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): April 19, 2006

E*TRADE Financial Corporation

(Exact name of Registrant as Specified in its Charter)

Delaware	1-11921	94-2844166
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

135 East 57th Street, New York, New York 10022

(Address of Principal Executive Offices and Zip Code)

(646) 521-4300

(Registrant’s Telephone Number, including Area Code)

Not Applicable

(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 April 19, 2006, the Company announced its first quarter earnings for fiscal year 2006. 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

(d) Exhibits

99.1    Earnings Press Release, dated April 19, 2006

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: April 19, 2006	E*TRADE Financial Corporation
	By:	/s/    Russell S. Elmer
		Russell S. Elmer
		General Counsel and 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 RECORD FIRST QUARTER RESULTS;

RAISES 2006 EARNINGS GUIDANCE

• Record Net Income of $142 million

• Record Earnings of $0.33 per share, or $0.36 per share excluding $0.03 per share of acquisition-related integration expenses

• Record Total Net Revenue of $598 million

• Record Enterprise Net Interest Spread of 286 basis points

• Record Net Interest Income After Provision of $315 million

• Operating Margin of 41 percent⁽¹⁾

• Total Client Assets of $193 billion

• Raises 2006 earnings guidance to $1.35 - $1.50 per share, excluding $0.05 of acquisition-related integration expenses

New York, April 19, 2006 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced record results for its first quarter period ended March 31, 2006, reporting net income of $142 million, or $0.33 per share compared to $92 million, or $0.24 per share a year ago. As previously indicated, the results in the first quarter of 2006 included approximately $22 million, or $0.03 per share, of acquisition-related integration expenses. Excluding these expenses, the Company generated earnings of $0.36 per share. Total net revenue for the first quarter increased 43 percent year over year to a record $598 million. Net interest income after provision for loan losses increased 79 percent year over year to $315 million – representing 53 percent of total net revenue. Enterprise net interest spread increased to 286 basis points as the Company continued to benefit from strong organic growth in customer cash and the integration of customer cash and credit from its recent acquisitions. Non-interest income increased 17 percent year over year to $284 million with higher commission-related revenue and lower gain on sales of loans and securities. Total client assets increased to a record $193 billion, including a record $30 billion in total customer cash and deposits. Total DARTs increased to 181,160 with continued strength from international and options-related activity.

The Company also raised its 2006 earnings guidance range to $1.35 - $1.50 per share from the previous range of $1.30 - $1.45. As previously indicated, this range excludes $0.05 per share of acquisition-related integration expenses. Of this $0.05, $0.03 was realized in the first quarter and the Company expects to realize an additional $0.01 in each of the second and third quarters. Including these expenses, the Company now expects to earn $1.30 - $1.45 per share in 2006, up from the previous range of $1.25 - $1.40.

(more)

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 2

“Our operational focus and financial discipline continues to drive increased customer engagement and unlock the full value of our integrated model,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “Given the strength of our first quarter results and the growth rates in each of customer cash, credit and assets, we feel comfortable in raising our 2006 earnings outlook today. Having completed the conversion of Harrisdirect and as we prepare to convert BrownCo in early May, we remain extremely encouraged by the trends we are experiencing with respect to economic attrition from these new customers. We will provide further updates to our earnings outlook in July or as we see necessary.”

Other selected highlights from the first quarter of 2006:

• Generated $1.6 billion in organic growth of customer cash and deposits

• Recorded a 58 percent increase in international DARTs year over year

• Increased options trades to 12 percent of U.S. DARTs, up from 11 percent in the fourth quarter and 9 percent in the year ago period

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

• Launched E*TRADE Complete^™ Protection Guarantee providing complete fraud, bill pay and privacy protection to all customers

• Launched the Intelligent Lending Optimizer

• Introduced the E*TRADE Complete^™ IRA account

• Enhanced investment tools and services available to retail customers including access to free research from industry-leading Independent Research Providers such as Reuters and Standard & Poor’s

• Opened a new retail branch in Seattle, increasing total branch locations to 17 nationwide

Historical monthly metric data from January 2003 to March 2006 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.

© 2006 E*TRADE FINANCIAL Corporation. All rights reserved.

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 3

Financial Statements

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended
	March 31,			December 31,			March 31,
	2006			2005			2005
Revenues:
Interest income	$	594,294		$	501,880		$	336,521
Interest expense		(269,505	)		(243,632	)		(148,791	)
Net interest income		324,789			258,248			187,730
Provision for loan losses		(10,197	)		(16,070	)		(12,040	)
Net interest income after provision for loan losses		314,592			242,178			175,690
Commissions		175,869			135,723			109,894
Service charges and fees		31,990			34,675			33,293
Principal transactions		30,692			23,789			30,001
Gain on sales of loans and securities, net		11,628			14,737			45,015
Other revenues		33,578			27,823			23,504
Total non-interest income		283,757			236,747			241,707
Total net revenues		598,349			478,925			417,397
Expenses excluding interest:
Compensation and benefits		115,988			100,331			92,460
Clearing and servicing		63,288			57,016			42,979
Advertising and market development		34,781			31,683			26,582
Communications		31,408			27,835			17,038
Professional services		27,755			24,248			19,702
Depreciation and amortization		18,789			21,671			17,076
Occupancy and equipment		20,504			18,416			17,452
Amortization of other intangibles		11,332			30,014			4,983
Facility restructuring and other exit charges		(253	)		(30,512	)		557
Other		31,005			(6,057	)		26,372
Total expenses excluding interest		354,597			274,645			265,201
Income before other income (loss), income taxes and discontinued operations		243,752			204,280			152,196
Other income (loss):
Corporate interest income		1,961			3,247			1,962
Corporate interest expense		(40,508	)		(36,981	)		(11,567	)
Gain on sale and impairment of investments		17,616			14,972			15,537
Loss on early extinguishment of debt		(135	)		—			—
Equity in income (losses) of investments and venture funds		(1,007	)		(1,039	)		2,641
Total other income (loss)		(22,073	)		(19,801	)		8,573
Income before income taxes and discontinued operations		221,679			184,479			160,769
Income tax expense		78,695			58,959			58,511
Minority interest in subsidiaries		—			9			52
Income from continuing operations		142,984			125,511			102,206
Discontinued operations, net of tax:
Loss from discontinued operations		(513	)		(2,595	)		(10,212	)
Gain on disposal of discontinued operations		—			6,444			—
Net gain (loss) from discontinued operations		(513	)		3,849			(10,212	)
Net income	$	142,471		$	129,360		$	91,994
Basic income per share from continuing operations	$	0.34		$	0.32		$	0.28
Basic income (loss) per share from discontinued operations		(0.00	)		0.01			(0.03	)
Basic net income per share	$	0.34		$	0.33		$	0.25
Diluted income per share from continuing operations	$	0.33		$	0.31		$	0.27
Diluted income (loss) per share from discontinued operations		(0.00	)		0.01			(0.03	)
Diluted net income per share	$	0.33		$	0.32		$	0.24
Shares used in computation of per share data:
Basic		414,679			387,055			366,130
Diluted		432,302			400,717			378,734

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 4

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

	March 31,			December 31,
	2006			2005
ASSETS
Cash and equivalents	$	823,155		$	844,188
Cash and investments required to be segregated under Federal or other regulations		1,096,396			610,174
Trading securities		188,667			146,657
Available-for-sale mortgage-backed and investment securities		13,234,261			12,763,438
Loans held-for-sale, net		80,612			87,371
Brokerage receivables, net		8,686,719			7,174,175
Loans receivable, net		19,548,678			19,424,895
Property and equipment, net		300,928			299,256
Goodwill		2,019,423			2,003,456
Other intangibles, net		515,856			532,108
Other assets		890,198			681,968
Total assets	$	47,384,893		$	44,567,686
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	19,241,533		$	15,948,015
Securities sold under agreements to repurchase		9,735,251			11,101,542
Brokerage payables		9,287,511			7,342,208
Other borrowings		2,990,249			4,206,996
Senior notes		1,396,121			1,401,947
Convertible subordinated notes		148,848			185,165
Mandatory convertible notes		436,836			435,589
Accounts payable, accrued and other liabilities		530,523			546,664
Total liabilities		43,766,872			41,168,126
Shareholders’ equity:
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 420,035,982 at March 31, 2006 and 416,582,164 at December 31, 2005		4,200			4,166
Additional paid-in-capital		3,055,444			2,990,676
Retained earnings		722,901			580,430
Accumulated other comprehensive loss		(164,524	)		(175,712	)
Total shareholders’ equity		3,618,021			3,399,560
Total liabilities and shareholders’ equity	$	47,384,893		$	44,567,686

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 5

Segment Reporting

	Three Months Ended March 31, 2006
	Retail			Institutional			Eliminations (2)			Total
	(in thousands)
Revenues:
Interest income	$	318,202		$	453,476		$	(177,384	)	$	594,294
Interest expense		(112,282	)		(334,607	)		177,384			(269,505	)
Net interest income		205,920			118,869			—			324,789
Provision for loan losses		—			(10,197	)		—			(10,197	)
Net interest income after provision for loan losses		205,920			108,672			—			314,592
Commissions		135,864			40,005			—			175,869
Service charges and fees		26,924			5,066			—			31,990
Principal transactions		—			30,692			—			30,692
Gain on sales of loans and securities, net		8,727			2,901			—			11,628
Other revenues		35,719			1,836			(3,977	)		33,578
Total non-interest income		207,234			80,500			(3,977	)		283,757
Total net revenues		413,154			189,172			(3,977	)		598,349
Expenses excluding interest:
Compensation and benefits		71,207			44,781			—			115,988
Clearing and servicing		17,365			49,900			(3,977	)		63,288
Advertising and market development		33,055			1,726			—			34,781
Communications		28,483			2,925			—			31,408
Professional services		22,318			5,437			—			27,755
Depreciation and amortization		14,568			4,221			—			18,789
Occupancy and equipment		18,987			1,517			—			20,504
Amortization of other intangibles		9,873			1,459			—			11,332
Facility restructuring and other exit charges		375			(628	)		—			(253	)
Other		19,589			11,416			—			31,005
Total expenses excluding interest		235,820			122,754			(3,977	)		354,597
Segment income	$	177,334		$	66,418		$	—		$	243,752
	Three Months Ended December 31, 2005
	Retail			Institutional			Eliminations (2)			Total
	(in thousands)
Revenues:
Interest income	$	221,002		$	411,979		$	(131,101	)	$	501,880
Interest expense		(78,362	)		(296,371	)		131,101			(243,632	)
Net interest income		142,640			115,608			—			258,248
Provision for loan losses		—			(16,070	)		—			(16,070	)
Net interest income after provision for loan losses		142,640			99,538			—			242,178
Commissions		103,895			31,828			—			135,723
Service charges and fees		29,419			5,256			—			34,675
Principal transactions		—			23,789			—			23,789
Gain on sales of loans and securities, net		11,959			2,778			—			14,737
Other revenues		30,662			1,971			(4,810	)		27,823
Total non-interest income		175,935			65,622			(4,810	)		236,747
Total net revenues		318,575			165,160			(4,810	)		478,925
Expenses excluding interest:
Compensation and benefits		60,558			39,773			—			100,331
Clearing and servicing		17,271			44,555			(4,810	)		57,016
Advertising and market development		30,074			1,609			—			31,683
Communications		25,109			2,726			—			27,835
Professional services		18,334			5,914			—			24,248
Depreciation and amortization		17,278			4,393			—			21,671
Occupancy and equipment		16,167			2,249			—			18,416
Amortization of other intangibles		6,968			23,046			—			30,014
Facility restructuring and other exit charges		(32,584	)		2,072			—			(30,512	)
Other		(18,786	)		12,729			—			(6,057	)
Total expenses excluding interest		140,389			139,066			(4,810	)		274,645
Segment income	$	178,186		$	26,094		$	—		$	204,280

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 6

	Three Months Ended March 31, 2005
	Retail			Institutional			Eliminations (2)			Total
	(in thousands)
Revenues:
Interest income	$	135,097		$	290,277		$	(88,853	)	$	336,521
Interest expense		(43,184	)		(194,298	)		88,691			(148,791	)
Net interest income		91,913			95,979			(162	)		187,730
Provision for loan losses		—			(12,040	)		—			(12,040	)
Net interest income after provision for loan losses		91,913			83,939			(162	)		175,690
Commissions		80,688			29,206			—			109,894
Service charges and fees		29,575			3,718			—			33,293
Principal transactions		—			29,840			161			30,001
Gain on sales of loans and securities, net		16,378			28,637			—			45,015
Other revenues		27,522			4,093			(8,111	)		23,504
Total non-interest income		154,163			95,494			(7,950	)		241,707
Total net revenues		246,076			179,433			(8,112	)		417,397
Expenses excluding interest:
Compensation and benefits		58,136			34,324			—			92,460
Clearing and servicing		9,400			41,691			(8,112	)		42,979
Advertising and market development		23,187			3,395			—			26,582
Communications		14,413			2,625			—			17,038
Professional services		14,429			5,273			—			19,702
Depreciation and amortization		14,876			2,200			—			17,076
Occupancy and equipment		13,523			3,929			—			17,452
Amortization of other intangibles		2,613			2,370			—			4,983
Facility restructuring and other exit charges		(335	)		892			—			557
Other		14,575			11,797			—			26,372
Total expenses excluding interest		164,817			108,496			(8,112	)		265,201
Segment income	$	81,259		$	70,937		$	—		$	152,196

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 7

Key Performance Metrics⁽³⁾

Corporate Metrics	Qtr ended 3/31/06			Qtr ended 12/31/05			Qtr ended 3/31/06 vs. Qtr ended 12/31/05	Qtr ended 3/31/05			Qtr ended 3/31/06 vs. Qtr ended 3/31/05
Operating margin %(1)
Consolidated		41	%		43	%	(2)%		36	%	5 %
Retail		43	%		56	%	(13)%		33	%	10 %
Institutional		35	%		16	%	19 %		40	%	(5)%
Employees		3,823			3,439		11 %		3,273		17 %
Consultants and other		702			497		41 %		515		36 %
Total headcount		4,525			3,936		15 %		3,788		19 %
Revenue per headcount(4)	$	132,232		$	127,396		4 %	$	110,189		20 %
Revenue per compensation and benefits dollar	$	5.16		$	4.77		8 %	$	4.51		14 %
Book value per share	$	8.61		$	8.16		6 %	$	6.20		39 %
Tangible book value per share	$	2.58		$	2.07		25 %	$	4.77		(46)%
Cash & equivalents ($MM)	$	823.2		$	844.2		(2)%	$	721.0		14 %
Free cash ($MM)	$	650.7		$	542.3		20 %	$	689.9		(6)%
Enterprise net interest spread (basis points)		286			257		11 %		242		18 %
Enterprise interest-earning assets, average ($MM)(5)	$	41,343		$	35,619		16 %	$	29,081		42 %
Earnings before interest, taxes, depreciation & amortization ($MM)
Net income from continuing operations	$	143.0		$	125.5		14 %	$	102.2		40 %
Tax expense		78.7			59.0		33 %		58.5		35 %
Depreciation & amortization		30.1			51.7		(42)%		22.1		37 %
Corporate interest expense		40.5			37.0		10 %		11.6		250 %
EBITDA	$	292.3		$	273.1		7 %	$	194.3		50 %
Interest coverage		7.2			7.4		(2)%		16.8		(57)%

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 8

Key Performance Metrics⁽³⁾

Retail Metrics	Qtr ended 3/31/06			Qtr ended 12/31/05			Qtr ended 3/31/06 vs. Qtr ended 12/31/05	Qtr ended 3/31/05			Qtr ended 3/31/06 vs. Qtr ended 3/31/05
Trading days		62.0			62.5		(1)%		61.0		2 %
Daily Average Revenue Trades (DARTs)
- US		159,199			113,017		41 %		74,133		115 %
- International		21,960			15,391		43 %		13,942		58 %
Total DARTs		181,159			128,408		41 %		88,075		106 %
Total retail trades (MM)		11.2			8.0		40 %		5.4		109 %
Retail average commission per trade	$	12.10		$	12.95		(7)%	$	15.02		(19)%
End of period margin debt ($B)	$	6.81		$	6.56		4 %	$	2.24		205 %
Average margin debt ($B)	$	6.63		$	4.40		51 %	$	2.21		200 %
Gross new trading/investing accounts		190,027			782,052		(76)%		133,951		42 %
Gross new deposit/lending accounts		80,632			96,823		(17)%		58,454		38 %
Inactive accounts		(155,680	)		(169,065	)	8 %		(100,921	)	(54)%
Customer closed accounts		(64,323	)		(118,948	)	46 %		(56,239	)	(14)%
Net new retail accounts		50,656			590,862		(91)%		35,245		44 %
End of period trading/investing accounts		3,634,803			3,617,778		0 %		2,975,744		22 %
End of period deposit/lending accounts		699,631			666,000		5 %		642,264		9 %
End of period retail accounts		4,334,434			4,283,778		1 %		3,618,008		20 %
Net new customers		(14,671	)		484,867		N.M.		8,584		N.M.
End of period total retail customers		3,404,602			3,419,273		0 %		2,896,025		18 %
End of period assets per customer	$	56,569		$	52,193		8 %	$	32,562		74 %
Consolidated net revenue per customer(6)	$	176		$	144		22 %	$	144		22 %
Consolidated segment income per customer(6)	$	72		$	61		17 %	$	53		36 %
Products per customer		2.1			2.1		0 %		1.9		9 %
Total Retail Client Assets ($B)
Security holdings	$	127.8		$	117.6		9 %	$	50.7		152 %
Cash (including money market funds)		11.5			13.3		(14)%		6.3		83 %
Unexercised options (vested)		34.4			32.1		7 %		25.2		37 %
Client assets in trading/investing accounts		173.7			163.0		7 %		82.2		111 %
Sweep Deposit Account		10.1			7.7		31 %		6.3		60 %
Transaction accounts		5.7			5.1		12 %		3.7		54 %
CDs		3.1			2.7		15 %		2.1		48 %
Client assets in deposit accounts		18.9			15.5		22 %		12.1		56 %
Total retail client assets	$	192.6		$	178.5		8 %	$	94.3		104 %
Total customer cash and deposits	$	30.4		$	28.8		6 %	$	18.4		66 %
Unexercised options (unvested) ($B)	$	21.8		$	19.7		11 %	$	14.8		47 %

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 9

Key Performance Metrics⁽³⁾

Institutional Metrics	Qtr ended 3/31/06			Qtr ended 12/31/05			Qtr ended 3/31/06 vs. Qtr ended 12/31/05	Qtr ended 3/31/05			Qtr ended 3/31/06 vs. Qtr ended 3/31/05
Market Making
Equity shares traded (MM)		90,871			33,264		173 %		57,385		58 %
Average revenue capture per 1,000 equity shares	$	0.277		$	0.545		(49)%	$	0.329		(16)%
% of Bulletin Board equity shares to total equity shares		94.1	%		86.6	%	8 %		93.3	%	1 %
Enterprise Loans Receivable Detail ($MM)
Mortgage and home equity loans, net	$	15,755		$	15,517		2 %	$	8,969		76 %
Margin loans		6,814			6,560		4 %		2,236		205 %
Consumer loans, net		3,777			3,907		(3)%		4,257		(11)%
Other		97			88		10 %		12		708 %
Total enterprise loans receivable, net	$	26,443		$	26,072		1 %	$	15,474		71 %
Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.18	%		0.27	%	(0.09)%		0.26	%	(0.08)%
Provision as a % of average held-for-investment loans, net (annualized)		0.21	%		0.34	%	(0.13)%		0.40	%	(0.19)%
Allowance as a % of total ending gross held-for-investment loans		0.33	%		0.32	%	0.01 %		0.40	%	(0.07)%
Total non-performing loans, net, as a % of total gross held-for-investment loans		0.21	%		0.18	%	0.03 %		0.18	%	0.03 %
Total loan loss allowance as a % of total non-performing loans, net		158	%		183	%	(24)%		228	%	(70)%
Tier 1 Capital Ratio (7)		6.03	%		5.92	%	0.11 %		6.06	%	(0.03)%
Risk Weighted Capital Ratio (7)		11.21	%		10.94	%	0.27 %		11.27	%	(0.06)%

Activity in Allowance for Loan Losses

	Three Months Ended March 31, 2006
	Mortgage			Consumer			Total
	(in thousands)
Allowance for loan losses, ending 12/31/05	$	30,907		$	32,379		$	63,286
Provision for loan losses		3,009			7,188			10,197
Charge-offs, net		(2,515	)		(6,459	)		(8,974	)
Allowance for loan losses, ending 3/31/06	$	31,401		$	33,108		$	64,509

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 10

Average Enterprise Balance Sheet Data

($ in thousands)

	Three Months Ended March 31, 2006
	Average			Interest			Average
	Balance			Inc./Exp.			Yield/Cost
Average interest-earning assets:
Loans, net(8)	$	19,571,064		$	281,270			5.75	%
Margin loans		6,477,585			104,904			6.57	%
Mortgage-backed and related available-for-sale securities		10,555,616			125,504			4.76	%
Available-for-sale investment securities		2,519,826			37,389			5.94	%
Trading securities		138,660			2,648			7.64	%
Cash and cash equivalents(9)		1,549,180			15,899			4.16	%
Stock borrow and other		530,629			7,730			5.91	%
Total average interest-earning assets	$	41,342,560		$	575,344			5.56	%
Average interest-bearing liabilities:
Retail deposits	$	18,120,089		$	90,505			2.03	%
Brokered certificates of deposit		420,600			4,113			3.97	%
Free credits		6,759,733			16,373			0.98	%
Repurchase agreements and other borrowings		9,855,018			111,520			4.53	%
FHLB advances		3,054,111			32,539			4.26	%
Stock loan and other		669,753			4,197			2.54	%
Total average interest-bearing liabilities	$	38,879,304		$	259,247			2.70	%
Enterprise net interest spread(3)				$	316,097			2.86	%
	Three Months Ended December 31, 2005
	Average			Interest			Average
	Balance			Inc./Exp.			Yield/Cost
Average interest-earning assets:
Loans, net(8)	$	18,370,193		$	259,527			5.65	%
Margin loans		3,500,867			58,333			6.61	%
Mortgage-backed and related available-for-sale securities		10,259,119			116,417			4.54	%
Available-for-sale investment securities		1,999,562			27,926			5.59	%
Trading securities		148,957			2,711			7.28	%
Cash and cash equivalents(9)		889,445			7,494			3.34	%
Stock borrow and other		450,566			5,984			5.27	%
Total average interest-earning assets	$	35,618,709		$	478,392			5.37	%
Average interest-bearing liabilities:
Retail deposits	$	14,564,378		$	69,062			1.88	%
Brokered certificates of deposit		512,379			4,862			3.76	%
Free credits		3,539,020			7,173			0.80	%
Repurchase agreements and other borrowings		10,472,887			112,845			4.31	%
FHLB advances		3,954,935			40,137			3.97	%
Stock loan and other		497,222			3,209			2.56	%
Total average interest-bearing liabilities	$	33,540,821		$	237,288			2.80	%
Enterprise net interest spread(3)				$	241,104			2.57	%
	Three Months Ended
	March 31, 2005
	Average			Interest			Average
	Balance			Inc./Exp.			Yield/Cost
Average interest-earning assets:
Loans, net(8)	$	12,185,231		$	153,188			5.03	%
Margin loans		2,211,434			30,466			5.59	%
Mortgage-backed and related available-for-sale securities		8,909,307			88,974			3.99	%
Available-for-sale investment securities		3,625,243			43,392			4.79	%
Trading securities		526,644			4,511			3.43	%
Cash and cash equivalents(9)		1,226,527			8,021			2.65	%
Stock borrow and other		396,416			4,022			4.12	%
Total average interest-earning assets	$	29,080,802		$	332,574			4.57	%
Average interest-bearing liabilities:
Retail deposits	$	11,865,690		$	40,231			1.38	%
Brokered certificates of deposit		288,635			2,221			3.12	%
Free credits		2,844,612			2,053			0.29	%
Repurchase agreements and other borrowings		10,073,089			82,465			3.27	%
FHLB advances		1,961,644			17,944			3.66	%
Stock loan and other		427,848			945			0.90	%
Total average interest-bearing liabilities	$	27,461,518		$	145,859			2.15	%
Enterprise net interest spread(3)				$	186,715			2.42	%
Reconciliation from Enterprise Net Interest Income to Consolidated Net Interest Income
	Three Months Ended
	March 31, 2006			December 31, 2005			March 31,   2005
	(in thousands)
Enterprise net interest income(5)	$	316,097		$	241,104		$	186,715
Less: Taxable equivalent adjustment(10)		(3,392	)		(2,656	)		(2,598	)
Plus: Stock conduit, net(11)		262			286			223
Plus: Customer cash held by others(12)		11,822			19,514			3,390
Consolidated net interest income	$	324,789		$	258,248		$	187,730

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 11

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 for 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 plus 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) Reflects elimination of transactions between Retail and Institutional segments, which include deposit transfer pricing, servicing and order flow rebates.

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

(4) Total headcount in the Q405 calculation was adjusted to reflect the contribution of BrownCo employees for only one month in the quarter.

(5) Enterprise net interest income is taxable equivalent consolidated net interest income excluding corporate interest income and expense, stock conduit interest income and expense and interest on customer cash held by external parties.

(6) Total retail customers in the Q405 calculations were adjusted to reflect the contribution of BrownCo customers for only one month in the quarter.

(7) Q106 estimate.

(8) Excludes loans to customers on margin.

(9) Includes segregated cash balances.

(10) Gross-up for tax-exempt securities.

E*TRADE FINANCIAL Results for the Quarter Ended March 31, 2006

Page 12

(11) Net interest from average stock conduit assets of $0.8 billion, $0.7 billion and $0.5 billion for the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively.

(12) Includes interest earned on customer assets of $3.6 billion, $4.7 billion and $3.0 billion for the quarters ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively, held outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated broker-dealers.