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 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 July 19, 2006, the Company announced its second 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 July 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: July 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 SECOND QUARTER RESULTS;

RAISES 2006 EARNINGS GUIDANCE

· Record Net Income of $156 million

· Record Earnings of $0.36 per share, or $0.37⁽¹⁾ per share excluding $0.01⁽¹⁾ per share of acquisition-related integration expenses

· Record Total Net Revenue of $611 million

· Record Enterprise Net Interest Spread of 291 basis points

· Record Operating Margin of 43 percent⁽²⁾

· Total Client Assets of $181 billion

· Raises and narrows 2006 earnings guidance to $1.42 - $1.52 per share, excluding $0.05 of acquisition-related integration expenses, resulting in $1.37 - $1.47 per share on a GAAP basis

New York, July 19, 2006 – E*TRADE FINANCIAL Corporation (NYSE: ET) today announced record results for its second quarter ended June 30, 2006, reporting net income of $156 million, or $0.36 per share compared to $102 million, or $0.27 per share a year ago. As previously indicated, the results in the second quarter of 2006 include approximately $8 million, or $0.01 per share, of acquisition-related integration expenses. Excluding these expenses, the Company generated earnings of $0.37 per share. Total net revenue for the second quarter increased 58 percent year over year to a record $611 million. Net interest income after provision for loan losses increased 71 percent year over year to $334 million – representing 55 percent of total net revenue. Enterprise net interest spread increased to 291 basis points as the Company continued to benefit from strong organic growth in customer cash and growth in higher yielding assets. Non-interest income increased 45 percent year over year to $277 million. Operating margin expanded 700 basis points year over year to a record 43 percent.

The Company also raised its 2006 earnings guidance for the second time this year to a range of $1.42 - $1.52 per share from the previous range of $1.35 - $1.50. As previously indicated, this range excludes $0.05 per share of acquisition-related integration expenses. Of this $0.05, $0.04 was realized through the first and second quarters, and the Company expects to realize an additional $0.01 in the third quarter. Including these expenses, the Company now expects to earn $1.37 - $1.47 per share on a GAAP basis in 2006, up from the previous range of $1.30 - $1.45.

(more)

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 2

“The strength of our second quarter results demonstrates the flexibility of our model, particularly amid an environment filled with significant macroeconomic uncertainty,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. “As retail customers respond to the market environment, they are increasingly looking for value from a broader set of financial solutions. Through our compelling value proposition across investing, trading, banking and lending products, we remain ideally positioned to capitalize on short-term market opportunities and long-term secular growth trends.”

Other selected highlights from the second quarter of 2006:

· Generated $1.7 billion in Total Deposit growth:

o Sweep Deposit Account balances up $400 million

o Transaction account balances up $400 million

o Certificates of Deposit balances up $900 million

· Recorded an 82 percent increase in international DARTs year over year

· Increased options trades to 12.4 percent of U.S. DARTs, up from 12.2 percent in the first quarter and 10.0 percent in the year ago period

· Repurchased 2 million shares at an average price of $23.79

· Announced the acquisition of Retirement Advisors of America, a Texas-based asset management firm with over $1 billion in assets under management

· Continued our phased launch of E*TRADE Complete functionality – introduced the Intelligent Investing Optimizer and Risk Analyzer, enabling customers to evaluate their investment choices against various market scenarios

· Opened three new retail center locations including Farmington, MI; Garden City, NY; and Torrance, CA – increasing total center locations to 20 nationwide

Historical monthly metric data from January 2003 to June 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 June 30, 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 June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Revenue:
Interest income	$	660,373	$	387,749	$	1,254,667	$	724,270
Interest expense		(315,771)		(179,640)		(585,276)		(328,431)
Net interest income		344,602		208,109		669,391		395,839
Provision for loan losses		(10,270)		(12,997)		(20,467)		(25,037)
Net interest income after provision for loan losses		334,332		195,112		648,924		370,802
Commission		167,296		98,939		343,165		208,833
Service charges and fees		33,640		34,453		65,630		67,746
Principal transactions		31,590		21,753		62,282		51,754
Gain on sales of loans and securities, net		11,107		17,256		22,735		62,271
Other revenue		33,393		20,174		66,971		43,678
Total non-interest income		277,026		192,575		560,783		434,282
Total net revenue		611,358		387,687		1,209,707		805,084
Expense excluding interest:
Compensation and benefits		125,641		84,928		241,629		177,388
Clearing and servicing		64,138		42,811		127,426		85,790
Advertising and market development		30,420		26,482		65,201		53,064
Communications		27,834		19,402		59,242		36,440
Professional services		23,219		16,763		50,974		36,465
Depreciation and amortization		18,827		17,791		37,616		34,867
Occupancy and equipment		20,428		16,972		40,932		34,424
Amortization of other intangibles		11,972		4,386		23,304		9,369
Facility restructuring and other exit activities		2,884		407		2,631		964
Other		25,208		16,416		56,213		42,788
Total expense excluding interest		350,571		246,358		705,168		511,559
Income before other income (expense), income taxes, minority interest and discontinued operations		260,787		141,329		504,539		293,525
Other income (expense):
Corporate interest income		2,188		2,425		4,149		4,387
Corporate interest expense		(36,114)		(11,625)		(76,622)		(23,192)
Gain on sales and impairment of investments		15,290		30,607		32,906		46,144
Loss on early extinguishment of debt		(568)		-		(703)		-
Equity in income (loss) of investments and venture funds		189		1,398		(818)		4,039
Total other income (expense)		(19,015)		22,805		(41,088)		31,378
Income before income taxes, minority interest and discontinued operations		241,772		164,134		463,451		324,903
Income tax expense		85,080		54,745		163,775		113,256
Minority interest in subsidiaries		-		6		-		58
Net income from continuing operations		156,692		109,383		299,676		211,589
Discontinued operations, net of tax:
Loss from discontinued operations		(208)		(5,225)		(721)		(15,437)
Loss on disposal of discontinued operations		-		(2,591)		-		(2,591)
Net loss from discontinued operations		(208)		(7,816)		(721)		(18,028)
Net income	$	156,484	$	101,567	$	298,955	$	193,561
Basic earnings per share from continuing operations	$	0.37	$	0.30	$	0.72	$	0.58
Basic loss per share from discontinued operations		(0.00)		(0.02)		(0.00)		(0.05)
Basic net earnings per share	$	0.37	$	0.28	$	0.72	$	0.53
Diluted earnings per share from continuing operations	$	0.36	$	0.29	$	0.69	$	0.56
Diluted loss per share from discontinued operations		(0.00)		(0.02)		(0.00)		(0.05)
Diluted net earnings per share	$	0.36	$	0.27	$	0.69	$	0.51
Shares used in computation of per share data:
Basic		421,929		365,180		418,324		365,643
Diluted		439,460		376,345		435,918		377,511

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 4

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	June 30, 2006		March 31, 2006		June 30, 2005
Revenue:
Interest income	$	660,373	$	594,294	$	387,749
Interest expense		(315,771)		(269,505)		(179,640)
Net interest income		344,602		324,789		208,109
Provision for loan losses		(10,270)		(10,197)		(12,997)
Net interest income after provision for loan losses		334,332		314,592		195,112
Commission		167,296		175,869		98,939
Service charges and fees		33,640		31,990		34,453
Principal transactions		31,590		30,692		21,753
Gain on sales of loans and securities, net		11,107		11,628		17,256
Other revenue		33,393		33,578		20,174
Total non-interest income		277,026		283,757		192,575
Total net revenue		611,358		598,349		387,687
Expense excluding interest:
Compensation and benefits		125,641		115,988		84,928
Clearing and servicing		64,138		63,288		42,811
Advertising and market development		30,420		34,781		26,482
Communications		27,834		31,408		19,402
Professional services		23,219		27,755		16,763
Depreciation and amortization		18,827		18,789		17,791
Occupancy and equipment		20,428		20,504		16,972
Amortization of other intangibles		11,972		11,332		4,386
Facility restructuring and other exit activities		2,884		(253)		407
Other		25,208		31,005		16,416
Total expense excluding interest		350,571		354,597		246,358
Income before other income (expense), income taxes, minority interest and discontinued operations		260,787		243,752		141,329
Other income (expense):
Corporate interest income		2,188		1,961		2,425
Corporate interest expense		(36,114)		(40,508)		(11,625)
Gain on sales and impairment of investments		15,290		17,616		30,607
Loss on early extinguishment of debt		(568)		(135)		-
Equity in income (loss) of investments and venture funds		189		(1,007)		1,398
Total other income (expense)		(19,015)		(22,073)		22,805
Income before income taxes, minority interest and discontinued operations		241,772		221,679		164,134
Income tax expense		85,080		78,695		54,745
Minority interest in subsidiaries		-		-		6
Net income from continuing operations		156,692		142,984		109,383
Discontinued operations, net of tax:
Loss from discontinued operations		(208)		(513)		(5,225)
Loss on disposal of discontinued operations		-		-		(2,591)
Net loss from discontinued operations		(208)		(513)		(7,816)
Net income	$	156,484	$	142,471	$	101,567
Basic earnings per share from continuing operations	$	0.37	$	0.34	$	0.30
Basic loss per share from discontinued operations		(0.00)		(0.00)		(0.02)
Basic net earnings per share	$	0.37	$	0.34	$	0.28
Diluted earnings per share from continuing operations	$	0.36	$	0.33	$	0.29
Diluted loss per share from discontinued operations		(0.00)		(0.00)		(0.02)
Diluted net earnings per share	$	0.36	$	0.33	$	0.27
Shares used in computation of per share data:
Basic		421,929		414,679		365,180
Diluted		439,460		432,302		376,345

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 5

E*TRADE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheet

(Dollars in thousands, except share amounts)

(Unaudited)

	June 30, 2006		December 31, 2005
ASSETS
Cash and equivalents	$	876,405	$	844,188
Cash and investments required to be segregated under Federal or other regulations		268,834		610,174
Trading securities		122,017		146,657
Available-for-sale mortgage-backed and investment securities		14,741,457		12,763,438
Loans held-for-sale, net		145,135		87,371
Brokerage receivables, net		8,058,148		7,174,175
Loans receivable, net		20,871,740		19,424,895
Property and equipment, net		302,701		299,256
Goodwill		2,019,197		2,003,456
Other intangibles, net		503,979		532,108
Other assets		983,186		681,968
Total assets	$	48,892,799	$	44,567,686
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits	$	21,202,870	$	15,948,015
Securities sold under agreements to repurchase		10,184,813		11,101,542
Brokerage payables		7,854,477		7,342,208
Other borrowings		3,489,708		4,206,996
Senior notes		1,391,250		1,401,947
Mandatory convertible notes		438,083		435,589
Convertible subordinated notes		-		185,165
Accounts payable, accrued and other liabilities		484,613		546,664
Total liabilities		45,045,814		41,168,126
Shareholders’ equity:
Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 425,924,023 at June 30, 2006 and 416,582,164 at December 31, 2005		4,259		4,166
Additional paid-in-capital		3,187,067		2,990,676
Retained earnings		879,385		580,430
Accumulated other comprehensive loss		(223,726)		(175,712)
Total shareholders’ equity		3,846,985		3,399,560
Total liabilities and shareholders’ equity	$	48,892,799	$	44,567,686

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 6

Segment Reporting

	Three Months Ended June 30, 2006
	Retail		Institutional		Eliminations(3)		Total
Revenue:		(Dollars in thousands)
Interest income	$	372,732	$	503,168	$	(215,527)	$	660,373
Interest expense		(144,026)		(387,272)		215,527		(315,771)
Net interest income		228,706		115,896		-		344,602
Provision for loan losses		-		(10,270)		-		(10,270)
Net interest income after provision for loan losses		228,706		105,626		-		334,332
Commission		127,567		39,729		-		167,296
Service charges and fees		27,803		5,837		-		33,640
Principal transactions		-		31,590		-		31,590
Gain on sales of loans and securities, net		8,958		2,149		-		11,107
Other revenue		35,152		1,751		(3,510)		33,393
Total non-interest income		199,480		81,056		(3,510)		277,026
Total net revenue		428,186		186,682		(3,510)		611,358
Expense excluding interest:
Compensation and benefits		80,352		45,289		-		125,641
Clearing and servicing		20,124		47,524		(3,510)		64,138
Advertising and market development		28,388		2,032		-		30,420
Communications		24,520		3,314		-		27,834
Professional services		18,168		5,051		-		23,219
Depreciation and amortization		14,570		4,257		-		18,827
Occupancy and equipment		18,483		1,945		-		20,428
Amortization of other intangibles		9,814		2,158		-		11,972
Facility restructuring and other exit activities		2,824		60		-		2,884
Other		21,452		3,756		-		25,208
Total expense excluding interest		238,695		115,386		(3,510)		350,571
Segment income	$	189,491	$	71,296	$	-	$	260,787
	Three Months Ended March 31, 2006
	Retail		Institutional		Eliminations(3)		Total
Revenue:		(Dollars in thousands)
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
Commission		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 revenue		35,719		1,836		(3,977)		33,578
Total non-interest income		207,234		80,500		(3,977)		283,757
Total net revenue		413,154		189,172		(3,977)		598,349
Expense 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 activities		375		(628)		-		(253)
Other		19,589		11,416		-		31,005
Total expense excluding interest		235,820		122,754		(3,977)		354,597
Segment income	$	177,334	$	66,418	$	-	$	243,752

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 7

	Three Months Ended June 30, 2005
	Retail		Institutional		Eliminations(3)		Total
Revenue:		(Dollars in thousands)
Interest income	$	153,639	$	330,965	$	(96,855)	$	387,749
Interest expense		(55,174)		(221,321)		96,855		(179,640)
Net interest income		98,465		109,644		-		208,109
Provision for loan losses		-		(12,997)		-		(12,997)
Net interest income after provision for loan losses		98,465		96,647		-		195,112
Commission		71,316		27,623		-		98,939
Service charges and fees		30,175		4,278		-		34,453
Principal transactions		-		21,753		-		21,753
Gain on sales of loans and securities, net		17,834		(578)		-		17,256
Other revenue		26,725		1,418		(7,969)		20,174
Total non-interest income		146,050		54,494		(7,969)		192,575
Total net revenue		244,515		151,141		(7,969)		387,687
Expense excluding interest:
Compensation and benefits		54,901		30,027		-		84,928
Clearing and servicing		10,257		40,523		(7,969)		42,811
Advertising and market development		24,294		2,188		-		26,482
Communications		16,782		2,620		-		19,402
Professional services		12,718		4,045		-		16,763
Depreciation and amortization		14,071		3,720		-		17,791
Occupancy and equipment		13,908		3,064		-		16,972
Amortization of other intangibles		2,120		2,266		-		4,386
Facility restructuring and other exit activities		435		(28)		-		407
Other		5,040		11,376		-		16,416
Total expense excluding interest		154,526		99,801		(7,969)		246,358
Segment income	$	89,989	$	51,340	$	-	$	141,329

2006 GAAP Earnings Guidance and Key Driver Assumptions

							2H06 Estimate				FY2006 Estimate
	Q106A		Q206A		1H06A		Low		High		Low		High
Earnings per share (excluding $0.05 of acquisition-related integration expenses)	$	0.36	$	0.37	$	0.73	$	0.69	$	0.79	$	1.42	$	1.52
GAAP earnings per share	$	0.33	$	0.36	$	0.69	$	0.68	$	0.78	$	1.37	$	1.47
DARTs (in thousands)		181		166		173		140		160		157		167
Average commission per revenue trade	$	12.10	$	12.23	$	12.16	$	12.15	$	12.25	$	12.16	$	12.20
Average margin debt ($B)	$	6.6	$	7.0	$	6.8	$	7.0	$	7.1	$	6.9	$	7.0
Enterprise cash, end of period ($B)	$	30.4	$	30.7	$	30.7	$	32.0	$	34.5	$	32.0	$	34.5
Average enterprise net interest spread (basis points)(4)		286		291		290		285		300		287		295
Average enterprise interest-earning assets ($B)	$	41.3	$	44.1	$	42.7	$	45.0	$	50.0	$	43.9	$	46.4

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 8

Key Performance Metrics⁽⁵⁾

Corporate Metrics	Qtr ended 6/30/06		Qtr ended 3/31/06		Qtr ended 6/30/06 vs. 3/31/06	Qtr ended 6/30/05		Qtr ended 6/30/06 vs. 6/30/05
Operating margin %(2)
Consolidated		43 %		41 %	2 %		36 %	7 %
Retail		44 %		43 %	1 %		37 %	7 %
Institutional		38 %		35 %	3 %		34 %	4 %
Employees		4,140		3,823	8 %		3,131	32 %
Consultants and other		565		702	(20)%		375	51 %
Total headcount		4,705		4,525	4 %		3,506	34 %
Revenue per headcount	$	129,938	$	132,232	(2)%	$	110,578	18 %
Revenue per compensation and benefits dollar	$	4.87	$	5.16	(6)%	$	4.56	7 %
Book value per share	$	9.03	$	8.61	5 %	$	6.23	45 %
Tangible book value per share	$	3.11	$	2.58	21 %	$	4.82	(35)%
Cash & equivalents ($MM)	$	876.4	$	823.2	6 %	$	1,095.4	(20)%
Free cash ($MM)	$	650.8	$	650.7	0 %	$	727.6	(11)%
Enterprise net interest spread (basis points)(4)		291		286	2 %		245	19 %
Enterprise interest-earning assets, average ($MM)	$	44,064	$	41,343	7 %	$	32,076	37 %
Earnings before interest, taxes, depreciation & amortization ($MM)
Net income from continuing operations	$	156.7	$	143.0	10 %	$	109.4	43 %
Tax expense		85.1		78.7	8 %		54.7	56 %
Depreciation & amortization		30.8		30.1	2 %		22.2	39 %
Corporate interest expense		36.1		40.5	(11)%		11.6	211 %
EBITDA	$	308.7	$	292.3	6 %	$	197.9	56 %
Interest coverage		8.5		7.2	19 %		17.0	(50)%

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 9

Key Performance Metrics⁽⁵⁾

Retail Metrics	Qtr ended 6/30/06		Qtr ended 3/31/06		Qtr ended 6/30/06 vs. 3/31/06	Qtr ended 6/30/05		Qtr ended 6/30/06 vs. 6/30/05
Trading days		63.0		62.0	2 %		64.0	(2)%
Daily Average Revenue Trades (DARTs)
- US		142,621		159,199	(10)%		68,256	109 %
- International		22,981		21,960	5 %		12,613	82 %
Total DARTs		165,602		181,159	(9)%		80,869	105 %
Total retail trades (MM)		10.4		11.2	(7)%		5.2	100 %
Retail average commission per trade	$	12.23	$	12.10	1 %	$	13.78	(11)%
End of period margin debt ($B)	$	7.15	$	6.81	5 %	$	2.26	216 %
Average margin debt ($B)	$	6.99	$	6.63	5 %	$	2.17	222 %
Gross new trading/investing accounts		169,595		190,027	(11)%		142,010	19 %
Gross new deposit/lending accounts		97,739		80,632	21 %		62,099	57 %
Inactive accounts		(164,166)		(155,680)	(5)%		(115,957)	(42)%
Customer closed accounts		(61,689)		(64,323)	4 %		(61,972)	0 %
Net new retail accounts		41,479		50,656	(18)%		26,180	58 %
End of period trading/investing accounts		3,626,963		3,634,803	0 %		2,990,586	21 %
End of period deposit/lending accounts		748,950		699,631	7 %		653,602	15 %
End of period retail accounts		4,375,913		4,334,434	1 %		3,644,188	20 %
Net new customers		11,040		(14,671)	175 %		5,176	113 %
End of period total retail customers		3,415,642		3,404,602	0 %		2,901,201	18 %
End of period assets per customer	$	52,906	$	56,569	(6)%	$	33,344	59 %
Consolidated net revenue per customer	$	179	$	176	2 %	$	134	34 %
Consolidated segment income per customer	$	76	$	72	6 %	$	49	55 %
Products per customer		2.1		2.1	0 %		2.0	5 %
Total Retail Client Assets ($B)
Security holdings	$	121.6	$	127.8	(5)%	$	52.4	132 %
Cash (including money market funds)		10.1		11.5	(12)%		6.1	66 %
Unexercised options (vested)		28.4		34.4	(17)%		25.6	11 %
Client assets in trading/investing accounts		160.1		173.7	(8)%		84.1	90 %
Sweep Deposit Account		10.5		10.1	4 %		6.4	64 %
Transaction accounts		6.1		5.7	7 %		4.0	53 %
CDs		4.0		3.1	29 %		2.2	82 %
Client assets in deposit accounts		20.6		18.9	9 %		12.6	63 %
Total retail client assets	$	180.7	$	192.6	(6)%	$	96.7	87 %
Total customer cash and deposits	$	30.7	$	30.4	1 %	$	18.7	64 %
Unexercised options (unvested) ($B)	$	16.5	$	21.8	(24)%	$	16.0	3 %

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 10

Key Performance Metrics⁽⁵⁾

Institutional Metrics	Qtr ended 6/30/06		Qtr ended 3/31/06		Qtr ended 6/30/06 vs. 3/31/06	Qtr ended 6/30/05		Qtr ended 6/30/06 vs. 6/30/05
Market Making
Equity shares traded (MM)		69,537		90,871	(23)%		30,584	127 %
Average revenue capture per 1,000 equity shares	$	0.387	$	0.277	40 %	$	0.515	(25)%
% of Bulletin Board equity shares to total equity shares		92.7%		94.1%	(1)%		87.8%	5 %
End of Period Enterprise Loans Receivable Detail ($MM)
Mortgage and home equity loans, net	$	17,256	$	15,755	10 %	$	11,672	48 %
Margin receivables		7,146		6,814	5 %		2,260	216 %
Consumer loans, net		3,610		3,777	(4)%		4,131	(13)%
Other		151		97	56 %		29	421 %
Total enterprise loans receivable, net	$	28,163	$	26,443	7 %	$	18,092	56 %
Credit Quality and Reserve Metrics
Net charge-offs as a % of average held-for-investment loans, net (annualized)		0.15 %		0.18 %	(0.03)%		0.27 %	(0.12)%
Provision as a % of average held-for-investment loans, net (annualized)		0.20 %		0.21 %	(0.01)%		0.37 %	(0.17)%
Allowance as a % of total ending gross held-for-investment loans		0.32 %		0.33 %	(0.01)%		0.35 %	(0.03)%
Total non-performing loans, net, as a % of total gross held-for-investment loans		0.22 %		0.21 %	0.01 %		0.15 %	0.07 %
Total loan loss allowance as a % of total non-performing loans, net		144 %		158 %	(14)%		239 %	(95)%
Tier 1 Capital Ratio(6)		5.85 %		6.03 %	(0.18)%		5.93 %	(0.08)%
Risk Weighted Capital Ratio(6)		11.01 %		11.21 %	(0.20)%		11.03 %	(0.02)%

Activity in Allowance for Loan Losses

	Three Months Ended June 30, 2006
	Mortgage		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses, ending 3/31/06	$	31,401	$	33,108	$	64,509
Provision for loan losses		6,033		4,237		10,270
Charge-offs, net		(2,973)		(4,685)		(7,658)
Allowance for loan losses, ending 6/30/06	$	34,461	$	32,660	$	67,121

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 11

Average Enterprise Balance Sheet Data

	Three Months Ended
	June 30, 2006						March 31, 2006
	Average Balance		Interest Inc./Exp.		Average Yield/Cost		Average Balance		Interest Inc./Exp.		Average Yield/Cost
Average interest-earning assets:		(Dollars in thousands)
Loans, net(7)	$	20,419,936	$	303,499		5.95%	$	19,571,064	$	281,270	5.75%
Margin receivables		6,982,867		123,390		7.09%		6,477,585		104,904	6.57%
Mortgage-backed and related available-for-sale securities		11,715,510		147,374		5.03%		10,555,616		125,504	4.76%
Available-for-sale investment securities		3,048,166		47,287		6.21%		2,519,826		37,389	5.94%
Trading securities		142,452		2,946		8.27%		138,660		2,648	7.64%
Cash and cash equivalents(8)		1,260,684		13,421		4.27%		1,549,180		15,899	4.16%
Stock borrow and other		493,981		8,795		7.14%		530,629		7,730	5.91%
Total average interest-earning assets	$	44,063,596	$	646,712		5.87%	$	41,342,560	$	575,344	5.56%
Average interest-bearing liabilities:
Retail deposits	$	19,848,322	$	115,062		2.33%	$	18,120,089	$	90,505	2.03%
Brokered certificates of deposit		577,068		6,696		4.65%		420,600		4,113	3.97%
Free credits(9)		6,416,136		16,957		1.06%		6,759,733		16,373	0.98%
Repurchase agreements and other borrowings		10,580,283		129,103		4.83%		9,855,018		111,520	4.53%
FHLB advances		2,842,198		32,207		4.48%		3,054,111		32,539	4.26%
Stock loan and other		1,133,694		8,487		3.00%		669,753		4,197	2.54%
Total average interest-bearing liabilities	$	41,397,701	$	308,512		2.96%	$	38,879,304	$	259,247	2.70%
Enterprise net interest income/spread(4)			$	338,200		2.91%			$	316,097	2.86%
	Three Months Ended June 30, 2005
	Average Balance		Interest Inc./Exp.		Average Yield/Cost
Average interest-earning assets:		(Dollars in thousands)
Loans, net(7)	$	14,289,236	$	183,999		5.15%
Margin receivables		2,169,299		32,800		6.06%
Mortgage-backed and related available-for-sale securities		9,449,551		98,855		4.18%
Available-for-sale investment securities		3,328,278		42,835		5.15%
Trading securities		215,438		2,328		4.32%
Cash and cash equivalents(8)		2,128,841		15,866		2.99%
Stock borrow and other		495,314		5,281		4.28%
Total average interest-earning assets	$	32,075,957	$	381,964		4.77%
Average interest-bearing liabilities:
Retail deposits	$	12,248,939	$	49,629		1.63%
Brokered certificates of deposit		456,724		3,782		3.32%
Free credits(9)		3,704,143		5,075		0.55%
Repurchase agreements and other borrowings		10,409,126		87,507		3.36%
FHLB advances		3,001,297		27,500		3.62%
Stock loan and other		505,064		1,660		1.32%
Total average interest-bearing liabilities	$	30,325,293	$	175,153		2.32%
Enterprise net interest income/spread(4)			$	206,811		2.45%
Reconciliation from Enterprise Net Interest Income to Net Interest Income
	Three Months Ended
	June 30, 2006		March 31, 2006		June 30, 2005
		(Dollars in thousands)
Enterprise Net Interest Income	$	338,200	$	316,097	$	206,811
Taxable equivalent adjustment(10)		(4,306)		(3,392)		(2,672)
Stock conduit, net(11)		132		262		311
Customer cash held by third parties(12)		10,576		11,822		3,659
Net Interest Income	$	344,602	$	324,789	$	208,109

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

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 free cash, EBITDA, interest coverage, EPS excluding acquisition-related integration expenses, enterprise net interest income and enterprise interest-earning assets 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.

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.

EPS Excluding Acquisition-Related Integration Expenses

EPS excluding acquisition-related integration expenses represents net income plus acquisition-related integration expenses, net of tax divided by diluted shares. Management believes that excluding charges associated with the integration of our acquisitions from EPS provides a useful measure to assess the operating performance of the Company.

Enterprise Net Interest Income

Enterprise Net Interest Income is taxable equivalent basis net interest income excluding corporate interest income and interest expense, stock conduit interest income and expense and interest earned on customer cash held by third parties. Management believes this non-GAAP measure is useful to analysts and investors as it is a measure of the net interest income generated by our core operations.

Enterprise Interest-Earning Assets

Enterprise interest-earning assets are average interest-bearing assets determined based on the definition of enterprise net interest spread, which excludes corporate interest-earning assets and stock conduit assets. Management believes this metric is an indicator of the Company’s ability to grow net interest income by increasing the size of the balance sheet.

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) EPS excluding acquisition-related integration expenses is a non-GAAP financial measure per applicable SEC regulations. The $0.01 per share was calculated as acquisition-related integration expenses of $5 million after tax divided by 439,460,000 diluted shares.

E*TRADE FINANCIAL Results for the Quarter Ended June 30, 2006

Page 13

(2) Operating margin is the percentage of every dollar of revenue that goes to net income before other income (expense), income taxes, minority interest and discontinued operations. The percentage is calculated by dividing our income before other income (expense), income taxes, minority interest and discontinued operations by our total net revenue.

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

(4) Enterprise net interest spread is the taxable equivalent rate earned on average enterprise interest-earning assets less the rate paid on average enterprise interest-bearing liabilities, excluding corporate interest-earning assets and liabilities, stock conduit and cash held by third parties.

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

(6) Q2-06 estimate.

(7) Excludes loans to customers on margin.

(8) Includes segregated cash balances.

(9) Free credits are balances held in customer accounts arising from deposits of funds and sales of securities.

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

(11) Net interest income earned on average stock conduit assets of $0.4 billion, $0.8 billion and $0.7 billion for the quarters ended June 30, 2006, March 31, 2006 and June 30, 2005, respectively.

(12) Includes interest earned on customer assets of $3.4 billion, $3.6 billion and $1.6 billion for the quarters ended June 30, 2006, March 31, 2006 and June 30, 2005, respectively, held by parties outside E*TRADE FINANCIAL, including third party money market funds and sweep deposit accounts at unaffiliated broker-dealers.