E*TRADE FINANCIAL CORPORATION ANNOUNCES STRONGEST YEAR IN COMPANY HISTORY AND REPORTS Q4 2004 GAAP EARNINGS OF $0.26

E*TRADE FINANCIAL CORPORATION ANNOUNCES STRONGEST YEAR IN COMPANY HISTORY AND REPORTS Q4 2004 GAAP EARNINGS OF $0.26

Total Client Assets Top $100 Billion Mark

- Generated full-year 2004 GAAP earnings of $1.01 per share on net income of $389.1 million

- Reported fourth quarter GAAP earnings of $0.26 per share on net income of $98.4 million

- Reported Total Daily Average Revenue Trades of 136,100 in Q4, an increase of 40 percent over Q304 and a decline of 3 percent year over year

- Increased margin debt 10 percent to $2.2 billion at quarter end from $2.0 billion at the end of the third quarter and $1.8 billion a year ago or 27 percent

- Improved bank spread to 220 basis points from 213 basis points in Q304 and 169 basis points in Q403

NEW YORK, Jan. 26 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL Corporation (NYSE:ET) today announced results for its fourth quarter ended December 31, 2004, reporting net income of $98.4 million, or $0.26 per diluted share, compared to net income of $107.5 million, or $0.27 per share, in the same quarter a year ago. The reported fourth quarter earnings per share include a $0.02 benefit from a lower corporate tax rate. Net revenue for the fourth quarter totaled $409.5 million, a 21 percent increase over the prior quarter and a 10 percent increase over the year ago period.

For the year ending December 31, 2004, E*TRADE FINANCIAL reported earnings of $1.01 per share on net income of $389.1 million compared to $0.55 per share and net income of $203.0 million in 2003. Total assets/deposits in customer accounts reached a record level of $100.4 billion at year-end -- an increase of 20 percent sequentially and 21 percent year over year.

"In 2004, we proved that you can increase profitability and earnings, while sharing the rewards of financial success with customers," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "Our record-breaking year continues to validate the strength of our model and underscores our commitment to passing on unique advantages to customers. In 2005, we intend to deliver continued value to our customers and shareholders by enhancing our customer segmentation and increasing integration."

Other selected highlights from the fourth quarter of 2004:

-- Added 61,000 net new brokerage accounts
-- Generated a record-setting consolidated operating margin(1) of 31
percent
-- Expanded E*TRADE FINANCIAL Center locations to include Palo Alto, CA
and Washington, D.C.
-- Repurchased approximately 4 million outstanding shares for $56 million
at a weighted average price of $13.86 per share
-- Announced an additional $200 million repurchase program in December



Historical monthly metric data from January 2003 to December 2004 can be found on the E*TRADE FINANCIAL investor relations site at www.etrade.com.

About E*TRADE FINANCIAL

The E*TRADE FINANCIAL family of companies provide financial services including brokerage, banking and lending for retail, corporate and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member NASD/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.

Important Notice

E*TRADE FINANCIAL and the E*TRADE FINANCIAL logo 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 Group, Inc. or E*TRADE FINANCIAL Corporation with the SEC on Form 10-K (including information under the caption "Risk Factors") and quarterly reports on Form 10-Q.

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


FINANCIAL STATEMENTS

C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s
(in thousands, except per share amounts)
(unaudited)

Three Months Ended
Dec. 31, Sept. 30, Dec. 31,
2004 2004 2003
Brokerage revenues:
Commissions $94,148 $64,005 $97,915
Principal transactions 67,074 48,212 64,822
Other brokerage-related revenues 43,131 35,600 44,232
Brokerage interest income 49,531 42,871 38,308
Brokerage interest expense (6,475) (4,795) (3,473)
Net brokerage revenues 247,409 185,893 241,804

Banking revenues:
Banking interest income 273,658 250,141 202,996
Banking interest expense (134,364) (124,057) (119,056)
Provision for loan losses (12,420) (9,145) (12,374)
Gain on sales of originated loans 10,069 12,917 20,739
Gain on sales of loans held-for-
sale and securities, net 15,792 13,108 28,287
Other banking-related revenues 9,377 8,280 8,874
Net banking revenues 162,112 151,244 129,466
Total net revenues 409,521 337,137 371,270

Expenses excluding interest:
Compensation and benefits 95,562 87,264 98,361
Occupancy and equipment 19,954 19,176 20,162
Communications 18,559 18,465 21,568
Professional services 23,425 17,365 13,296
Commissions, clearance and floor
brokerage 40,067 30,894 41,193
Advertising and market
development 16,614 10,232 11,514
Servicing and other banking
expenses 9,946 9,129 7,749
Fair value adjustments of
financial derivatives 518 (696) (398)
Depreciation and amortization 21,027 20,757 20,651
Amortization of other
intangibles 6,932 6,271 9,779
Facility restructuring and other
exit charges 2,799 (231) 8,855
Acquisition-related expenses 62 62 (997)
Other 28,942 18,682 22,421
Total expenses excluding
interest 284,407 237,370 274,154

Income before other income, income
taxes and discontinued operations 125,114 99,767 97,116

Other income:
Corporate interest income 1,937 1,698 1,569
Corporate interest expense (11,774) (11,873) (11,319)
Gain on sale and impairment of
investments 20,597 47,229 85,326
Loss on early extinguishment of debt -- (18,615) --
Equity in income of investments
and venture funds 1,262 142 3,333
Total other income 12,022 18,581 78,909
Income before income taxes and
discontinued operations 137,136 118,348 176,025
Income tax expense 38,623 38,464 67,141
Minority interest in subsidiaries 17 47 28
Income from continuing operations 98,496 79,837 108,856
Discontinued operations, net of
tax:
Loss from discontinued
operations (74) (727) (1,401)
Gain on disposal of discontinued
operations -- 164 --
Net loss from discontinued
operations (74) (563) (1,401)
Net income $98,422 $79,274 $107,455

Basic income per share from
continuing operations $0.27 $0.21 $0.30
Basic loss per share from
discontinued operations (0.00) (0.00) (0.00)
Basic net income per share $0.27 $0.21 $0.30

Diluted income per share from
continuing operations $0.26 $0.21 $0.27
Diluted loss per share from
discontinued operations (0.00) (0.00) (0.00)
Diluted net income per share $0.26 $0.21 $0.27

Shares used in computation of per
share data:
Basic 367,603 369,103 362,944
Diluted (2) 381,061 380,557 421,121


C o n s o l i d a t e d S t a t e m e n t s o f O p e r a t i o n s
(in thousands, except per share amounts)
(unaudited)

Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003

Brokerage revenues:
Commissions $94,148 $97,915 $349,539 $337,468
Principal transactions 67,074 64,822 252,162 229,846
Other brokerage-related
revenues 43,131 44,232 163,686 177,682
Brokerage interest income 49,531 38,308 177,362 144,379
Brokerage interest expense (6,475) (3,473) (18,524) (10,305)
Net brokerage revenues 247,409 241,804 924,225 879,070

Banking revenues:
Banking interest income 273,658 202,996 968,411 748,527
Banking interest expense (134,364) (119,056) (491,931) (475,824)
Provision for loan losses (12,420) (12,374) (38,121) (38,523)
Gain on sales of originated
loans 10,069 20,739 71,561 192,467
Gain on sales of loans held-
for-sale and securities, net 15,792 28,287 57,853 97,261
Other banking-related
revenues 9,377 8,874 35,988 35,821
Net banking revenues 162,112 129,466 603,761 559,729
Total net revenues 409,521 371,270 1,527,986 1,438,799

Expenses excluding interest:
Compensation and benefits 95,562 98,361 382,184 393,271
Occupancy and equipment 19,954 20,162 78,244 85,462
Communications 18,559 21,568 74,559 82,215
Professional services 23,425 13,296 70,826 57,461
Commissions, clearance and
floor brokerage 40,067 41,193 156,814 151,318
Advertising and market
development 16,614 11,514 65,673 60,880
Servicing and other banking
expenses 9,946 7,749 36,525 38,352
Fair value adjustments of
financial derivatives 518 (398) (2,299) 15,338
Depreciation and amortization 21,027 20,651 82,853 89,506
Amortization of other
intangibles 6,932 9,779 26,899 30,138
Facility restructuring and
other exit charges 2,799 8,855 1,657 134,191
Acquisition-related expenses 62 (997) 248 1,859
Other 28,942 22,421 94,063 103,811
Total expenses excluding
interest 284,407 274,154 1,068,246 1,243,802

Income before other income,
income taxes and discontinued
operations 125,114 97,116 459,740 194,997

Other income:
Corporate interest income 1,937 1,569 6,692 6,550
Corporate interest expense (11,774) (11,319) (47,525) (45,592)
Gain on sale and impairment
of investments 20,597 85,326 128,103 147,967
Loss on early extinguishment
of debt -- -- (22,972) --
Equity in income of
investments and venture
funds 1,262 3,333 4,468 9,132
Total other income 12,022 78,909 68,766 118,057
Income before income taxes and
discontinued operations 137,136 176,025 528,506 313,054
Income tax expense 38,623 67,141 168,090 113,423
Minority interest in
subsidiaries 17 28 893 (5,061)
Income from continuing
operations 98,496 108,856 359,523 204,692
Discontinued operations,
net of tax:
Loss from discontinued
operations (74) (1,401) (1,855) (1,665)
Gain on disposal of
discontinued operations -- -- 31,408 --
Net income (loss) from
discontinued operations (74) (1,401) 29,553 (1,665)
Net income $98,422 $107,455 $389,076 $203,027

Basic income per share from
continuing operations $0.27 $0.30 $0.98 $0.57
Basic income per share from
discontinued operations (0.00) (0.00) 0.08 (0.00)
Basic net income per share $0.27 $0.30 $1.06 $0.57

Diluted income per share from
continuing operations $0.26 $0.27 $0.94 $0.55
Diluted income per share from
discontinued operations (0.00) (0.00) 0.07 (0.00)
Diluted net income per share $0.26 $0.27 $1.01 $0.55

Shares used in computation of
per share data:
Basic 367,603 362,944 366,586 358,320
Diluted (2) 381,061 421,121 405,389 367,361


C o n s o l i d a t e d B a l a n c e S h e e t s
(dollars in thousands)
(unaudited)

December 31, September 30, December 31,
2004 2004 2003
ASSETS
Cash and equivalents $939,906 $731,031 $921,364
Cash and investments required to be
segregated under Federal or other
regulations 724,026 716,643 1,644,605
Brokerage receivables, net 3,034,558 3,684,913 2,297,778
Trading securities 593,245 651,151 832,889
Available-for-sale mortgage-backed
and investment securities 12,543,818 12,051,677 9,826,940
Other investments 46,269 41,431 49,272
Loans receivable, net 11,505,755 10,307,413 8,130,906
Loans held-for-sale, net 279,280 597,875 1,000,487
Property and equipment, net 302,291 287,111 287,097
Goodwill 395,043 408,187 392,845
Other intangibles, net 134,121 125,130 126,032
Other assets 555,175 734,162 539,001
Total assets $31,053,487 $30,336,724 $26,049,216

LIABILITIES AND SHAREHOLDERS' EQUITY

Brokerage payables $3,618,902 $4,132,583 $3,696,225
Deposits 12,302,974 12,027,025 12,514,486
Securities sold under agreements
to repurchase 9,896,872 9,044,660 5,283,609
Other borrowings by Bank subsidiary 1,760,732 1,617,072 1,203,554
Accounts payable, accrued and
other liabilities 651,595 779,376 737,718
Convertible subordinated notes 185,165 185,165 695,330
Senior notes 400,452 400,000 --
Total liabilities 28,816,692 28,185,881 24,130,922

Shareholders' equity:
Preferred stock, shares
authorized: 1,000,000; issued
and outstanding:
none at December 31, 2004,
September 30, 2004 and
December 31, 2003 -- -- --
Shares exchangeable into common
stock, $0.01 par value, shares
authorized:
10,644,223; issued and
outstanding: 1,302,801 at
December 31, 2004,
1,326,125 at September 30,
2004 and 1,386,125 at
December 31, 2003 13 13 14
Common stock, $0.01 par value,
shares authorized: 600,000,000;
issued and outstanding:
369,623,604 at December 31,
2004, 372,295,993 at September
30, 2004 and 366,636,406 at
December 31, 2003 3,696 3,723 3,666
Additional paid-in-capital 2,234,093 2,270,445 2,247,930
Deferred stock compensation (18,419) (16,889) (12,874)
Retained earnings (deficit) 158,611 60,189 (230,465)
Accumulated other comprehensive
loss (141,199) (166,638) (89,977)
Total shareholders' equity 2,236,795 2,150,843 1,918,294
Total liabilities and
shareholders' equity $31,053,487 $30,336,724 $26,049,216


SEGMENT REPORTING

Three Months Ended December 31, 2004
Elimi-
Brokerage Banking nation(3) Total
(in thousands)
Net revenues:
Commissions $94,148 $-- $-- $94,148
Principal transactions 67,074 -- -- 67,074
Interest income 49,531 273,658 -- 323,189
Interest expense (6,475) (134,364) -- (140,839)
Gain on sales of originated
loans -- 10,069 -- 10,069
Gain on sale of loans held-for-
sale and securities, net -- 15,792 -- 15,792
Provision for loan losses -- (12,420) -- (12,420)
Other revenues 57,925 9,377 (14,794) 52,508
Net revenues 262,203 162,112 (14,794) 409,521

Expenses excluding interest:
Compensation and benefits 63,510 32,052 -- 95,562
Occupancy and equipment 12,864 7,090 -- 19,954
Communications 16,839 1,720 -- 18,559
Professional services 16,600 6,825 -- 23,425
Commissions, clearance and floor
brokerage 40,060 7 -- 40,067
Advertising and market
development 12,409 18,999 (14,794) 16,614
Servicing and other banking
expenses -- 9,946 -- 9,946
Fair value adjustments of
financial derivatives -- 518 -- 518
Depreciation and amortization 16,545 4,482 -- 21,027
Amortization of other
intangibles 4,312 2,620 -- 6,932
Facility restructuring and other
exit charges 1,320 1,479 -- 2,799
Acquisition-related expenses -- 62 -- 62
Other 19,216 9,726 -- 28,942
Total expenses excluding
interest 203,675 95,526 (14,794) 284,407
Income before other corporate items $58,528 $66,586 $-- $125,114


Three Months Ended September 30, 2004
Elimi-
Brokerage Banking nation(3) Total
(in thousands)
Net revenues:
Commissions $64,005 $-- $-- $64,005
Principal transactions 48,212 -- -- 48,212
Interest income 42,871 250,141 -- 293,012
Interest expense (4,795) (124,057) -- (128,852)
Gain on sales of originated loans -- 12,917 -- 12,917
Gain on sale of loans held-for-
sale and securities, net -- 13,108 -- 13,108
Provision for loan losses -- (9,145) -- (9,145)
Other revenues 48,541 8,280 (12,941) 43,880
Net revenues 198,834 151,244 (12,941) 337,137

Expenses excluding interest:
Compensation and benefits 55,892 31,372 -- 87,264
Occupancy and equipment 12,604 6,572 -- 19,176
Communications 16,628 1,837 -- 18,465
Professional services 10,820 6,545 -- 17,365
Commissions, clearance and floor
brokerage 30,890 4 -- 30,894
Advertising and market
development 5,376 17,797 (12,941) 10,232
Servicing and other banking
expenses -- 9,129 -- 9,129
Fair value adjustments of
financial derivatives -- (696) -- (696)
Depreciation and amortization 16,313 4,444 -- 20,757
Amortization of other
intangibles 4,021 2,250 -- 6,271
Facility restructuring and other
exit charges (227) (4) -- (231)
Acquisition-related expenses -- 62 -- 62
Other 9,332 9,350 -- 18,682
Total expenses excluding
interest 161,649 88,662 (12,941) 237,370
Income before other corporate items $37,185 $62,582 $-- $99,767


Three Months Ended December 31, 2003
Elimi-
Brokerage Banking nation(3) Total
(in thousands)
Net revenues:
Commissions $97,915 $-- $-- $97,915
Principal transactions 64,822 -- -- 64,822
Interest income 38,308 202,996 -- 241,304
Interest expense (3,473) (119,056) -- (122,529)
Gain on sales of originated loans -- 20,739 -- 20,739
Gain on sale of loans held-for-
sale and securities, net -- 28,287 -- 28,287
Provision for loan losses -- (12,374) -- (12,374)
Other revenues 51,958 8,874 (7,726) 53,106
Net revenues 249,530 129,466 (7,726) 371,270

Expenses excluding interest:
Compensation and benefits 62,802 35,559 -- 98,361
Occupancy and equipment 14,557 5,605 -- 20,162
Communications 20,176 1,392 -- 21,568
Professional services 6,704 6,592 -- 13,296
Commissions, clearance and floor
brokerage 41,186 7 -- 41,193
Advertising and market
development 4,594 14,646 (7,726) 11,514
Servicing and other banking
expenses 207 7,542 -- 7,749
Fair value adjustments of
financial derivatives -- (398) -- (398)
Depreciation and amortization 15,521 5,130 -- 20,651
Amortization of other
intangibles 6,910 2,869 -- 9,779
Facility restructuring and other
exit charges 7,209 1,646 -- 8,855
Acquisition-related expenses 471 (1,468) -- (997)
Other 14,968 7,453 -- 22,421
Total expenses excluding
interest 195,305 86,575 (7,726) 274,154
Income before other corporate items $54,225 $42,891 $-- $97,116


KEY PERFORMANCE METRICS (4)

Qtr Qtr
ended ended
12/31/04 12/31/04
Qtr Qtr vs. Qtr Qtr vs. Qtr
ended ended ended ended ended
CORPORATE METRICS 12/31/04 9/30/04 9/30/04 12/31/03 12/31/03

Operating margin % (1)
Consolidated 31 % 30 % 1 % 26 % 5 %
Brokerage 22 % 19 % 3 % 22 % 0 %
Bank 41 % 41 % 0 % 33 % 8 %

Employees 3,320 3,325 0 % 3,455 (4)%
Consultants and other 505 443 14 % 314 61 %
Total headcount 3,825 3,768 2 % 3,769 1 %

Revenue per headcount $107,064 $89,474 20 % $98,506 9 %

Revenue per compensation and
benefits dollar $4.29 $3.86 11 % $3.77 14 %

Book value per share $6.03 $5.76 5 % $5.21 16 %
Tangible book value per
share $4.60 $4.33 6 % $3.73 23 %

Cash & equivalents ($MM) $939.9 $731.0 29 % $921.4 2 %
Free cash ($MM) $691.0 $713.0 (3)% $649.6 6 %

Earnings before interest,
taxes, depreciation &
amortization ($MM)
Net income from continuing
operations $98.5 $79.8 23 % $108.9 (10)%
Tax expense 38.6 38.5 0 % 67.1 (42)%
Depreciation & amortization 28.0 27.0 3 % 30.4 (8)%
Corporate interest expense 11.8 11.9 (1)% 11.3 4 %
EBITDA $176.9 $157.2 13 % $217.7 (19)%

Interest coverage 15.0 13.2 13 % 19.2 (22)%

Active retail brokerage
accounts 2,956,090 2,895,106 2 % 2,848,625 4 %
Active banking accounts 626,673 632,328 (1)% 638,345 (2)%
Total active accounts end of
period 3,582,763 3,527,434 2 % 3,486,970 3 %

Total customer households
end of period 2,739,071 2,703,373 1 % 2,656,025 3 %

Gross new accounts 203,809 166,868 N.M. 154,298 N.M.
Inactive accounts (90,106) (103,090) N.M. (105,214) N.M.
Customer closed accounts (58,374) (65,051) N.M. (74,660) N.M.
Net new accounts 55,329 (1,273) N.M. (25,576) N.M.

Net new households 35,698 3,516 N.M. (22,384) N.M.

Total client assets in
investing accounts ($B) $88.1 $71.4 23 % $70.8 24 %
Total deposits in banking
accounts ($B) 12.3 12.0 2 % 12.5 (2)%
Total assets / deposits in
customer accounts ($B) $100.4 $83.4 20 % $83.3 21 %

Average assets per household $36,669 $30,860 19 % $31,376 17 %


BROKERAGE METRICS

Trading days 63.5 64.0 N.M. 62.5 N.M.

Daily Average Revenue
Trades (DARTs)
Total Retail 89,604 62,771 43 % 91,972 (3)%
- US 76,955 53,050 45 % 83,081 (7)%
- International 12,649 9,721 30 % 8,891 42 %
Professional 46,529 34,633 34 % 48,154 (3)%
Total DARTs 136,133 97,404 40 % 140,126 (3)%

Total revenue trades (MM) 8.6 6.2 39 % 8.8 (1)%

Average commission per
revenue trade $10.89 $10.27 6 % $11.18 (3)%

Market Making
Equity shares traded (MM) 75,717 65,037 16 % 26,190 189 %
Average revenue capture per
1,000 equity shares $0.318 $0.234 36 % $0.912 (65)%
% of Bulletin Board equity
shares to total equity
shares 93.9% 95.4% (2)% 82.9% 11 %

End of period margin debt ($B) $2.24 $2.04 10 % $1.76 27 %
Average margin debt ($B) $2.09 $2.04 2 % $1.64 27 %

Active retail brokerage
accounts 2,956,090 2,895,106 2 % 2,848,625 4 %

Gross new brokerage
accounts 161,737 105,870 N.M. 112,275 N.M.
Inactive accounts (90,106) (103,090) N.M. (105,214) N.M.
Customer closed accounts (10,647) (8,814) N.M. (13,336) N.M.
Net new brokerage accounts 60,984 (6,034) N.M. (6,275) N.M.

New client assets ($MM) $6,467 $2,717 138 % $3,266 98 %
Client asset outflow from
closed accounts ($MM) (595) (410) (45)% (400) (49)%
Net new client assets ($MM) $5,873 $2,307 155 % $2,867 105 %

Total Client Assets ($B)
Security holdings $53.5 $45.8 17 % $43.9 22 %
Cash (including money
market funds) 5.9 4.7 26 % 6.2 (5)%
Unexercised options
(vested) 28.7 20.9 37 % 20.7 39 %
Total client assets in
investing accounts $88.1 $71.4 23 % $70.8 24 %

Total client assets per
active account $29,815 $24,662 21 % $24,861 20 %

Unexercised options
(unvested) ($B) $20.1 $13.9 44 % $14.9 34 %


BANKING METRICS

Gross new banking accounts 42,072 60,998 N.M. 42,023 N.M.
Inactive accounts -- -- N.M. -- N.M.
Customer closed accounts (47,727) (56,237) N.M. (61,324) N.M.
Net new banking accounts (5,655) 4,761 N.M. (19,301) N.M.

Direct mortgage
originations ($B) $0.7 $0.6 8 % $0.9 (26)%
Correspondent mortgage
originations ($B) $1.0 $0.6 59 % $1.2 (22)%
Consumer loan originations,
incl HELOCs ($B) $0.5 $0.6 (7)% $0.7 (22)%
Acquired consumer loans ($B) $1.0 $1.1 (10)% $0.7 39 %
Mortgage pipeline (end of
period) ($B) $0.2 $0.4 (41)% $0.3 (24)%

Bank Asset Portfolio Detail ($MM)
Cash & equivalents $82 $41 100 % $276 (70)%
Trading securities 567 625 (9)% 821 (31)%
Investment securities,
available-for-sale 3,367 3,251 4 % 2,413 40 %
Mortgage securities,
available-for-sale 9,052 8,658 5 % 7,157 26 %
Loans receivable, net
including loans held-for-
sale:
- Mortgage and home equity
loans, net 7,634 6,468 18 % 4,847 57 %
- Consumer loans, net 4,151 4,437 (6)% 4,284 (3)%
- Other -- -- N.M. 1 N.M.
Other assets 700 710 (1)% 587 19 %
Total assets $25,553 $24,190 6 % $20,386 25 %

Bank Deposit Portfolio
Detail ($MM)
Transaction accounts $9,939 $9,448 5 % $8,988 11 %
CDs 2,364 2,579 (8)% 3,527 (33)%
Total $12,303 $12,027 2 % $12,514 (2)%

Bank interest rate spread
(basis points) 220 213 3 % 169 30 %
Bank interest-earning assets,
average ($MM) $24,780 $23,091 7 % $19,095 30 %

Credit Quality and Reserve
Metrics
Net charge-offs as a % of
average held-for-investment
loans, net (annualized) 0.27 % 0.35 % (0.08)% 0.44 % (0.17)%
Provision as a % of average
held-for-investment loans,
net (annualized) 0.44 % 0.37 % 0.07 % 0.65 % (0.21)%
Allowance as a % of total
ending gross held-for-
investment loans 0.41 % 0.41 % 0.00 % 0.46 % (0.05)%
Total non-performing loans,
net, as a % of total gross
held-for-investment loans 0.17 % 0.17 % 0.00 % 0.30 % (0.13)%
Total loan loss allowance as
a % of total non-performing
loans, net 239 % 240 % (1)% 154 % 85 %

Tier 1 Capital Ratio (5) 5.83 % 5.94 % (0.11)% 5.92 % (0.09)%
Risk Weighted Capital
Ratio (5) 11.10 % 11.24 % (0.14)% 11.30 % (0.20)%


ACTIVITY IN ALLOWANCE FOR LOAN LOSSES

Three Months Ending December 31, 2004
Mortgage Consumer Total
(in thousands)
Allowance for loan losses, ending
9/30/04 $13,039 $29,855 $42,894
Provision for loan losses 5,811 6,609 12,420
Charge-offs, net (855) (6,778) (7,633)
Allowance for loan losses, ending
12/31/04 $17,995 $29,686 $47,681


BANK AVERAGE BALANCE DATA

Three Months Ended
December 31, 2004
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $11,678,476 $143,885 4.93%
Interest-bearing deposits 40,510 198 1.94%
Mortgage-backed and related
available-for-sale securities 9,031,367 89,563 3.97%
Available-for-sale investment
securities 3,347,929 36,904 4.41%
Investment in FHLB stock 99,802 932 3.71%
Trading securities 581,458 4,546 3.13%
Total interest-earning banking
assets (6) 24,779,542 $276,028 4.45%
Non-interest-earning banking assets 497,512
Total banking assets $25,277,054
Interest-bearing banking liabilities:
Retail deposits $11,834,734 $40,663 1.37%
Brokered certificates of deposit 325,269 2,176 2.66%
FHLB advances 1,664,272 16,457 3.87%
Other borrowings 9,905,559 75,068 2.97%
Total interest-bearing banking
liabilities 23,729,834 $134,364 2.25%
Non-interest bearing banking
liabilities 389,355
Total banking liabilities 24,119,189
Total banking shareholder's equity 1,157,865
Total banking liabilities and
shareholder's equity $25,277,054
Excess of interest-earning banking
assets over interest-bearing banking
liabilities/net interest income $1,049,708
Net interest spread $141,664 2.20%


Three Months Ended
December 31, 2003
Interest Average
Average Income/ Annualized
Balance Expense Yield/Cost
(in thousands)
Interest-earning banking assets:
Loans receivable, net $8,608,426 $101,423 4.71%
Interest-bearing deposits 166,573 1,047 2.49%
Mortgage-backed and related
available-for-sale securities 7,151,508 70,315 3.93%
Available-for-sale investment
securities 2,303,438 24,247 4.21%
Investment in FHLB stock 79,236 693 3.47%
Trading securities 786,006 5,995 3.05%
Total interest-earning banking
assets (6) 19,095,187 $203,720 4.27%
Non-interest-earning banking assets 761,853
Total banking assets $19,857,040
Interest-bearing banking liabilities:
Retail deposits $11,331,066 $58,496 2.05%
Brokered certificates of deposit 243,210 1,742 2.84%
FHLB advances 927,761 11,593 4.89%
Other borrowings 5,798,868 47,225 3.19%
Total interest-bearing banking
liabilities 18,300,905 $119,056 2.58%
Non-interest bearing banking
liabilities 596,475
Total banking liabilities 18,897,380
Total banking shareholder's equity 959,660
Total banking liabilities and
shareholder's equity $19,857,040
Excess of interest-earning banking
assets over interest-bearing banking
liabilities/net interest income $794,282
Net interest spread $84,664 1.69%

SUPPLEMENTAL INFORMATION AND ENDNOTES

Explanation of Non-GAAP Measures and Certain Metrics


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

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

Free Cash, EBITDA and Interest Coverage
Free cash as reported by the Company represents cash held at Parent
and non-Bank or Brokerage subsidiaries less discretionary reserves and
excess capital at Bank and Brokerage after regulatory capital
requirements and the Company's own regulatory capital guidelines. The
Company believes that free cash is a useful measure of the Company's
liquidity as it excludes cash reflected on the balance sheet that may
not be freely available to the Company.
Additionally, management utilizes EBITDA and interest coverage to
measure business performance. EBITDA is defined as net income (loss)
from continuing operations before corporate interest expense, taxes and
depreciation & amortization. Interest coverage is defined as EBITDA
divided by corporate interest expense.



It is important to note these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as a substitute for, or superior to, net income, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. 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) Consolidated operating margin is defined as income before other income, income taxes and discontinued operations divided by net revenues. Operating margin for Brokerage and Bank is based on segment results.

(2) For the three months ended December 31, 2003 and for the twelve months ended December 31, 2004, diluted earnings per share is calculated using the 'if converted' method, which includes the additional dilutive impact assuming conversion of the Company's subordinated convertible debt. Under the 'if converted' method the per share numerator excludes the interest expense and related amortization of offering costs from the convertible debt, net of tax, of $7.2 million for the three months ended December 31, 2003, and $19.9 million for the twelve months ended December 31, 2004. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million for the three months ended December 31, 2003 and 25.8 million for the twelve months ended December 31, 2004. For all other periods presented the 'if converted' method is not used as its effect would be anti- dilutive.

(3) Eliminates intercompany payment made by Bank to Brokerage related to Sweep Deposit Account (SDA) relationships, swept daily from Brokerage to Bank, which began in the third quarter of 2003. Under this relationship, Bank pays Brokerage a negotiated rate that approximates market on the average SDA balance. Bank reflects this payment as advertising and market development expense and Brokerage reflects this payment as other revenues.

(4) Amounts and percentages may not calculate due to rounding.
(5) Q404 estimate.


(6) Amounts include a taxable equivalent increase in interest income of $2.4 million and $0.7 million for the three months ended December 31, 2004 and 2003, respectively.


Source: E*TRADE FINANCIAL Corporation

CONTACT: media, Pam Erickson, +1-617-296-6080, or
pam.erickson@etrade.com, or investor relations, Adam Townsend,
+1-703-236-8719, or adam.townsend@etrade.com, both of E*TRADE FINANCIAL
Corporation

Web site: http://www.etrade.com/


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