Interest Income on Mortgage and Home Equity Loans. The Company generates revenues from interest income on mortgage and home equity loans. The revenues realized are based on the loan amount multiplied by the contractual interest rate from the time of funding by the Company through time of sale. These revenues are recognized as earned during the period from funding to sale. Interest income on mortgage decreased $3.3 million to $1.2 million for the three months ended September 30, 2004 from $4.5 million for the three months ended September 30, 2003 and interest income on home equity loans decreased $0.2 million to $0.9 million for the three months ended September 30, 2004 from $1.1 million for the three months ended September 30, 2003.

Interest income on mortgage decreased $8.9 million to $4.8 million for the nine months ended September 30, 2004 from $13.7 million for the nine months ended September 30, 2003 and interest income on home equity loans increased $0.3 million to $2.3 million for the nine months ended September 30, 2004 from $2.0 million for the nine months ended September 30, 2003. The Company anticipates that with lower mortgage fundings in 2004 compared to 2003, interest income on mortgages in 2004 will be significantly lower than 2003. Interest income on home equity loans and lines of credit is expected to be higher for 2004, compared to 2003.

Home Equity Revenues. Home equity revenues are derived from the origination and sale of loans. Home equity loans are funded through the Company's warehouse lines of credit and sold to home equity loan purchasers in approximately forty days from funding. Home equity loan revenues consist of proceeds recorded at settlement in excess of the carrying value of the loan, origination fees less certain direct origination costs and other processing costs. These revenues are recognized at the time the loan is sold. Home equity revenues increased $5.6 million to $13.2 million for the three months ended September 30, 2004 from $7.6 million for the three months ended September 30, 2003. Home equity revenues increased $14.4 million to $31.5 million for the nine months ended September 30, 2004 from $17.1 million for the nine months ended September 30, 2003. The significant increase in home equity revenue is due to increased volume of sold loans as well as increased revenue per loan. The Company expects that home equity revenues will be significantly higher in 2004 compared to 2003, consistent with the large increase in volumes from 2003 to 2004.

Auto Revenues. The Company funds prime auto loans using a line of credit and then sells them either via whole loan sales or to a qualified special purpose entity (QSPE), which was created in July 2002. Revenues from sales to the QSPE consist of the estimated future discounted cash flows net of interest, servicing fees and credit losses. Revenues on prime auto loan sales to the QSPE are recognized when the loan is sold to the QSPE. In addition, in exchange for the loans sold, the Company records a retained interest. A discount rate has been applied to the asset to account for the present value of the cash flows to be received over the life of the loans. The retained interest is an interest-earning asset. The difference between the estimated discounted cash flows and the actual cash flows received over time are accreted and included as auto revenue.

In July 2004, the Company began selling a portion of its prime auto loan production to Merrill Lynch via whole loan sales. The revenue on these loans is based on a fee derived from the composition of the loans being sold, and is recognized at time of transfer.

Prior to the third quarter of 2003, sub-prime auto loans were sold to sub-prime auto loan purchasers. The revenue on these loans consisted of the mark-up to the lending partner's loan price or a set origination fee. These revenues were recognized at the time the loan was sold. In the third quarter of 2003, the Company stopped processing and funding sub-prime auto loans and shifted this portion of the business to a referral based system. Presently loan applications that do not meet the prime auto lending criteria are referred out to other sub-prime lenders in exchange for a fee. This fee is recognized as revenue at the time of transfer to the sub-prime lender and paid to the Company monthly for the previous month's referrals. As expected, this transition resulted in a reduction in overall auto loan volume in the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003.

Auto revenues increased $0.8 million to $3.7 million for the three months ended September 30, 2004 from $2.9 million for the three months ended September 30, 2003, and increased $0.8 million to $9.6 million for the nine months ended September 30, 2004 from $8.8 million for the nine months ended September 30, 2003. The slight increase in revenue in both periods is related to higher revenue per loan, in spite of lower volumes. Auto revenues for the three and nine months ended September 30, 2004 include a valuation adjustment which reduced the residual interest asset in the amount of $66,000 and $206,000, respectively, related to changes in prepayment speeds and loss rates.

The Company anticipates modest growth in both auto volume and revenue in 2004 as compared to 2003.

Closing Services Revenues. In the fourth quarter of 2003, the Company formed Escrow Closing Services, Inc, a wholly-owned subsidiary, which provides mortgage closing services, including HUD-1 and document preparation and signing, disbursement and recording services for a portion of our home equity business. For the three and nine months ended September 30, 2004, closing services revenues were $1.4 million and $2.8 million, respectively.

Total Operating Expenses. Total operating expenses include operational costs associated with the origination of mortgage, home equity and auto loans, including interest expense on warehouse lines, as well as costs associated with marketing, technology and administrative.

The following table provides detail of the Company's total operating expenses classified by major types of expense, expressed as a percentage of total operating expenses:

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
                                    (restated)             (restated)
Compensation & Benefits                    43%        42%        44%        42%
Processing Costs                            8%        10%         9%        10%
Advertising & Marketing                    30%        32%        28%        32%
Occupancy & Administrative                 11%        13%        11%        13%
Interest Expense on Warehouse               8%         3%         8%         3%

As almost half of the total operating expenses of the Company are compensation and benefit related, the following table shows full-time headcount (including temporary and contract employees) by function at the end of each respective quarter:

                                         September 30,
                                       2003       2004
                                     ---------  ---------
Mortgage                                  453        304
Home Equity                               245        339
Auto                                      111        105
Closing Services                            2         29
Sales & Marketing                          31         29
Technology                                 61         68
General & Administrative                   67         73
                                     ---------  ---------
Total                                     970        947

The following table provides detail of the Company's operations expenses classified by the following revenue-related categories (dollars in thousands):

                                                       Three Months Ended          Nine Months Ended
                                                         September 30,               September 30,
                                                        2003          2004         2003         2004
                                                    ------------  ------------  -----------  -----------
                                                     (restated)                  (restated)
Mortgage ......................................... $      9,257  $      7,068  $    27,694  $    20,592
Interest expense on mortgage loans................        2,149           576        6,641        2,182
Home equity.......................................        3,883         6,068       10,219       16,385
Interest expense on home equity loans.............          520           500        1,214        1,217
Auto..............................................        2,543         1,992        9,028        5,662
Closing services....................................         --         1,255           --        2,626
                                                    ------------  ------------  -----------  -----------
Total operations.................................. $     18,352  $     17,459  $    54,796  $    48,664
                                                    ============  ============  ===========  ===========

Operations expense decreased $0.9 million to $17.5 million for the three months ended September 30, 2004 from $18.4 million for the three months ended September 30, 2003. Operations expense increased as a percentage of revenue from 42% to 50% for the three months ended September 30, 2003 and 2004, respectively. Operations expense increased for Home Equity (and its related interest expense) as a function of the increased volume. Closing services started in the fourth quarter of 2003, as such all of the 2004 activity is an increase compared to 2003. These increases were off-set by declines in mortgage (and its related interest expense) due to the sharp decline in volume, and declines in auto expense, also as a function of decreased volume. Operations expense decreased $6.1 million to $48.7 million for the nine months ended September 30, 2004 from $54.8 million for the nine months ended September 30, 2003. However, operations expense increased as a percentage of revenue from 43% to 49% for the nine months ended September 30, 2003 and 2004, respectively.

The following table provides detail of the Company's total mortgage operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total mortgage operations expenses (excluding interest expense):

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
Mortgage Operations
   Headcount & Related                     46%        45%        45%        46%
   Commissions                             24%        24%        24%        22%
   Processing Costs                        18%        16%        19%        18%
   Facilities & Other                      12%        15%        11%        14%

The following table provides detail of the Company's total home equity operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total home equity operations expenses (excluding interest expense):

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
Home Equity Operations
   Headcount & Related                     60%        57%        61%        58%
   Commissions                             14%        14%        12%        13%
   Processing Costs                        16%        18%        17%        18%
   Facilities & Other                      10%        11%        10%        11%

The following table provides detail of the Company's total auto operations expenses (excluding interest expense) classified by major types of expense, expressed as a percentage of total auto operations expenses (excluding interest expense):

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
Auto Operations
   Headcount & Related                     70%        64%        64%        65%
   Commissions                              2%        --          1%         1%
   Processing Costs                        15%        14%        13%        14%
   Facilities & Other                      13%        22%        22%        20%

Direct Margin. Direct margin is defined as revenue minus operations expense, which includes variable and fixed expenses.

The following table provides detail of the Company's direct margin classified by the following revenue-related categories (dollars in thousands):

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
                                    (restated)             (restated)
Mortgage........................... $  18,049  $   7,353  $  55,764  $  26,425
Mortgage interest margin...........     2,386        584      7,073      2,665
Home equity........................     3,754      7,148      6,867     15,125
Home equity interest margin........       559        430        797      1,137
Auto...............................       384      1,673       (181)     3,986
Closing services.....................      --        152         --        216
Other................................     382        299      1,030        910
                                     ---------  ---------  ---------  ---------
Total direct margin................ $  25,514  $  17,639  $  71,350  $  50,464
                                     =========  =========  =========  =========

Direct margin decreased $7.9 million to $17.6 million for the three months ended September 30, 2004 from $25.5 million for the three months ended September 30, 2003. Direct margin decreased $20.9 million to $50.5 million for the nine months ended September 30, 2004 from $71.4 million for the nine months ended September 30, 2003. The decline in direct margin is primarily due to decreased mortgage revenue per loan and decreased mortgage volumes, particularly from refinance loans. This decrease was offset by increased home equity volumes and revenue per loan. Auto direct margins increased, primarily due to increased revenue per loan, in spite of decreased volumes. Additionally, in the first six months of 2003, the Company incurred significant one-time costs of approximately $1.3 million in connection with the transition of auto operations from Florida to California, which negatively impacted direct margins for that time period. The Company anticipates that mortgage revenue per loan and the spread of interest income over interest expense will be down significantly in 2004 as compared to 2003, as the overall level of refinance activity has declined and competitive pricing pressure has increased, as a result of increased mortgage rates during the same period. Home Equity direct margins are expected to be up significantly in 2004 compared to those experienced in 2003, corresponding to the increase in loan volumes and revenue per loan. The Company expects higher auto direct margin in 2004 compared to 2003, largely as a result of increased revenue per loan.

Sales and Marketing. Sales and marketing expense is primarily comprised of expenses related to advertising, promotion and marketing agreements and employee compensation and other expenses related to marketing personnel. Sales and marketing expense increased $0.2 million to $12.1 million for the three months ended September 30, 2004 from $11.9 million for the three months ended September 30, 2003. Sales and marketing expense increased $3.9 million to $35.7 million for the nine months ended September 30, 2004 from $31.8 million for the nine months ended September 30, 2003. Sales and marketing expense increased as a direct result of increased spending in direct response television, direct response mail and online advertising. Sales and marketing expense increased as a percentage of revenue from 27% to 34% for the three months ended September 30, 2003 and 2004, respectively. Sales and marketing expense increased as a percentage of revenue from 25% to 36% for the nine months ended September 30, 2003 and 2004, respectively. The increase in sales and marketing expense as a percentage of revenues was due to a combination of increased spending levels and the decreased volumes in revenue in the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003. Sales and marketing expenses are expected to be comparable to third quarter 2004 levels, as a percentage of total revenues and in absolute dollars, throughout the remainder of 2004.

The following table provides detail of the Company's total sales and marketing expenses classified by major types of expense, expressed as a percentage of total sales and marketing expenses:

                                      Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       2003       2004       2003       2004
                                     ---------  ---------  ---------  ---------
Direct Response TV                         57%        52%        53%        54%
Direct Response Mail                       16%        17%        13%        18%
Online Advertising                         13%        15%        17%        14%
Other Advertising                           4%         4%         5%         3%
Headcount & Administrative                 11%        13%        12%        12%

Technology. Technology expense includes employee compensation, the introduction of new technologies and the support of E-LOAN's existing technological infrastructure. Technology expense increased $0.1 million to $2.3 million for the three months ended September 30, 2004 from $2.2 million for the three months ended September 30, 2003. Technology expense decreased $0.1 million to $6.5 million for the nine months ended September 30, 2004 from $6.6 million for the nine months ended September 30, 2003. Technology expense increased as a percentage of revenue from 5% to 6% for the three and nine months ended September 30, 2003 and 2004, respectively. The increase in technology expense as a percentage of revenues was primarily due to the decreased volumes in revenue in the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003. The Company expects technology expense to be approximately 6% of total revenues throughout the remainder of 2004.

General and Administrative. General and administrative expense is primarily comprised of employee compensation and professional services. General and administrative expense increased $0.3 million to $2.5 million for the three months ended September 30, 2004 from $2.2 million for the three months ended September 30, 2003, due primarily to an increase in headcount and professional services offset slightly by a $0.2 million reduction in legal reserves. General and administrative expense increased $1.3 million to $8.4 million for the nine months ended September 30, 2004 from $7.1 million for the nine months ended September 30, 2003. Included in general administrative expenses for the nine months ended September 30, 2004 was a charge of approximately $1.0 million as a result of the resignation of the Company's prior President and Chief Operating Officer. General and administrative expense increased as a percentage of revenue from 5% to 7% for the three months ended September 30, 2003 and 2004, respectively. Excluding the one-time charge, general and administrative expenses increased modestly from 6% of revenue in September 30, 2003 to 7% of revenue in September 30, 2004, primarily as a result of the decline in revenues. The Company expects general and administrative expense to be approximately 8% of total revenues throughout the remainder of 2004.

Other Income, net. Other income, net, is related to interest earned on cash equivalents offset by expense incurred on non-warehouse facility borrowings. Other income, net remained consistent at less than $0.1 million for the three and nine months ended September 30, 2004 and 2003, respectively.

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Revenue Recognition. The Company's mortgage and home equity revenues are derived from the origination and sale of loans. Mortgage and home equity loans are funded through the Company's warehouse lines of credit and sold to loan purchasers typically within thirty days. Mortgage and home equity loan revenues consist of proceeds in excess of the carrying value of the loan, origination fees less certain direct origination costs and other processing costs. These revenues are recognized at the time the loan is sold. In addition, the Company generates revenues from interest income on mortgage and home equity loans. The revenues realized are based on the loan amount multiplied by the contractual interest rate from the time of funding by the Company through time of sale. These revenues are recognized as earned during the period from funding to sale. Also included in mortgage and home equity loan revenues are amounts recorded in connection with loans sold under a Sale Agreement with Greenwich Capital (see "Off-Balance Sheet Arrangements"). These amounts consist of gain on sale from transferred loans, in the form of a retained interest comprised of interest income, net of interest expense, and additional cash flows to be received at the time of settlement with the committed loan purchaser. The Company sells all loans to loan purchasers on a servicing released basis without recourse, subject to certain representations and warranties. Additionally, the Company is responsible for a minimum number of payments to be made on these loans. As such, the Company records reserves as a contra-revenue at the time a loan is sold, based on certain assumptions in anticipation of future losses as a result of current activity.

The Company funds prime auto loans using a line of credit and then sells them either via whole loan sales or to a qualified special purpose entity (QSPE), which was created in July 2002 (see "Off-Balance Sheet Arrangements"). Revenues from sales to the QSPE consist of the estimated future discounted cash flows net of interest, servicing fees and credit losses recorded in the form of the residual interest. Revenues on prime auto loan sales to the QSPE are recognized when the loan is sold to the QSPE. In addition, in exchange for the loans sold, the Company receives cash and a retained interest. A market discount rate has been applied to the asset to account for the present value of the cash flows to be received over the life of the loans. As a result, the retained interest asset is an interest-earning asset, and the difference between the estimated discounted cash flows and the actual cash flows received over time are accreted and included as auto revenue. Effective in the fourth quarter of 2003, the Company adopted Financial Interpretation No. 46(R), "Consolidation of Variable Interest Entities", ("FIN 46(R)"). FIN 46(R) requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The Company had variable interests in its qualified special purposes entity ("QSPE"), which are exempt from the provisions of FIN 46(R). The Company reports the rights and obligations related to the QSPE according to the requirements of Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

In July 2004, the Company began selling a portion of its prime auto loan production to Merrill Lynch via whole loan sales. The revenue on these loans is based on a fee derived from the composition of the loans being sold, and is recognized at time of transfer.

Prior to the third quarter of 2003, sub-prime auto loans were sold to sub-prime auto loan purchasers. The revenue on these loans consisted of the mark-up to the lending partner's loan price or a set origination fee. These revenues were recognized at the time the loan was sold. In the third quarter of 2003, the Company stopped processing and funding sub-prime auto loans and shifted this portion of the business to a referral based system. Loan applications that do not meet the prime auto lending criteria are referred out to other sub-prime lenders in exchange for a fee. This fee is recognized as revenue at the time of transfer to the sub-prime lender.

The Company's management has made complex judgments in their application of SFAS 133. The judgments include the identification of hedging instruments, hedged items, nature of the risk being hedged, and how the hedging instrument's effectiveness will be measured. The Company designates forward delivery commitments, where the company intends to deliver the underlying loan into the commitment, as a fair value SFAS 133 hedge at the commitment date. In addition, the Company designates all best efforts sell forward commitments as fair value SFAS 133 hedges for underlying loans at funding date. The Company does not designate mandatory sell forward agreements as SFAS 133 hedges but does utilize them to economically hedge the changes in fair value of rate lock commitments with borrowers for which a best efforts sell forward commitment has not been obtained. The Company did not have a material gain or loss representing the amount of hedge ineffectiveness related to designated SFAS 133 hedges during the three and nine months ended September 30, 2003 and 2004.

In September 2003, the Company began hedging its interest rate risk on auto loan approvals. When the Company issues an auto loan approval, the Company extends a put option to the borrower, whereby the borrower is not obligated to enter into the loan agreement, but the Company must honor the interest rate for up to a 45-day period. Under SFAS 133, auto loan approvals are not considered derivatives. However, the company is still exposed to interest rate risk from issuance of approval to loan sale. The Company enters into amortizing swap contracts to economically hedge the interest rate changes in auto loan approvals. These swap contracts are considered derivatives under SFAS 133 and are recorded at fair value. Subsequent changes in the value of outstanding swap contracts are recorded as unrealized gains and losses and included in the statement of operations in auto revenue.

Capitalized software. In 1999, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which requires that the Company expense computer software costs as they are incurred in the preliminary project stage. Once the capitalization criteria of the SOP have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll related costs for employees who are directly associated with and who devote time to the internal-use computer software are capitalized. Capitalized costs are generally amortized over one to three years on a straight-line basis.

Reserves for loan sales. The Company sells loans to loan purchasers on a servicing released basis subject to certain representations and warranties from the Company to the purchaser. As such, the risk of loss or default by the borrower has generally been assumed by these purchasers. However, the Company is generally required by these purchasers to make certain representations relating to borrower creditworthiness, loan documentation and collateral. To the extent that the Company does not comply with such representations, or there are early payment defaults, the Company may be required to repurchase loans or indemnify these purchasers for any losses from borrower defaults. In connection with a majority of its loan sales agreements, the Company is also responsible for a minimum number of payments to be made on each loan, or else the Company may be required to refund the premium paid to it by the loan purchaser. As such, the Company records reserves based on certain assumptions in anticipation of future losses as a result of current sales activity.

Loan loss reserves due to potential violations of representations and warranties are recorded based on a percentage of current month sales. The Company currently calculates this loss rate exposure based on its historical loss rates as well as similar lending portfolios. Once the Company has endured a complete economic cycle, the rate will be adjusted based on actual losses as a percentage of sales volume on a historical basis. Premium repayment reserves, generated through early loan prepayments related to loans sold to loan purchasers, are recorded based on a rate determined by calculating actual prepayments as a percentage of sales on a historical basis applied to current month sales.

Stock-Based Compensation. The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, and complies with the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting For Stock-Based Compensation -- Transition And Disclosure -- An Amendment Of SFAS No. 123. Under APB No. 25, compensation expense is based on the excess of the estimated fair value of the Company's stock over the exercise price, if any, on the date of grant. Deferred stock-based compensation is then amortized over the vesting period of the option on an accelerated basis using the multiple option approach as defined in paragraph 24 of FIN 28. The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123 and the Emerging Issues Task Force Consensus in Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

Deferred Tax Asset. The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax asset will be realizable, the valuation allowance will be reduced. The Company's deferred tax asset arises principally from net operating loss carryforward (NOLs). There are significant judgments and estimates involved in projecting the recoverability of the deferred tax asset, particularly with respect to the existence of future taxable income sufficient to realize NOLs. The Company reported its first profitable year in 2002 and was again profitable in 2003. However, the sustained low interest rate environment created favorable operating conditions for the Company. During the fourth quarter of 2003 and the first nine months of 2004, the Company reported a loss from operations, largely as a result in declines in mortgage refinance volume. Management will continue to monitor projections of future taxable income and when it believes realization of the tax benefits associated with the NOLs is more likely than not, management will reduce the valuation allowance by recording a benefit through the income tax provision recorded in the statement of operations. Based upon the Company's performance throughout the remainder of the year it is possible that management would reduce the valuation allowance during 2004; however, management can provide no assurances as to the amount of such reduction, the period in which it might occur or if it will occur at all.

Retained interest in auto loans. On June 17, 2002, the Company entered into an arrangement to sell auto loan receivables to a qualified special purpose entity (QSPE), E-LOAN Auto Fund One, LLC ("E-LOAN Auto"), for the purpose of being able to recognize the gain on sale from these loans. These transactions involve the Company surrendering control over these assets to assure that the sold assets have been isolated from the Company and its creditors. In accordance with FAS 140 and FIN 46(R) the assets and liabilities of E-LOAN Auto are appropriately not consolidated in financial statements of the Company. In the event that the entity no longer qualifies as a QSPE and is required to be consolidated, the Company would no longer be in compliance with certain debt covenants related to its warehouse and other lines of credit, as currently structured. In particular, the Company's debt to tangible net worth covenants would be exceeded, however management believes that it would be able to renegotiate its existing warehouse related covenants to adequately accommodate the consolidation of this entity, if needed. E-LOAN Auto has obtained a secured borrowing facility from Merrill Lynch Bank USA to finance all purchases of loans from the Company. The Company recognizes a gain on the sale of auto loan receivables to E-LOAN Auto in the period in which the sale occurs, which represents the difference between the sale proceeds to the Company and the Company's net carrying value of the receivables. The Company retains an interest in the future cash flows from the loans. Such cash flows are distributed to the Company by the QSPE monthly. The fair value of the retained interest asset is based upon a discounted cash flow model of the estimated future cash flows to be received by the Company over the life of the loans. These retained interest assets are recorded on the balance sheet at fair value as trading assets, and are adjusted to estimated fair value at each subsequent reporting period. Changes in the estimated fair value of the residual interests are recorded through the statement of operations. Estimates of future cash flows to be received by the Company reflect assumptions regarding the cumulative credit losses to be incurred on the pool of auto loan receivables sold, prepayment rates of the auto loans and the rate at which the estimated future excess cash flows are discounted. The assumptions used represent the Company's best estimates, and the use of different assumptions could produce different financial results. The Company will continue to monitor and update its assumptions over time.

Sale Agreement with Greenwich Capital. The Company has a loan purchase and sale agreement with Greenwich Capital, for the purpose of controlling the timing associated with loan sales. Under the terms of this agreement, mortgage loans which are allocated to a mandatory sell forward commitment between the Company and a loan purchaser, but have not yet been settled, may be sold to Greenwich Capital with the accompanying trade assignment. Revenues, in the form of a retained interest, from loans sold under this arrangement are included as a receivable on the balance sheet. All loans sold under this arrangement are already committed to another loan purchaser, and as such, hold little risk of being unsaleable. Therefore, in the event that the Company was unable to utilize this arrangement, the Company would experience a one-time impact to revenues in the period this arrangement was discontinued.

The Company's sources of cash include cash from the sale of mortgage, home equity and auto loans, borrowings under warehouse lines of credit and other credit facilities, brokerage fees, interest income, credit card referrals and the sale of debt and equity securities in both private and public transactions. The Company's uses of cash include the funding of mortgage, home equity and auto loans, repayment of amounts borrowed under warehouse lines of credit, operating expenses, payment of interest, and capital expenditures primarily comprised of furniture, fixtures, computer equipment, software and leasehold improvements. Because the Company's loan origination operating activities are funded principally through its warehouse and other lines payable, the Company analyzes trends in operating cash flows by combining cash flows from operating activities with cash flows from certain financing activities (specifically cash flows from warehouse and other lines payable).

Cash provided by operating and financing activities related to its warehouse and other lines payable was $15.8 million for the nine months ended September 30, 2004. Specifically, the Company obtained cash from net income, excluding non-cash related items, of $4.7 million for the nine months ended September 30, 2004. In addition, the Company benefited from positive cash flow due to the reduction of other assets in the amount of $4.5 million, specifically prepaid marketing expenses, and the reduction of receivables in connection with loan sales. Further, the Company benefited from positive cash flow as a result of loans held-for-sale net of warehouse payable decreasing which provided $3.6 million in net cash, and the increase of accounts payables and other accrued expenses in the amount of $5.2 million. However, these sources of cash were offset by the continued increase in the retained interest asset which grew another $2.2 million as additional auto loans were sold to the QSPE in the nine months ended September 30, 2004.

Cash provided by operating and financing activities related to its warehouse and other lines payable, was $15.8 million for the nine months ended September 30, 2003. Specifically, the Company utilized cash as a result of an increase in receivables and other assets of $14.1 million, which included an increase of $15.1 million related to receivables in connection with loan sales. In addition, the Company utilized cash as a result of the continued increase of the retained interest asset of $6.9 million as additional auto loans were sold to the QSPE in the nine months ended September 30, 2003. These uses of cash were offset by a source of cash from net income, excluding non-cash related items, of $26.7 million for the nine months ended September 30, 2003. In addition, the Company benefited from positive cash flow as a result of loans held-for-sale net of warehouse payable decreasing and providing $3.0 million in net cash.

Net cash used in investing activities was $7.6 million and $5.1 million for the nine months ended September 30, 2003 and 2004, respectively. Net cash used during the nine months ended September 30, 2003 was primarily due to the addition of infrastructure related to increased headcount and investment in new technology systems. In October 2003, the Company began relocating its corporate headquarters and consolidating its operational facilities to a larger, single facility in Pleasanton, California. Capital expenditures related to the new facility (net of tenant improvement allowances) were $2.0 million for the nine months ended September 30, 2004. The remaining cash used on investing activities during the nine months ended September 30, 2004 was mostly related to capitalized development.

Cash provided by financing activities, net of cash used by its warehouse and other lines payable was $4.6 million and $1.4 million for the nine months ended September 30, 2003 and 2004, respectively. The increase for both periods presented was primarily due to the issuance of common stock from the exercise of stock options.

                                      GMAC       Greenwich    Merrill       Merrill
                                    Mortgage      Capital       Lynch        Lynch
                                      $75M         $400M        $100M        $10M
                                   -----------  -----------  -----------  -----------
Cost of Funds
   Spread over LIBOR               1.25%-2.0%   0.75%-1.25%  0.75%-1.0%   1.0%-2.0%

Covenants
   Minimum Cash                    $15.0M       $15.0M       $12.5M       $15.0M (1)
   Minimum Tangible Net Worth      $40.0M       $60.0M       $40.0M       $25.0M
   Debt to Tangible Net Worth      10:1         10:1         12:1             --
   Profitability                       --           --       Net Worth >      --
                                                             80% prior
                                                              2 qtrs
   Current Ratio                   1.0:1.0          --           --       1.0:1.0
   Additional Facility             $100.0M      $75.0M           --           --

Advance Rates                      95%-100%     96%-99%      96%-99%      92%-97%