Green Dot 2012 Annual Report Download - page 69

GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
59
Note 2—Summary of Significant Accounting Policies (continued)
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 third-party 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 third-party 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 and purchase transactions as
an offset to card revenues and other fees and in other general and administrative expenses, respectively, in the
accompanying consolidated statements of operations.
Restricted Cash
We maintain restricted deposits in bank accounts to collateralize a standby letter of credit that guarantees our full
performance of our obligations under our ten-year office lease in Pasadena, California. As of December 31, 2011, we
also maintained restricted cash deposits to collateralize our then-outstanding line of credit. After a consumer purchases
a new card or cash transfer product at a retail location, we make the funds immediately available once the consumer
goes online or calls a toll-free number to activate the new card or add funds from a cash transfer product. Since our
retail distributors do not remit funds to our card issuing banks, on average, for two business days, we maintained a
line of credit with certain third-party card issuing banks that was available to fund any cash requirements related to
the timing difference between funds remitted by our retail distributors to the third-party card issuing banks and funds
utilized by consumers. We repaid any draws on this line of credit when our retail distributors remitted the funds to the
bank account of the applicable third-party card issuing bank.
Loans to Bank Customers
We report loans measured at historical cost at their outstanding principle balances, net of any charge-offs, and
for purchased loans, net of any unaccreted discounts. We recognize interest income as it is earned.
Purchased Credit-Impaired Loans
In connection with our acquisition of Bonneville Bancorp, we acquired loans and recorded them at fair value on
the acquisition date. Some of our purchased loans have had 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.