eTrade 2011 Annual Report Download - page 60

requirements. Our broker-dealer subsidiaries had excess net capital of $675.1 million(1) at December 31, 2011, an
increase of $25.9 million from $649.2 million at December 31, 2010. While we cannot assure that we would
obtain regulatory approval in the future to withdraw any of this excess net capital, $517.6 million is available for
dividend while still maintaining a capital level above regulatory “early warning” guidelines.
Financial Regulatory Reform Legislation and Basel III Accords
Under the Dodd-Frank Act, our primary regulator, the OTS, was abolished during July 2011 and its functions and
personnel distributed among the OCC, the FDIC and the Federal Reserve. Although the Dodd-Frank Act maintains the
federal thrift charter, it eliminates certain benefits of the charter and imposes new penalties for failure to comply with
the qualified thrift lender test. The Dodd-Frank Act also requires all companies, including savings and loan holding
The implementation of holding company capital requirements will impact us as the parent company was not
previously subject to capital requirements. These requirements are expected to become effective within the next four
years. We believe the requirements are an important measure of our capital strength and we have begun to track these
ratios, using the current capital ratios that apply to bank holding companies, as we plan for this future requirement. The
Tier I leverage, Tier I risk-based capital and total risk-based capital ratios are non-GAAP measures as the holding
company is not yet held to these capital requirements and are calculated as follows (dollars in millions):
December 31,
2011 2010
Shareholders’ equity $ 4,928.0 $ 4,052.4
Deduct:
Losses in other comprehensive income on available-for-sale debt securities and cash flow
hedges, net of tax (389.6) (439.9)
Goodwill and other intangible assets, net of deferred tax liabilities 1,947.5 2,046.4
Add:
Qualifying restricted core capital elements 433.0 433.0
Subtotal 3,803.1 2,878.9
Deduct:
Disallowed servicing assets and deferred tax assets 1,331.0 1,351.3
Tier I capital 2,472.1 1,527.6
Add:
Allowable allowance for loan losses 277.6 295.6
Total capital $ 2,749.7 $ 1,823.2
Total average assets $46,964.2 $46,043.4
Deduct:
Goodwill and other intangible assets, net of deferred tax liabilities 1,947.5 2,046.4
Subtotal 45,016.7 43,997.0
Deduct:
Disallowed servicing assets and deferred tax assets 1,331.0 1,351.3
Average total assets for leverage capital purposes $43,685.7 $42,645.7
Total risk-weighted assets (1) $21,668.1 $22,915.8
Tier I leverage ratio (Tier I capital / Average total assets for leverage capital purposes) 5.7% 3.6%
Tier I capital / Total risk-weighted assets 11.4% 6.7%
Total capital / Total risk-weighted assets 12.7% 8.0%
(1) Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent amounts of derivatives and off-
balance sheet items are assigned to one of several broad risk categories according to the obligor or, if relevant, the guarantor or the nature
of any collateral. The aggregate dollar amount in each risk category is then multiplied by the risk weight associated with that category.
The resulting weighted values from each of the risk categories are aggregated for determining total risk-weighted assets.
(1) The excess net capital of the broker-dealer subsidiaries at December 31, 2011 included $483.0 million and $145.2 million of excess net
capital at E*TRADE Clearing LLC and E*TRADE Securities LLC, respectively, which are subsidiaries of E*TRADE Bank and are also
included in the excess risk-based capital of E*TRADE Bank. companies, that directly or indirectly control an insured depository
institution to serve as a source of strength for the institution.
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