E*TRADE FINANCIAL Corporation Announces Record First Quarter Revenue W

NEW YORK, April 20 /PRNewswire-FirstCall/ -- E*TRADE FINANCIAL Corporation today announced results for its first quarter ended March 31, 2005, reporting net income of $92.0 million, or $0.24 per diluted share, compared to net income of $89.8 million, or $0.24 per share in the prior quarter and $88.5 million, or $0.23 per share, in the same quarter a year ago. Net revenue for the first quarter totaled $420.3 million, a 3 percent increase over the prior quarter and a 5 percent increase over the year ago period, achieving a new quarterly record. The Company also reported record consolidated operating income of $135 million, a 22 percent increase over the prior quarter and a 14 percent increase over the year ago period.

"The strength of our first quarter results again proves the power and flexibility of our integrated business model," said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL Corporation. "We generated record quarterly revenue and consolidated operating income amid an uncertain economic environment. By focusing on operational efficiencies and leverage points within -- and between -- our retail and institutional segments, we continue to create franchise value."

As previously announced, the Company is changing its segment reporting structure to reflect its customer-centric focus beginning with today's release of its first quarter results. Segment results will now be reported as retail and institutional as opposed to the previous structure of bank and brokerage. "We are now measuring and reporting our performance as it relates to the Company's key customer segments," said R. Jarrett Lilien, President and Chief Operating Officer, E*TRADE FINANCIAL Corporation. "Customer-centric management allows us to more effectively understand the dimensions of customer satisfaction while measuring our success in growing revenue per customer, profits per customer and overall customer engagement."

Other selected highlights from the first quarter of 2005: -- Added 192,000 gross new retail accounts, with 134,000 in trading/investing and 58,000 in deposit/lending accounts -- Increased products per customer 12 percent to 1.9 from 1.7 a year ago and total segment income per customer by 13 percent to $47 from $41 a year ago -- Lowered online stock and options commissions from $19.99 to $14.99 for customers with less than $50,000 in combined assets or less than 5 trades per month and eliminated the $3 order handling fee -- Reduced online stock and options commissions to $11.99 from $12.99 for clients with over $50,000 in combined assets and less than 5 trades per month -- Created two additional pricing tiers for Active Traders ranging from $6.99 to $9.99 for stock and options commissions based on activity qualifications -- Increased annual yield on Money Market Checking and Sweep Deposit Accounts to as much as 2.50% APY and 1.00% APY, respectively, based on balance qualifications -- Began initial phase of E*TRADE Complete rollout, upgrading 50,000 accounts -- Announced Digital Security ID program, a ground-breaking, two-factor authentication solution for customers to prevent unauthorized account access -- Repurchased approximately 2.5 million outstanding shares for $32.5 million

Historical monthly metric data from January 2003 to March 2005 can be found on the E*TRADE FINANCIAL investor relations site at http://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 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.

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 March 31, December 31, March 31, 2005 2004 2004 Revenues: Commissions $114,176 $119,387 $142,713 Principal transactions 34,209 41,835 38,946 Gain on sales of loans and securities, net 36,739 25,861 41,162 Service charges and fees 33,372 24,671 24,900 Other revenues 25,994 27,837 26,898 Interest income 336,613 323,189 255,637 Interest expense (148,791) (140,839) (120,726) Net interest income 187,822 182,350 134,911 Provision for loan losses (12,040) (12,420) (9,055) Net interest income after provision for loan losses 175,782 169,930 125,856 Total net revenues 420,272 409,521 400,475 Expenses excluding interest: Compensation and benefits 98,636 95,562 99,462 Occupancy and equipment 19,584 19,954 19,995 Communications 17,891 18,559 19,442 Professional services 19,816 23,425 14,364 Commissions, clearance and floor brokerage 39,712 40,067 43,927 Advertising and market development 26,821 16,614 24,054 Servicing and other banking expenses 10,199 9,946 8,466 Fair value adjustments of financial derivatives 888 518 274 Depreciation and amortization 18,089 21,027 20,523 Amortization of other intangibles 6,140 6,932 6,919 Facility restructuring and other exit charges 562 17,299 (959) Other 26,615 29,004 25,051 Total expenses excluding interest 284,953 298,907 281,518 Income before other income, income taxes and discontinued operations 135,319 110,614 118,957 Other income: Corporate interest income 1,962 1,937 1,363 Corporate interest expense (11,567) (11,774) (11,338) Gain on sale and impairment of investments 15,542 20,597 28,549 Equity in income of investments and venture funds 2,877 1,262 2,602 Total other income 8,814 12,022 21,176 Income before income taxes and discontinued operations 144,133 122,636 140,133 Income tax expense 52,089 32,716 49,808 Minority interest in subsidiaries 50 17 740 Income from continuing operations 91,994 89,903 89,585 Loss from discontinued operations -- (74) (1,110) Net income $91,994 $89,829 $88,475 Basic income per share from continuing operations $0.25 $0.24 $0.24 Basic loss per share from discontinued operations -- (0.00) (0.00) Basic net income per share $0.25 $0.24 $0.24 Diluted income per share from continuing operations $0.24 $0.24 $0.23 Diluted loss per share from discontinued operations -- (0.00) (0.00) Diluted net income per share $0.24 $0.24 $0.23 Shares used in computation of per share data: Basic 366,130 367,603 365,045 Diluted (3) 378,734 381,061 425,155 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) March 31, December 31, 2005 2004 ASSETS Cash and equivalents $720,996 $939,906 Cash and investments required to be segregated under Federal or other regulations 2,014,189 724,026 Brokerage receivables, net 3,459,480 3,034,548 Trading securities 231,615 593,245 Available-for-sale mortgage-backed and investment securities 11,819,146 12,543,818 Other investments 57,105 46,269 Loans receivable, net 12,929,802 11,505,755 Loans held-for-sale, net 308,661 279,280 Property and equipment, net 308,135 302,291 Goodwill 395,626 395,043 Other intangibles, net 132,901 134,121 Other assets 732,349 534,281 Total assets $33,110,005 $31,032,583 LIABILITIES AND SHAREHOLDERS' EQUITY Brokerage payables $5,205,026 $3,618,892 Deposits 12,519,646 12,302,974 Securities sold under agreements to repurchase 9,491,271 9,896,872 Other borrowings by Bank subsidiary 2,344,821 1,760,732 Senior notes 398,538 400,452 Convertible subordinated notes 185,165 185,165 Accounts payable, accrued and other liabilities 671,664 639,294 Total liabilities 30,816,131 28,804,381 Shareholders' equity: Preferred stock, shares authorized: 1,000,000; issued and outstanding: none at March 31, 2005 and December 31, 2004 -- -- Shares exchangeable into common stock, $0.01 par value, shares authorized: 10,644,223; issued and outstanding: 1,300,301 at March 31, 2005 and 1,302,801 at December 31, 2004 13 13 Common stock, $0.01 par value, shares authorized: 600,000,000; issued and outstanding: 368,735,091 at March 31, 2005 and 369,623,604 at December 31, 2004 3,687 3,696 Additional paid-in-capital 2,217,413 2,234,093 Deferred stock compensation (17,986) (18,419) Retained earnings 242,012 150,018 Accumulated other comprehensive loss (151,265) (141,199) Total shareholders' equity 2,293,874 2,228,202 Total liabilities and shareholders' equity $33,110,005 $31,032,583 SEGMENT REPORTING Three Months Ended March 31, 2005 Retail Institutional Elimination(4) Total Revenues: (in thousands) Commissions $84,970 $29,206 $114,176 Principal transactions -- 34,048 161 34,209 Gain on sales of loans and securities, net 8,102 28,637 36,739 Service charges and fees 29,654 3,718 33,372 Other revenues 29,652 4,453 (8,111) 25,994 Interest income 135,159 290,308 (88,854) 336,613 Interest expense (43,184) (194,299) 88,692 (148,791) Net interest income 91,975 96,009 (162) 187,822 Provision for loan losses -- (12,040) (12,040) Net interest income after provision for loan losses 91,975 83,969 (162) 175,782 Total net revenues 244,353 184,031 (8,112) 420,272 Expenses excluding interest: Compensation and benefits 62,197 36,439 98,636 Occupancy and equipment 15,307 4,277 19,584 Communications 14,903 2,988 17,891 Professional services 14,416 5,400 19,816 Commissions, clearance and floor brokerage 10,757 31,415 (2,460) 39,712 Advertising and market development 23,420 3,401 26,821 Servicing and other banking expenses 1,492 14,359 (5,652) 10,199 Fair value adjustments of financial derivatives -- 888 888 Depreciation and amortization 15,492 2,597 18,089 Amortization of other intangibles 3,047 3,093 6,140 Facility restructuring and other exit charges (330) 892 562 Other 15,457 11,158 26,615 Total expenses excluding interest 176,158 116,907 (8,112) 284,953 Segment income $68,195 $67,124 $-- $135,319 Three Months Ended December 31, 2004 Retail Institutional Elimination(4) Total Revenues: (in thousands) Commissions $94,148 $25,239 $119,387 Principal transactions -- 41,835 41,835 Gain on sales of loans and securities, net 12,162 13,699 25,861 Service charges and fees 21,765 2,906 24,671 Other revenues 32,580 5,096 (9,839) 27,837 Interest income 130,545 272,142 (79,498) 323,189 Interest expense (44,264) (176,073) 79,498 (140,839) Net interest income 86,281 96,069 182,350 Provision for loan losses -- (12,420) (12,420) Net interest income after provision for loan losses 86,281 83,649 169,930 Total net revenues 246,936 172,424 (9,839) 409,521 Expenses excluding interest: Compensation and benefits 62,235 33,327 95,562 Occupancy and equipment 15,858 4,096 19,954 Communications 15,960 2,599 18,559 Professional services 15,605 7,820 23,425 Commissions, clearance and floor brokerage 13,834 29,792 (3,559) 40,067 Advertising and market development 15,709 905 16,614 Servicing and other banking expenses 1,781 14,445 (6,280) 9,946 Fair value adjustments of financial derivatives -- 518 518 Depreciation and amortization 18,611 2,416 21,027 Amortization of other intangibles 2,984 3,948 6,932 Facility restructuring and other exit charges 5,926 11,373 17,299 Other 16,249 12,755 29,004 Total expenses excluding interest 184,752 123,994 (9,839) 298,907 Segment income $62,184 $48,430 $-- $110,614 Three Months Ended March 31, 2004 Retail Institutional Elimination(4) Total Revenues: (in thousands) Commissions $112,230 $30,483 $142,713 Principal transactions -- 38,946 38,946 Gain on sales of loans and securities, net 33,795 7,367 41,162 Service charges and fees 21,933 2,967 24,900 Other revenues 30,256 5,072 (8,430) 26,898 Interest income 120,875 210,707 (75,945) 255,637 Interest expense (44,860) (151,811) 75,945 (120,726) Net interest income 76,015 58,896 134,911 Provision for loan losses -- (9,055) (9,055) Net interest income after provision for loan losses 76,015 49,841 125,856 Total net revenues 274,229 134,676 (8,430) 400,475 Expenses excluding interest: Compensation and benefits 61,445 38,017 99,462 Occupancy and equipment 16,830 3,165 19,995 Communications 16,253 3,189 19,442 Professional services 9,203 5,161 14,364 Commissions, clearance and floor brokerage 16,753 30,806 (3,632) 43,927 Advertising and market development 22,085 1,969 24,054 Servicing and other banking expenses 2,212 11,052 (4,798) 8,466 Fair value adjustments of financial derivatives -- 274 274 Depreciation and amortization 16,553 3,970 20,523 Amortization of other intangibles 4,360 2,559 6,919 Facility restructuring and other exit charges (815) (144) (959) Other 12,259 12,792 25,051 Total expenses excluding interest 177,138 112,810 (8,430) 281,518 Segment income $97,091 $21,866 $-- $118,957 KEY PERFORMANCE METRICS CORPORATE METRICS Qtr Qtr ended ended 3/31/05 3/31/05 vs. vs. Qtr Qtr Qtr Qtr Qtr ended ended ended ended ended 3/31/05 12/31/04 12/31/04 3/31/04 3/31/04 Operating margin % (2) Consolidated 32 % 27 % 5 % 30 % 2 % Retail 28 % 25 % 3 % 35 % (7)% Institutional 36 % 28 % 8 % 16 % 20 % Employees 3,273 3,320 (1)% 3,374 (3)% Consultants and other 515 505 2 % 415 24 % Total headcount 3,788 3,825 (1)% 3,789 0 % Revenue per headcount $110,948 $107,064 4 % $105,694 5 % Revenue per compensation and benefits Dollar $4.26 $4.29 (1)% $4.03 6 % Book value per share $6.20 $6.01 3 % $5.37 15 % Tangible book value per share $4.77 $4.58 4 % $3.97 20 % Cash & equivalents ($MM) $721.0 $939.9 (23)% $845.4 (15)% Free cash ($MM) $689.9 $691.0 0 % $704.6 (2)% Earnings before interest, taxes, depreciation & amortization ($MM) Net income from continuing operations $92.0 $89.9 2 % $89.6 3 % Tax expense 52.1 32.7 59 % 49.8 5 % Depreciation & amortization 24.2 28.0 (13)% 27.4 (12)% Corporate interest expense 11.6 11.8 (2)% 11.3 2 % EBITDA $179.9 $162.4 11 % $178.2 1 % Interest coverage 15.6 13.8 13 % 15.7 (1)% RETAIL METRICS Trading days 61.0 63.5 (4)% 62.0 (2)% Daily Average Revenue Trades (DARTs) Total Retail 88,075 89,604 (2)% 103,052 (15)% - US 74,133 76,955 (4)% 88,601 (16)% - International 13,942 12,649 10 % 14,451 (4)% Professional 46,695 46,529 0 % 53,983 (14)% Total DARTs 134,770 136,133 (1)% 157,035 (14)% Total retail trades (MM) 8.2 8.6 (5)% 9.7 (16)% Average commission per trade $10.34 $10.89 (5)% $11.53 (10)% End of period margin debt ($B) $2.27 $2.24 1 % $2.14 6 % Average margin debt ($B) $2.24 $2.09 7 % $1.98 13 % Gross new trading/ investing accounts 133,951 161,737 (17)% 141,717 (5)% Gross new deposit/ lending accounts 58,454 42,072 39 % 61,638 (5)% Inactive accounts (100,921) (90,106) (12)% (92,579) (9)% Customer closed accounts (56,239) (58,374) 4 % (74,070) 24 % Net new retail accounts 35,245 55,329 (36)% 36,706 (4)% End of period trading/investing accounts 2,975,744 2,956,090 1 % 2,880,436 3 % End of period deposit/lending accounts 642,264 626,673 2 % 643,240 0 % End of period retail accounts 3,618,008 3,582,763 1 % 3,523,676 3 % Net new customers 8,584 28,429 (70)% 66,883 (87)% End of period total retail customers 2,896,025 2,887,441 0 % 2,875,348 1 % End of period assets per customer $32,754 $34,785 (6)% $30,331 8 % Consolidated net revenue per customer $145 $142 2 % $139 4 % Consolidated segment income per customer $47 $38 22 % $41 13 % Products per customer 1.9 1.9 2 % 1.7 12 % Total Retail Client Assets ($B) Security holdings $51.6 $53.5 (4)% $47.7 8 % Cash (including money market funds) 5.5 5.9 (7)% 6.0 (8)% Unexercised options (vested) 25.2 28.7 (12)% 21.5 17 % Client assets in trading/investing accounts 82.3 88.1 (7)% 75.2 9 % Sweep Deposit Account 6.3 6.2 2 % 4.4 44 % Transaction accounts 3.7 3.8 (2)% 4.4 (16)% CDs 2.5 2.4 7 % 3.2 (21)% Client assets in deposit accounts 12.5 12.3 2 % 12.0 5 % Total retail client assets $94.8 $100.4 (6)% $87.2 9 % Unexercised options (unvested) ($B) $14.8 $20.1 (26)% $15.3 (3)% Direct mortgage originations ($B) $0.6 $0.7 (11)% $1.1 (43)% Consumer loan originations, incl HELOCs ($B) $0.5 $0.5 (7)% $0.7 (29)% Mortgage pipeline (end of period) ($B) $0.2 $0.2 (14)% $0.9 (79)% INSTITUTIONAL METRICS Market Making Equity shares traded (MM) 57,385 75,717 (24)% 34,696 65 % Average revenue capture per 1,000 equity shares $0.329 $0.318 3 % $0.768 (57)% % of Bulletin Board equity shares to total equity shares 93.3% 93.9% (1)% 86.4% 7 % Bank Asset Portfolio Detail ($MM) Cash & equivalents $60 $82 (27)% $165 (64)% Trading securities 203 567 (64)% 809 (75)% Investment securities, available-for-sale 3,317 3,367 (1)% 2,850 16 % Mortgage securities, available-for-sale 8,346 9,052 (8)% 7,000 19 % Loans receivable, net including loans held-for-sale: - Mortgage and home equity loans, net 8,969 7,634 17 % 4,580 96 % - Consumer loans, net 4,257 4,148 3 % 4,130 3 % - Other 12 3 300 % 1 1100 % Other assets 831 700 19 % 675 23 % Total assets $25,995 $25,553 2 % $20,210 29 % Bank net interest spread (basis points) 220 220 0 % 185 19 % Bank interest-earning assets, average ($MM) $25,280 $24,780 2 % $19,847 27 % Credit Quality and Reserve Metrics Net charge-offs as a % of average held-for-investment loans, net (annualized) 0.26 % 0.27 % (0.01)% 0.34 % (0.08)% Provision as a % of average held-for-investment loans, net (annualized) 0.40 % 0.44 % (0.04)% 0.44 % (0.04)% Allowance as a % of total ending gross held-for-investment loans 0.40 % 0.41 % (0.01)% 0.48 % (0.08)% Total non-performing loans, net, as a % of total gross held-for-investment loans 0.18 % 0.17 % 0.01 % 0.26 % (0.08)% Total loan loss allowance as a % of total non-performing loans, net 228 % 239 % (11)% 186 % 42 % Tier 1 Capital Ratio (6) 6.06 % 5.83 % 0.23 % 6.21 % (0.15)% Risk Weighted Capital Ratio (6) 11.27 % 11.09 % 0.18 % 11.69 % (0.42)% Other Banking revenue ($MM) $179.1 $162.1 10 % $137.5 30 % Brokerage revenue (net of SDA elimination) ($MM) 241.2 247.4 (3)% 262.9 (8)% Total revenue ($MM) $420.3 $409.5 3 % $400.5 5 % ACTIVITY IN ALLOWANCE FOR LOAN LOSSES Three Months Ending March 31, 2005 Mortgage Consumer Total (in thousands) Allowance for loan losses, ending 12/31/04 $17,995 $29,686 $47,681 Provision for loan losses 5,344 6,696 12,040 Charge-offs, net (1,187) (6,650) (7,837) Allowance for loan losses, ending 3/31/05 $22,152 $29,732 $51,884 BANK AVERAGE BALANCE DATA Three Months Ended March 31, 2005 Interest Average Average Income/ Annualized Balance Expense Yield/Cost (in thousands) Interest-earning banking assets: Loans receivable, net $12,185,231 $153,188 5.03% Mortgage-backed and related available-for-sale securities 8,909,307 88,974 3.99% Available-for-sale investment securities 3,512,809 42,335 4.82% Trading securities 526,644 4,511 3.43% Other 145,997 1,211 3.36% Total interest-earning banking assets (7) 25,279,988 $290,219 4.59% Non-interest-earning banking assets 500,688 Total banking assets $25,780,676 Interest-bearing banking liabilities: Retail deposits $11,865,690 $40,231 1.38% Brokered certificates of deposit 288,635 2,221 3.12% Repurchase agreements and other borrowings 10,073,089 82,465 3.27% FHLB advances 1,961,644 17,944 3.66% Total interest-bearing banking liabilities 24,189,058 $142,861 2.39% Non-interest bearing banking liabilities 364,362 Total banking liabilities 24,553,420 Total banking shareholder's equity 1,227,256 Total banking liabilities and shareholder's equity $25,780,676 Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $1,090,930 Net interest spread $147,358 2.20% Three Months Ended March 31, 2004 Interest Average Average Income/ Annualized Balance Expense Yield/Cost (in thousands) Interest-earning banking assets: Loans receivable, net $8,932,832 $109,969 4.92% Mortgage-backed and related available-for-sale securities 7,297,956 72,031 3.95% Available-for-sale investment securities 2,575,419 25,179 3.91% Trading securities 818,509 6,487 3.17% Other 221,770 1,804 3.27% Total interest-earning banking assets (7) 19,846,486 $215,470 4.34% Non-interest-earning banking assets 447,450 Total banking assets $20,293,936 Interest-bearing banking liabilities: Retail deposits $12,018,832 $48,875 1.64% Brokered certificates of deposit 372,034 2,328 2.52% Repurchase agreements and other borrowings 5,679,179 56,004 3.90% FHLB advances 920,000 10,399 4.47% Total interest-bearing banking liabilities 18,990,045 $117,606 2.49% Non-interest bearing banking liabilities 276,570 Total banking liabilities 19,266,615 Total banking shareholder's equity 1,027,321 Total banking liabilities and shareholder's equity $20,293,936 Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $856,441 Net interest spread $97,864 1.85% SUPPLEMENTAL INFORMATION AND ENDNOTES Explanation of Non-GAAP Measures and Certain Metrics

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

Consolidated Operating Margin

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

Free Cash

Free cash as reported by the Company represents cash held at Parent and non-Bank or Brokerage subsidiaries less discretionary reserves and excess capital at Bank and Brokerage after regulatory capital requirements and the Company's own regulatory capital guidelines. The Company believes that free cash is a useful measure of the Company's liquidity as it excludes cash reflected on the balance sheet that may not be freely available to the Company.

EBITDA

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

Interest Coverage

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

It is important to note these metrics and other non-GAAP measures may involve judgment by management and should be considered in addition to, not as a substitute for, or superior to, net income, consolidated statements of cash flows, or other measures of financial performance prepared in accordance with GAAP. For complete information on the items excluded from these non-GAAP measures, please see our financial statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.

(1) Operating income is defined as income before other income, income taxes and discontinued operations.

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

(3) For the three months ended March 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 $7.6 million. The denominator includes the shares issuable from the assumed conversion of the convertible debt of 45.4 million. For all other periods presented the 'if converted' method is not used as its effect would be anti-dilutive.

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

(5) Amounts and percentages may not calculate due to rounding. (6) Q105 estimate.

(7) Amounts include a taxable equivalent increase in interest income of $2.6 million and $1.1 million for the three months ended March 31, 2005 and 2004, respectively.

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