eTrade 2008 Annual Report Download - page 102

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.
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 the lesser of their
estimated useful lives or 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 specifically identified payroll and consulting costs.
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 with
finite lives each reporting period to determine whether events and circumstances warrant a revision to the
remaining period of amortization.
Servicing Rights—Servicing rights are recognized when the Company sells a loan and retains the related
servicing rights. In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
(“SFAS No. 156”). This statement establishes, among other things, the accounting for all separately recognized
servicing assets and liabilities. The Company adopted this statement on January 1, 2007 and the impact was not
material to the Company’s financial condition, results of operations or cash flows. As of January 1, 2008, the
Company elected to account for servicing rights under the fair value measurement method. The transition
adjustment to opening retained earnings as of January 1, 2008 related to the fair value measurement election was
$0.3 million.
Real Estate Owned and Repossessed Assets—Included in the other assets line item in the consolidated
balance sheet is real estate acquired through foreclosure and repossessed consumer assets. Real estate properties
acquired through foreclosures, commonly referred to as REO and repossessed assets, are recorded at the lower of
its carrying value or fair value, less estimated selling costs.
Income Taxes—The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes (“SFAS No. 109”),which prescribes the use of the asset and liability method whereby 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. In accordance with SFAS No. 109, income tax
expense includes (i) deferred tax expense, 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, 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 criteria under FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (“FIN 48”), which states that an uncertain tax position must be more likely than not of being
sustained upon examination. The amount of tax benefit recognized is the largest amount of tax benefit that is more
than fifty percent likely of being sustained on ultimate settlement of an uncertain tax position.
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