eTrade 2010 Annual Report Download - page 109

in 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 forty years. Land is carried at cost. An impairment loss is recognized only 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 under internal-use software
accounting guidance 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 intangible assets for impairment on at least an annual basis or when events or
changes indicate the carrying value of an asset may not be recoverable. 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.
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 carried at the lower of
carrying value or fair value, less estimated selling costs.
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. 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. See
Note 16—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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