Green Dot 2015 Annual Report Download - page 93

Download and view the complete annual report

Please find page 93 of the 2015 Green Dot annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

87
Note 15—Fair Value Measurements (continued)
We based the fair value of our fixed income securities held as of December 31, 2015 and 2014 on quoted prices
in active markets for similar assets. We had no transfers between Level 1, Level 2 or Level 3 assets or liabilities during
the years ended December 31, 2015 and 2014.
The following table presents changes in our contingent consideration payable for the years ended December 31,
2015 and 2014, which is categorized in Level 3 of the fair value hierarchy:
Year Ended December 31,
2015 2014
(In thousands)
Balance, beginning of period $23,160 $—
Issuance —24,500
Payments of contingent consideration (1,071) (242)
Purchase accounting adjustment —(400)
Change in fair value of contingent consideration (8,200) (698)
Balance, end of period $13,889 $23,160
Note 16—Fair Value of Financial Instruments
The following describes the valuation technique for determining the fair value of financial instruments, whether or
not such instruments are carried at fair value on our consolidated balance sheets.
Short-term Financial Instruments
Our short-term financial instruments consist principally of unrestricted and restricted cash and cash equivalents,
federal funds sold, settlement assets and obligations, and obligations to customers. These financial instruments are
short-term in nature, and, accordingly, we believe their carrying amounts approximate their fair values. Under the fair
value hierarchy, these instruments are classified as Level 1.
Investment Securities
The fair values of investment securities have been derived using methodologies referenced in Note 2–Summary
of Significant Accounting Policies. Under the fair value hierarchy, our investment securities are classified as Level 2.
Loans
We determined the fair values of loans by discounting both principal and interest cash flows expected to be collected
using a discount rate commensurate with the risk that we believe a market participant would consider in determining
fair value. Under the fair value hierarchy, our loans are classified as Level 3.
Deposits
The fair value of demand and interest checking deposits and savings deposits is the amount payable on demand
at the reporting date. We determined the fair value of time deposits by discounting expected future cash flows using
market-derived rates based on our market yields on certificates of deposit, by maturity, at the measurement date. Under
the fair value hierarchy, our deposits are classified as Level 2.
Contingent Consideration
The fair value of contingent consideration obligations are estimated through valuation models designed to estimate
the probability of such contingent payments based on various assumptions. Estimated payments are discounted using
present value techniques to arrive at an estimated fair value. Our contingent consideration payable is classified as
Level 3 because we use unobservable inputs to estimate fair value, including the probability of achieving certain
earnings thresholds and appropriate discount rates. Changes in fair value of contingent consideration are recorded
through operating expenses.
Note Payable
The fair value of our note payable is based on borrowing rates currently required of loans with similar terms,
maturity and credit risk. The carrying amount of our note payable approximates fair value because the base interest
rate charged varies with market conditions and the credit spread is commensurate with current market spreads for
issuers of similar risk. The fair value of the note payable is classified as a Level 2 liability in the fair value hierarchy.