDA elimination) ($MM)		243.8			223.0		9	%		182.6		34	%
Total revenue ($MM)	$	422.8		$	391.3		8	%	$	335.1		26	%

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

Page 11

Activity in Allowance for Loan Losses

	Three Months Ended September 30, 2005
	Mortgage			Consumer			Total
	(in thousands)
Allowance for loan losses, ending 6/30/05	$	25,592		$	29,826		$	55,418
Provision for loan losses		3,551			9,358			12,909
Charge-offs, net		(627	)		(7,846	)		(8,473	)
Allowance for loan losses, ending 9/30/05	$	28,516		$	31,338		$	59,854

Bank Average Balance Data

	Three Months Ended September 30, 2005						Three Months Ended September 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	$	17,024,600	$	232,004	5.45	%	$	10,305,473	$	124,835	4.85	%
Mortgage-backed and related available-for- sale securities		9,059,130		97,537	4.31	%		8,579,174		86,137	4.02	%
Available-for-sale investment securities		1,728,134		24,122	5.58	%		3,314,544		33,981	4.10	%
Trading securities		186,377		2,792	5.99	%		681,326		5,528	3.24	%
Other		304,856		2,485	3.23	%		210,596		1,845	3.48	%
Total interest-earning banking assets (6)		28,303,097	$	358,940	5.07	%		23,091,113	$	252,326	4.37	%
Non-interest-earning banking assets		528,215						419,246
Total banking assets	$	28,831,312					$	23,510,359
Interest-bearing banking liabilities:
Retail deposits	$	13,095,471	$	57,710	1.75	%	$	11,516,741	$	41,042	1.42	%
Brokered certificates of deposit		540,575		4,815	3.53	%		378,241		2,381	2.50	%
Repurchase agreements and other borrowings		9,510,214		91,520	3.77	%		9,038,526		67,902	2.94	%
FHLB advances		4,093,294		40,914	3.91	%		1,117,619		12,732	4.46	%
Total interest-bearing banking liabilities		27,239,554	$	194,959	2.84	%		22,051,127	$	124,057	2.24	%
Non-interest bearing banking liabilities		273,685						346,631
Total banking liabilities		27,513,239						22,397,758
Total banking shareholder’s equity		1,318,073						1,112,601
Total banking liabilities and shareholder’s equity	$	28,831,312					$	23,510,359
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income	$	1,063,543					$	1,039,986
Net interest spread			$	163,981	2.23	%			$	128,269	2.13	%

E*TRADE FINANCIAL Results for the Quarter Ended September 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 margin, 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, discontinued operations and cumulative effect of accounting change 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, discontinued operations and cumulative effect of accounting change 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, discontinued operations and cumulative effect of accounting change (“segment income”) divided by net revenues. Operating margin for Retail and Institutional is based on segment results.

(2) For the nine months ended September 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 $17.5 million. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 31.8 million. 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 order flow rebates.

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

(5) Q305 estimate.

(6) Amounts include a taxable equivalent increase in interest income of $2.6 million and $2.2 million for the three months ended September 30, 2005 and 2004, respectively.