2010 was a defining year for E*TRADE and on behalf of the Company’s 3,000 employees,
I am pleased to report our progress. We delivered significantly improved financial results;
made continued investments in the customer experience; and commenced our strategy for growth. And while we navigated the challenges of an industry-wide decline in trading activity
and a difficult interest rate environment, we benefited from solid execution in our retail brokerage franchise, a strengthened capital structure, and improving trends in our legacy loan portfolio.
We are positioned to deliver full year profitability in 2011 and optimistic about the
opportunities ahead.
  Steven Freiberg
Chief Executive Officer
 
  We entered 2010 with a solid brokerage business and improving trends in our loan portfolio, supported by a successful recapitalization completed in 2009. Over the course of the year, we delivered growth in net new accounts, net new assets and margin receivables. And while DART levels were down across the industry, we experienced increased engagement as we ended the year. We reported healthy growth in our core brokerage business during 2010, adding 54,000 net new brokerage accounts and $8.1 billion in net new brokerage assets, and improving our brokerage customer attrition rate from 14.3 percent during the fourth quarter of 2009 to 10.3 percent during the fourth quarter of 2010. This progress, we believe, is a result of our relentless focus on the customer experience, supported by investments in a number of product launches and service enhancements released during 2010, including:

• A simplified pricing structure, providing a competitive offering for both active traders and long-
  term investors;

• An enhanced Power E*TRADE Pro offering, with CNBC streaming video, and expanded   customization, news and information, and navigation tools;

• Application Programming Interface (API), allowing third-party vendors and independent
  software developers to interface seamlessly with our investing platform;

• The addition of E*TRADE Mobile Pro for iPad™, Android™ and Blackberry Storm™ for
  mobile investors;

• Expanded advice offering through Managed Investment Portfolios, providing one-on-one   professional portfolio advice at a competitive fee structure and an accessible entry point of   $25,000; and

• Increased investor education opportunities, including more than 630,000 interactions in 2010 –   via both live and online events.

We were also pleased with the continued progress made throughout 2010 in our legacy loan portfolio. Improving loan performance trends drove a 48 percent decline in our loan loss provision, and we exited the year with a loan portfolio of $16.2 billion, down 21 percent compared with the balance at the end of 2009.

Finally, in 2010 E*TRADE Bank generated $206 million of risk-based capital, ending the year with $1.1 billion of excess risk-based capital over well capitalized levels.
 
  We entered 2011 with solid momentum in our brokerage business, a renewed emphasis on innovation and focus on four primary areas of growth that we believe should enhance shareholder value.

Specific to our brokerage, we will leverage our successful franchise by growing our sales force of licensed professionals, expanding our product and service offerings, and maximizing our marketing spend. We plan to grow our sales force by 35 percent in 2011 and continue to increase our emphasis on long-term investor and retirement offerings, including Managed Investment Portfolios and the recently released Unified Managed Account. On the marketing side, we continue to execute a focused advertising strategy that highlights our active trader offering and targets long-term and retirement investors with the right mix of product-focused ads and those that include the iconic E*TRADE Baby. We are executing on 2011 product plans that include E*TRADE Community and a highly personalized investing experience through MyE*TRADE, as well as further enhancement in the mobile, personalization, options and API areas.

We will focus on expanding the firm’s corporate customer base, where we enjoy both scale and leadership. Through our Corporate Services Group, which provides equity compensation tools and services to more than 20 percent of the S&P 500 and is an important source of new brokerage customers, we expect to address large client, C-Suite and partnership opportunities. Through our Market Making business, we are focused on maximizing the value of internal order flow, while growing external order flow from other broker-dealers, with more than 165 firms routing orders to E*TRADE.

Building on our heritage of innovation, we will work to identify and test disruptive innovations with the potential to deliver value propositions that re-define the customer experience for investors seeking enhanced ways to manage their wealth.

And, finally, we believe that E*TRADE Bank can continue to play an important role in helping us optimize the value of our stable and low-cost brokerage customer deposit base, which continues to exhibit growth.

While we invest in potential growth opportunities, we will continue to manage our expenses with an eye toward funding growth initiatives in sales and marketing through cost savings in other areas. We will also continue to manage our loan portfolio to mitigate risk.

I am extremely proud of the progress we made during 2010 and optimistic about E*TRADE’s future. We have a vibrant brand, loyal customers and 3,000 engaged, dedicated employees. We enjoy strong momentum and are well positioned for the future as a result of contributions from many people. Robert Druskin, our former Board Chairman, is one of them. Bob provided leadership and important counsel during challenging times – we thank him and wish him well in his new role. We thank E*TRADE leaders and employees who continually step up to deliver and innovate for customers and move the firm forward. It is on behalf of them that I thank our customers and shareholders for their confidence in E*TRADE.

Sincerely,



Steven J. Freiberg
Chief Executive Officer