Green Dot 2015 Annual Report Download - page 72

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Note 2—Summary of Significant Accounting Policies (continued)
At times, we have issued performance based and market based restricted stock units to our executive officers.
For performance based awards, we recognize compensation cost for the restricted stock units if and when we conclude
it is probable that the performance will be satisfied, over the requisite service period based on the grant-date fair value
of the stock. We reassess the probability of vesting at each reporting period and adjust compensation expense based
on the probability assessment. For market based restricted stock units, we base compensation expense on the fair
value estimated at the date of grant using a Monte Carlo simulation or similar lattice model. We recognize compensation
expense over the requisite service period regardless of the market condition being satisfied, provided that the requisite
service has been provided, since the estimated grant date fair value already incorporates the probability of outcomes
that the market condition will be achieved.
Income Taxes
Our income tax expense is comprised of current and deferred income tax expense. Current income tax expense
approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from the changes
in deferred tax assets and liabilities during the periods. These gross deferred tax assets and liabilities represent
decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences
between the basis of assets and liabilities as measured by tax laws and their basis as reported in our consolidated
financial statements. We also recognize deferred tax assets for tax attributes such as net operating loss carryforwards
and tax credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts we conclude
are more likely-than-not to be realized in the foreseeable future.
We recognize and measure income tax benefits based upon a two-step model: 1) a tax position must be more
likely-than-not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is
measured as the largest dollar amount of that position that is more likely-than-not to be sustained upon settlement.
The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to
as an unrecognized tax benefit. We accrue income tax related interest and penalties, if applicable, within income tax
expense.
Earnings Per Common Share
We apply the two-class method in calculating earnings per common share, or EPS, because our preferred
stockholders are entitled to participate with our common stockholders in the distributions of earnings through dividends.
The two-class method requires net income, after deduction of any preferred stock dividends, deemed dividends on
preferred stock redemptions, and accretions in the carrying value on preferred stock, to be allocated between each
class or series of common and preferred stockholders based on their respective rights to receive dividends, whether
or not declared. Basic EPS is then calculated by dividing net income allocated to each class of common stockholders
by the respective weighted-average common shares issued and outstanding.
We divide adjusted net income for each class of common stock by the respective weighted-average number of
the common shares issued and outstanding for each period plus amounts representing the dilutive effect of outstanding
stock options, restricted stock units, outstanding warrants, shares to be purchased under our employee stock purchase
plan and the dilution resulting from the conversion of convertible securities, if applicable. We exclude the effects of
convertible securities, outstanding warrants and stock options from the computation of diluted EPS in periods in which
the effect would be anti-dilutive. We calculate dilutive potential common shares using the treasury stock method, if-
converted method and the two-class method, as applicable.
Regulatory Matters and Capital Adequacy
As a bank holding company, we are subject to comprehensive supervision and examination by the Federal Reserve
Board and must comply with applicable regulations, including minimum capital and leverage requirements. If we fail
to comply with any of these requirements, we may become subject to formal or informal enforcement actions,
proceedings, or investigations, which could result in regulatory orders, restrictions on our business operations or
requirements to take corrective actions, which may, individually or in the aggregate, affect our results of operations
and restrict our ability to grow. If we fail to comply with the applicable capital and leverage requirements, or if our
subsidiary bank fails to comply with its applicable capital and leverage requirements, the Federal Reserve Board may
limit our or Green Dot Bank's ability to pay dividends. In addition, as a bank holding company and a financial holding
company, we are generally prohibited from engaging, directly or indirectly, in any activities other than those permissible
for bank holding companies and financial holding companies. This restriction might limit our ability to pursue future
business opportunities which we might otherwise consider but which might fall outside the scope of permissible activities.