eTrade 2012 Annual Report Download - page 118

the FHLB advances and other borrowings line item, is a wholesale funding source of E*TRADE Bank. As a
condition of its membership in the FHLB, the Company is required to maintain a FHLB stock investment. The
Company accounts for its investment in FHLB stock as a cost method investment.
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 seven years. Leasehold improvements are amortized
over the lesser of their estimated useful lives or lease terms. Buildings are depreciated over the lesser of their
estimated useful lives or thirty five years. Land is carried at cost. An impairment loss is recognized if the
carrying amount of the long-lived asset is not recoverable and exceeds its fair value.
The costs of internally developed software that qualify for capitalization are included in the property and
equipment, net line item. For qualifying internal-use software costs, capitalization begins when 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. Technology development 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 are expensed as incurred.
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 other intangible assets for impairment on at least an annual basis or when
events or changes indicate the carrying value of an asset exceeds its fair value and the loss may not be
recoverable. The Company evaluates the remaining useful lives of intangible assets with finite lives each
reporting period to determine whether events and circumstances warrant a revision to the remaining period of
amortization.
Real Estate Owned and Repossessed Assets—Real estate owned and repossessed assets are included in the
other assets line item in the consolidated balance sheet. Real estate owned (“REO”) represents real estate
acquired through foreclosure and also includes those properties for which the Company has taken physical
possession, even though legal foreclosure or repossession proceedings have not taken place. Both REO and the
repossessed assets are carried at the lower of carrying value or fair value, less estimated costs to sell.
Income Taxes—Deferred income taxes are recorded when revenues and expenses are recognized in different
periods for financial statement purposes than for tax return purposes. Deferred tax asset or liability account
balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances
are established, when necessary, to reduce deferred tax assets when it is more likely than not that a portion or all
of a given deferred tax asset will not be realized. Income tax expense (benefit) includes (i) deferred tax expense
(benefit), which generally represents the net change in the deferred tax asset or liability balance during the year
plus any change in valuation allowances, and (ii) current tax expense (benefit), which represents the amount of
tax currently payable to or receivable from a taxing authority. Uncertain tax positions are only recognized to the
extent they satisfy the accounting for uncertain tax positions criteria included in the income taxes accounting
guidance, which states that in order to recognize an uncertain tax position it must be more likely than not that it
will be sustained upon examination. For uncertain tax positions, tax benefit is recognized for cases in which it is
more than fifty percent likely of being sustained on ultimate settlement. For additional information on income
taxes, see Note 14—Income Taxes.
Securities Sold Under Agreements to Repurchase—Securities sold under agreements to repurchase the same
or similar securities, also known as repurchase agreements, are collateralized by fixed- and variable-rate
mortgage-backed securities or investment grade securities. Repurchase agreements are treated as secured
borrowings for financial statement purposes and the obligations to repurchase securities sold are therefore
reflected as liabilities in the consolidated balance sheet.
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