eTrade 2000 Annual Report Download - page 74

asset type, loan-to-value ratio and current market and economic conditions. The expected loss ratios are based on historical loss
experience adjusted to reflect industry loss experience. The increase in the allowance for loan losses reflects the significant increase in
the loan portfolio, from $2,184 million at September 30, 1999 to $4,226 million at September 30, 2000, and the fact that the Bank
purchases, rather than originates in house, the majority of its loans. Even though the Company’ s historic charge-offs are minimal,
$253,000 and $458,000 in fiscal 2000 and 1999, respectively, we believe the allowance for loan losses, $10.9 million (0.26% of total
loans) and $7.2 million (0.33% of total loans) at September 30, 2000 and 1999, respectively, is an appropriate estimate of the losses
inherent in the loan portfolio.
Loan and Commitment Fees, Discounts and Premiums —Loan fees and certain direct loan acquisition costs are deferred and the net
fee or cost recognized into interest income using the interest method over the contractual life of the loans. Premiums and discounts on
loans receivable are amortized or accreted, respectively, into income using the interest method over the remaining period to
contractual maturity and adjusted for anticipated prepayments. Premiums and discounts on loans held for sale are recognized as part of
the loss or gain upon sale and not amortized or accreted, respectively.
Non-performing Assets —Non-performing assets consist of loans for which interest is no longer being accrued, troubled loans that
have been restructured in order to increase the opportunity to collect amounts due on the loan and real estate acquired in settlement of
loans. Interest previously accrued but not collected on non-accrual loans is reversed against current income when a loan is placed on
non-accrual status. Accretion of deferred fees is discontinued for non-accrual loans. All loans at least ninety days past due, as well as
other loans considered
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uncollectible, are placed on non-accrual status. Payments received on non-accrual loans are recognized as interest income or applied to
principal when it is doubtful that full payment will be collected.
Investments —The Company generally classifies its debt, mortgage-backed securities and marketable equity securities in one of three
categories: held-to-maturity, available-for-sale, or trading. During 2000 and 1999, the Company held no investments or
mortgage-backed securities that it classified as held-to-maturity.
Available-for-sale securities represent a portfolio of equity securities, commercial paper, municipal bonds, certificates of deposit,
corporate bonds, U.S. Government obligations, asset-backed securities and money market funds. Unrealized gains and losses, net of
tax, are computed on the basis of average cost and are included in other comprehensive income. Realized gains and losses and declines
in fair value judged to be other than temporary are included in revenues for securities purchased and sold as a component of the
Company’ s banking operations; other amounts are included in non-operating income (expense). The cost of securities sold is based on
the average cost method and interest earned is included in interest income or non-operating income.
Trading securities are bought and held principally for the purpose of selling them in the near term. Securities purchased for trading are
carried at market value. Realized and unrealized gains and losses on securities classified as trading are included in other revenues and
are derived using the specific identification method for determining the cost of the security sold.
Property and Equipment —Property and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
useful lives, generally two to seven years. Leasehold improvements are stated at cost and are amortized over the lesser of their
estimated useful lives or lease terms.
Goodwill and Other Intangibles —Goodwill and other intangibles, comprised primarily of goodwill, represents the excess of purchase
price over the fair value of net assets acquired resulting from acquisitions made by the Company. Goodwill is being amortized using
the straight-line method based on an estimated useful life of five to twenty years . Other intangibles are amortized using the
straight-line method based on an estimated useful life of two to seven years.
Other Assets —Other assets primarily include premiums paid on interest rate caps, real estate acquired through foreclosure, Federal
Home Loan Bank (“FHLB”) stock, and prepaid assets. Included in other assets is $71.9 million in restricted deposits related to an
operating lease.
Real estate properties acquired through foreclosure and held for sale (“REO”) are recorded at fair value less estimated selling costs at
acquisition. Fair value is determined by appraisal or other appropriate valuation method. Losses estimated at the time of acquisition are
charged to the allowance for loan losses. Management performs periodic valuations and establishes an allowance for losses through a
charge to income if the carrying value of a property exceeds its estimated fair value less selling costs. REO was $850,000 and
$539,000 at September 30, 2000 and 1999, respectively.
2002. EDGAR Online, Inc.