eTrade 2012 Annual Report Download - page 37

• End of period brokerage accounts, net new brokerage accounts and brokerage account attrition rate are
indicators of our ability to attract and retain brokerage customers. The brokerage account attrition rate
is calculated by dividing attriting brokerage accounts, which are gross new brokerage accounts less net
new brokerage accounts, by total brokerage accounts at the previous period end.
• Changes in customer assets are an indicator of the value of our relationship with the customer. An
increase in customer assets generally indicates that the use of our products and services by existing and
new customers is expanding. Changes in this metric are also driven by changes in the valuations of our
customers’ underlying securities.
• Net new brokerage assets are total inflows to all new and existing brokerage accounts less total
outflows from all closed and existing brokerage accounts and are a general indicator of the use of our
products and services by existing and new brokerage customers.
• Brokerage related cash is an indicator of the level of engagement with our brokerage customers and is a
key driver of net operating interest income.
Company Financial Metrics
• Corporate cash is an indicator of the liquidity at the parent company. It is the primary source of capital
above and beyond the capital deployed in our regulated subsidiaries.
• E*TRADE Financial Tier 1 leverage ratio is Tier 1 capital divided by average total assets for leverage
capital purposes for the parent company. E*TRADE Financial Tier 1 common ratio is Tier 1 capital
less elements of Tier 1 capital that are not in the form of common equity, such as trust preferred
securities, divided by total risk-weighted assets for the holding company. The Tier 1 leverage and Tier
1 common ratios are non-GAAP measures as the parent company is not yet held to these regulatory
capital requirements and are indications of E*TRADE Financial’s capital adequacy. See Liquidity and
Capital Resources for a reconciliation of these non-GAAP measures to the comparable GAAP
measures.
• E*TRADE Bank Tier 1 leverage ratio is Tier 1 capital divided by adjusted total assets for E*TRADE
Bank and is an indication of E*TRADE Bank’s capital adequacy.
• Special mention loan delinquencies are loans 30-89 days past due and are an indicator of the expected
trend for charge-offs in future periods as these loans have a greater propensity to migrate into
nonaccrual status and ultimately charge-off.
• Allowance for loan losses is an estimate of probable losses inherent in the loan portfolio as of the
balance sheet date and is typically equal to management’s forecast of loan losses in the twelve months
following the balance sheet date as well as the forecasted losses, including economic concessions to
borrowers, over the estimated remaining life of loans modified as troubled debt restructurings
(“TDR”). See Summary of Critical Accounting Policies and Estimates for a discussion of the estimates
and assumptions used in the allowance for loan losses.
• Enterprise interest-earning assets, in conjunction with our enterprise net interest spread, are indicators
of our ability to generate net operating interest income.
Significant Events in 2012
Extinguishment of High Cost Senior Notes
• During the fourth quarter, we issued an aggregate principal amount of $505 million of 6% senior notes
due November 2017 and $800 million of 6
3
⁄ 8 % senior notes due November 2019. We used the
proceeds to redeem all of the 12
1
⁄ 2 % Springing lien notes due November 2017 and 7
7
⁄ 8 % senior notes
due December 2015, including paying the associated redemption premiums, accrued interest and
related fees and expenses. This transaction will result in an annual after-tax savings of approximately
$60 million.
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