eTrade 2008 Annual Report Download - page 84

Taxable equivalent interest adjustment—The operating interest income earned on certain assets is
completely or partially exempt from federal and/or state income tax. As such, these tax-exempt instruments
typically yield lower returns than a taxable investment. To provide more meaningful comparison of yields and
margins for all interest-earning assets, the interest income earned on tax exempt assets is increased to make it
fully equivalent to interest income on other taxable investments. This adjustment is done for the analytic
purposes in the net enterprise interest income/spread calculation and is not made on the consolidated statement of
income (loss), as that is not permitted under GAAP.
Tier 1 Capital—Adjusted equity capital used in the calculation of capital adequacy ratios at E*TRADE
Bank as required by the OTS. Tier 1 capital equals: total shareholder’s equity at E*TRADE Bank, plus/(less)
unrealized losses (gains) on available-for-sale securities and cash flow hedges, less deferred tax assets, goodwill
and certain other intangible assets.
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