Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Note 5. Allowance for Credit Losses

Our allowance for credit losses represents our current estimate of expected credit losses over the remaining contractual life of certain financial assets, including credit cards as well as commercial and consumer banking loans acquired in the Bank Merger, which relate to our Financial Services segment, and accounts receivables primarily related to our Technology Platform segment. Given our methods of collecting funds on servicing receivables, our historical experience of infrequent write offs, and that we have not observed meaningful changes in our counterparties’ abilities to pay, we determined that the future exposure to credit losses on servicing related receivables was immaterial.

In estimating expected credit losses for credit cards, we segment loans based on credit quality indicators and reassess our pools periodically to confirm that all loans within each pool continue to share similar risk characteristics. We establish an allowance within each pool utilizing a proprietary risk model that relies on assumptions such as average annual percentage rate, payment rate, utilization, delinquency status and default probability. The model may then be adjusted for current conditions and reasonable and supportable forecasts of future conditions, including economic conditions. We apply the aforementioned assumptions to the drawn balance of credit cards within each pool to estimate the lifetime expected credit losses within each pool, which are then aggregated to determine the allowance for credit losses.

We evaluate whether to include qualitative reserves to cover losses that are expected but may not be adequately represented in the quantitative methods or the economic assumptions. The qualitative reserves address possible limitations within the models, such as external conditions including regulatory requirements, emerging portfolio trends, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due accounts, or management risk actions. When a credit card balance is charged off, we record a reduction to the allowance and the credit card balance.

The following table presents changes in our allowance for credit losses:


	Credit Card(1)		Commercial and Consumer Banking(1)		Accounts Receivable(1)
Balance at January 1, 2022	$	7,037	$	—	$	2,292
Provision for credit losses(2)	53,030		1,302		586
Allowance for PCD loans(3)	—		382		—
Write-offs charged against the allowance	(20,957)		(6)		(93)
Balance at December 31, 2022	$	39,110	$	1,678	$	2,785
Provision for credit losses(2)	54,267		678		773
Write-offs charged against the allowance	(40,992)		(46)		(1,721)
Balance at December 31, 2023	$	52,385	$	2,310	$	1,837

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(1)Credit cards and commercial and consumer banking loans measured at amortized cost, net of allowance for credit losses, are presented within loans held for investment in the consolidated balance sheets. Accounts receivable balances, net of allowance for credit losses, are presented within other assets in the consolidated balance sheets.

(2)The provision for credit losses on credit cards and commercial and consumer banking loans is presented within noninterest expense—provision for credit losses in the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2023, recoveries of amounts previously reserved related to credit cards were $2,895, and immaterial during the year ended December 31, 2022. There were immaterial recoveries of amounts previously reserved related to commercial and consumer banking loans during the years ended December 31, 2023 and 2022. The provision for credit losses on accounts receivable is presented within noninterest expense—general and administrative in the consolidated statements of operations and comprehensive loss. During the years ended December 31, 2023 and 2022, recoveries of amounts previously reserved related to accounts receivable were $1,252 and $2,912, respectively.

(3)In connection with the Bank Merger, we obtained PCD loans, for which we measured an allowance, with a corresponding increase to the amortized cost basis as of the acquisition date. Therefore, recognition of the initial allowance for credit losses did not impact earnings.

Credit card: Accrued interest receivables written off by reversing interest income were $9.2 million and $4.7 million during the years ended December 31, 2023 and 2022, respectively.