eTrade 2012 Annual Report Download - page 66

in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets. The
following table shows the calculation of the Tier 1 common ratio (dollars in millions):
December 31,
2012 2011 2010
Shareholders’ equity $ 4,904.5 $ 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 (315.4) (389.6) (439.9)
Goodwill and other intangible assets, net of deferred tax liabilities 1,899.4 1,947.5 2,046.4
Subtotal 3,320.5 3,370.1 2,445.9
Deduct:
Disallowed servicing assets and deferred tax assets 1,278.9 1,331.0 1,351.3
Tier 1 common $ 2,041.6 $ 2,039.1 $ 1,094.6
Total risk-weighted assets $19,849.9 $21,668.1 $22,915.8
Tier 1 common ratio (Tier 1 common / Total risk-weighted assets) 10.3% 9.4% 4.8%
In June 2012, the U.S. Federal banking agencies published notices of proposed rulemaking for comment
related to the implementation of the Basel III framework for the calculation and components of a banking
organization’s regulatory capital and a U.S. version of the international standardized approach for calculating a
banking organization’s risk-weighted assets. In November 2012, the banking agencies announced a delay in the
implementation of Basel III in the U.S. and have not yet issued final Basel III rules. We believe the most relevant
elements of the proposal to us relate to the proposed risk-weighting of mortgage loans and margin receivables in
addition to the inclusion in the calculation of Common Tier 1 capital of unrealized gains (losses) on all available-
for-sale debt securities. Under the current proposal, we do not believe the incorporation of these elements have a
significant impact on our current capital ratios; however, the final impact of the Basel III capital standards on
regulatory requirements will remain uncertain until the final rules implementing Basel III are adopted for U.S.
institutions. We will continue to monitor the ongoing rule-making and comment process to assess both the timing
and the impact of the Dodd-Frank Act and Basel III capital standards on our business.
On October 9, 2012, the Federal Reserve adopted final regulations implementing the requirement for certain
Federal Reserve-regulated savings and loan holding companies, including the Company, to conduct company-run
stress tests on an annual basis. Under the Federal Reserve’s stress test regulations, we will be required to utilize
stress-testing methodologies providing for results under at least three different sets of conditions, including
baseline, adverse, and severely adverse conditions. The final regulations will apply to the Company in the fall of
the calendar year after it becomes subject to minimum capital requirements, a period which has not yet been
specified. We conducted a company-run stress test for the Company, which we believe is consistent with the
Federal Reserve’s methodologies, and provided the results to the Federal Reserve with the submission of the
long-term strategic and capital plan.
Also on October 9, 2012, the OCC adopted final regulations implementing the requirement for national
banks or federal savings associations with over $10 billion in average total consolidated assets, including
E*TRADE Bank, to conduct company-run stress tests on an annual basis. Under the OCC’s stress test
regulations, E*TRADE Bank also will be required to utilize stress-testing methodologies providing for results
under at least three different sets of conditions, including baseline, adverse and severely adverse scenarios. The
final regulations require E*TRADE Bank to conduct its first stress test using financial statement data as of
September 30, 2013, and it will be required to report results to the OCC on or before March 31, 2014. We
conducted a company-run stress test for E*TRADE Bank, which we believe is consistent with the OCC’s
methodologies, and provided the results to the OCC with submission of the long-term strategic and capital plan.
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