Item 7. Management’s Discussion and Analysis
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may” and “assumes,” variations of such words and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including the impact of the coronavirus (COVID-19) pandemic on our business, results of operations and financial condition and our and the U.S. government’s response to it, and the impact of the coronavirus (COVID-19) pandemic on our business, results of operations and financial condition and our and the U.S. government’s response to it, and those identified below, under “Part I, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
In this Annual Report, unless otherwise specified or the context otherwise requires, “Green Dot,” “we,” “us,” and “our” refer to Green Dot Corporation and its consolidated subsidiaries.
Overview
Green Dot Corporation is a financial technology and registered bank holding company focused on making modern banking and money movement accessible for all. Our goal is to deliver trusted, best-in-class money management and payment solutions to our customers and partners, seamlessly connecting people to their money. Our proprietary technology enables faster, more efficient electronic payments and money management, powering intuitive and seamless ways for people to spend, send, control and save their money. Through our bank, we offer a suite of financial products to consumers and businesses including debit, prepaid, checking, credit and payroll cards, as well as robust money processing services, such as tax refund processing, cash deposits and disbursements.
Our products and services are divided among our two reportable segments: 1) Account Services and 2) Processing and Settlement Services. Refer to " Part 1, Item 1. Business " for more detailed information.
Financial Results and Trends
Our results of operations for the years ended December 31, 2020 and 2019 were as follows:
Year Ended December 31,
2020 2019 Change %
(In thousands, except percentages)
Total operating revenues $ 1,253,760 $ 1,108,595 $ 145,165 13.1 %
Total operating expenses 1,223,687 985,677 238,010 24.1 %
Net income 23,131 99,897 (76,766) (76.8) %
Impact of COVID-19
The unprecedented and rapid spread of the COVID-19 pandemic and the measures implemented to contain it have created a significant amount of economic volatility in our markets. We have taken steps to ensure the health and safety of our employees and continued service to our customers and partners, while at the same time seeking to mitigate the impact of the pandemic on our financial condition and results of operations.
Our employees and business continuity
In response to the pandemic, we enacted business continuity plans in Shanghai, China and across the U.S., mandated that our employees work from home, required contractors to work remotely and implemented strict travel
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restrictions. To date, our U.S. employees have been successful in maintaining our operations in a remote work environment and our offices in China have since reopened consistent with local guidelines. Most of our U.S. personnel will continue to operate remotely for the foreseeable future. While we experienced disruption in staffing levels at our third-party call centers across the globe in the first half of 2020, staffing levels have been restored to appropriate levels and we continue to monitor the situation, as we evaluate future operating plans. In response to our remote employee workforce strategy in the U.S., we have commenced closure of most our leased office locations beginning in 2021. However, we will be required to continue making our contractual payments until our operating leases are formally terminated or expire.
Demand for our products and services
Beginning in March 2020, the business and operations of our retail distributors, employers offering our PayCard programs and certain of our BaaS partners have been disrupted, with many experiencing reduced foot traffic or usage of their products and services. The conditions caused by the COVID-19 pandemic adversely affected our customers’ spending levels and the ability or willingness to purchase our products and services through our retail distributors, lowered the volume of transactions through our BaaS and PayCard programs and delayed the launching of new products and services.
Subsequently, governmental actions in the second quarter of 2020, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) helped mitigate the effects of COVID-19 on our business. In particular, stimulus funds and incremental unemployment benefits provided under the CARES Act and a fundamental shift in consumer behavior towards electronic payments have created a higher demand and usage of our products and services. On a year-over-year basis, our gross dollar volume, purchase volume and the number of active accounts grew year-over-year by 34%, 16% and 8%, respectively, compared to December 31, 2019. In December 2020, an additional $900 billion economic stimulus package was signed into law, providing for additional direct payments and enhanced unemployment benefits through March 2021. There has also been significant discussion among lawmakers regarding another economic relief package, which may provide for further direct payments and extend unemployment benefits. While we believe our cardholder programs will continue to benefit from current and potentially further governmental economic relief packages, as well as the accelerated adoption of digital payments during the pandemic, we expect our key performance indicators will normalize as the effect of governmental actions lessen.
Impact on interest income, cost structure and liquidity
Interest Income
The Federal Reserve announced reductions in short-term interest rates in March 2020 that have lowered the yields on our cash and investment balances and therefore, we have experienced a reduction in the amount of interest income we earn. An extended duration of near zero short-term interest rates will continue to impact the amount of net interest income we earn in the future.
Cost Structure
We have experienced increased costs, including higher disputed transaction losses, which were exacerbated by the disruption in staffing levels at our third-party call centers in the first half of 2020. We have implemented cost-saving measures to offset increased costs and are otherwise working to continue mitigating the conditions driving our higher costs.
Liquidity
We have taken steps to strengthen our liquidity position and ensure we have ample flexibility to pursue strategic priorities, including utilizing our revolving credit facility, strictly managing our enterprise-wide employee headcount and delaying or reducing non-critical projects. We currently have the full $100 million available to us under our revolving credit facility should we need it to invest in strategic initiatives.
Additionally, the CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of December 31, 2020, we have deferred payment of approximately $3.9 million.
However, if another economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions to our subsidiary bank, Green Dot Bank, to maintain its capital, leverage and other financial commitments.
The duration and magnitude of the effects of COVID-19 remain uncertain and dependent on various factors, including the continued severity and transmission rate of the virus and new variants of the virus, the nature of and duration for which the preventative measures remain in place, the extent and effectiveness of containment and
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mitigation efforts, including vaccination programs, the type of stimulus measures and other policy responses that the U.S. government may further adopt, and the impact of these and other factors on our employees, customers, retail distributors, partners and vendors.
See Part II, Item 1A, Risk Factors , for an additional discussion of risk related to the COVID-19 pandemic.
Total operating revenues
Our total operating revenues for the year ended December 31, 2020 increased $145.2 million , or 13.1% over the prior year comparable period, generating revenue growth principally from our Account Services segment and to a lesser extent, our Processing and Settlement Services segment.
Account Services
Within our Account Services segment, total operating revenues increased year-over-year by 16% for the year ended December 31, 2020, primarily attributable to growth in our key metrics, such as gross dollar volume and purchase volume. The growth in our key metrics resulted in year-over-year increases in BaaS program management service fee revenues earned from platform partners, monthly maintenance fee assessments and interchange revenues, partially offset by an increase in estimated cash back rewards that we record as a reduction to card revenues and other fees. We also experienced a year-over-year decline in net interest income during the year ended December 31, 2020 due to lower yields on our cash and investment balances as a result of rate decreases by the Federal Reserve.
The growth in gross dollar volume was driven principally from the growth in the number of direct deposit active accounts, as new and existing customers utilized our platform to receive stimulus funds and unemployment benefits under the CARES Act and the additional stimulus package that was passed by the federal government in December 2020. While we believe gross dollar volume is a strong indicator of our revenue for all our account programs and believe our long term strategy and unique collection of assets and product offerings provide an advantage to address the competitive pressures we face from new entrants, such as "challenger" banks, current economic conditions caused by the COVID-19 pandemic have created mixed trends in our business that make it difficult to forecast future results. We saw an increased proportion of ACH deposits coming from government benefits when account holders filed for unemployment benefits during the year. The December stimulus package reinstituted supplemental federal unemployment benefits at $300 per week through March 2021. While such state and federal unemployment benefits helped to offset the economic impact of the pandemic, it remains unclear whether such benefits will be maintained, significantly reduced or replaced after March 2021, which may impact our future results.
In January 2021, we announced the launch of GO2bank, a new mobile bank designed to help the majority of Americans living paycheck to paycheck build a stronger financial foundation. GO2bank is designed to help our customers lower the cost of accessing and managing their money and offers features such as overdraft protection, high-value rewards, high-interest savings, and opportunities to establish, build, and track credit, regardless of credit history. While still in its early stages, we remain encouraged by the growth opportunity GO2bank provides to our financial results in 2021 and beyond.
Processing and Settlement Services
Within our Processing and Settlement Services segment, total operating revenues increased slightly year-over-year by 1%. Our processing and settlement services revenues increased due to a higher number of tax refund payments processed and the introduction of new tax processing services, as well as growth in the number of cash transfers, partially offset by a year-over-year decline in Simply Paid disbursement transactions due to the continued effects of the COVID-19 pandemic on the rideshare industry.
During the fourth quarter of 2020, we experienced a modest decline in the number of cash transfers and the related revenue, as compared to the same period in 2019, as a result of the non-renewal of a reload partner arrangement. The impact to net income was limited due to the lower profitability of this arrangement. The non-renewal of this agreement will impact the number of cash transfers in 2021. However, any year-over-year growth or decline in cash transfers in 2021 will be dependent on multiple factors, including the level of growth in our Account Services programs. In addition, we anticipate revenues from our tax processing services to decline year-over-year in 2021 as result of securing a multi-year agreement with one of our largest customers in exchange for lower economics on tax refund transfers.
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Total operating expenses
Our total operating expenses for the year ended December 31, 2020 increased $238.0 million, or 24.1% over the prior year comparable period. This increase was primarily the result of several factors, including higher processing expenses associated with the growth of certain BaaS account programs and an increase in other general and administrative expenses, primarily due to a year-over-year increase in dispute transaction losses and impairment charges to long-lived assets we no longer intend to utilize. We also experienced higher compensation and benefits expenses, principally due to higher stock-based compensation expenses, which was driven by higher achievement of performance-based equity awards relative to the prior year period and in part by inducement awards issued in connection with several key executive hires during the period. Compensation and benefits also increased due to higher accrued bonus compensation for non-executive employees and increased severance costs associated with the reorganization of our leadership team.
For the year ended December 31, 2020, we also experienced higher sales and marketing expenses attributable to the year-over-year increases in operating revenues generated from products and services that are subject to revenue-sharing arrangements with our distributors and partners. In addition, under our current Walmart MoneyCard agreement, effective January 1, 2020, the sales commission rate we pay to Walmart for the MoneyCard program increased from the prior agreement.
While we continue to build operational efficiencies within our customer service operations, in the short-term, we have incurred significantly higher dispute transaction losses year-over-year, primarily due to higher volumes of incoming customer disputes and operational disruptions caused by the COVID-19 pandemic. While we do not anticipate these conditions to persist over the long-term, dispute transaction losses have negatively impacted other general and administrative expenses for the year ended December 31, 2020, which we expect will normalize in 2021 as our improvement measures begin to take effect.
In response to the COVID-19 pandemic, our U.S. employees have shifted to a fully remote workforce strategy and we expect to continue operating in a remote environment for the foreseeable future. As a result, we have commenced closure of most our leased office locations in the U.S. beginning in 2021. While we will be required to continue making our contractual payments until our operating leases are formally terminated or expire, we recorded impairment charges to our operating lease right-of-use assets and related property and equipment located at our office facilities during the period. We also recorded impairment charges of internal-use software related to legacy platforms that have been replaced by new technology platforms expected to better scale with our operations. Total impairment charges to long-lived assets amounted to approximately $21.7 million for the year ended December 31, 2020.
Income taxes
Income tax expense for the year ended December 31, 2020 decreased $16.2 million from the prior year comparable period. The decrease in income tax expense was primarily driven by the decline in our operating income, as our effective tax rate of 17.7% for the year ended December 31, 2020 remained consistent with the prior year comparable period. Our effective tax rate for the year ended December 31, 2020 and 2019 is lower than our statutory federal income tax rate primarily due to tax benefits from general business credits and stock-based compensation, offset by higher taxes from non-deductible executive compensation.
Key Metrics
We review a number of metrics to help us monitor the performance of, and identify trends affecting, our business. We believe the following measures are the primary indicators of our revenues:
Year Ended December 31, Year Ended December 31,
2020 2019 Change % 2019 2018 Change %
(In millions, except percentages)
Gross Dollar Volume $ 58,203 $ 43,459 $ 14,744 33.9 % $ 43,459 $ 40,029 $ 3,430 8.6 %
GDV from Direct Deposit Sources $ 39,465 $ 31,380 $ 8,085 25.8 % $ 31,380 $ 29,755 $ 1,625 5.5 %
Number of Active Accounts* 5.45 5.04 0.41 8.1 % 5.04 5.34 (0.3) (5.6) %
Direct Deposit Active Accounts* 2.46 2.14 0.32 15.0 % 2.14 2.04 0.1 4.9 %
Purchase Volume $ 31,220 $ 27,004 $ 4,216 15.6 % $ 27,004 $ 25,989 $ 1,015 3.9 %
Cash Transfers 48.71 46.04 2.67 5.8 % 46.04 42.25 3.79 9.0 %
Tax Refunds Processed 12.46 12.09 0.37 3.1 % 12.09 11.71 0.38 3.2 %
* Represents number of active and direct deposit active accounts as of December 31, 2020 , 2019, and 2018 respectively.
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Gross Dollar Volume — represents the total dollar volume of funds loaded to our account products from direct deposit and non-direct deposit sources. A substantial portion of our gross dollar volume is generated from direct deposit sources. We use both aggregate gross dollar volume and gross dollar volume from direct deposit sources to analyze the total amount of money moving onto our account programs, determine the overall engagement and usage patterns of our account holder base. These metrics also serve as leading indicators of revenue generated through our Account Services segment products, inclusive of interest income generated on deposits held at Green Dot Bank, fees charged to account holders and interchange revenues generated through the spending of account balances. The increases in gross dollar volume in the aggregate and from direct deposit sources during the year ended December 31, 2020 from the comparable prior year period were principally driven by the increase in the number of direct deposit active accounts and stimulus funds and unemployment benefits received under the CARES Act and additional Economic Impact Payments received at the end of December 2020.
Number of Active Accounts — represents accounts in our portfolio that had a purchase, deposit or ATM withdrawal transaction during the applicable quarter. Any bank account within our Account Services segment that is subject to United States Patriot Act compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits (including without limitation general purpose reloadable prepaid card accounts, demand deposit or checking accounts, and credit cards) qualifies as an account for purposes of this metric. We use both aggregate active accounts and direct deposit active accounts to analyze the overall size of our active customer base and to analyze multiple metrics expressed as an average across this active account base. In particular, we monitor the mix of direct deposit accounts and non-direct deposit accounts. Our direct deposit active accounts, on average, have the longest tenure and generate the majority of our gross dollar volume in any period and thus, generate more revenue over their lifetime than other active accounts. As of December 31, 2020, we experienced an increase on a year-over-year basis in the number of active accounts and direct deposit active accounts of 8% and 15%, respectively, primarily driven by new and existing customers utilizing our platform to receive stimulus funds and unemployment benefits provided for under the CARES Act and the accelerated adoption of digital payments during the pandemic.
Purchase Volume — represents the total dollar volume of purchase transactions made by our account holders. This metric excludes the dollar volume of ATM withdrawals. We use this metric to analyze interchange revenue, which is a key component of our results of operations. The increase in purchase volume of 15.6% during the year ended December 31, 2020, from the comparable prior year period was driven by an increase in Gross Dollar Volume, as described above.
Number of Cash Transfers — represents the total number of cash transfer transactions conducted by consumers, such as a point-of-sale swipe reload transaction, the purchase of a MoneyPak or an e-cash mobile remittance transaction marketed under various brand names, that we conducted through our retail distributors in a specified period. This metric excludes disbursements made through our Simply Paid wage disbursement platform. We review this metric as a measure of the size and scale of our retail cash processing network, as an indicator of customer engagement and usage of our products and services, and to analyze cash transfer revenue, which is a key component of our financial performance. Our cash transfers increased 5.8% during the year ended December 31, 2020 over the comparable prior year period primarily due to an increase in the number of third-party account programs that utilize the Green Dot Network to accept cash reloads. As discussed above, during the fourth quarter of 2020, we experienced a modest decline in the number of cash transfers and the related revenue, as compared to the same period in 2019, as a result of the non-renewal of a reload partner arrangement.
Number of Tax Refunds Processed — represents the total number of tax refunds processed in a specified period. We review this metric as a measure of the size and scale of our tax refund processing platform and as an indicator of consumer engagement and usage of its products and services. The increase in the number of tax refunds processed of 3.1% for the year ended December 31, 2020 from the comparable prior year period was primarily due to an increase in refunds processed through online consumer tax filing software platforms, compared to the prior year period.
Key components of our results of operations
Operating Revenues
We classify our operating revenues into the following four categories:
Card Revenues and Other Fees — Card revenues consist of monthly maintenance fees, ATM fees, new card fees and other revenues. We charge maintenance fees on GPR cards, checking accounts and certain cash transfer products, such as MoneyPak, pursuant to the terms and conditions in our customer agreements. We charge ATM fees to cardholders when they withdraw money at certain ATMs in accordance with the terms and conditions in our cardholder agreements. We charge new card fees, if applicable, when a consumer purchases a GPR card, gift card,
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or a checking account product. Other revenues consist primarily of revenue associated with our gift card program, annual fees associated with our secured credit card portfolio, transaction-based fees, fees associated with optional products or services, and cash-back rewards we offer to cardholders. Our cash-back rewards are recorded as a reduction to card revenues and other fees. Also included in card revenues and other fees are program management fees earned from our BaaS partners for programs we manage on their behalf.
Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active accounts in our portfolio and the average fee assessed per account. Our average monthly maintenance fee per active account depends upon the mix of products in our portfolio at any given point in time and upon the extent to which fees are waived based on various incentives provided to customers in an effort to encourage higher usage and retention. Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction. The average fee per ATM transaction depends upon the mix of products in our portfolio at any given point in time and the extent to which cardholders use ATMs within our free network that carry no fee for cash withdrawal transactions. Our aggregate new card fee revenues vary based upon the number of GPR cards and checking accounts activated and the average new card fee. The average new card fee depends primarily upon the mix of products that we sell since there are variations in new account fees based on the product and/or the location or source where our products are purchased. The revenue we earn from each of these fees may also vary depending upon the channel in which the active accounts were acquired. For example, certain BaaS programs may not assess monthly maintenance fees and as a result, these accounts may generate lower fee revenue than other active accounts. Our aggregate other fees vary primarily based upon account sales of all types, gift card sales, purchase transactions and the number of active accounts in our portfolio.
Processing and Settlement Service Revenues — Processing and settlement service revenues consist of cash transfer revenues, tax refund processing service revenues, Simply Paid disbursement revenues and other tax processing service revenues. We earn cash transfer revenues when consumers fund their cards through a reload transaction at a Green Dot Network retail location. Our aggregate cash transfer revenues vary based upon the mix of locations where reload transactions occur, since reload fees vary by location. We earn tax refund processing service revenues at the point in time when a customer of a third-party tax preparation company chooses to pay his or her tax preparation fee through the use of our tax refund processing services. We earn Simply Paid disbursement fees from our business partners at the point in time payment disbursements are made.
Interchange Revenues — We earn interchange revenues from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, at the point in time when customers make purchase transactions using our products. Our aggregate interchange revenues vary based primarily on the number of active accounts in our portfolio, the average transactional volume of the active accounts in our portfolio and on the mix of cardholder purchases between those using signature identification technologies and those using personal identification numbers and the corresponding rates.
Interest Income, net — Net interest income represents the difference between the interest income earned on our interest-earning assets and the interest expense on our interest-bearing liabilities held at Green Dot Bank. Interest-earning assets include cash from customer deposits, loans, and investment securities. Our interest-bearing liabilities held at Green Dot Bank include interest-bearing deposits. Our net interest income and our net interest margin fluctuate based on changes in the federal funds interest rates and changes in the amount and composition of our interest-bearing assets and liabilities.
Operating Expenses
We classify our operating expenses into the following four categories:
Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the commissions we pay to our retail distributors, brokers and platform partners, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards and promotional materials to our retail distributors and personalized GPR and GoBank cards to consumers who have activated their cards. We generally establish commission percentages in long-term distribution agreements with our retail distributors and platform partners. Aggregate commissions with our retail distributors are determined by the number of account products and cash transfers sold at their respective retail stores. Commissions with our platform partners and, in certain cases, our retail distributors are determined by the revenue generated from the ongoing use of the associated card programs. We incur advertising and marketing expenses for television, sponsorships, online and in-store promotions. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an extended period of time. For this reason, these expenses do not always track changes in our operating revenues. Our manufacturing and distribution costs vary primarily based on the number of GPR and GoBank accounts activated by consumers.
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Compensation and Benefits Expenses — Compensation and benefits expenses represent the compensation and benefits that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations, handle routine customer service inquiries and provide consulting support in the area of IT operations and elsewhere. Compensation and benefits expenses associated with our customer service and loss management functions generally vary in line with the size of our active account portfolio, while the expenses associated with other functions do not.
Processing Expenses — Processing expenses consist primarily of the fees charged to us by the payment networks, which process transactions for us, the third-party card processors that maintain the records of our customers' accounts and process transaction authorizations and postings for us and the third-party banks that issue our accounts. These costs generally vary based on the total number of active accounts in our portfolio and gross dollar volume transacted by those accounts. Also included in processing expenses are bank fees associated with our tax refund processing services and gateway and network fees associated with our Simply Paid disbursement services. Bank fees generally vary based on the total number of tax refund transfers processed and gateway and network fees vary based on the numbers of disbursements made.
Other General and Administrative Expenses — Other general and administrative expenses consist primarily of professional service fees, telephone and communication costs, depreciation and amortization of our property and equipment and intangible assets, changes in contingent consideration, transaction losses (losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and communication costs primarily from customers contacting us through our toll-free telephone numbers. These costs vary with the total number of active accounts in our portfolio, as do losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud. Costs associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
Income Tax Expense
Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting from the sale of our products and services. 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.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, current circumstances and various other assumptions that our management believes to be reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Revenue Recognition
As prescribed under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, we recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services, as determined under a five-step process.
Our new card fee provides our cardholders a material right and accordingly we defer and recognize new card fee revenues on a straight-line basis over the period commensurate with our performance obligation to our customers. We consider the performance obligation period to be the average card lifetime, which is currently less than one year for our GPR cards and gift cards. For GPR cards, average card lifetime is determined based on recent historical data using the period from sale (or activation) of the card through the date of last positive balance. We reassess average card lifetime quarterly for GPR cards and annually for gift cards. Average card
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lifetimes may vary in the future as cardholder behavior changes relative to historical experience because customers are influenced by changes in the pricing of our services, the availability of substitute products, and other factors.
We also defer commissions paid to retail distributors related to new card sales as costs to obtain contracts and expense ratably over the average card lifetime commensurate with our GPR and gift cards.
Transaction prices related to our account services are based on stand-alone fees stated within the terms and conditions and may also include certain elements of variable consideration depending upon the product’s features, such as cash-back rewards and reserves on accounts that may become overdrawn. We estimate such amounts using historical data and customer behavior patterns to determine these estimates which are recorded as a reduction to the corresponding fee revenue. Additionally, while the number of transactions that a cardholder may perform is unknown, any uncertainty is resolved at the end of each daily service contract.
The amount of cash-back rewards on our programs varies based on multiple factors, including the terms and conditions for cardholder eligibility, the redemption amount based on cardholder activity, and the cardholder redemption rates. We accrue our estimated cash-back rewards as a component of other accrued liabilities on our consolidated balance sheets and as a reduction to card revenues and other fees on our consolidated statements of operations. Cash rewards have increased by approximately 123% for the year ended December 31, 2020 compared to the prior year period, as our cash-back programs have grown, principally from our Green Dot Unlimited product launched in the second half of 2019. Increases or decreases in our estimate of cash-back rewards is dependent upon cardholder behavioral changes and we periodically evaluate our estimation process and assumptions based on developments in redemption patterns, dollars redeemed and other cardholder behavioral trends. A relatively small change in any of our assumptions could result in a sizable increase or decrease in the amount of cash-back rewards we accrue. For example, on our Green Dot Unlimited product, a combination of a 1% increase in cardholder eligibility and a $1 increase in the average redemption amount would translate to additional cash rewards of approximately $0.6 million. Differences between actual results and our estimates are adjusted in the period that each cardholder's annual rewards cycle is completed.
Reserve for Uncollectible Overdrawn Accounts
Our cardholder accounts may become overdrawn as a result of maintenance fee assessments or from purchase transactions that we honor, in each case in excess of the funds in the cardholder’s account. While we decline authorization attempts for amounts that exceed the available balance in a cardholder’s account, the application of card association rules, the timing of the settlement of transactions and the assessment of the card’s monthly maintenance fee, among other things, can result in overdrawn accounts. Overdrawn account balances are deemed to be our receivables due from cardholders, and we include them as a component of accounts receivable, net, on our consolidated balance sheets. We generally recover overdrawn account balances from those cardholders that perform a reload transaction. In addition, we recover some overdrawn account balances related to purchase transaction through enforcement of payment network rules, which allow us to recover the amounts from the merchant where the purchase transaction was conducted. However, we are exposed to losses from any unrecovered overdrawn account balances. The probability of recovering these amounts is primarily related to the number of days that have elapsed since an account had activity, such as a purchase, ATM transaction or fee assessment. Generally, we recover 50-60% of overdrawn account balances in accounts that have had activity in the last 30 days, less than 15% in accounts that have had activity in the last 30 to 60 days, and less than 10% when more than 60 days have elapsed.
We establish a reserve for uncollectible overdrawn accounts. We classify overdrawn accounts into age groups based on the number of days since the account last had repayment activity. We then calculate a reserve factor for each age group based on the average recovery rate for the most recent six months discussed above. These factors are applied to these age groups to estimate our overall reserve. We rely on these historical rates because they have remained relatively consistent over time. When more than 90 days have passed without any activity in an account, we consider recovery to be remote and charge off the full amount of the overdrawn account balance against the reserve for uncollectible overdrawn accounts. Our actual recovery rates and related estimates thereof may change in the future in response to factors such as customer behavior, product pricing and features that impact the frequency and velocity of reloads and other deposits to such accounts.
We include our provision for uncollectible overdrawn accounts related to purchase transactions in other general and administrative expenses in 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, Revenue from Contracts with Customers, and are recorded as contra-revenue within card revenues and other fees.
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Goodwill and Intangible Assets
We review the recoverability of goodwill at least annually or whenever significant events or changes occur, which might impair the recovery of recorded costs. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill may not be recoverable include a decline in our stock price and market capitalization, declines in the market conditions of our products, reductions in our future cash flow estimates, and significant adverse industry or economic market trends. We test for impairment of goodwill by first assessing various qualitative factors with respect to developments in our business and the overall economy to determine if it is more likely than not our goodwill is impaired. In the event it is more likely than not the carrying value of our reporting units is greater than its fair value, we calculate the estimated fair value of the reporting unit and record an impairment charge for the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying amount of goodwill. The estimate of fair value requires management to make a number of assumptions and projections, which could include, but would not be limited to, future revenues, earnings and the probability of certain outcomes. We completed our annual goodwill impairment test as of September 30, 2020 and concluded there was no impairment in any of our reporting units.
Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to, the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the underlying assets; and significant adverse industry or market economic trends. In reviewing for impairment, we compare the carrying value of such assets to the estimated undiscounted future net cash flows expected from the use of the assets and their eventual disposition. In the event that the carrying value of assets is determined to be unrecoverable, we would estimate the fair value of the assets and record an impairment charge for the excess of the carrying value over the fair value. The estimate of fair value requires management to make a number of assumptions and projections, which could include, but would not be limited to, future revenues, earnings and the probability of certain outcomes. No impairment charges were recognized related to our intangible assets for the years ended December 31, 2020 and 2019.
Results of Operations
Pursuant to instruction 1 of the instructions to paragraph 303(a) of Regulation S-K, discussion of the results of operations for the fiscal year ended December 31, 2019 to fiscal year ended December 31, 2018 has been omitted. Such omitted discussion can be found under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.
Comparison of Consolidated Results for the Years Ended December 31, 2020 and 2019
Operating Revenues
The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues, interchange revenues and net interest income:
Year Ended December 31,
2020 2019
Amount % of Total
Operating Revenues Amount % of Total
Operating Revenues
(In thousands, except percentages)
Operating revenues:
Card revenues and other fees $ 593,915 47.4 % $ 459,357 41.4 %
Processing and settlement service revenues 293,216 23.4 287,064 25.9
Interchange revenues 351,843 28.0 330,233 29.8
Interest income, net 14,786 1.2 31,941 2.9
Total operating revenues $ 1,253,760 100.0 % $ 1,108,595 100.0 %
Card Revenues and Other Fees — Card revenues and other fees totaled $593.9 million for the year ended December 31, 2020, an increase of $134.5 million, or 29%, from the comparable prior year period. Our card revenues and other fees increased principally as a result of BaaS program management service fee revenues earned from platform partners and to a lesser extent, an increase in monthly maintenance fee assessments as a result of higher account balances that benefited from government stimulus. These increases were offset partially by an increase in estimated cash back rewards that we record as a reduction to card revenues and other fees. Our estimate of cash rewards varies based on multiple factors including the terms and conditions of the cash back
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program, customer activity and customer redemption rates. Cash rewards have increased steadily year-over-year as our cash-back programs have grown, principally from those programs launched in the second half of 2019.
Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $293.2 million for the year ended December 31, 2020, an increase of $6.1 million, or 2%, from the comparable prior year period. This increase was driven primarily by year-over-year growth in transaction volume associated with cash transfers, expanded adoption of our taxpayer advance programs and the introduction of new tax processing services for the year ended December 31, 2020 compared to the prior year period, partially offset by lower Simply Paid disbursement transactions due to the effects of the COVID-19 pandemic on the rideshare industry.
Interchange Revenues — Interchange revenues totaled $351.8 million for the year ended December 31, 2020, an increase of $21.6 million, or 7%, from the comparable prior year period. The increase was primarily due to an increase in purchase volume during the year ended December 31, 2020 compared to the prior year period, which we attribute primarily to stimulus funds and unemployment benefits made available under the CARES Act, partially offset by a decline in the interchange rate earned as a result of an increase in the average dollar amount purchased per transaction.
Interest Income, net — Net interest income totaled $14.8 million for the year ended December 31, 2020, a decrease of $17.1 million, or 54%, from the comparable prior year period. The decrease was principally the result of lower yields on our investment securities portfolio and cash held from customer funds on deposit as a result of rate decreases by the Federal Reserve during the first quarter of 2020.
Operating Expenses
The following table presents a breakdown of our operating expenses among sales and marketing, compensation and benefits, processing, and other general and administrative expenses:
Year Ended December 31,
2020 2019
Amount % of Total
Operating Revenues Amount % of Total
Operating Revenues
(In thousands, except percentages)
Operating expenses:
Sales and marketing expenses $ 415,111 33.1 % $ 386,840 34.9 %
Compensation and benefits expenses 233,155 18.6 198,412 17.9
Processing expenses 293,711 23.4 200,674 18.1
Other general and administrative expenses 281,710 22.5 199,751 18.0
Total operating expenses $ 1,223,687 97.6 % $ 985,677 88.9 %
Sales and Marketing Expenses — Sales and marketing expenses totaled $415.1 million for the year ended December 31, 2020, an increase of $28.3 million, or 7% compared to the year ended December 31, 2019. This increase was primarily driven by an increase in sales commissions associated with higher revenues generated from products that are subject to revenue-sharing agreements. In addition, beginning on January 1, 2020, the sales commission rate we pay for the MoneyCard program increased from the prior agreement. These increases were partially offset by lower advertising expenses as we focused our marketing spending on more efficient channels.
Compensation and Benefits Expenses — Compensation and benefits expenses totaled $233.2 million for the year ended December 31, 2020, an increase of $34.8 million, or 18%, compared to the year ended December 31, 2019. The increase was primarily due to an increase in stock-based compensation expense of approximately $24.1 million, driven primarily by higher achievement of performance-based awards compared to the prior year period and inducement awards issued in connection with several key executive hires during the period. Salaries and wages were also higher by $15.2 million, which was attributable to accrued bonus compensation and increased severance expenses associated with a reorganization of our leadership team. These increases were partially offset by lower employee travel expenses due to COVID-19 related travel restrictions.
Processing Expenses — Processing expenses totaled $293.7 million for the year ended December 31, 2020, an increase of $93.0 million, or 46%, compared to the year ended December 31, 2019. This increase was principally due to growth in BaaS account programs within our Account Services segment and overall volume of transactions processed through our platform.
Other General and Administrative Expenses — Other general and administrative expenses totaled $281.7 million for the year ended December 31, 2020, an increase of $81.9 million, or 41%, from the comparable prior year period. This increase was primarily due to a year-over-year growth in dispute transaction losses and impairment
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charges of long-lived assets, as discussed above in our management overview, and higher depreciation and amortization of property, plant and equipment as a result of growth in capital expenditures in recent years.
Income Tax Expense
The following table presents a breakdown of our effective tax rate among federal, state and other:
Year Ended December 31,
2020 2019
U.S. federal statutory tax rate 21.0 % 21.0 %
State income taxes, net of federal tax benefit (2.0) 0.1
General business credits (10.9) (2.1)
Employee stock-based compensation (7.7) (2.2)
Non-deductible executive compensation 17.2 0.1
Non-deductible penalties 1.1 —
Capital loss valuation allowance release (1.1) —
Other 0.1 0.6
Effective tax rate 17.7 % 17.5 %
Our income tax expense totaled $5.0 million for the year ended December 31, 2020, representing a decrease of $16.2 million from the comparable prior year period. The decrease in income tax expense was primarily driven by the decline in our operating income as our effective tax rate for the year ended December 31, 2020 remained consistent with the prior year comparable period.
The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.
Results of Operations by Segment
Information with respect to the results of operations for each of our reportable segments may be found under Note 24 — Segment Information to the Consolidated Financial Statements included herein, which information is incorporated herein by reference.
Capital Requirements for Bank Holding Companies
Our subsidiary bank, Green Dot Bank, is a member bank of the Federal Reserve System and our primary regulators are the Federal Reserve Board and the Utah Department of Financial Institutions. We and Green Dot Bank are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines, we and Green Dot Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
In July 2013, the Federal Reserve and other U.S. banking regulators approved final rules regarding new risk-based capital, leverage and liquidity standards, known as “Basel III.” The Basel III rules, which became effective for us and our bank on January 1, 2015, are subject to certain phase-in periods that occur over several years. The U.S. Basel III rules contain new capital standards that change the composition of capital, increase minimum capital ratios and strengthen counter-party credit risk capital requirements. The Basel III rules also include a new definition of common equity Tier 1 capital and require that certain levels of such common equity Tier 1 capital be maintained. The rules also include a new capital conservation buffer, which impose a common equity requirement above the new minimum that can be depleted under stress and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances, as well as a new standardized approach for calculating risk-weighted assets. Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%.
As of December 31, 2020 and 2019, we and Green Dot Bank were categorized as "well capitalized" under applicable regulatory standards. To be categorized as "well capitalized," we and Green Dot Bank must maintain specific total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There were no conditions or events since December 31, 2020 which management believes would have changed our category as "well capitalized."
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The definitions associated with the amounts and ratios below are as follows:
Ratio Definition
Tier 1 leverage ratio
Tier 1 capital divided by average total assets
Common equity Tier 1 capital ratio
Common equity Tier 1 capital divided by risk-weighted assets
Tier 1 capital ratio
Tier 1 capital divided by risk-weighted assets
Total risk-based capital ratio
Total capital divided by risk-weighted assets
Terms Definition
Tier 1 capital and
Common equity Tier 1 capital Primarily includes common stock, retained earnings and accumulated OCI, net of deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles. Under the regulatory capital rules, certain deductions and adjustments to these capital figures are phased in through January 1, 2018.
Total capital
Tier 1 capital plus supplemental capital items such as the allowance for loan losses, subject to certain limits
Average total assets
Average total consolidated assets during the period less deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles assets
Risk-weighted assets
Represents the amount of assets or exposure multiplied by the standardized risk weight (%) associated with that type of asset or exposure. The standardized risk weights are prescribed in the bank capital rules and reflect regulatory judgment regarding the riskiness of a type of asset or exposure
The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at December 31, 2020 and 2019, were as follows:
December 31, 2020
Amount Ratio Regulatory Minimum "Well-capitalized" Minimum
(In thousands, except ratios)
Green Dot Corporation:
Tier 1 leverage $ 515,134 17.5 % 4.0 % n/a
Common equity Tier 1 capital $ 515,134 57.8 % 4.5 % n/a
Tier 1 capital $ 515,134 57.8 % 6.0 % 6.0 %
Total risk-based capital $ 518,358 58.2 % 8.0 % 10.0 %
Green Dot Bank:
Tier 1 leverage $ 253,895 10.1 % 4.0 % 5.0 %
Common equity Tier 1 capital $ 253,895 46.1 % 4.5 % 6.5 %
Tier 1 capital $ 253,895 46.1 % 6.0 % 8.0 %
Total risk-based capital $ 254,855 46.3 % 8.0 % 10.0 %
December 31, 2019
Amount Ratio Regulatory Minimum "Well-capitalized" Minimum
(In thousands, except ratios)
Green Dot Corporation:
Tier 1 leverage $ 400,445 22.2 % 4.0 % n/a
Common equity Tier 1 capital $ 400,445 70.5 % 4.5 % n/a
Tier 1 capital $ 400,445 70.5 % 6.0 % 6.0 %
Total risk-based capital $ 404,469 71.2 % 8.0 % 10.0 %
Green Dot Bank:
Tier 1 leverage $ 204,141 13.9 % 4.0 % 5.0 %
Common equity Tier 1 capital $ 204,141 82.8 % 4.5 % 6.5 %
Tier 1 capital $ 204,141 82.8 % 6.0 % 8.0 %
Total risk-based capital $ 205,548 83.4 % 8.0 % 10.0 %
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Liquidity and Capital Resources
The following table summarizes our major sources and uses of cash for the periods presented:
Year Ended December 31,
2020 2019
(In thousands)
Total cash provided by (used in)
Operating activities $ 209,178 $ 189,914
Investing activities (785,832) (153,853)
Financing activities 1,007,201 (65,125)
Increase (decrease) in unrestricted cash, cash equivalents and restricted cash $ 430,547 $ (29,064)
During the years ended December 31, 2020 and 2019 we financed our operations primarily through our cash flows provided by operating activities and customer funds held on deposit. From time to time, we may also finance short term working capital activities through our borrowings under our credit facility. At December 31, 2020, our primary source of liquidity was unrestricted cash and cash equivalents totaling $1.5 billion. We also consider our $971.0 million of investment securities available-for-sale to be highly-liquid instruments.
We use trend and variance analysis as well as our detailed budgets and forecasts to project future cash needs, making adjustments to the projections when needed. We believe that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity under our credit facility will be sufficient to meet our working capital, capital expenditures, equity method investee capital commitments, and any other capital needs for at least the next 12 months. We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. However, if an additional economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions to our subsidiary bank, Green Dot Bank, to maintain its capital, leverage and other financial commitments.
We continue to monitor the impact of COVID-19 on our business to ensure our liquidity and capital resources remain appropriate throughout this period of uncertainty.
Cash Flows from Operating Activities
Our $209.2 million of net cash provided by operating activities in the year ended December 31, 2020 principally resulted from $23.1 million of net income, adjusted for certain non-cash operating expenses of $156.6 million, and an increase in net working capital assets and liabilities of $29.5 million.
Our $189.9 million of net cash provided by operating activities in the year ended December 31, 2019 principally resulted from $99.9 million of net income, adjusted for certain non-cash operating expenses of $125.1 million, and a decrease in net working capital assets and liabilities of $35.1 million, driven principally by changes in accounts receivables and prepaid and other assets.
Cash Flows from Investing Activities
Our $785.8 million of net cash used in investing activities in the year ended December 31, 2020 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $687.8 million, payments for the development and acquisition of property and equipment of $59.0 million and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million. Capital commitment relief recently granted to us by the Federal Reserve on our GPR deposits has provided greater flexibility in how we can utilize our cash and cash equivalents, and as a result, we purchased additional available-for-sale investment securities compared to the prior year.
Our $153.9 million of net cash used in investing activities in the year ended December 31, 2019 primarily reflects payments for the development and acquisition of property and equipment of $78.2 million and purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $73.2 million.
Cash Flows from Financing Activities
Our $1.0 billion of net cash provided by financing activities for the year ended December 31, 2020 was principally the result of a net increase in customer deposits of $1.6 billion, partially offset by a net decrease in obligations to customers of $512.5 million and repayments on our revolving credit facility of $35.0 million. Total
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customer deposit balances have increased substantially as compared to December 31, 2019, driven primarily by stimulus funds and other government benefits received by our cardholders under the CARES Act and the additional economic stimulus package signed into law in December 2020.
Our $65.1 million of net cash used in financing activities for the year ended December 31, 2019 was primarily the result of $100.0 million used for stock repurchases under our stock repurchase program, $60.0 million in repayments of our note payable, a net decrease in obligations to customers of $66.8 million and $21.3 million in taxes paid from net settled equity awards, partially offset by a net increase in customer deposits of $146.1 million and borrowings on our revolving credit facility of $35.0 million.
Other Sources of Liquidity: 2019 Revolving Facility
In October 2019, we entered into a revolving credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit agreement provides for a $100.0 million five-year revolving facility and matures in October 2024. 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 0.50%, (b) the Wells Fargo prime rate, and (c) one-month LIBOR rate plus 1.0% (the “Base Rate"), plus in either case an applicable margin. The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans. During the first quarter of 2020, we drew the maximum amount available of $100.0 million as a precautionary measure due to the uncertainty associated with the COVID-19 pandemic, but have since repaid the entire balance resulting in there being no borrowings outstanding as of December 31, 2020.
We are also subject to certain financial covenants, which include maintaining a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as defined in the agreement. At December 31, 2020, we were in compliance with all such covenants.
Material Cash Requirements
While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate that we will continue to develop and purchase property and equipment as necessary in the normal course of our business. The amount and timing of these payments and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change of computer hardware and software used in our business and our business outlook as a result of the COVID-19 pandemic. We intend to continue to invest in new products and programs we believe are critical, including GO2bank, new features for our existing products and IT infrastructure to scale and operate effectively to meet our strategic objectives. However, we do not expect these capital expenditures will exceed the amount of our capital expenditures in 2020. We expect to fund these capital expenditures primarily through our cash flows provided by operating activities.
We have used cash to acquire businesses and technologies and we anticipate that we may continue to do so in the future. The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.
Additionally, we may make periodic cash contributions to our subsidiary bank, Green Dot Bank, to maintain its capital, leverage and other financial commitments at levels we have agreed to with our regulators. As we noted above, if another economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions to our subsidiary bank to maintain its capital, leverage and other financial commitments.
We also have certain contractual payment obligations, in each case, as described in more detail below.
Contractual Obligations
On January 2, 2020, we effectuated our agreement with Walmart to jointly establish a new fintech accelerator under the name TailFin Labs, LLC, with a mission to develop innovative products, services and technologies that sit at the intersection of retail shopping and consumer 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. See Note 7 - Equity Method Investment of the Notes to our Consolidated Financial Statements for additional information.
In response to our remote employee workforce strategy in the U.S., we have commenced closure of most our leased office locations beginning in 2021. However, we will be required to continue making our contractual payments until our operating leases are formally terminated or expire. Our leases have remaining lease terms of less than 1 year to approximately 5 years, many of which generally include renewal options of varying terms, and as
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of December 31, 2020, we have a total lease liability of $24.6 million. See Note 20 - Leases of the Notes to our Consolidated Financial Statements for additional information regarding our lease liabilities as of December 31, 2020.
Our definitive agreement to acquire all of the equity interests of UniRush provides for a minimum $4 million annual earn-out payment for five years following the closing, ending in February 2022.
In the normal course of business, we enter into various agreements with our vendors and retail distributors that may subject us to minimum annual requirements. While our contractual commitments will have an impact on our future liquidity, we believe that we will be able to adequately fulfill these obligations through cash generated from operations and from our existing cash balances.
Statistical Disclosure by Bank Holding Companies
This section presents information required by the SEC’s Industry Guide 3, “ Statistical Disclosure by Bank Holding Companies .” The tables in this section include Green Dot Bank information only.
Distribution of Assets, Liabilities and Stockholders' Equity
The following table presents average balance data and interest income and expense data for our banking operations, as well as the related interest yields and rates for the years ended December 31, 2020 and 2019 and average balance data for the period ended December 31, 2018:
Year ended December 31, Period ended December 31,
2020 2019 2018
Average
balance Interest income/
interest expense Yield/
rate Average
balance Interest income/
interest expense Yield/
rate Average
balance
(In thousands, except percentages)
Assets
Interest-bearing assets
Loans (1) $ 22,533 $ 2,454 10.9 % $ 23,656 $ 2,050 8.7 % $ 21,742
Taxable investment securities 506,152 7,031 1.4 229,575 6,722 2.9 208,359
Non-taxable investment securities 11,481 278 2.4 399 10 2.5 423
Federal reserve stock 5,473 272 5.0 5,377 273 5.1 3,722
Fee advances 7,775 1,455 18.7 6,301 1,296 20.6 7,641
Cash 1,769,837 5,709 0.3 1,124,979 24,616 2.2 992,138
Total interest-bearing assets 2,323,251 17,199 0.7 % 1,390,287 34,967 2.5 % 1,234,025
Non-interest bearing assets 131,612 255,997 236,254
Total assets $ 2,454,863 $ 1,646,284 $ 1,470,279
Liabilities
Interest-bearing liabilities
Checking accounts $ 9,271 $ 54 0.6 % $ 80,642 $ 1,750 2.2 % $ 75,674
Savings deposits 20,702 273 1.3 23,598 242 1.0 15,244
Time deposits, denominations greater than or equal to $100 4,038 51 1.3 2,234 31 1.4 4,172
Time deposits, denominations less than $100 790 1 0.1 2,105 9 0.4 1,297
Total interest-bearing liabilities 34,801 379 1.1 % 108,579 2,032 1.9 % 96,387
Non-interest bearing liabilities 2,173,578 1,225,023 1,214,396
Total liabilities 2,208,379 1,333,602 1,310,783
Total stockholders' equity 246,484 312,682 159,496
Total liabilities and stockholders' equity $ 2,454,863 $ 1,646,284 $ 1,470,279
Net interest income/yield on earning assets $ 16,820 (0.4) % $ 32,935 0.6 %
___________
(1) Non-performing loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis.
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The following table presents the rate/volume variance in interest income and expense for the year ended December 31, 2020:
December 31, 2020
Total Change in Interest Income/ Expense Change Due to Rate (1) Change Due to Volume (1)
(In thousands)
Loans $ 404 $ 526 $ (122)
Taxable investment securities 309 (3,533) 3,842
Non-taxable investment securities 268 (1) 269
Federal reserve stock (1) (6) 5
Fee advances 159 (116) 275
Cash (18,907) (20,987) 2,080
$ (17,768) $ (24,117) $ 6,349
Checking accounts $ (1,696) $ (1,205) $ (491)
Savings deposits 31 69 (38)
Time deposits, denominations greater than or equal to $100 20 (3) 23
Time deposits, denominations less than $100 (8) (6) (2)
$ (1,653) $ (1,145) $ (508)
___________
(1) The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns.
Investment Portfolio
The following table presents the amortized cost and fair value of Green Dot Bank’s investment portfolio at December 31, 2020, 2019 and 2018:
December 31, 2020 December 31, 2019 December 31, 2018
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(In thousands)
Corporate bonds $ 10,000 $ 10,110 $ 10,000 $ 10,012 $ — $ —
Negotiable certificate of deposit — — — — 15,000 15,000
Agency bond securities 235,839 234,157 19,980 20,000 19,723 19,693
Agency mortgage-backed securities 686,108 691,029 208,821 211,033 87,156 86,813
Municipal bonds 29,977 30,501 4,342 4,342 507 483
Asset-backed securities 4,917 5,172 31,814 32,052 79,274 79,194
Total fixed-income securities $ 966,841 $ 970,969 $ 274,957 $ 277,439 $ 201,660 $ 201,183
The following table shows the scheduled maturities, by amortized cost, and average yields for Green Dot Bank’s investment portfolio at December 31, 2020:
Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total
(In thousands, except percentages)
Corporate bonds $ — $ 10,000 $ — $ — $ 10,000
Agency bond securities — — 190,839 45,000 235,839
Agency mortgage-backed securities — — — 686,108 686,108
Municipal bonds — — — 29,977 29,977
Asset-backed securities — — 4,917 — 4,917
Total fixed-income securities $ — $ 10,000 $ 195,756 $ 761,085 $ 966,841
Weighted-average yield — % 2.47 % 1.16 % 1.03 % 1.07 %
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Deposits
The following table shows Green Dot Bank’s average deposits and the annualized average rate paid on those deposits for the years ended December 31, 2020, 2019, and 2018:
December 31, 2020 December 31, 2019 December 31, 2018
Average Balance Weighted-Average Rate Average Balance Weighted-Average Rate Average Balance Weighted-Average Rate
(In thousands, except percentages)
Interest-bearing deposit accounts
Checking accounts $ 9,271 0.6 % $ 80,642 2.2 % $ 75,674 1.8 %
Savings deposits 20,702 1.3 23,598 1.0 15,244 0.7
Time deposits, denominations greater than or equal to $100 4,038 1.3 2,234 1.4 4,172 0.8
Time deposits, denominations less than $100 790 0.1 2,105 0.4 1,297 0.7
Total interest-bearing deposit accounts 34,801 1.1 % 108,579 1.9 % 96,387 1.6 %
Non-interest bearing deposit accounts 1,898,216 839,657 943,464
Total deposits $ 1,933,017 $ 948,236 $ 1,039,851
The following table shows the scheduled maturities for Green Dot Bank’s time deposits portfolio greater than $100,000 at December 31, 2020:
December 31, 2020
(In thousands)
Less than 3 months $ 416
3 through 6 months 553
6 through 12 months 108
Greater than 12 months 2,690
$ 3,767
Key Financial Ratios
The following table shows certain of Green Dot Bank’s key financial ratios for the years ended December 31, 2020, 2019, and 2018:
December 31, 2020 December 31, 2019 December 31, 2018
Net return on assets 2.0 % 3.4 % 2.3 %
Net return on equity 19.7 17.7 21.0
Equity to assets ratio 10.0 19.0 10.9
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