GREEN DOT CORP 10-Q

ITEM 1. Financial Statements GREEN DOT CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2020 December 31, 2019 (unaudited) Assets (In thousands, except par value) Current assets: Unrestricted cash and cash equivalents $ 2,136,375 $ 1,063,426 Restricted cash 5,693 2,728 Investment securities available-for-sale, at fair value — 10,020 Settlement assets 344,299 239,222 Accounts receivable, net 44,175 59,543 Prepaid expenses and other assets 54,278 66,183 Income tax receivable 961 870 Total current assets 2,585,781 1,441,992 Investment securities available-for-sale, at fair value 309,374 267,419 Loans to bank customers, net of allowance for loan losses of $ 642 and $ 1,166 as of September 30, 2020 and December 31, 2019, respectively 20,423 21,417 Prepaid expenses and other assets 40,683 10,991 Property, equipment, and internal-use software, net 145,932 145,476 Operating lease right-of-use assets 21,745 26,373 Deferred expenses 6,860 16,891 Net deferred tax assets 9,097 9,037 Goodwill and intangible assets 499,014 520,994 Total assets $ 3,638,909 $ 2,460,590 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 28,831 $ 37,876 Deposits 2,282,674 1,175,341 Obligations to customers 93,693 69,377 Settlement obligations 9,708 13,251 Amounts due to card issuing banks for overdrawn accounts 292 380 Other accrued liabilities 137,478 107,842 Operating lease liabilities 8,080 8,764 Deferred revenue 13,570 28,355 Income tax payable 12,695 3,948 Total current liabilities 2,587,021 1,445,134 Other accrued liabilities 6,402 10,883 Operating lease liabilities 18,629 24,445 Line of credit — 35,000 Net deferred tax liabilities 17,984 17,772 Total liabilities 2,630,036 1,533,234 Commitments and contingencies (Note 17) Stockholders’ equity: Class A common stock, $ 0.001 par value; 100,000 shares authorized as of September 30, 2020 and December 31, 2019; 53,459 and 51,807 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively 53 52 Additional paid-in capital 329,967 296,224 Retained earnings 675,906 629,040 Accumulated other comprehensive income 2,947 2,040 Total stockholders’ equity 1,008,873 927,356 Total liabilities and stockholders’ equity $ 3,638,909 $ 2,460,590 See notes to unaudited consolidated financial statements 1 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands, except per share data) Operating revenues: Card revenues and other fees $ 146,648 $ 102,231 $ 440,723 $ 353,421 Processing and settlement service revenues 57,526 54,620 246,042 229,272 Interchange revenues 84,876 77,080 271,712 250,955 Interest income, net 2,020 6,517 11,002 25,640 Total operating revenues 291,070 240,448 969,479 859,288 Operating expenses: Sales and marketing expenses 96,189 98,352 319,738 284,485 Compensation and benefits expenses 61,077 46,678 173,009 156,451 Processing expenses 74,158 49,010 216,624 149,864 Other general and administrative expenses 62,296 48,595 198,519 145,327 Total operating expenses 293,720 242,635 907,890 736,127 Operating (loss) income ( 2,650 ) ( 2,187 ) 61,589 123,161 Interest expense, net 39 120 723 1,790 Other (expense) income, net ( 1,650 ) 8 696 42 (Loss) income before income taxes ( 4,339 ) ( 2,299 ) 61,562 121,413 Income tax (benefit) expense ( 1,347 ) ( 1,768 ) 14,415 23,209 Net (loss) income $ ( 2,992 ) $ ( 531 ) $ 47,147 $ 98,204 Basic (loss) earnings per common share: $ ( 0.06 ) $ ( 0.01 ) $ 0.89 $ 1.87 Diluted (loss) earnings per common share: $ ( 0.06 ) $ ( 0.01 ) $ 0.87 $ 1.84 Basic weighted-average common shares issued and outstanding: 52,635 51,595 52,269 52,405 Diluted weighted-average common shares issued and outstanding: 54,082 52,295 53,455 53,474 See notes to unaudited consolidated financial statements 2 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND LOSS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Net (loss) income $ ( 2,992 ) $ ( 531 ) $ 47,147 $ 98,204 Other comprehensive income Unrealized holding gain, net of tax 756 167 907 2,329 Comprehensive (loss) income $ ( 2,236 ) $ ( 364 ) $ 48,054 $ 100,533 See notes to unaudited consolidated financial statements 3 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) Three Months Ended September 30, 2020 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount (In thousands) Balance at June 30, 2020 53,297 $ 53 $ 323,083 $ 678,898 $ 2,191 $ 1,004,225 Common stock issued under stock plans, net of withholdings and related tax effects 162 — ( 4,922 ) — — ( 4,922 ) Stock-based compensation — — 11,806 — — 11,806 Net loss — — — ( 2,992 ) — ( 2,992 ) Other comprehensive income — — — — 756 756 Balance at September 30, 2020 53,459 $ 53 $ 329,967 $ 675,906 $ 2,947 $ 1,008,873 Three Months Ended September 30, 2019 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount (In thousands) Balance at June 30, 2019 51,809 $ 52 $ 291,958 $ 627,878 $ 2,025 $ 921,913 Common stock issued under stock plans, net of withholdings and related tax effects 76 — ( 1,259 ) — — ( 1,259 ) Stock-based compensation — — 6,894 — — 6,894 Repurchases of Class A common stock ( 406 ) — — — — — Net loss — — — ( 531 ) — ( 531 ) Other comprehensive income — — — — 167 167 Balance at September 30, 2019 51,479 $ 52 $ 297,593 $ 627,347 $ 2,192 $ 927,184 See notes to unaudited consolidated financial statements 4 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) (UNAUDITED) Nine Months Ended September 30, 2020 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount (In thousands) Balance at December 31, 2019 51,807 $ 52 $ 296,224 $ 629,040 $ 2,040 $ 927,356 Common stock issued under stock plans, net of withholdings and related tax effects 677 — ( 3,049 ) — — ( 3,049 ) Stock-based compensation — — 36,793 — — 36,793 Walmart restricted shares 975 1 ( 1 ) — — — Net income — — — 47,147 — 47,147 Other comprehensive income — — — — 907 907 Cumulative effect adjustment for adoption of ASU No. 2016-13 (CECL) — — — ( 281 ) — ( 281 ) Balance at September 30, 2020 53,459 $ 53 $ 329,967 $ 675,906 $ 2,947 $ 1,008,873 Nine Months Ended September 30, 2019 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Amount (In thousands) Balance at December 31, 2018 52,917 $ 53 $ 380,753 $ 529,143 $ ( 137 ) $ 909,812 Common stock issued under stock plans, net of withholdings and related tax effects 634 1 ( 13,298 ) — — ( 13,297 ) Stock-based compensation — — 30,136 — — 30,136 Repurchases of Class A common stock ( 2,072 ) ( 2 ) ( 99,998 ) — — ( 100,000 ) Net income — — — 98,204 — 98,204 Other comprehensive income — — — — 2,329 2,329 Balance at September 30, 2019 51,479 $ 52 $ 297,593 $ 627,347 $ 2,192 $ 927,184 See notes to unaudited consolidated financial statements 5 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2020 2019 (In thousands) Operating activities Net income $ 47,147 $ 98,204 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment and internal-use software 43,014 35,929 Amortization of intangible assets 21,175 24,523 Provision for uncollectible overdrawn accounts from purchase transactions 6,743 5,309 Stock-based compensation 36,793 30,136 Losses in equity method investments 4,313 — Realized gain on sale of available-for-sale investment securities ( 5,062 ) — Amortization of premium (discount) on available-for-sale investment securities 618 ( 209 ) Change in fair value of contingent consideration — ( 1,866 ) Amortization of deferred financing costs 127 1,253 Impairment of internal-use software 1,099 121 Changes in operating assets and liabilities: Accounts receivable, net 8,625 694 Prepaid expenses and other assets 12,724 9,679 Deferred expenses 10,031 14,438 Accounts payable and other accrued liabilities 19,471 ( 20,132 ) Deferred revenue ( 15,068 ) ( 19,385 ) Income tax receivable/payable 8,842 25,961 Other, net ( 1,741 ) 6 Net cash provided by operating activities 198,851 204,661 Investing activities Purchases of available-for-sale investment securities ( 295,287 ) ( 117,959 ) Proceeds from maturities of available-for-sale securities 80,840 72,569 Proceeds from sales of available-for-sale securities 187,830 4,905 Payments for acquisition of property and equipment ( 43,898 ) ( 58,185 ) Net changes in loans 493 ( 1,457 ) Investment in TailFin Labs, LLC ( 35,000 ) — Other ( 916 ) — Net cash used in investing activities ( 105,938 ) ( 100,127 ) Financing activities Repayments of borrowings from notes payable — ( 60,000 ) Borrowings on revolving line of credit 100,000 — Repayments on revolving line of credit ( 135,000 ) — Proceeds from exercise of options and ESPP purchases 5,104 4,862 Taxes paid related to net share settlement of equity awards ( 8,153 ) ( 18,159 ) Net changes in deposits 1,108,354 ( 133,132 ) Net decrease in obligations to customers ( 84,304 ) ( 25,311 ) Contingent consideration payments ( 3,000 ) ( 3,634 ) Repurchase of Class A common stock — ( 100,000 ) Net cash provided by (used in) financing activities 983,001 ( 335,374 ) Net increase (decrease) in unrestricted cash, cash equivalents and restricted cash 1,075,914 ( 230,840 ) Unrestricted cash, cash equivalents and restricted cash, beginning of period 1,066,154 1,095,218 Unrestricted cash, cash equivalents and restricted cash, end of period $ 2,142,068 $ 864,378 Cash paid for interest $ 839 $ 2,049 Cash paid for/(refund from) income taxes $ 5,497 $ ( 3,612 ) Reconciliation of unrestricted cash, cash equivalents and restricted cash at end of period: Unrestricted cash and cash equivalents $ 2,136,375 $ 861,275 Restricted cash 5,693 3,103 Total unrestricted cash, cash equivalents and restricted cash, end of period $ 2,142,068 $ 864,378 See notes to unaudited consolidated financial statements 6 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1— Organization Green Dot Corporation (“we,” “our,” or “us” refer to Green Dot Corporation and its consolidated subsidiaries) is a financial technology leader and bank holding company with a mission to reinvent banking for the masses. Our company’s long-term strategy is to create a unique, sustainable and highly valuable fintech ecosystem, in part through the continued evolution of our innovative Banking as a Service (“BaaS”) platform, that’s intended to fuel the engine of innovation and growth for us and our business partners. Enabled by proprietary technology, our commercial bank charter and our high-scale program management operating capability, our vertically integrated technology and banking platform is used by a growing list of America’s most prominent consumer and technology companies to design and deploy their own bespoke financial services solutions to their customers and partners, while we use that same integrated platform for our own leading collection of banking and financial services products marketed directly to consumers through what we believe to be the most broadly distributed, omni-channel branchless banking platforms in the United States. We were incorporated in Delaware in 1999 and became a bank holding company under the Bank Holding Company Act and a member bank of the Federal Reserve System in December 2011. We are headquartered in Pasadena, California, with additional facilities throughout the United States and in Shanghai, China. Note 2— Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. We consolidated our wholly-owned subsidiaries and eliminated all significant intercompany balances and transactions. We have also prepared the accompanying unaudited consolidated financial statements in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X and, consequently, they do not include all of the annual disclosures required by GAAP. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional disclosures, including a summary of our significant accounting policies. There have been no material changes to our significant accounting policies during the nine months ended September 30, 2020, other than the adoption of the accounting pronouncements discussed herein. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal and recurring items, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available as of September 30, 2020 and through the date of this report. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates due to the uncertainty around the magnitude, duration and effects of the COVID-19 pandemic, as well as other factors. Recent Accounting Pronouncements Recently adopted accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") that requires financial assets measured at amortized cost be presented at the net amount expected to be collected. Credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited by the amount that the fair value is less than amortized cost. The amendments under ASU 2016-13 eliminate the probable incurred loss recognition model under GAAP and introduce a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. The new ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s 7 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) assumptions, models, and methods for estimating expected credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under previously applicable accounting standards. The adoption of ASU 2016-13 resulted in an adjustment of approximately $ 0.3 million, net of tax, to beginning retained earnings, the effect of which we do not consider material to our consolidated financial statements. Most of our financial assets within the scope of ASU 2016-13 are considered highly short-term in nature and therefore, we are less susceptible to risks and uncertainty of credit losses over extended periods of time. The adoption of ASU 2016-13 did not result in any material changes to our methods for developing our allowance for credit losses, or the information we assess in developing our current estimate of expected credit losses. See Notes 4, 5 and 6 to these consolidated financial statements for additional information on our financial assets within scope of the new accounting standard. In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other ("ASU 2017-04") : Simplifying the Test for Goodwill Impairment , which simplifies the existing two-step guidance for goodwill impairment testing by eliminating the second step resulting in a write-down to goodwill equal to the initial amount of impairment determined in step one. The ASU is to be applied prospectively for reporting periods beginning after December 15, 2019. We adopted the provisions of ASU 2017-04 on January 1, 2020, the effect of which did not have a material impact on our consolidated financial statements. Recently issued accounting pronouncements not yet adopted In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and improves consistent application of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We do not anticipate any immediate impact on our consolidated financial statements upon adoption. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the provisions of ASU 2020-06, but do not expect any material impact on our consolidated financial statements. Note 3— Revenues Disaggregation of Revenues Our products and services are offered only to customers within the United States. We determine our operating segments based on how our chief operating decision maker manages our operations, makes operating decisions and evaluates operating performance. Within our segments, we believe that the nature, amount, timing and uncertainty of our revenue and cash flows and how they are affected by economic factors can be further illustrated based on the timing in which revenue for each of our products and services is recognized. The following table disaggregates our revenues by the timing in which the revenue is recognized: Three Months Ended September 30, 2020 Three Months Ended September 30, 2019 Account Services Processing and Settlement Services Account Services Processing and Settlement Services Timing of revenue recognition (In thousands) Transferred at a point in time $ 113,695 $ 57,526 $ 114,418 $ 54,616 Transferred over time 116,661 1,168 63,880 1,017 Operating revenues (1) $ 230,356 $ 58,694 $ 178,298 $ 55,633 8 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 3—Revenues (continued) Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019 Account Services Processing and Settlement Services Account Services Processing and Settlement Services Timing of revenue recognition (In thousands) Transferred at a point in time $ 369,874 $ 246,042 $ 378,492 $ 229,263 Transferred over time 339,140 3,421 221,211 4,682 Operating revenues (1) $ 709,014 $ 249,463 $ 599,703 $ 233,945 (1) Excludes net interest income, a component of total operating revenues, as it is outside the scope of ASC 606, Revenues Within our Account Services segment, revenues recognized at a point in time are comprised principally of ATM fees, interchange, and other similar transaction-based fees. Revenues recognized over time consist of new card fees, monthly maintenance fees, revenue earned from gift cards and substantially all BaaS partner program management fees. Substantially all of our processing and settlement services are recognized at a point in time. Refer to Note 19 — Segment Informatio n for our revenues disaggregated by our products and services and the components to our total operating revenues on our Consolidated Statements of Operations for additional information. Contract Balances As disclosed on our Consolidated Balance Sheets, we record deferred revenue for any upfront payments received in advance of our performance obligations being satisfied. These contract liabilities consist principally of unearned new card fees and monthly maintenance fees. We recognized approximately $ 0.1 million and $ 0.2 million in revenue for the three months ended September 30, 2020 and 2019, respectively, and $ 25.9 million and $ 31.6 million for the nine months ended September 30, 2020 and 2019, respectively, that were included in deferred revenue at the beginning of the periods and did not recognize any revenue during these periods from performance obligations satisfied in previous periods. Changes in the deferred revenue balance are driven primarily by the amount of new card fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new card fees associated with cards sold during the period. Note 4— Investment Securities Our available-for-sale investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Fair value (In thousands) September 30, 2020 Corporate bonds $ 10,000 $ 92 $ — $ 10,092 Agency bond securities 55,000 45 ( 114 ) 54,931 Agency mortgage-backed securities 212,126 3,059 — 215,185 Municipal bonds 13,972 219 ( 241 ) 13,950 Asset-backed securities 14,921 295 — 15,216 Total investment securities $ 306,019 $ 3,710 $ ( 355 ) $ 309,374 December 31, 2019 Corporate bonds $ 10,000 $ 12 $ — $ 10,012 Agency bond securities 19,980 20 — 20,000 Agency mortgage-backed securities 208,821 2,453 ( 241 ) 211,033 Municipal bonds 4,342 2 ( 2 ) 4,342 Asset-backed securities 31,814 238 — 32,052 Total investment securities $ 274,957 $ 2,725 $ ( 243 ) $ 277,439 9 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 4—Investment Securities (continued) As of September 30, 2020 and December 31, 2019, the gross unrealized losses and fair values of available-for-sale investment securities that were in unrealized loss positions were as follows: Less than 12 months 12 months or more Total fair value Total unrealized loss Fair value Unrealized loss Fair value Unrealized loss (In thousands) September 30, 2020 Agency bond securities $ 29,886 $ ( 114 ) $ — $ — $ 29,886 $ ( 114 ) Municipal bonds 4,618 ( 241 ) — — 4,618 ( 241 ) Total investment securities $ 34,504 $ ( 355 ) $ — $ — $ 34,504 $ ( 355 ) December 31, 2019 Agency mortgage-backed securities $ 43,337 $ ( 153 ) $ 8,735 $ ( 88 ) $ 52,072 $ ( 241 ) Municipal bonds — — 113 ( 2 ) 113 ( 2 ) Total investment securities $ 43,337 $ ( 153 ) $ 8,848 $ ( 90 ) $ 52,185 $ ( 243 ) Our investments generally consist of highly rated securities, as our investment policy restricts our investments to highly liquid, low credit risk assets. We did no t record any significant credit-related impairment losses during the three and nine months ended September 30, 2020 or 2019 on our available-for-sale investment securities. Upon adoption of ASU 2016-13, we establish an allowance for credit losses limited by the amount that the fair value of the investment is less than its amortized cost, rather than a direct write down under previous GAAP. Any subsequent improvements in credit will be recognized in income through a reversal of the allowance established. We continue to record non-credit-related losses as a component of accumulated other comprehensive income or loss. We do not intend to sell our investments and we have determined that it is more likely than not that we will not be required to sell our investments before recovery of their amortized cost bases, which may be at maturity. During the nine months ended September 30, 2020, we recorded a realized gain of approximately $ 5.1 million as a result of the sale of certain investment securities. The gain recognized upon sale of the investments was reclassified from accumulated other comprehensive income and is recorded as a component of other income and expenses on our consolidated statements of operations. As of September 30, 2020, the contractual maturities of our available-for-sale investment securities were as follows: Amortized cost Fair value (In thousands) Due after one year through five years $ 10,000 $ 10,092 Due after five years through ten years 50,000 49,886 Due after ten years 18,972 18,995 Mortgage and asset-backed securities 227,047 230,401 Total investment securities $ 306,019 $ 309,374 The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations. 10 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 5— Accounts Receivable Accounts receivable, net consisted of the following: September 30, 2020 December 31, 2019 (In thousands) Trade receivables $ 15,896 $ 14,512 Reserve for uncollectible trade receivables ( 259 ) ( 202 ) Net trade receivables 15,637 14,310 Overdrawn cardholder balances from purchase transactions 3,270 4,327 Reserve for uncollectible overdrawn accounts from purchase transactions ( 2,175 ) ( 3,398 ) Net overdrawn cardholder balances from purchase transactions 1,095 929 Overdrawn cardholder balances from maintenance fees 2,772 2,235 Total net overdrawn account balances due from cardholders 3,867 3,164 Receivables due from card issuing banks 5,577 5,758 Fee advances, net 3,179 26,268 Other receivables 15,915 10,043 Accounts receivable, net $ 44,175 $ 59,543 Our net overdrawn account balances due from cardholders are a result of purchase transactions that we honor or maintenance fee assessments, in each case, in excess of the funds in the cardholder’s account. Reserves for overdrawn account balances from purchase transactions are subject to our recent adoption of ASU 2016-13 and are included as a component of other general and administrative expenses on our consolidated statements of operations. Overdrawn cardholder balances from maintenance fee assessments are presented net of the consideration we expect to receive under ASC 606 and are recorded as contra-revenue within card revenues and other fees. The adoption of ASU 2016-13 did not result in any material changes to our methods for developing allowances for any component within our accounts receivable given their short-term nature. Activity in the reserve for uncollectible overdrawn accounts from purchase transactions consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Balance, beginning of period $ 5,070 $ 2,368 $ 3,398 $ 2,710 Provision for uncollectible overdrawn accounts from purchase transactions 2,345 1,262 6,743 5,309 Charge-offs ( 5,240 ) ( 511 ) ( 7,966 ) ( 4,900 ) Balance, end of period $ 2,175 $ 3,119 $ 2,175 $ 3,119 11 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6— Loans to Bank Customers The following table presents total outstanding loans, gross of the related allowance for loan losses, and a summary of the related payment status: 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Total Current or Less Than 30 Days Past Due Total Outstanding (In thousands) September 30, 2020 Residential $ — $ — $ — $ — $ 3,821 $ 3,821 Commercial — — — — 1,901 1,901 Installment — 3 — 3 591 594 Secured credit card 862 597 821 2,280 12,469 14,749 Total loans $ 862 $ 600 $ 821 $ 2,283 $ 18,782 $ 21,065 Percentage of outstanding 4.1 % 2.9 % 3.9 % 10.8 % 89.2 % 100.0 % December 31, 2019 Residential $ 1 $ — $ — $ 1 $ 4,530 $ 4,531 Commercial — — — — 158 158 Installment 1 — — 1 1,246 1,247 Secured credit card 1,080 939 2,183 4,202 12,445 16,647 Total loans $ 1,082 $ 939 $ 2,183 $ 4,204 $ 18,379 $ 22,583 Percentage of outstanding 4.8 % 4.2 % 9.7 % 18.6 % 81.4 % 100.0 % Nonperforming Loans The following table presents the carrying value, gross of the related allowance for loan losses, of our nonperforming loans. See Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on the criteria for classification as nonperforming. September 30, 2020 December 31, 2019 (In thousands) Residential $ 250 $ 290 Installment 129 147 Secured credit card 821 2,183 Total loans $ 1,200 $ 2,620 Credit Quality Indicators We closely monitor and assess the credit quality and credit risk of our loan portfolio on an ongoing basis. We continuously review and update loan risk classifications. We evaluate our loans using non-classified or classified as the primary credit quality indicator. Classified loans are those loans that have demonstrated credit weakness where we believe there is a heightened risk of principal loss, including all impaired loans. Classified loans are generally internally categorized as substandard, doubtful or loss, consistent with regulatory guidelines. Our secured credit card portfolio is collateralized by cash deposits made by each cardholder in an amount equal to the user's available credit limit, which mitigates the risk of any significant credit losses we expect to incur. The table below presents the carrying value, gross of the related allowance for loan losses, of our loans within the primary credit quality indicators related to our loan portfolio: 12 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6—Loans to Bank Customers (continued) September 30, 2020 December 31, 2019 Non-Classified Classified Non-Classified Classified (In thousands) Residential $ 3,571 $ 250 $ 4,241 $ 290 Commercial 1,901 — 158 — Installment 455 139 1,058 189 Secured credit card 13,928 821 14,464 2,183 Total loans $ 19,855 $ 1,210 $ 19,921 $ 2,662 Impaired Loans and Troubled Debt Restructurings When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a Troubled Debt Restructuring, or TDR. Our TDR modifications involve an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. As of September 30, 2020, none of our TDR modifications have been made in response to the COVID-19 pandemic. The following table presents our impaired loans and loans that we modified as TDRs as of September 30, 2020 and December 31, 2019: September 30, 2020 December 31, 2019 Unpaid Principal Balance Carrying Value Unpaid Principal Balance Carrying Value (In thousands) Residential $ 250 $ 188 $ 290 $ 221 Installment 139 104 160 48 Allowance for Loan Losses Activity in the allowance for loan losses consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Balance, beginning of period $ 570 $ 970 $ 1,166 $ 1,144 Provision for loans 247 658 501 1,914 Loans charged off ( 282 ) ( 112 ) ( 1,403 ) ( 1,661 ) Recoveries of loans previously charged off 107 42 378 161 Balance, end of period $ 642 $ 1,558 $ 642 $ 1,558 Note 7— Equity Method Investment On January 2, 2020, we effectuated our agreement with Walmart to jointly establish a new fintech accelerator under the name TailFin Labs, LLC (“TailFin Labs”), with a mission to develop innovative products, services and technologies that sit at the intersection of retail shopping and consumer financial services. The entity is majority-owned by Walmart and focuses on developing tech-enabled solutions to integrate omni-channel retail shopping and financial services. We hold a 20 % ownership interest in the entity, in exchange for annual capital contributions of $ 35.0 million per year from January 2020 through January 2024. We account for our investment in TailFin Labs under the equity method of accounting in accordance with ASC 323 , Investments – Equity Method and Joint Ventures . Under the equity method of accounting, the initial investment is recorded at cost and the investment is subsequently adjusted for, among other things, its proportionate share of earnings or losses. However, given the capital structure of the TailFin Labs arrangement, we apply the Hypothetical Liquidation Book Value ("HLBV") method to determine the allocation of profits and losses since our liquidation rights and priorities, as defined by the agreement, differ from our underlying ownership interest. The HLBV method calculates the proceeds that would be attributable to each partner in an investment based on the liquidation provisions of the agreement if the partnership was to be liquidated at book value as of the balance sheet date. Each partner’s allocation of income or loss in the period is equal to the change in the amount of net equity they are legally 13 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 7—Equity Method Investment (continued) able to claim based on a hypothetical liquidation of the entity at the end of a reporting period compared to the beginning of that period, adjusted for any capital transactions. Any future economic benefits derived from products or services developed by TailFin Labs will be negotiated on a case-by-case basis between the parties. As of September 30, 2020, our net investment balance is included in the long term portion of the caption entitled prepaid expenses and other assets on our consolidated balance sheet. We recorded total equity in losses of approximately $ 1.6 million and $ 4.3 million for the three and nine months ended September 30, 2020, which are recorded as a component of other income and expense on our consolidated statements of operations. Total equity in losses also includes income and losses from an investment held by our bank under the Community Reinvestment Act, which is inconsequential to these consolidated financial statements. Note 8— Deposits Deposits are categorized as non-interest or interest-bearing deposits as follows: September 30, 2020 December 31, 2019 (In thousands) Non-interest bearing deposit accounts $ 2,249,457 $ 1,055,818 Interest-bearing deposit accounts Checking accounts 6,880 95,995 Savings 7,853 6,619 GPR deposits 13,894 11,892 Time deposits, denominations greater than or equal to $100 3,793 3,854 Time deposits, denominations less than $100 797 1,163 Total interest-bearing deposit accounts 33,217 119,523 Total deposits $ 2,282,674 $ 1,175,341 Total deposit balances have increased substantially as compared to December 31, 2019, principally as a result of stimulus funds and other government benefits received by our cardholders under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The scheduled contractual maturities for total time deposits are presented in the table below: September 30, 2020 (In thousands) Due in 2020 $ 327 Due in 2021 1,373 Due in 2022 1,445 Due in 2023 628 Due in 2024 456 Thereafter 361 Total time deposits $ 4,590 Note 9— Debt 2019 Revolving Facility In October 2019, we entered into a secured credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit facility provides for a $ 100.0 million five-year revolving line of credit (the "2019 Revolving Facility"), maturing in October 2024. We use the proceeds of any borrowings under the revolving facility for working capital and other general corporate purposes, subject to the terms and conditions set forth in the credit agreement. We classify amounts outstanding as long-term on our consolidated balance sheets, however, we may make voluntary repayments at any time prior to maturity. As of December 31, 2019, the outstanding balance on our revolving line of credit was $ 35.0 million. The entire $ 100.0 million remains available for use under the credit facility as of September 30, 2020. Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 9—Debt (continued) At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus .50 %, (a) the Wells Fargo prime rate and (c) a daily rate equal to one-month LIBOR rate plus 1.0 % (the “Base Rate"), plus in either case an applicable margin. The margin is dependent upon on our total leverage ratio and varies from 1.25 % to 2.00 % for LIBOR Rate loans and .25 % to 1.00 % for Base Rate loans. We also pay a commitment fee, which varies from .20 % to .35 % per annum on the actual daily unused portions of the 2019 Revolving Facility. Letter of credit fees are payable in respect of outstanding letters of credit at a rate per annum equal to the applicable margin for LIBOR Rate loans. The 2019 Revolving Facility contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens, indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature of the business, transactions with affiliates and other matters customarily restricted in such agreements. We must also maintain a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as set forth in the credit agreement. At September 30, 2020, we were in compliance with all such covenants. If an event of default shall occur and be continuing under the facility, the commitments may be terminated and the principal amounts outstanding under the 2019 Revolving Facility, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. Senior Credit Facility In October 2014, we entered into a $ 225.0 million credit agreement with Bank of America, N.A., as an administrative agent, Wells Fargo Bank, National Association, and the other lenders party thereto. The credit agreement provided for 1) a $ 75.0 million five-year revolving facility (the "Revolving Facility") and 2) a five-year $ 150.0 million term loan facility ("Term Facility" and, together with the Revolving Facility, the "Senior Credit Facility"). In March 2019, we elected to make a voluntary prepayment of $ 60.0 million to retire the Term Facility without penalty or additional premium. The Revolving Facility remained available for use until the Senior Credit Facility matured in October 2019, at which point we entered into the 2019 Revolving Facility discussed above. We did no t incur any cash interest expense related to our debt during the three months ended September 30, 2020 and 2019 . Cash interest expense was $ 0.6 million for each of the nine months ended September 30, 2020 and 2019. Note 10— Income Taxes Income tax expense for the nine months ended September 30, 2020 and 2019 differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows: Nine Months Ended September 30, 2020 2019 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 1.3 1.5 General business credits ( 2.6 ) ( 2.0 ) Employee stock-based compensation ( 0.7 ) ( 3.7 ) IRC 162(m) limitation 4.5 1.9 Nondeductible expenses 0.4 0.2 Other ( 0.5 ) 0.2 Effective tax rate 23.4 % 19.1 % The effective tax rate for the nine months ended September 30, 2020 and 2019 differs from the statutory federal income tax rate of 21 %, primarily due to state income taxes, net of federal tax benefits, general business credits, employee stock-based compensation, and the Internal Revenue Code (IRC) 162(m) limitation on the deductibility of 15 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 10—Income Taxes (continued) certain executive compensation. The increase in the effective tax rate for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is primarily due to an increase of $ 0.5 million in taxable income resulting from the IRC 162(m) limitation on the deductibility of certain executive compensation and a $ 3.9 million decline in excess tax benefits from stock-based compensation. We recognized an excess tax benefit on stock compensation of $ 0.5 million for the nine months ended September 30, 2020, compared to a $ 4.4 million excess tax benefit for the prior year comparable period. These increases were partially offset by the impact of general business credits. On March 27, 2020, the CARES Act was signed into law, which, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact our current tax provision. We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the nine months ended September 30, 2020, the provision for GILTI tax expense was not material to our financial statements. We establish a valuation allowance when we consider it more-likely-than-not that some portion or all of the deferred tax assets will not be realized. During the second quarter June 30, 2020, we released our valuation allowance against our capital loss carryforwards, as we recognized capital gains on the sale of certain investment securities during that period sufficient to offset our capital loss carryforward amount. As of September 30, 2020 and December 31, 2019, we did no t have a valuation allowance on any of our deferred tax assets as we believed it was more-likely-than-not that we would realize the benefits of our deferred tax assets. We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. We remain subject to examination of our federal income tax return for the years ended December 31, 2016 through 2019. We generally remain subject to examination of our various state income tax returns for a period of four to five years from the respective dates the returns were filed. The IRS initiated an examination of our 2017 U.S. federal tax return during the second quarter June 30, 2020 and the examination remains ongoing. We do not expect that this examination will have a material impact on our consolidated financial statements. As of September 30, 2020, we have federal net operating loss carryforwards of approximately $ 31.9 million and state net operating loss carryforwards of approximately $ 57.9 million which will be available to offset future income. If not used, the federal net operating losses will expire between 2021 and 2035. Of our total state net operating loss carryforwards, approximately $ 31.7 million will expire between 2021 and 2039, while the remaining balance of approximately $ 26.2 million does not expire and carries forward indefinitely. The net operating losses are subject to an annual IRC Section 382 limitation, which restricts their utilization against taxable income in future periods. In addition, we have state business tax credits of approximately $ 16.3 million that can be carried forward indefinitely and other state business tax credits of approximately $ 1.1 million that will expire between 2023 and 2027. As of September 30, 2020 and December 31, 2019, we had a liability of $ 9.8 million and $ 8.4 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows: Nine Months Ended September 30, 2020 2019 (In thousands) Beginning balance $ 8,398 $ 6,965 Increases related to positions taken during prior years 235 — Increases related to positions taken during the current year 1,200 1,569 Decreases as a result of a lapse of applicable statute of limitations — ( 456 ) Ending balance $ 9,833 $ 8,078 The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate $ 9,657 $ 8,023 As of September 30, 2020 and 2019, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $ 0.8 million and $ 0.4 million, respectively. 16 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 11— Stockholders' Equity Stock Repurchase Program In May 2017, our Board of Directors authorized, subject to regulatory approval, expansion of our stock repurchase program by an additional $ 150 million. We sought and received regulatory approval during the second quarter of 2019 and entered into an accelerated share repurchase agreement for $ 100 million in May 2019. In August 2019, we completed final settlement of shares purchased under this agreement, receiving in total approximately 2.1 million shares at an average repurchase price of $ 48.26 . As of September 30, 2020, we have an authorized $ 50 million remaining under our current stock repurchase program for any additional repurchases. Walmart Restricted Shares On January 2, 2020, we issued Walmart, in a private placement, 975,000 restricted shares of our Class A Common Stock. The shares vest in equal monthly increments through December 1, 2022. Walmart is entitled to voting rights and participate in any dividends paid from the issuance date on the unvested balance, and therefore, the total amount of restricted shares issued are included in our total Class A shares outstanding. As of September 30, 2020, there were 731,253 unvested shares outstanding. The estimated grant-date fair value of the restricted shares is recorded as a component of stock-based compensation expense over the related period we expect to benefit under our relationship with Walmart. Note 12— Stock-Based Compensation We currently grant restricted equity awards to employees, directors and non-employee consultants under our 2010 Equity Incentive Plan. Additionally, through our 2010 Employee Stock Purchase Plan, employees are able to purchase shares of our Class A common stock at a discount through payroll deductions. We have reserved shares of our Class A common stock for issuance under these plans. Restricted Stock Units The following table summarizes restricted stock units subject to only service conditions granted under our 2010 Equity Incentive Plan: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands, except per share data) Restricted stock units granted 96 52 1,580 140 Weighted-average grant-date fair value $ 51.96 $ 35.41 $ 30.45 $ 48.39 Performance-Based Restricted Stock Units We grant performance-based restricted stock units to certain employees which are subject to the attainment of pre-established annual performance targets. The actual number of shares subject to the award is determined at the end of the annual performance period and may range from 0 % to 200 % of the target shares granted. These awards generally contain an additional service component after each annual performance period is concluded and the unvested balance of the shares determined at the end of the annual performance period will vest over the remaining requisite service period. Compensation expense related to these awards is recognized using the accelerated attribution method over the vesting period (generally, a period of four years ) based on the fair value of the closing market price of our Class A common stock on the date of the grant and the estimated performance that is expected to be achieved. 17 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 12—Stock-Based Compensation (continued) The following table summarizes the performance-based restricted stock units granted under our 2010 Equity Incentive Plan: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands, except per share data) Performance-based restricted stock units granted (1) 53 — 615 883 Weighted-average grant-date fair value $ 51.25 $ — $ 34.82 $ 50.15 (1) Performance awards granted also reflects, as applicable, the issuance of any shares awarded in excess of their original target amount based on the Compensation Committee's certification of completed performance years. The grant date fair value for these awards are based on the grant price at the time of the original award. Performance-Based Stock Options In connection with the recent hiring of certain executive officers, we granted performance-based stock options with a seven-year term that vest subject to continued service over three years , and upon our company achieving certain stock trading prices within a five-year period. Compensation expense related to these awards is recognized over the greater of the explicit service period or a derived implicit period based on when the performance targets are expected to be achieved. The grant date fair value is determined through the use of a Monte Carlo simulation and is not subsequently re-measured. The following table summarizes the performance-based stock options granted to date: Nine Months Ended September 30, 2020 (In thousands, except per share data) Performance-based stock options granted 2,250 Weighted-average exercise price $ 31.30 Weighted-average grant-date fair value $ 14.57 The estimated grant-date fair value of each performance option grant was based on the following weighted-average assumptions: Nine Months Ended September 30, 2020 Risk-free interest rate 0.63 % Expected term (in years) 3.30 Expected dividends — Expected volatility 53.8 % The total stock-based compensation expense recognized was $ 11.8 million and $ 6.9 million for the three months ended September 30, 2020 and 2019, respectively, and $ 36.8 million and $ 30.1 million for the nine months ended September 30, 2020 and 2019, respectively. Total stock-based compensation expense includes amounts related to each of the awards discussed above and purchases made under our 2010 Employee Stock Purchase Plan, and reflects, as applicable, accelerated expense recognition associated with our retirement policy. Under our retirement policy, following a qualified retirement, any service-based requirement for unvested stock awards held by the eligible employee is eliminated. Accordingly, the related compensation expense is recognized immediately for qualifying awards granted to eligible employees, or in the case of ineligible employees who later become eligible under the retirement policy, over the period from the grant date to the date a qualifying retirement is achieved, if earlier than the standard vesting dates. Performance-based restricted stock units issued to retirement eligible employees remain subject to the stock awards’ annual performance targets and the expense will be adjusted accordingly based expected achievement. 18 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 13— Earnings (Loss) per Common Share The calculation of basic and diluted earnings (loss) per share (EPS) was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands, except per share data) Basic earnings (loss) per Class A common share Numerator: Net (loss) income $ ( 2,992 ) $ ( 531 ) $ 47,147 $ 98,204 Amount attributable to unvested Walmart restricted shares 43 — ( 742 ) — Net (loss) income allocated to Class A common stockholders $ ( 2,949 ) $ ( 531 ) $ 46,405 $ 98,204 Denominator: Weighted-average Class A shares issued and outstanding 52,635 51,595 52,269 52,405 Basic (loss) earnings per Class A common share $ ( 0.06 ) $ ( 0.01 ) $ 0.89 $ 1.87 Diluted earnings (loss) per Class A common share Numerator: Net (loss) income allocated to Class A common stockholders $ ( 2,949 ) $ ( 531 ) $ 46,405 $ 98,204 Re-allocated earnings ( 1 ) — 16 — Diluted net (loss) income allocated to Class A common stockholders $ ( 2,950 ) $ ( 531 ) $ 46,421 $ 98,204 Denominator: Weighted-average Class A shares issued and outstanding 52,635 51,595 52,269 52,405 Dilutive potential common shares: Stock options 426 83 208 130 Restricted stock units 751 199 658 463 Performance-based restricted stock units 231 373 298 413 Employee stock purchase plan 39 45 22 63 Diluted weighted-average Class A shares issued and outstanding 54,082 52,295 53,455 53,474 Diluted (loss) earnings per Class A common share $ ( 0.06 ) $ ( 0.01 ) $ 0.87 $ 1.84 The restricted shares issued to Walmart contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing EPS pursuant to the two-class method. The computation above excludes income attributable to the unvested restricted shares from the numerator and excludes the dilutive impact of those underlying shares from the denominator. For the periods presented, we excluded certain restricted stock units and stock options outstanding (as applicable), which could potentially dilute basic EPS in the future, from the computation of diluted EPS as their effect was anti-dilutive. Additionally, we have excluded any performance-based restricted stock units and performance-based stock options where the performance contingency has not been met as of the end of the period. The following table shows the weighted-average number of shares excluded from the diluted EPS calculation as their effects were anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Class A common stock Options to purchase Class A common stock 947 — 488 — Restricted stock units 133 476 175 314 Performance-based restricted stock units 460 752 292 466 Unvested Walmart restricted shares 759 — 836 — Total 2,299 1,228 1,791 780 19 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 14— Fair Value Measurements Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We determine the fair values of our financial instruments based on the fair value hierarchy established under applicable accounting guidance, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. For more information regarding the fair value hierarchy and how we measure fair value, see Note 2–Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019. As of September 30, 2020 and December 31, 2019, our assets and liabilities carried at fair value on a recurring basis were as follows: Level 1 Level 2 Level 3 Total Fair Value September 30, 2020 (In thousands) Assets Corporate bonds $ — $ 10,092 $ — $ 10,092 Agency bond securities — 54,931 — 54,931 Agency mortgage-backed securities — 215,185 — 215,185 Municipal bonds — 13,950 — 13,950 Asset-backed securities — 15,216 — 15,216 Total assets $ — $ 309,374 $ — $ 309,374 Liabilities Contingent consideration $ — $ — $ 6,300 $ 6,300 December 31, 2019 Assets Corporate bonds $ — $ 10,012 $ — $ 10,012 Agency bond securities — 20,000 — 20,000 Agency mortgage-backed securities — 211,033 — 211,033 Municipal bonds — 4,342 — 4,342 Asset-backed securities — 32,052 — 32,052 Total assets $ — $ 277,439 $ — $ 277,439 Liabilities Contingent consideration $ — $ — $ 9,300 $ 9,300 We based the fair value of our fixed income securities held as of September 30, 2020 and December 31, 2019 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 three and nine months ended September 30, 2020 or 2019. The following table presents changes in our contingent consideration payable for the three and nine months ended September 30, 2020 and 2019, which is categorized in Level 3 of the fair value hierarchy: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In thousands) Balance, beginning of period $ 7,300 $ 13,166 $ 9,300 $ 15,800 Payments of contingent consideration ( 1,000 ) ( 1,000 ) ( 3,000 ) ( 3,634 ) Change in fair value of contingent consideration — ( 1,866 ) — ( 1,866 ) Balance, end of period $ 6,300 $ 10,300 $ 6,300 $ 10,300 20 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 15— 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, 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 to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 . 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, such as the earn-out associated with our acquisition of UniRush LLC ("UniRush") in 2017, is 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. Debt The fair value of our revolving line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our outstanding revolving line of credit 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 revolving line of credit is classified as a Level 2 liability in the fair value hierarchy. Fair Value of Financial Instruments The carrying values and fair values of certain financial instruments that were not carried at fair value, excluding short-term financial instruments for which the carrying value approximates fair value , at September 30, 2020 and December 31, 2019 are presented in the table below. 21 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 15—Fair Value of Financial Instruments (continued) September 30, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value (In thousands) Financial Assets Loans to bank customers, net of allowance $ 20,423 $ 19,277 $ 21,417 $ 19,563 Financial Liabilities Deposits $ 2,282,674 $ 2,282,625 $ 1,175,341 $ 1,175,298 Line of credit $ — $ — $ 35,000 $ 35,000 Note 16— Leases We enter into operating lease agreements principally related to our corporate office locations. Currently, we do not enter into any financing lease agreements. Our leases have remaining lease terms of less than 1 year to approximately 5 years, most of which include renewal options of varying terms. We made a policy election to adopt the short term lease exemption for all leases with an initial term of 12 months or less. Significant Assumptions, Judgments and Policies Under Topic 842, we determine if an arrangement is or contains a lease at inception. Right-of-use (ROU) assets and liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term. For this purpose, we consider only fixed payments stated in the leases at the time of commencement. Variable lease payments that are not based on a specified rate or index are expensed when incurred. Since an implicit interest rate for our leases cannot be determined under our contracts, we use an incremental borrowing rate based on the information available to us at the commencement date in determining the present value of our lease payments. Our incremental borrowing rate is based on a variety of considerations, including borrowing rates currently available to us for loans with similar terms and market participant information based on credit spreads for issuers of similar risk and credit rating. The ROU asset also reflects any lease payments made prior to commencement and is recorded net of any lease incentives received. Our ROU asset and liability reflects, as applicable, options to extend or terminate a lease when it is reasonably certain that we will exercise such options. We also made a policy election to combine our lease and non-lease components for each of our existing classes of leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Lease expense is recognized on a straight-line basis over the lease term. Our total lease expense amounted to approximately $ 2.3 million and $ 3.5 million for the three months ended September 30, 2020 and 2019, respectively, and $ 6.9 million and $ 8.1 million for the nine months ended September 30, 2020 and 2019, respectively. Our lease expense is generally based on fixed payments stated within the agreements. Any variable payments for non-lease components and other short term lease expenses are not considered material. Supplemental Information Supplemental information related to our ROU assets and related lease liabilities is as follows: September 30, 2020 Cash paid for operating lease liabilities (in thousands) $ 7,455 Weighted average remaining lease term (years) 3.5 Weighted average discount rate 4.8 % 22 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 16—Leases (continued) Maturities of our operating lease liabilities as of September 30, 2020 is as follows: Operating Leases (In thousands) Remainder of 2020 $ 2,454 2021 9,715 2022 8,805 2023 3,500 2024 3,464 Thereafter 1,732 29,670 Less: imputed interest ( 2,961 ) Total lease liabilities $ 26,709 Note 17— Commitments and Contingencies Litigation and Claims In the ordinary course of business, we are a party to various legal proceedings, including, from time to time, actions which are asserted to be maintainable as class action suits. We review these actions on an ongoing basis to determine whether it is probable and estimable that a loss has occurred and use that information when making accrual and disclosure decisions. We have provided reserves where necessary for all claims and, based on current knowledge and in part upon the advice of legal counsel, all matters are believed to be adequately covered by insurance, or, if not covered, we do not expect the outcome in any legal proceedings, individually or collectively, to have a material adverse impact on our financial condition or results of operations. On December 18, 2019, an alleged class action entitled Koffsmon v. Green Dot Corp., et al., No. 19-cv-10701-DDP-E, was filed in the United States District Court for the Central District of California, against us and two of our officers. The suit asserts purported claims under Sections 10(b) and 20(a) of the Exchange Act for allegedly misleading statements regarding our business strategy. Plaintiff alleges that defendants made statements that were misleading because they allegedly failed to disclose details regarding our customer acquisition strategy and its impact on our financial performance. The suit is purportedly brought on behalf of purchasers of our securities between May 9, 2018 and November 7, 2019, and seeks compensatory damages, fees and costs. On February 18, 2020, a shareholder derivative suit and securities class action entitled Hellman v. Streit, et al, No. 20-cv-01572-SVW-PVC was filed in United States District Court for the Central District of California, against us and certain of our officers and directors. The suit avers purported breach of fiduciary duty and unjust enrichment claims, as well as claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, on the basis of the same wrongdoing alleged in the first lawsuit described above. The suit does not define the purported class allegedly damaged. These cases have been related. The defendants have not yet responded to the complaints in these matters. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of this matter. We are unable at this time to determine whether the outcome of the litigation would have a material impact on our results of operations, financial condition or cash flows. Other Legal Matters We monitor the laws of all 50 states to identify state laws or regulations that apply (or may apply) to our products and services. We have obtained money transmitter licenses (or similar such licenses) where applicable, based on advice of counsel or when we have been requested to do so. If we were found to be in violation of any laws and regulations governing banking, money transmitters, electronic fund transfers, or money laundering in the United States or abroad, we could be subject to penalties or could be forced to change our business practices. From time to time we enter into contracts containing provisions that contingently require us to indemnify various parties against claims from third parties. These contracts primarily relate to: (i) contracts with our card issuing banks, under which we are responsible to them for any unrecovered overdrafts on cardholders’ accounts; (ii) certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities, and other claims arising from our use of the premises; (iii) certain agreements with our officers, directors, 23 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 17—Commitments and Contingencies (continued) and employees, under which we may be required to indemnify these persons for liabilities arising out of their relationship with us; and (iv) contracts under which we may be required to indemnify our retail distributors, suppliers, vendors and other parties with whom we have contracts against claims arising from certain of our actions, omissions, violations of law and/or infringement of patents, trademarks, copyrights and/or other intellectual property rights. Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. With the exception of overdrafts on cardholders’ accounts, historically, we have not been required to make payments under these and similar contingent obligations, and no liabilities have been recorded for these obligations in our consolidated balance sheets. For additional information regarding overdrafts on cardholders’ accounts, refer to Note 5 — Accounts Receivable. Financial Commitments As discussed in Note 7 — Equity Method Investment , we are committed to make annual capital contributions in TailFin Labs, LLC of $ 35.0 million per year from January 2020 through January 2024. On February 28, 2017, we completed our acquisition of all the membership interests of UniRush, an online direct-to-consumer GPR card and corporate payroll card provider. The transaction terms include an earn-out equal to the greater of (i) a specified percentage of the revenue generated by the online direct-to-consumer GPR card portfolio for the five-year period following the closing or (ii) $ 20 million, payable quarterly over five years . Note 18— Significant Retailer Concentration A credit concentration may exist if customers are involved in similar industries, economic sectors, and geographic regions. Our retail distributors operate in similar economic sectors but diverse domestic geographic regions. The loss of a significant retail distributor could have a material adverse effect upon our card sales, profitability, and revenue growth. Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Walmart 27 % 35 % 27 % 33 % Settlement assets derived from our products sold at retail distributors constituting greater than 10% of the settlement assets outstanding on our consolidated balance sheets were as follows: September 30, 2020 December 31, 2019 Walmart * 13 % * Constitutes less than 10% for the period presented. 24 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 19— Segment Information Our operations are comprised of two reportable segments: 1) Account Services and 2) Processing and Settlement Services. We identified our reportable segments based on factors such as how we manage our operations and how our chief operating decision maker, who is our Chief Executive Officer, views results. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings and uses operating income to assess profitability. The Account Services segment consists of revenues and expenses derived from our deposit account programs, such as prepaid cards, debit cards, consumer and small business checking accounts, secured credit cards, payroll debit cards and gift cards. These deposit account programs are marketed under several of our leading consumer brand names and under the brand names of our BaaS partners. The Processing and Settlement Services segment consists of revenues and expenses derived from our products and services that specialize in facilitating the movement of cash on behalf of consumers and businesses, such as consumer cash processing services, wage disbursements and tax refund processing services. The Corporate and Other segment primarily consists of eliminations of intersegment revenues and expenses, unallocated corporate expenses, depreciation and amortization, and other costs that are not considered when management evaluates segment performance. We do not evaluate performance or allocate resources based on segment asset data, and therefore such information is not presented. The following tables present certain financial information for each of our reportable segments for the periods then ended: Three Months Ended September 30, 2020 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 238,135 $ 59,382 $ ( 6,447 ) $ 291,070 Operating expenses 211,216 52,613 29,891 293,720 Operating income (loss) $ 26,919 $ 6,769 $ ( 36,338 ) $ ( 2,650 ) Three Months Ended September 30, 2019 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 191,273 $ 56,025 $ ( 6,850 ) $ 240,448 Operating expenses 173,014 49,151 20,470 242,635 Operating income (loss) $ 18,259 $ 6,874 $ ( 27,320 ) $ ( 2,187 ) Nine Months Ended September 30, 2020 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 739,251 $ 252,889 $ ( 22,661 ) $ 969,479 Operating expenses 651,482 169,601 86,807 907,890 Operating income $ 87,769 $ 83,288 $ ( 109,468 ) $ 61,589 Nine Months Ended September 30, 2019 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 646,938 $ 236,714 $ ( 24,364 ) $ 859,288 Operating expenses 515,375 149,533 71,219 736,127 Operating income $ 131,563 $ 87,181 $ ( 95,583 ) $ 123,161 25 Table of Contents