eTrade 2011 Annual Report Download - page 61

During the year ended December 31, 2011, $660.9 million in convertible debentures were converted into
63.9 million shares of common stock, which improved our holding company ratios. The increase to capital as a
result of these additional conversions raised our estimated holding company capital ratios to exceed the “well
capitalized” minimums under current bank holding company guidelines. As of December 31, 2011, the parent
company Tier I leverage ratio was approximately 5.7% compared to the minimum ratio required to be “well
capitalized” of 5%, the Tier I risk-based capital ratio was approximately 11.4% compared to the minimum ratio
required to be “well capitalized” of 6%, and the total risk-based capital ratio was approximately 12.7% compared
to the minimum ratio required to be “well capitalized” of 10%.
Our Tier I common ratio, which is a non-GAAP measure and currently has no mandated minimum or “well
capitalized” standard, was 9.4% as of December 31, 2011. We believe this ratio is an important measure of our
capital strength. The Tier I common ratio is defined as the Tier I capital less elements of Tier I capital that are not
in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets. The
following table shows the calculation of Tier I common ratio (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
Subtotal 3,370.1 2,445.9
Deduct:
Disallowed servicing assets and deferred tax assets 1,331.0 1,351.3
Tier I common $ 2,039.1 $ 1,094.6
Total risk-weighted assets $21,668.1 $22,915.8
Tier I common ratio (Tier I common / Total risk-weighted assets) 9.4% 4.8%
The full impact of the Basel III Accords on the regulatory requirements to which we will be subject will
remain unknown for at least some time until implementing capital regulations are proposed and adopted for U.S.
institutions. We will continue to monitor the ongoing rule-making process to assess both the timing and the
impact of the Dodd-Frank Act and Basel III Accords on our business.
Other Sources of Liquidity
We also maintain $350 million in uncommitted financing to meet margin lending needs. At December 31,
2011, there were no outstanding balances and the full $350 million was available.
We rely on borrowed funds, from sources such as securities sold under agreements to repurchase and FHLB
advances, to provide liquidity for E*TRADE Bank. Our ability to borrow these funds is dependent upon the
continued availability of funding in the wholesale borrowings market. In addition, we can also borrow from the
Federal Reserve Bank’s discount window to meet short-term liquidity requirements, although it is not viewed as
the primary source of funding. At December 31, 2011, E*TRADE Bank had approximately $2.7 billion and $1.4
billion in additional collateralized borrowing capacity with the FHLB and Federal Reserve Bank, respectively.
We also have the ability to generate liquidity in the form of additional deposits by raising the yield on our
customer deposit accounts.
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