Green Dot 2011 Annual Report Download - page 68

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Note 2—Summary of Significant Accounting Policies (continued)
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Accounts Receivable, Net
Accounts receivable is comprised principally of receivables due from card issuing banks, overdrawn account
balances due from cardholders, trade accounts receivable and other receivables. We record accounts receivable net
of reserves for estimated uncollectible accounts. Receivables due from card issuing banks primarily represent revenue-
related funds collected by the card issuing banks from our retail distributors, merchant banks and cardholders that
have yet to be remitted to us. These receivables are generally collected within a short period of time based on the
remittance terms in our agreements with the card issuing banks.
Overdrawn Account Balances Due from Cardholders and Reserve for Uncollectible Overdrawn Accounts
Cardholder account overdrafts may arise from maintenance fee assessments on our GPR cards or from purchase
transactions that we honor on GPR or gift cards, in each case in excess of the funds in a cardholder’s account. We
are exposed to losses from unrecovered cardholder account overdrafts. We establish a reserve for uncollectible
overdrawn accounts. We classify overdrawn accounts into age groups based on the number of days that have elapsed
since an account has had activity, such as a purchase, ATM transaction or maintenance fee assessment. We calculate
a reserve factor for each age group based on the average recovery rate for the most recent six months. These factors
are applied to these age groups to estimate our overall reserve. When more than 90 days have passed without activity
in an account, we consider recovery to be remote and write off the full amount of the overdrawn account balance. We
include our provision for uncollectible overdrawn accounts related to maintenance fees as an offset to card revenues
and other fees in the accompanying consolidated statements of operations. We include our provision for uncollectible
overdrawn accounts related to purchase transactions in other general and administrative expenses in the accompanying
consolidated statements of operations.
Loans
In connection with our acquisition of Bonneville Bancorp, we acquired loans and recorded them at fair value on
the acquisition date. We carry our loans at their outstanding principal balances, net of any unaccreted discounts. We
generally accrete these discounts into interest income over the remaining contractual term of the loans using a level
yield methodology. We recognize interest income as it is earned.
Purchased Credit-Impaired Loans
Some of our purchased loans have evidence of credit quality deterioration since origination. We consider purchased
loans to be impaired if we do not expect to receive all contractually required cash flows due to concerns about credit
quality. The excess of the cash flows expected to be collected measured as of the acquisition date, over the estimated
fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan
using a level yield methodology. The difference between contractually-required payments as of the acquisition date
and the cash flows expected to be collected is referred to as the nonaccretable difference.
We determine the initial fair values of purchased credit-impaired loans, or PCI loans, using a discounted cash
flow model based on assumptions about the amount and timing of principal and interest payments, estimates of principal
losses and current market rates.
If there are subsequent decreases in expected principal cash flows, we record a charge to the provision for credit
losses and a corresponding increase to the allowance for loan losses. If there are subsequent increases in expected
principal cash flows, we record a recovery of any previously recorded allowance for loan losses, to the extent applicable,
and a reclassification from nonaccretable difference to accretable yield for any remaining increase.
Since PCI loans are recorded at fair value at the acquisition date, we do not classify these loans as nonperforming
as the loans were written down to fair value at the acquisition date and the accretable yield is recognized in interest
income over the remaining life of the loan.
Nonperforming Loans
Nonperforming loans generally include loans, other than PCI loans, that have been placed on nonaccrual status.
We generally place loans on nonaccrual status when they are past due 90 days or more. We reverse the related
accrued interest receivable and apply interest collections on nonaccruing loans as principal reductions; otherwise, we
credit such collections to interest income when received. These loans may be restored to accrual status when all
principal and interest is current and full repayment of the remaining contractual principal and interest is expected.