eTrade 2002 Annual Report Download - page 107

Table of Contents
Index to Financial Statements
The Company’ s charge-off policy for impaired loans is consistent with its charge-off policy for other loans; impaired loans are charged-off
when, in the opinion of management, all principal and interest due on the impaired loan will not be fully collected. Consistent with the
Company’ s method for non-accrual loans, payments received on impaired loans are recognized as interest income or applied to principal when
it is doubtful that full payment will be collected.
Allowance for loan losses —The allowance for loan losses is maintained at a level management considers adequate to absorb probable losses
inherent in the Bank. Loan losses are charged and recoveries are credited to the allowance for loan losses. In determining the level of the
allowance, the Company has established both specific and general allowances. The amount of the specific allowance is determined through a
loan-by-loan analysis of certain large dollar real estate and consumer loans. Real estate and consumer loans not specifically reviewed by
management are evaluated using expected loss ratios. The expected loss ratios are determined based on historical charge-off experience,
industry loss experience and current market and economic conditions. These factors are evaluated by management monthly and the allowance
for loan losses adjusted as necessary. The determination of the allowance for losses is inherently subjective, as it requires management to make
significant estimates, including the amounts and timing of losses and current market and economic conditions. These estimates are susceptible
to change. In addition, the Office of Thrift Supervision (“OTS”) periodically reviews the Bank’ s allowance for loan losses. This review, which
is an integral part of their examination process, may result in additions to or deductions from the allowance for loan losses based on their
judgment with regard to available information provided at the time of their examinations.
Property and Equipment —Property and equipment are carried at cost and are depreciated on a straight-line basis over their estimated useful
lives, generally three to ten years and is carried at cost. Leasehold improvements are stated at cost and are amortized over the lesser of their
estimated useful lives or lease terms. Land is carried at cost.
In accordance with Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use , 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 have been completed and management authorizes and commits to
funding the project. Pilot projects and projects where the Company does not expect future economic benefits are less than probable, are not
capitalized. 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 represent the excess of purchase price over the fair value of net assets
acquired resulting from acquisitions made by the Company. In June 2001, the FASB issued SFAS No. 141, Business Combinations , and SFAS
No.142, Goodwill and Other Intangible Assets . SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method of accounting and addresses the initial recognition and measurement of goodwill and intangible assets
acquired in the business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142
provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be
amortized, but rather be tested at least annually for impairment. With the exception of the acquisition of Dempsey, which occurred in October
2001, the Company continued amortizing goodwill through December 31, 2001. For the periods prior to January 1, 2002, goodwill was
amortized using the straight-line method based on an estimated useful life of five to twenty years. Upon adoption of SFAS No. 142, on January
1, 2002, the Company ceased the amortization of goodwill and intangible assets with indefinite lives and tested the carrying amount for
impairment. The Company will test goodwill and intangible assets with indefinite lives for impairment on at least an annual basis. Other
intangibles were and are amortized either under the straight-line or double declining balance methods on estimated useful lives of three to thirty
years. See Note 23.
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2003. EDGAR Online, Inc.