eTrade 2005 Annual Report Download - page 118

Table of Contents
current income when a loan is placed on nonaccrual status and is considered nonperforming. Accretion of deferred fees is
discontinued for nonperforming loans. Payments received on nonperforming loans are recognized as interest income when the loan is
considered collectible and applied to principal when it is doubtful that full payment will be collected. Real estate loans are generally
charged off to the extent that the carrying value of the loan exceeds the estimated net realizable value of the underlying collateral at the
time of repossession. HELOCs are charged-off when the loan becomes 180 days past due. Consumer loans are charged off to the extent
that the carrying value of the loan exceeds the estimated net realizable value of the underlying collateral when the loan becomes 120
days past due.
Allowance for Loan Losses
—The allowance for loan losses is management’s estimate of credit losses inherent in the Company’s loan
portfolio as of the balance sheet date. The estimate of the allowance is based on a variety of factors, including the composition and
quality of the portfolio, delinquency levels and trends, expected losses for the next twelve months, current and historical charge-off
and loss experience, current industry charge-off and loss experience, the condition of the real estate market and geographic
concentrations within the loan portfolio, the interest rate climate as it affects adjustable-rate loans and general economic conditions.
Determining the adequacy of the allowance is complex and requires judgment by management about the effect of matters that are
inherently uncertain. Subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant
changes in the allowance for loan losses in future periods. In general, the allowance for loan losses should be at least equal to twelve
months of projected losses for all loan types. Management believes this level is representative of probable losses inherent in the loan
portfolio at the balance sheet date. Loan losses are charged and recoveries are credited to the allowance for loan losses.
Loans Held-for-Sale, net
—Loans held-for-sale, net consists of mortgages acquired and loans originated by the Company that are
intended for sale in the secondary market. These loans are carried at the lower of cost or estimated fair value, as determined on an
aggregate basis, based on quoted market price for loans with similar characteristics. Net unrealized losses are recognized in a valuation
allowance by charges to income. Premiums and discounts on loans held-for-sale are deferred and recognized as part of gain (loss) on
sales of loans held-for-sale, net and are not accreted or amortized.
Property and Equipment, net
—Property and equipment are carried at cost and depreciated on a straight-line basis over their
estimated useful lives, generally three to ten years. Leasehold improvements are amortized over the lesser of their estimated useful
lives or lease terms. Buildings are depreciated over forty years. Land is carried at cost. Technology development costs are charged to
operations as incurred. Technology development costs include costs incurred in the development and enhancement of software used
in connection with services provided by the Company that do not otherwise qualify for capitalization treatment as internally developed
software costs in accordance with Statement of Position (“SOP”) 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.
In accordance with SOP 98-1, the cost of internally developed software is capitalized and included in property and equipment at the
point at which the conceptual formulation, design and testing of possible software project alternatives are complete and management
authorizes and commits to funding the project. The Company does not capitalize pilot projects and projects where it believes that
future economic benefits are less than probable. Internally developed software costs include the cost of software tools and licenses
used in the development of the Company’s systems, as well as payroll and consulting costs.
Investment in Federal Home Loan Bank (“FHLB”) Stock
—Investment in FHLB stock is carried at its amortized cost, which
approximates fair value.
Goodwill and Other Intangibles, net
—Goodwill and other intangibles, net represents the excess of the purchase price over the fair
value of net tangible assets acquired through the Company’s business combinations. The Company tests goodwill and intangible
assets with indefinite lives for impairment on at least an annual basis or when certain events occur. The Company evaluates the
remaining useful lives of other intangible assets each
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2006. EDGAR Online, Inc.