eTrade 2010 Annual Report Download - page 59

of loss. On July 17, 2010, we received another distribution from The Reserve Primary Fund in the amount of $3.1
million, which was recorded as a gain in the third quarter of 2010. Following this distribution, the remaining
balance due to us from the fund is $7.3 million. Given the losses incurred by the fund and the fund’s plan for
distribution, we are uncertain of the amount of this remaining balance, if any, that we will receive in future
distributions. If we do receive any additional distributions, they will be recorded as a gain as we fully reserved
the remaining amounts due from the fund in prior periods.
Liquidity Available from Subsidiaries
Liquidity available to the Company from its subsidiaries is limited by regulatory requirements. In addition,
E*TRADE Bank may not pay dividends to the parent company without approval from the OTS and any loans by
E*TRADE Bank to the parent company and its other non-bank subsidiaries are subject to various quantitative,
arm’s length, collateralization and other requirements.
We maintain capital in excess of regulatory minimums at our regulated subsidiaries, the most significant of
which is E*TRADE Bank. As of December 31, 2010, we held $1.1 billion of risk-based total capital at
E*TRADE Bank in excess of the regulatory minimum level required to be considered “well capitalized.” In the
current credit environment, we plan to maintain excess risk-based total capital at E*TRADE Bank in order to
enhance our ability to absorb credit losses while still maintaining “well capitalized” status. However, events
beyond management’s control, such as a continued deterioration in residential real estate and credit markets,
could adversely affect future earnings and E*TRADE Bank’s ability to meet its future capital requirements.
The Company’s broker-dealer subsidiaries are subject to capital requirements determined by their respective
regulators. At December 31, 2010 and 2009, all of our brokerage subsidiaries met their minimum net capital
requirements. Our broker-dealer subsidiaries had excess net capital of $649.2 million(1) at December 31, 2010, an
increase of $90.9 million from December 31, 2009. While we cannot assure that we would obtain regulatory
approval in the future to withdraw any of this excess net capital, $483.0 million is available for dividend while
still maintaining a capital level above regulatory “early warning” guidelines.
Tangible Common Equity
We believe that the tangible common equity to tangible assets ratio is a measure of our capital strength and
is additional useful information that supplements the regulatory capital ratios of E*TRADE Bank. The following
table shows the calculation of our tangible common equity to tangible assets ratio (dollars in millions):
December 31, Variance
2010 2009 2010 vs. 2009
Total assets $46,373.0 $47,366.5 (2)%
Less: Goodwill and other intangibles, net (2,265.4) (2,308.7) (2)%
Add: Deferred tax liability related to goodwill 219.0 176.9 24%
Tangible assets(1) $44,326.6 $45,234.7 (2)%
Shareholders’ equity $ 4,052.4 $ 3,749.6 8%
Less: Goodwill and other intangibles, net (2,265.4) (2,308.7) (2)%
Add: Deferred tax liability related to goodwill 219.0 176.9 24%
Tangible common equity(2) $ 2,006.0 $ 1,617.8 24%
Tangible common equity to tangible assets(3) 4.53% 3.58% 0.95%
(1) Tangible assets is calculated as total assets less goodwill (net of related deferred tax liability) and other intangible assets and is a
non-GAAP measure.
(2) Tangible common equity is calculated as shareholders’ equity less goodwill (net of related deferred tax liability) and other intangible
assets and is a non-GAAP measure.
(3) Tangible common equity to tangible assets is a non-GAAP measure, the components of which are defined above.
(1) The excess net capital of the broker-dealer subsidiaries at December 31, 2010 included $425.1 million and $158.6 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.
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