GREEN DOT CORP 10-K

ITEM 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 49 Report of Independent Registered Public Accounting Firm 50 Consolidated Balance Sheets as of December 31, 2020 and 2019 52 Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018 53 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018 54 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2020, 2019 and 2018 55 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 56 Notes to Consolidated Financial Statements 57 All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto. 48 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Green Dot Corporation Opinion on Internal Control over Financial Reporting We have audited Green Dot Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, Green Dot Corporation (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the 2020 consolidated financial statements of the Company and our report dated February 26, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying report of management on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Los Angeles, California February 26, 2021 49 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Green Dot Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Green Dot Corporation (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition Description of the Matter As discussed in Note 2 and Note 3 of the consolidated financial statements, the Company recorded card revenues and other fees of $593.9 million, interchange revenues of $351.8 million, and processing and settlement services revenues of $293.2 million in operating revenues for the year ended December 31, 2020. Card revenues and other fees consist of monthly maintenance fees, new card fees, ATM fees, and other card revenues, which include revenue associated with the Company’s gift card program. The Company records estimated cash back rewards as a reduction to card revenues and other fees. Processing and settlement services revenues include cash transfer revenues, Simply Paid disbursement revenues, and tax refund processing service revenues. The Company’s revenue recognition differs between each of these discrete revenue streams. The Company recognizes revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for the goods or services. 50 Table of Contents Auditing card revenues and other fees, interchange revenues, and cash transfer revenues was complex due to the high aggregate dollar value and large volume of revenue-generating transactions, the number of contracts involved with each revenue stream, the number of systems and processes involved in the processing of such transactions, including third-party service organizations, and the judgment required by management in estimating the average card lifetime used to recognize new card fees and estimating the cash back rewards included in card revenues and other fees. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s processes, systems and controls related to the recognition of card revenues and other fees, interchange revenues, and cash transfer revenues, including, among others, controls related to management’s assessment of when control of goods and services is transferred to customers, the Company’s use of relevant third-party service organizations, and management’s review of significant assumptions and underlying data used to estimate the average card lifetime and the cash back rewards. Our audit procedures included, among others, assessing a sample of contracts to determine whether terms that may impact revenue recognition were identified and properly considered in the Company’s evaluation of the accounting for the contracts, calculating revenue per transaction based upon the card revenues and other fees, interchange revenues, and cash transfer revenues recognized and relevant non-financial metrics for each revenue stream (e.g., purchase volumes and number of card activations) and comparing the revenue per transaction for each revenue stream to historical trends and expectations based on contractual rates and historical data. We tested revenue transaction details on a sample basis for certain card revenues and other fees by agreeing such revenues and fees to third party supporting documentation. In addition, we tested the methodology and significant assumptions and underlying data used in management’s estimate of the average card lifetime by comparing the assumptions and data to the Company’s historical data involving the period from activation of the card through the date of last positive balance. We tested the methodology and significant assumptions and underlying data used in management’s estimate of the cash back rewards by comparing the customer activity and customer redemption rates to comparable peer trends and the Company’s historical reward data. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2005. Los Angeles, California February 26, 2021 51 Table of Contents GREEN DOT CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 Assets (In thousands, except par value) Current assets: Unrestricted cash and cash equivalents $ 1,491,842 $ 1,063,426 Restricted cash 4,859 2,728 Investment securities available-for-sale, at fair value — 10,020 Settlement assets 782,262 239,222 Accounts receivable, net 67,755 59,543 Prepaid expenses and other assets 66,705 66,183 Income tax receivable — 870 Total current assets 2,413,423 1,441,992 Investment securities available-for-sale, at fair value 970,969 267,419 Loans to bank customers, net of allowance for loan losses of $ 757 and $ 1,166 as of December 31, 2020 and 2019, respectively 21,011 21,417 Prepaid expenses and other assets 40,481 10,991 Property, equipment, and internal-use software, net 133,400 145,476 Operating lease right-of-use assets 13,134 26,373 Deferred expenses 18,332 16,891 Net deferred tax assets 12,739 9,037 Goodwill and intangible assets 491,778 520,994 Total assets $ 4,115,267 $ 2,460,590 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 34,823 $ 37,876 Deposits 2,735,116 1,175,341 Obligations to customers 95,375 69,377 Settlement obligations 17,759 13,251 Amounts due to card issuing banks for overdrawn accounts 235 380 Other accrued liabilities 145,359 107,842 Operating lease liabilities 8,175 8,764 Deferred revenue 28,584 28,355 Income tax payable 12,146 3,948 Total current liabilities 3,077,572 1,445,134 Other accrued liabilities 4,275 10,883 Operating lease liabilities 16,396 24,445 Line of credit — 35,000 Net deferred tax liabilities 7,192 17,772 Total liabilities 3,105,435 1,533,234 Commitments and contingencies (Note 21) Stockholders’ equity: Class A common stock, $ 0.001 par value; 100,000 shares authorized as of December 31, 2020 and 2019; 54,034 and 51,807 shares issued and outstanding as of December 31, 2020 and 2019, respectively 54 52 Additional paid-in capital 354,460 296,224 Retained earnings 651,890 629,040 Accumulated other comprehensive income 3,428 2,040 Total stockholders’ equity 1,009,832 927,356 Total liabilities and stockholders’ equity $ 4,115,267 $ 2,460,590 See notes to consolidated financial statements 52 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2020 2019 2018 (In thousands, except per share data) Operating revenues: Card revenues and other fees $ 593,915 $ 459,357 $ 482,881 Processing and settlement service revenues 293,216 287,064 247,958 Interchange revenues 351,843 330,233 310,919 Interest income, net 14,786 31,941 23,817 Total operating revenues 1,253,760 1,108,595 1,065,575 Operating expenses: Sales and marketing expenses 415,111 386,840 326,333 Compensation and benefits expenses 233,155 198,412 221,627 Processing expenses 293,711 200,674 181,160 Other general and administrative expenses 281,710 199,751 206,040 Total operating expenses 1,223,687 985,677 935,160 Operating income 30,073 122,918 130,415 Interest expense, net 761 1,864 5,046 Other (expense) income, net ( 1,217 ) 27 ( 1,552 ) Income before income taxes 28,095 121,081 123,817 Income tax expense 4,964 21,184 5,114 Net income $ 23,131 $ 99,897 $ 118,703 Basic earnings per common share: $ 0.43 $ 1.91 $ 2.27 Diluted earnings per common share: $ 0.42 $ 1.88 $ 2.18 Basic weighted-average common shares issued and outstanding: 52,438 52,195 52,222 Diluted weighted-average common shares issued and outstanding: 53,685 53,138 54,481 See notes to consolidated financial statements 53 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2020 2019 2018 (In thousands) Net income $ 23,131 $ 99,897 $ 118,703 Other comprehensive income Unrealized holding gain, net of tax 1,388 2,177 593 Comprehensive income $ 24,519 $ 102,074 $ 119,296 See notes to consolidated financial statements 54 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 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, 2017 51,136 $ 51 $ 354,789 $ 410,440 $ ( 730 ) $ 764,550 Common stock issued under stock plans, net of withholdings and related tax effects 1,781 2 ( 24,129 ) — — ( 24,127 ) Stock-based compensation — — 50,093 — — 50,093 Net income — — — 118,703 — 118,703 Other comprehensive income — — — — 593 593 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 962 1 ( 14,114 ) — — ( 14,113 ) Stock-based compensation — — 29,583 — — 29,583 Repurchases of Class A common stock ( 2,072 ) ( 2 ) ( 99,998 ) — — ( 100,000 ) Net income — — — 99,897 — 99,897 Other comprehensive income — — — — 2,177 2,177 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 1,252 1 4,543 — — 4,544 Stock-based compensation — — 53,694 — — 53,694 Walmart restricted shares 975 1 ( 1 ) — — — Net income — — — 23,131 — 23,131 Other comprehensive income — — — — 1,388 1,388 Cumulative effect adjustment for adoption of ASU No. 2016-13 (CECL) — — — ( 281 ) — ( 281 ) Balance at December 31, 2020 54,034 $ 54 $ 354,460 $ 651,890 $ 3,428 $ 1,009,832 See notes to consolidated financial statements 55 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 2018 (In thousands) Operating activities Net income $ 23,131 $ 99,897 $ 118,703 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment and internal-use software 58,005 49,489 38,581 Amortization of intangible assets 28,119 32,616 32,761 Provision for uncollectible overdrawn accounts from purchase transactions 7,684 6,641 12,442 Stock-based compensation 53,694 29,583 50,093 Losses in equity method investments 6,290 — — Realized gain on sale of available-for-sale investment securities ( 5,073 ) — — Amortization of premium (discount) on available-for-sale investment securities 999 ( 117 ) 1,042 Change in fair value of contingent consideration — ( 1,866 ) 3,298 Amortization of deferred financing costs 169 1,334 1,594 Impairment of long-lived assets 21,719 578 922 Deferred income tax (benefit) expense ( 15,003 ) 6,876 ( 234 ) Changes in operating assets and liabilities: Accounts receivable, net ( 16,177 ) ( 25,242 ) ( 18,107 ) Prepaid expenses and other assets 980 ( 12,032 ) ( 9,930 ) Deferred expenses ( 1,441 ) 4,310 590 Accounts payable and other accrued liabilities 37,640 ( 8,145 ) 12,471 Deferred revenue 576 ( 6,711 ) 4,675 Income tax receivable/payable 9,531 11,682 ( 1,253 ) Other, net ( 1,665 ) 1,021 3,403 Net cash provided by operating activities 209,178 189,914 251,051 Investing activities Purchases of available-for-sale investment securities ( 994,428 ) ( 189,066 ) ( 186,884 ) Proceeds from maturities of available-for-sale securities 107,723 110,971 60,449 Proceeds from sales of available-for-sale securities 198,895 4,915 78,385 Payments for acquisition of property and equipment ( 59,035 ) ( 78,214 ) ( 61,030 ) Net changes in loans ( 453 ) ( 2,459 ) ( 5,887 ) Investment in TailFin Labs, LLC ( 35,000 ) — — Other ( 3,534 ) — — Net cash used in investing activities ( 785,832 ) ( 153,853 ) ( 114,967 ) Financing activities Repayments of borrowings from notes payable — ( 60,000 ) ( 22,500 ) Borrowings on revolving line of credit 100,000 35,000 — Repayments on revolving line of credit ( 135,000 ) — — Proceeds from exercise of options and ESPP purchases 16,997 7,226 21,880 Taxes paid related to net share settlement of equity awards ( 12,453 ) ( 21,338 ) ( 46,007 ) Net changes in deposits 1,554,191 146,100 ( 16,733 ) Net changes in settlement assets and obligations to customers ( 512,534 ) ( 66,760 ) 17,255 Contingent consideration payments ( 4,000 ) ( 4,634 ) ( 4,856 ) Repurchase of Class A common stock — ( 100,000 ) — Deferred financing costs — ( 719 ) — Net cash provided by (used in) financing activities 1,007,201 ( 65,125 ) ( 50,961 ) Net increase (decrease) in unrestricted cash, cash equivalents and restricted cash 430,547 ( 29,064 ) 85,123 Unrestricted cash, cash equivalents and restricted cash, beginning of period 1,066,154 1,095,218 1,010,095 Unrestricted cash, cash equivalents and restricted cash, end of period $ 1,496,701 $ 1,066,154 $ 1,095,218 Cash paid for interest $ 926 $ 2,452 $ 4,888 Cash paid for income taxes $ 10,618 $ 1,921 $ 6,233 Reconciliation of unrestricted cash, cash equivalents and restricted cash at end of period: Unrestricted cash and cash equivalents $ 1,491,842 $ 1,063,426 $ 1,094,728 Restricted cash 4,859 2,728 490 Total unrestricted cash, cash equivalents and restricted cash, end of period $ 1,496,701 $ 1,066,154 $ 1,095,218 See notes to consolidated financial statements 56 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1— Organization Green Dot Corporation (“we,” “our,” or “us” refer to Green Dot Corporation and its consolidated subsidiaries) 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, tax refunds, cash deposits and disbursements. 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. Note 2— Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation Our consolidated financial statements include the results of Green Dot Corporation and our wholly-owned subsidiaries. We prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. We eliminate all significant intercompany balances and transactions on consolidation. We include the results of operations of acquired companies from the date of acquisition. Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. 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 December 31, 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. Unrestricted Cash and Cash Equivalents We consider all unrestricted highly liquid investments with an original maturity of three months or less to be unrestricted cash and cash equivalents. Investment Securities Our investment portfolio is primarily comprised of fixed income securities. We classify these securities as available-for-sale and report them at fair value with the related unrealized gains and losses, net of tax, included in accumulated other comprehensive income or loss, unless credit related. We establish an allowance for credit losses limited by the amount that the fair value of the investment is less than its amortized cost. If the impairment of the investment security is credit-related, the impairment is recorded in earnings with any subsequent improvements in credit recognized through a reversal of the allowance established. Non-credit related impairment is recorded in accumulated other comprehensive income or loss, a component of stockholders' equity. We classify investment securities with maturities less than or equal to 365 days as current assets. We regularly evaluate each fixed income security where the value has declined below amortized cost to assess whether the decline in fair value is credit or non-credit related. In determining whether an impairment is credit related or not, we consider the extent of the decline in fair value compared to the security's amortized cost, the presence of adverse conditions such as the financial condition of the issuer, the payment structure of the security, credit rating changes and other qualitative factors, as well as whether we either plan to sell the security or it is more likely-than-not that we will be required to sell the security before recovery of its amortized cost. If we intend to sell an investment security or believe we will more-likely-than-not be required to sell a security, we record the full amount of the impairment in earnings. 57 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) Interest on fixed income securities, including amortization of premiums and accretion of discounts, is included in interest income. Obligations to Customers and Settlement Assets and Obligations At the point of sale, our retail distributors collect customer funds for purchases of new cards and balance reloads and then remit these funds directly to the banks that issue our cards. Our retail distributors’ remittance of these funds takes an average of two business days. Settlement assets represent the amounts due from our retail distributors and other partners for customer funds collected at the point of sale that have not yet been received by our subsidiary bank. Also included in this balance are payroll amounts funded in advance (up to two days early) to certain cardholders who are eligible to participate in our early direct deposit programs. Obligations to customers represent customer funds collected from (or to be remitted by) our retail distributors for which the underlying products have not been activated. Once the underlying products have been activated, the customer funds are reclassified as deposits in a bank account established for the benefit of the customer. Settlement obligations represent the customer funds received by our subsidiary bank that are due to third-party card issuing banks upon activation. Accounts Receivable, net Accounts receivable is comprised principally of trade accounts receivable, receivables due from card issuing banks, overdrawn account balances due from cardholders, fee advances and other receivables. We record accounts receivable net of reserves for estimated uncollectible accounts. Receivables due from card issuing banks primarily represent revenue-related funds held at the third-party card issuing banks related to our network branded programs that have yet to be remitted to us. These receivables are generally collected within a short period of time based on the remittance terms in our agreements with the third-party card issuing banks. Fee advances represent short-term advances to in-person tax return preparation companies made prior to and during tax season. These advances are collateralized by their clients' tax preparation fees and are generally collected within a short period of time as the in-person tax preparation companies begin preparing and processing their clients' tax refunds. Overdrawn Account Balances Due from Cardholders and 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 excess of the funds in a cardholder’s account. We are exposed to losses from any unrecovered overdrawn account balances. Reserves for overdrawn account balances from purchase transactions 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, Revenue from Contracts with Customers, and are recorded as contra-revenue within card revenues and other fees. We classify overdrawn accounts from purchase transactions into age groups based on the number of days that have elapsed since an account last had activity, such as a purchase, ATM transaction or fee assessment. We calculate a reserve factor for each age group based on the average recovery rate for the most recent six months . These factors are applied to these age groups to estimate our overall expected loss reserve. When more than 90 days have passed without activity in an account, we write off the full amount of the overdrawn account balance. Restricted Cash As of December 31, 2020 and 2019, restricted cash amounted to $ 4.9 million and $ 2.7 million, respectively. Restricted cash principally relates to pre-funding obligations for cardholder accounts at third-party issuing banks. 58 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) Loans to Bank Customers We report loans measured at historical cost at their outstanding principal balances, net of any charge-offs, and for purchased loans, net of any unaccreted discounts. We recognize interest income as it is earned. Nonperforming Loans Nonperforming loans generally include loans that have been placed on nonaccrual status. We generally place loans and secured credit cards on nonaccrual status when they are past due 90 days or more. We reverse the related accrued interest receivable and apply interest collections on nonaccrual loans as principal reductions; otherwise, we credit such collections to interest income when received. These loans may be restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected. For our secured credit card portfolio, when an account is past due 90 days, collateral deposits are applied against outstanding credit card balances. Any balance, inclusive of principal and interest in excess of the collateral balance is charged off at 180 days. We consider a loan to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once we determine a loan to be impaired, we measure the impairment based on the present value of the expected future cash flows discounted at the loan's effective interest rate. We may also measure impairment based on observable market prices, or for loans that are solely dependent on the collateral for repayment, the estimated fair value of the collateral less estimated costs to sell. If the recorded investment in impaired loans exceeds this amount, we establish a specific allowance as a component of the allowance for loan losses or by adjusting an existing valuation allowance for the impaired loan. Allowance for Credit Losses We establish an allowance for estimated credit losses inherent in our loan portfolio over the life of the loans, including our secured credit cards. For each portfolio of loans, our estimate of expected losses is separately calculated on an aggregated basis for pools of loans that exhibit similar credit characteristics and risk of loss. We analyze historical loss rates for these groups to determine a loss rate for each group of loans, and consider if adjustments are needed for current conditions, and other reasonable and supportable forecasts beyond our balance sheet date that may differ from historical results. We also consider adjustments based on qualitative factors which in our judgment may affect the expected credit losses. Qualitative considerations include, but are not limited to, changes in prevailing economic or market conditions, the loan grading and underwriting process, the borrower's credit rating or credit score, the estimated value of the underlying collateral for collateral dependent loans, the volume and severity of delinquent and nonaccrual loans, problem loan trends, legal and regulatory requirements, collection and lending practices, and geographic or other concentrations of credit risk. We separately establish specific allowances for impaired loans based on the present value of changes in cash flows expected to be collected, or for impaired loans that are considered collateral dependent, the estimated fair value of the collateral less estimated costs to sell, if any. Property and Equipment We carry our property and equipment at cost less accumulated depreciation and amortization. We generally compute depreciation on property and equipment using the straight-line method over the estimated useful lives of the assets, except for land, which is not depreciated. We generally compute amortization on tenant improvements using the straight-line method over the shorter of the related lease term or estimated useful lives of the improvements. We expense expenditures for maintenance and repairs as incurred. We capitalize certain internal and external costs incurred to develop internal-use software during the application development stage. We also capitalize the cost of specified upgrades and enhancements to internal-use software that result in additional functionality. Once a development project is substantially complete and the software is ready for its intended use, we begin depreciating these costs on a straight-line basis over the internal-use software’s estimated useful life. 59 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) The estimated useful lives of the respective classes of assets are as follows: Land N/A Building 30 years Computer equipment, furniture and office equipment 3 - 10 years Computer software purchased 3 years Capitalized internal-use software 3 - 7 years Tenant improvements Shorter of the useful life or the lease term Leases We determine if an arrangement is or contains a lease at inception of the agreement. 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 generally 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 exclude all leases with an initial term of 12 months or less under the short term lease exemption. We have 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. Impairment of Long-Lived Assets We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of expected undiscounted future cash flows from an asset is less than the carrying amount of the asset, we estimate the fair value of the assets. We measure the loss as the amount by which the carrying amount exceeds its fair value calculated using the present value of estimated net future cash flows. We recorded total impairment charges of $ 21.7 million , $ 0.6 million and $ 0.9 million for the years ended December 31, 2020 , 2019 and 2018, respectively. Impairment charges for the year ended December 31, 2020 were principally associated with capitalized internal-use software, and our operating lease right-of-use assets and other tenant improvements we determined to no longer be utilized as a result of our remote workforce strategy. These impairment charges are included in other general and administrative expenses in our consolidated statements of operations. Goodwill and Intangible Assets Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. A reporting unit, as defined under applicable accounting guidance, is an operating segment or one level below an operating segment, referred to as a component. We first assess qualitative factors to determine whether it is more likely-than-not (i.e., a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value. This step serves as the basis for determining whether it is necessary to perform the quantitative impairment test. If it is more likely-than-not goodwill is impaired, a quantitative impairment test compares the estimated fair value of each reporting unit to its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired; however, if the carrying amount of the reporting unit exceeds its estimated fair value, the difference is recorded as an impairment loss directly to goodwill. We may in any given period bypass the qualitative assessment and proceed directly to a quantitative method to assess and measure impairment of the reporting unit's goodwill. 60 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) For intangible assets subject to amortization, we recognize an impairment loss if the carrying amount of the intangible asset is not recoverable and exceeds its estimated fair value. The carrying amount of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. No impairment charges were recognized related to goodwill or intangible assets for the years ended December 31, 2020, 2019 and 2018. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, which is our best estimate of the pattern of economic benefit, based on legal, contractual, and other provisions. The estimated useful lives of the intangible assets, which consist primarily of customer relationships and trade names, range from 3 - 15 years. Amounts Due to Card Issuing Banks for Overdrawn Accounts Third-party card issuing banks fund overdrawn cardholder account balances on our behalf. Amounts funded are due from us to the card issuing banks based on terms specified in the agreements with the card issuing banks. Generally, we expect to settle these obligations within two months . Fair Value Under applicable accounting guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. As such, fair value reflects an exit price 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. The following describes the three-level hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities with quoted prices that are traded less frequently than exchange-traded instruments. This category generally includes U.S. government and agency mortgage-backed fixed income securities and corporate fixed income securities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the overall fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments for which the determination of fair value requires significant management judgment or estimation. The fair value for such assets and liabilities is generally determined using pricing models, market comparables, discounted cash flow methodologies or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. This category generally includes certain private equity investments and certain asset-backed securities. Revenue Recognition Our operating revenues consist of card revenues and other fees, processing and settlement service revenues and interchange revenues. The core principle of the revenue standard is that these revenues will be recognized 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. 61 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) A description of our principal revenue generating activities is as follows: Card Revenues and Other Fees Card revenues and other fees consist of monthly maintenance fees, new card fees, ATM fees, and other card revenues. We earn these fees based upon the underlying terms and conditions with each of our cardholders that obligate us to stand ready to provide account services to each of our cardholders over the contract term. Agreements with our cardholders are considered daily service contracts as they are not fixed in duration. Also included in card revenues and other fees are program management service fees earned from our BaaS partners for cardholder programs we manage on their behalf. We charge maintenance fees on a monthly basis pursuant to the terms and conditions in the applicable cardholder agreements. We recognize monthly maintenance fees ratably over each day in the monthly bill cycle in which the fee is assessed, which represents the period our cardholders receive the benefits of our services and our performance obligation is satisfied. We charge new card fees when a consumer purchases a new card in a retail store. The 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 our 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 for GPR cards quarterly and gift cards annually. We report the unearned portion of new card fees as a component of deferred revenue in our consolidated balance sheets. See Contract Balances discussed in Note 3 — Revenues , for further information. 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 recognize ATM fees when the withdrawal is made by the cardholder, which is the point in time our performance obligation is satisfied and service is performed. Since our cardholder agreements are considered daily service contracts, our performance obligations for these types of transactional based fees are satisfied on a daily basis, or as each transaction occurs. Other revenues consist primarily of revenue associated with our gift card program, transaction-based fees and fees associated with optional products or services, which we offer our cardholders at their election. Since our performance obligations are settled daily, we recognize most of these fees at the point in time the transactions occur which is when the underlying performance obligation is satisfied. In the case of our gift card program, we record the related revenues using the redemption method. We also offer cash-back rewards to cardholders on certain programs. The amount of these cash rewards 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. Substantially all our fees are collected from our cardholders at the time the fees are assessed and debited from their account balance. Program management fees from our BaaS partners are generally earned over time on a monthly basis, pursuant to the terms of each program management agreement. Our agreements are generally multi-year arrangements of varying lengths. We recognize these fees as our program management services are rendered each month. Processing and Settlement Service Revenues Our processing and settlement services consist of cash transfer revenues, Simply Paid disbursement revenues, and tax refund processing service revenues. We generate cash transfer revenues when consumers purchase our cash transfer products (reload services) in a retail store. Our reload services are subject to the same terms and conditions in each of the applicable cardholder agreements as discussed above. We recognize these revenues at the point in time the reload services are completed. Similarly, we earn Simply Paid disbursement fees from our business partners as payment disbursements are made. 62 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) We earn tax refund processing service revenues when a customer of a third-party tax preparation company chooses to pay their tax preparation fee through the use of our tax refund processing services. Revenues we earn from these services are generated from our contractual relationships with the tax software transmitters. These contracts may be multi-year agreements and vary in length, however, our underlying promise obligates us to process each refund transfer on a transaction by transaction basis as elected by the taxpayer. Accordingly, we recognize tax refund processing service revenues at the point in time we satisfy our performance obligation by remitting each taxpayer’s proceeds from his or her tax return. Interchange We earn interchange revenues from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, such as Visa and MasterCard, when account holders make purchase transactions using our card products and services. We recognize interchange revenues at the point in time the transactions occur, as our performance obligation is satisfied. Principal vs Agent For all our significant revenue-generating arrangements, we record revenues on a gross basis except for our tax refund processing service revenues which are recorded on a net basis. Sales and Marketing Expenses Sales and marketing expenses primarily consist of sales commissions, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards, promotional materials to our retail distributors’ locations and personalized GPR cards to consumers who have activated their cards. We pay our retail distributors, and brokers' commissions based on sales of our prepaid debit cards and cash transfer products in their stores. We defer and expense commissions related to new cards sales ratably over the average card lifetime, which is currently less than one year for our retail GPR and gift cards. Absent a new card fee, we recognize the cost of the related commissions immediately. We recognize the cost of commissions related to cash transfer products when the cash transfer transactions are completed. We recognize costs for the production of advertising as incurred. The cost of media advertising is recorded when the advertising first takes place. We record the costs associated with card packages and placards as prepaid expenses, and we record the costs associated with personalized GPR cards as deferred expenses. We recognize the prepaid cost of card packages and placards over the related sales period, and we amortize the deferred cost of personalized GPR cards, when activated, over the average card lifetime. Included in sales and marketing expenses are advertising and marketing expenses of $ 37.5 million, $ 51.1 million and $ 23.2 million and shipping and handling costs of $ 1.5 million, $ 1.5 million and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. Also included in sales and marketing expenses are use taxes to various states related to purchases of materials since we do not charge sales tax to customers when new cards or cash transfer transactions are purchased. Stock-Based Compensation We record employee stock-based compensation expense based on the grant-date fair value of the award. For stock options and stock purchases under our employee stock purchase plan, or ESPP, we base compensation expense on fair values estimated at the grant date using the Black-Scholes option-pricing model. For stock awards, including restricted stock units, we base compensation expense on the fair value of our common stock at the grant date. We recognize compensation expense for awards with only service conditions that have graded vesting schedules on a straight-line basis over the vesting period of the award. Vesting is based upon continued service to our company and we account for any forfeitures as they occur. We have issued performance-based restricted stock units to our executive officers and employees that are subject to performance conditions, market conditions, or a combination thereof. For awards subject to performance conditions, we determine the grant-date fair value of the stock and recognize compensation cost for the restricted stock units if and when we conclude it is probable that the performance metrics will be satisfied, over the requisite service period. The grant-date fair value of the awards are not subsequently remeasured, however, we reassess the probability of vesting at each reporting period and record a cumulative adjustment to compensation expense based on the likelihood the performance metrics will be achieved. For awards with market conditions, we base compensation expense on the fair value estimated at the date of grant using a Monte Carlo simulation or similar 63 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) lattice model. We recognize compensation expense over the requisite service period regardless of the market condition being satisfied, provided that the requisite service has been rendered, since the estimated grant date fair value incorporates the probability of outcomes that the market condition will be achieved. Under our retirement policy, any service-based requirement for unvested stock awards held by a retirement 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 is adjusted accordingly based on expected achievement. We measure the fair value of equity instruments issued to non-employees based on the grant-date fair value, and recognize the related expense in the same periods that the goods or services are received. Income Taxes Our income tax expense is comprised of current and deferred income tax expense. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from the changes in deferred tax assets and liabilities during the periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in our consolidated financial statements. We also recognize deferred tax assets for tax attributes such as net operating loss carryforwards and tax credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts we conclude are more likely-than-not to be realized in the foreseeable future. We recognize and measure income tax benefits based upon a two-step model: 1) a tax position must be more likely-than-not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more likely-than-not to be sustained upon settlement. The difference between the benefit recognized for a position and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. We accrue income tax related interest and penalties, if applicable, within income tax expense. Earnings Per Common Share We apply the two-class method in calculating earnings per common share, or EPS, because we have certain unvested restricted shares outstanding that are entitled to participate with our common stockholders in the distributions of earnings based on their dividend rights. The two-class method requires net income to be allocated between each class or series of common stock and other participating securities based on their respective rights to receive dividends, whether or not declared. Basic EPS is then calculated by dividing net income allocated to each class of common stockholders by the respective weighted-average common shares issued and outstanding. Diluted EPS is calculated by dividing adjusted net income for each class of common stock by the respective weighted-average number of the common shares issued and outstanding for each period plus amounts representing the dilutive effect of outstanding stock options, restricted stock units (including performance based restricted stock units), shares to be purchased under our employee stock purchase plan and participating unvested restricted shares. We calculate dilutive potential common shares using the treasury stock method and the two-class method, as applicable. We exclude the effects of such equity instruments from the computation of diluted EPS in periods in which the effect would be anti-dilutive. Additionally, we exclude any performance-based restricted stock units and performance-based stock options for which the performance contingency has not been met as of the end of the period. Regulatory Matters and Capital Adequacy As a bank holding company, we are subject to comprehensive supervision and examination by the Federal Reserve Board and must comply with applicable regulations, including minimum capital and leverage requirements. If we fail to comply with any of these requirements, we may become subject to formal or informal enforcement actions, proceedings, or investigations, which could result in regulatory orders, restrictions on our business operations or requirements to take corrective actions, which may, individually or in the aggregate, affect our results of operations and restrict our ability to grow. If we fail to comply with the applicable capital and leverage 64 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) requirements, or if our subsidiary bank fails to comply with its applicable capital and leverage requirements, the Federal Reserve Board may limit our or Green Dot Bank's ability to pay dividends. In addition, as a bank holding company and a financial holding company, we are generally prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies and financial holding companies. This restriction might limit our ability to pursue future business opportunities which we might otherwise consider but which might fall outside the scope of permissible activities. We may also be required to serve as a “source of strength” to Green Dot Bank if it becomes less than adequately capitalized. Recent Accounting Pronouncements Recently issued accounting pronouncements not yet adopted ASU No. 2020-06 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. ASU No. 2020-04 In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) ("ASU 2020-04"), which provides optional expedients and exceptions to GAAP requirements for modifications of debt instruments, leases, derivatives and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The guidance permits entities to treat such modifications as the continuation of the original contract, without any required accounting reassessments or remeasurements. The amendments in ASU 2020-04 were effective upon issuance and may be elected over time through December 31, 2022, as reference rate reform activities occur. Upon adoption, the guidance must be applied prospectively for all eligible contract modifications. We continue to monitor the impact of ASU 2020-04 as reference rate reform continues to develop, however, do not expect any material impact on our consolidated financial statements as our revolving line of credit is based on variable rates available that we elect at the time of borrowing. See Note 11 - Debt, to these consolidated financial statements for additional information. Recently adopted accounting pronouncements ASU No. 2019-12 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 adopted ASU 2019-12 on January 1, 2021, the results of which did not have a material impact on our consolidated financial statements. ASU No. 2016-13 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 eliminated the probable incurred loss recognition model under GAAP and introduced 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 ASU also expanded the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. 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 65 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) 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. ASU No. 2017-14 In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other ("ASU 2017-04"): Simplifying the Test for Goodwill Impairment, which simplified 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. 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. 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: Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Account Services Processing and Settlement Services Account Services Processing and Settlement Services Account Services Processing and Settlement Services Timing of recognition (In thousands) Transferred point in time $ 482,553 $ 293,216 $ 489,696 $ 287,052 $ 500,629 $ 247,942 Transferred over time 458,543 4,662 293,500 6,406 289,714 3,473 Operating revenues (1) $ 941,096 $ 297,878 $ 783,196 $ 293,458 $ 790,343 $ 251,415 (1) Excludes net interest income, a component of total operating revenues, as it remains outside the scope of ASC 606, Revenues Within our Account Services segment, revenues recognized at a point in time are comprised of ATM fees, interchange, and other similar transaction-based fees. Revenues recognized over time consists 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 24 — 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. Significant Judgments and Estimates Transaction prices related to our account cardholder 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. 66 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 3—Revenues (continued) 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 $ 25.9 million, $ 31.8 million and $ 28.7 million for the years ended December 31, 2020, 2019, and 2018, or substantially all of the amount of contract liabilities included in deferred revenue at the beginning of the respective 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. Costs to Obtain or Fulfill a Contract Our incremental direct costs of obtaining a contract consist primarily of revenue share payments we make to our retail partners associated with new card sales. These commissions are generally capitalized upon payment and expensed over the period the corresponding revenue is recognized. These deferred commissions are not material and are included in deferred expenses on our consolidated balance sheets. Practical Expedients and Exemptions Any unsatisfied performance obligations at the end of the period relate to contracts with customers that either have an original expected length of one year or less or are contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. Therefore, no additional disclosure is provided for these performance obligations. 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) December 31, 2020 Corporate bonds $ 10,000 $ 110 $ — $ 10,110 Agency bond securities 235,839 31 ( 1,713 ) 234,157 Agency mortgage-backed securities 686,108 5,258 ( 337 ) 691,029 Municipal bonds 29,977 524 — 30,501 Asset-backed securities 4,917 255 — 5,172 Total investment securities $ 966,841 $ 6,178 $ ( 2,050 ) $ 970,969 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 67 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 4—Investment Securities (continued) As of December 31, 2020 and 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) December 31, 2020 Agency bond securities $ 189,127 $ ( 1,713 ) $ — $ — $ 189,127 $ ( 1,713 ) Agency mortgage-backed securities 162,579 ( 337 ) — — 162,579 ( 337 ) Total investment securities $ 351,706 $ ( 2,050 ) $ — $ — $ 351,706 $ ( 2,050 ) 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 years ended December 31, 2020 or 2019 on our available-for-sale investment securities. As of December 31, 2020, we have performed an evaluation of our allowance for credit losses and have determined that such an allowance is not material to our available-for-sale investment portfolio as the vast majority of our investment securities are issued by government-sponsored entities. 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 year ended December 31, 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 December 31, 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 $ 10,110 Due after five years through ten years 190,839 189,478 Due after ten years 74,977 75,180 Mortgage and asset-backed securities 691,025 696,201 Total investment securities $ 966,841 $ 970,969 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. 68 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 5— Accounts Receivable Accounts receivable, net consisted of the following: December 31, 2020 December 31, 2019 (In thousands) Trade receivables $ 25,279 $ 14,512 Reserve for uncollectible trade receivables ( 315 ) ( 202 ) Net trade receivables 24,964 14,310 Overdrawn cardholder balances from purchase transactions 3,229 4,327 Reserve for uncollectible overdrawn accounts from purchase transactions ( 1,653 ) ( 3,398 ) Net overdrawn cardholder balances from purchase transactions 1,576 929 Overdrawn cardholder balances from maintenance fees 3,165 2,235 Total net overdrawn account balances due from cardholders 4,741 3,164 Receivables due from card issuing banks 4,377 5,758 Fee advances, net 21,424 26,268 Other receivables 12,249 10,043 Accounts receivable, net $ 67,755 $ 59,543 Activity in the reserve for uncollectible overdrawn accounts from purchase transactions consisted of the following: Year Ended December 31, 2020 2019 2018 (In thousands) Balance, beginning of period $ 3,398 $ 2,710 $ 3,333 Provision for uncollectible overdrawn accounts from purchase transactions 7,684 6,641 12,442 Charge-offs ( 9,429 ) ( 5,953 ) ( 13,065 ) Balance, end of period $ 1,653 $ 3,398 $ 2,710 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) December 31, 2020 Residential $ — $ — $ — $ — $ 3,008 $ 3,008 Commercial — — — — 3,435 3,435 Installment — — — — 497 497 Secured credit card 864 699 1,363 2,926 11,902 14,828 Total loans $ 864 $ 699 $ 1,363 $ 2,926 $ 18,842 $ 21,768 Percentage of outstanding 4.0 % 3.2 % 6.3 % 13.4 % 86.6 % 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 % 69 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6—Loans to Bank Customers (continued) 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 for further information on the criteria for classification as nonperforming. December 31, 2020 December 31, 2019 (In thousands) Residential $ 240 $ 290 Installment 137 147 Secured credit card 1,363 2,183 Total loans $ 1,740 $ 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 include those designated as substandard, doubtful, or loss, consistent with regulatory guidelines. Secured credit card loans are considered classified if they are greater than 90 days past due. However, 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: December 31, 2020 December 31, 2019 Non-Classified Classified Non-Classified Classified (In thousands) Residential $ 2,768 $ 240 $ 4,241 $ 290 Commercial 3,435 — 158 — Installment 360 137 1,058 189 Secured credit card 13,465 1,363 14,464 2,183 Total loans $ 20,028 $ 1,740 $ 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 related to extensions of the maturity dates at a stated interest rate lower than the current market rate for new debt with similar risk. As of December 31, 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 December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Unpaid Principal Balance Carrying Value Unpaid Principal Balance Carrying Value (In thousands) Residential $ 240 $ 180 $ 290 $ 221 Installment 137 103 160 48 70 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6—Loans to Bank Customers (continued) Allowance for Loan Losses Activity in the allowance for loan losses consisted of the following: Year Ended December 31, 2020 2019 2018 (In thousands) Balance, beginning of period $ 1,166 $ 1,144 $ 291 Provision for loans 859 2,405 3,094 Loans charged off ( 1,697 ) ( 2,674 ) ( 2,657 ) Recoveries of loans previously charged off 429 291 416 Balance, end of period $ 757 $ 1,166 $ 1,144 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 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 December 31, 2020, our net investment in TailFin Labs amounted to approximately $ 28.8 million and is included in the long term portion of prepaid expenses and other assets on our consolidated balance sheet. We recorded equity in losses from TailFin Labs of approximately $ 7.0 million for the year ended December 31, 2020, which is recorded as a component of other income and expense on our consolidated statement of operations. Total equity in losses also includes income and losses from an investment held by our bank under the Community Reinvestment Act, which are not material to these consolidated financial statements. 71 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 8— Property and Equipment Property and equipment consisted of the following: December 31, 2020 2019 (In thousands) Land $ 205 $ 205 Building 605 605 Computer equipment, furniture, and office equipment 61,093 61,193 Computer software purchased 31,181 31,218 Capitalized internal-use software 237,792 227,137 Tenant improvements 5,037 14,435 335,913 334,793 Less accumulated depreciation and amortization ( 202,513 ) ( 189,317 ) Property and equipment, net $ 133,400 $ 145,476 The net carrying value of capitalized internal-use software was $ 117.6 million and $ 119.9 million at December 31, 2020 and 2019, respectively. Total depreciation and amortization expense was $ 58.0 million, $ 49.5 million and $ 38.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Included in those amounts are depreciation expense related to internal-use software of $ 43.9 million, $ 35.1 million and $ 25.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. We recorded impairment charges to property and equipment of $ 14.7 million , $ 0.6 million and $ 0.9 million for the years ended December 31, 2020 , 2019 and 2018. Impairment charges for the year ended December 31, 2020 were primarily associated with capitalized internal-use software we determined to no longer be utilized, as well as tenant improvements and other computer equipment at our office locations that will no longer provide any future economic benefit as a result of our remote workforce strategy. See Note 20 — Leases , for additional information. Note 9— Goodwill and Intangible Assets Goodwill and intangible assets on our consolidated balance sheets consisted of the following: December 31, 2020 2019 (In thousands) Goodwill $ 301,790 $ 301,790 Intangible assets, net 189,988 219,204 Goodwill and intangible assets $ 491,778 $ 520,994 Goodwill There were no changes in the composition of goodwill from the previous year. We completed our annual goodwill impairment test as of September 30, 2020. Based on the results of the annual goodwill impairment test, we determined that each of the fair values of our reporting units exceeded their carrying values and therefore, no impairment was recorded. 72 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 9—Goodwill and Intangible Assets (continued) Intangible Assets The gross carrying amounts and accumulated amortization related to intangibles assets were as follows: December 31, 2020 December 31, 2019 Gross Carrying Value Accumulated Amortization Net Book Value Gross Carrying Value Accumulated Amortization Net Book Value Weighted Average Useful Lives (In thousands) (In thousands) (Years) Customer relationships $ 309,773 $ ( 150,445 ) $ 159,328 $ 309,773 $ ( 126,167 ) $ 183,606 12.8 Trade names 44,086 ( 18,535 ) 25,551 44,086 ( 15,689 ) 28,397 14.6 Patents 3,000 ( 1,636 ) 1,364 3,000 ( 1,364 ) 1,636 11.0 Software licenses 5,595 ( 2,698 ) 2,897 4,832 ( 837 ) 3,995 3.0 Other 5,964 ( 5,116 ) 848 5,964 ( 4,394 ) 1,570 5.0 Total intangible assets $ 368,418 $ ( 178,430 ) $ 189,988 $ 367,655 $ ( 148,451 ) $ 219,204 Amortization expense on finite-lived intangibles, a component of other general and administrative expenses, was $ 28.1 million, $ 32.6 million, and $ 32.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. None of our intangible assets were considered impaired as of December 31, 2020 or 2019. The following table shows our estimated amortization expense for intangible assets for each of the next five succeeding years and thereafter: December 31, (In thousands) 2021 $ 28,863 2022 27,547 2023 26,418 2024 23,428 2025 17,435 Thereafter 66,297 Total $ 189,988 Note 10— Deposits Deposits are categorized as non-interest or interest-bearing deposits as follows: December 31, 2020 2019 (In thousands) Non-interest bearing deposit accounts $ 2,704,050 $ 1,055,818 Interest-bearing deposit accounts Checking accounts 5,060 95,995 Savings 8,505 6,619 GPR deposits 12,955 11,892 Time deposits, denominations greater than or equal to $100 3,767 3,854 Time deposits, denominations less than $100 779 1,163 Total interest-bearing deposit accounts 31,066 119,523 Total deposits $ 2,735,116 $ 1,175,341 73 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 10—Deposits (continued) The scheduled contractual maturities for total time deposits are presented in the table below: December 31, (In thousands) Due in 2021 $ 1,346 Due in 2022 1,451 Due in 2023 912 Due in 2024 458 Due in 2025 379 Total time deposits $ 4,546 As of December 31, 2020, we had aggregate time deposits of $ 2.0 million in denominations that met or exceeded the Federal Deposit Insurance Corporation (FDIC) insurance limit. Note 11— 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, 2020, we had no borrowings outstanding on the 2019 Revolving Facility and had the full amount available for use. 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 customary representations and warranties relating to us and our subsidiaries. The facility also 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 December 31, 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. Cash interest expense related to our debt was $ 0.6 million, $ 0.6 million, and $ 3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. 74 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 12— Stockholders’ Equity Common Stock Our Certificate of Incorporation specifies the following rights, preferences, and privileges for our common stockholders. Voting Holders of our Class A common stock are entitled to one vote per share. We have not provided for cumulative voting for the election of directors in our restated Certificate of Incorporation. In addition, our Certificate of Incorporation provides that a holder, or group of affiliated holders, of more than 24.9 % of our common stock may not vote shares representing more than 14.9 % of the voting power represented by the outstanding shares of our Class A common stock. Dividends Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our Class A common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares of common stock, the holders of Class A common stock will receive Class A common stock, or rights to acquire Class A common stock, as the case may be. Liquidation Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A common stock and any participating preferred stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding shares of our preferred stock and payment of other claims of creditors. Preemptive or Similar Rights Our Class A common stock is not entitled to preemptive rights or subject to redemption. Comprehensive Income The tax impact on unrealized gains on investment securities available-for-sale for the years ended December 31, 2020 , 2019 and 2018 was approximately $ 0.3 million, $ 0.8 million and $ 0.1 million, respectively. 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, at which point we entered into a $ 100 million accelerated share repurchase agreement. 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 December 31, 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, however, Walmart is entitled to voting rights and participate in any dividends paid from the issuance date on the unvested balance. As such, the total amount of restricted shares issued are included in our total Class A shares outstanding. As of December 31, 2020, there were 650,000 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. 75 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 13— Employee Stock-Based Compensation In June 2010, our board of directors adopted, and in July 2010 our stockholders approved, the 2010 Equity Incentive Plan, which replaced our 2001 Stock Plan, and the 2010 Employee Stock Purchase Plan. The 2010 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance shares and stock bonuses. Options granted under the 2010 Equity Incentive Plan generally vest over four years and expire five years or ten years from the date of grant. The 2010 Employee Stock Purchase Plan enables eligible employees to purchase shares of our Class A common stock periodically at a discount. Our 2010 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. Approximately 4.7 million shares are available for grant under the 2010 Equity Incentive Plan as of December 31, 2020. Stock-based compensation for the years ended December 31, 2020, 2019, and 2018 includes expense related to awards of stock options, performance and service based restricted stock units and purchases under the 2010 Employee Stock Purchase Plan. Total stock-based compensation expense and the related income tax benefit were as follows: Year Ended December 31, 2020 2019 2018 (In thousands) Total stock-based compensation expense $ 53,694 $ 29,583 $ 50,093 Related income tax benefit 6,573 5,143 3,783 Restricted Stock Units The following table summarizes restricted stock units with only service conditions granted under our 2010 Equity Incentive Plan: Year Ended December 31, 2020 2019 2018 (In thousands, except per share data) Restricted stock units granted 1,618 238 452 Weighted-average grant-date fair value $ 31.12 $ 38.93 $ 74.33 Restricted stock unit activity for the year ended December 31, 2020 was as follows: Shares Weighted-Average Grant-Date Fair Value (In thousands, except per share data) Outstanding at December 31, 2019 888 $ 47.20 Restricted stock units granted 1,618 31.12 Restricted stock units vested ( 616 ) 34.51 Restricted stock units canceled ( 668 ) 38.57 Outstanding at December 31, 2020 1,222 $ 36.24 The total fair value of restricted stock vested for the years ended December 31, 2020, 2019 and 2018 was $ 25.6 million, $ 30.9 million and $ 67.5 million, respectively, based on the price of our Class A common stock on the vesting date. Performance-Based Restricted Stock Units We grant performance-based restricted stock units to certain employees that are subject to the attainment of pre-established internal performance conditions, market conditions, or a combination thereof (collectively referred to herein as performance-based restricted stock units). The actual number of shares subject to the award is determined at the end of the performance period and may range from zero to 200 % of the target shares granted depending upon the terms of the award. These awards generally contain an additional service component after each performance period is concluded and the unvested balance of the shares after the performance metrics are achieved 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 total period of four years ) based on the grant date fair value of the award. 76 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 13—Employee Stock-Based Compensation (continued) The following table summarizes the performance-based restricted stock units granted under our 2010 Equity Incentive Plan: Year Ended December 31, 2020 2019 2018 (In thousands, except per share data) Performance restricted stock units granted 1,045 722 276 Weighted-average grant-date fair value $ 33.15 $ 48.45 $ 71.70 Performance-based restricted stock unit activity for the year ended December 31, 2020 was as follows: Shares Weighted-Average Grant-Date Fair Value (In thousands, except per share data) Outstanding at December 31, 2019 854 $ 54.63 Performance restricted stock units granted (at target) 1,045 $ 33.15 Performance restricted stock units vested ( 258 ) $ 50.33 Performance restricted stock units canceled ( 695 ) $ 48.72 Outstanding at December 31, 2020 946 $ 35.62 The total fair value of all performance-based restricted stock vested for the years ended December 31, 2020, 2019 and 2018 was $ 12.4 million, $ 22.7 million and $ 45.1 million, respectively, based on the price of our Class A common stock on the vesting date. Stock Options In connection with the recent hiring of certain executive officers, we granted stock options subject to market conditions during the year ended December 31, 2020. The stock options have 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 our market-based stock options granted: Year Ended December 31, 2020 (In thousands, except per share data) Stock options granted 2,250 Weighted-average exercise price $ 31.30 Weighted-average grant-date fair value $ 14.57 Year Ended December 31, 2020 Risk-free interest rate 0.63 % Expected term (in years) 3.30 Expected dividends — Expected volatility 53.8 % 77 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 13—Employee Stock-Based Compensation (continued) Total stock option activity for the year ended December 31, 2020 was as follows: Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value (In thousands, except per share data and years) Outstanding at December 31, 2019 181 $ 20.09 Options granted 2,250 31.30 Options exercised ( 404 ) 26.13 Options canceled ( 393 ) 28.37 Outstanding at December 31, 2020 1,634 $ 32.04 5.99 $ 38,836 Exercisable at December 31, 2020 134 22.95 2.06 $ 4,411 We have not issued any service only based stock option awards from our 2010 Equity Incentive Plan for the periods presented in these consolidated financial statements. The total intrinsic value of options exercised was $ 10.5 million, $ 2.4 million and $ 36.2 million for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, there was $ 53.4 million of aggregate unrecognized compensation cost related to unvested restricted stock units (including performance-based awards) expected to be recognized in compensation expense in future periods, with a weighted-average period of 2.6 years. As of December 31, 2020, there was $ 13.7 million remaining of unrecognized compensation cost related to stock options, with a weighted-average period of 1.3 years. Note 14— Income Taxes The components of income tax expense included in our consolidated statements of operations were as follows: Year Ended December 31, 2020 2019 2018 (In thousands) Current: Federal $ 15,846 $ 11,914 $ 4,011 State 3,650 1,790 894 Foreign 471 604 443 Current income tax expense 19,967 14,308 5,348 Deferred: Federal ( 11,212 ) 8,102 1,136 State ( 3,722 ) ( 1,226 ) ( 1,370 ) Foreign ( 69 ) — — Deferred income tax (benefit) expense ( 15,003 ) 6,876 ( 234 ) Income tax expense $ 4,964 $ 21,184 $ 5,114 78 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 14—Income Taxes (continued) Income tax expense 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: Year Ended December 31, 2020 2019 2018 U.S. federal statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit ( 2.0 ) 0.1 ( 0.5 ) General business credits ( 10.9 ) ( 2.1 ) ( 2.2 ) Employee stock-based compensation ( 7.7 ) ( 2.2 ) ( 17.1 ) Tax Cuts and Jobs Act remeasurement — — 0.2 Non-deductible executive compensation 17.2 0.1 2.2 Capital loss valuation allowance release ( 1.1 ) — — Non-deductible penalties 1.1 — — Other 0.1 0.6 0.5 Effective tax rate 17.7 % 17.5 % 4.1 % The increase in the effective tax rate for the year ended December 31, 2020 as compared to the prior year ended December 31, 2019 is primarily due to an increase of the IRC 162(m) limitation on the deductibility of certain executive compensation. This increase was partially offset by the impact of general business credits and an increase in excess tax benefits from stock-based compensation. 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 year ended December 31, 2020, the provision for GILTI tax expense was not material to our financial statements. The tax effects of temporary difference that give rise to significant portions of our deferred tax assets and liabilities were as follows: December 31, 2020 2019 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 7,882 $ 8,002 Stock-based compensation 7,651 5,820 Reserve for overdrawn accounts 7,661 4,456 Accrued liabilities 15,080 7,965 Lease liabilities 4,763 8,195 Tax credit carryforwards 10,035 8,723 Capital loss carryforwards — 341 Other 543 — Gross deferred tax assets 53,615 43,502 Valuation allowance — ( 341 ) Total deferred tax assets $ 53,615 $ 43,161 Deferred tax liabilities: Internal-use software costs $ 29,149 $ 29,382 Property and equipment, net 1,003 2,240 Deferred expenses 4,544 4,114 Intangible assets 10,009 7,826 Gift card revenue 1,389 1,422 Lease right-of-use assets 1,974 6,524 Other — 388 Total deferred tax liabilities 48,068 51,896 Net deferred tax assets (liabilities) $ 5,547 $ ( 8,735 ) 79 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 14—Income Taxes (continued) 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 ended 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 entire capital loss carryforward amount. As of December 31, 2020, we did not have a valuation allowance on any of our deferred tax assets as we believe it is more-likely-than-not that we will 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 returns for the years ended December 31, 2017 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 ended June 30, 2020 and the examination remains ongoing as of December 31, 2020. We do not expect that this examination will have a material impact on our consolidated financial statements. As of December 31, 2020, we have federal net operating loss carryforwards of approximately $ 19.2 million and state net operating loss carryforwards of approximately $ 68.8 million which will be available to offset future income. If not used, the federal net operating losses will expire between 2026 and 2034. In regards to the state net operating loss carryforwards, approximately $ 46.6 million will expire between 2021 and 2040, while the remaining balance of approximately $ 22.2 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 $ 17.3 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 December 31, 2020 and 2019, we had a liability of $ 9.5 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: Year Ended December 31, 2020 2019 2018 (In thousands) Beginning balance $ 8,398 $ 6,965 $ 5,560 Increases related to positions taken during prior years 482 313 462 Increases related to positions taken during the current year 1,500 1,576 1,607 Decreases due to a lapse of applicable statute of limitations ( 862 ) ( 456 ) ( 664 ) Ending balance $ 9,518 $ 8,398 $ 6,965 The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate $ 9,424 $ 8,341 $ 6,918 We recognized accrued interest and penalties related to unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018, of approximately $ 0.5 million, $ 0.5 million and $ 0.3 million, respectively. 80 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 15— Earnings per Common Share The calculation of basic and diluted EPS was as follows: Year Ended December 31, 2020 2019 2018 (In thousands, except per share data) Basic earnings per Class A common share Numerator: Net income $ 23,131 $ 99,897 $ 118,703 Amount attributable to unvested Walmart restricted shares ( 346 ) — — Net income allocated to Class A common stockholders $ 22,785 $ 99,897 $ 118,703 Denominator: Weighted-average Class A shares issued and outstanding 52,438 52,195 52,222 Basic earnings per Class A common share $ 0.43 $ 1.91 $ 2.27 Diluted earnings per Class A common share Numerator: Net income allocated to Class A common stockholders $ 22,785 $ 99,897 $ 118,703 Re-allocated earnings 8 — — Diluted net income allocated to Class A common stockholders $ 22,793 $ 99,897 $ 118,703 Denominator: Weighted-average Class A shares issued and outstanding 52,438 52,195 52,222 Dilutive potential common shares: Stock options 233 114 327 Service based restricted stock units 708 361 1,135 Performance-based restricted stock units 306 440 796 Employee stock purchase plan — 28 1 Diluted weighted-average Class A shares issued and outstanding 53,685 53,138 54,481 Diluted earnings per Class A common share $ 0.42 $ 1.88 $ 2.18 For the periods presented, we excluded certain restricted stock units and stock options outstanding, 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, or whereby the result of including such awards was anti-dilutive. The following table shows the weighted-average number of anti-dilutive shares excluded from the diluted EPS calculation: Year Ended December 31, 2020 2019 2018 (In thousands) Class A common stock Options to purchase Class A common stock 731 — — Service based restricted stock units 101 354 20 Performance-based restricted stock units 301 459 143 Unvested Walmart restricted shares 796 — — Total 1,929 813 163 81 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 16— Fair Value Measurements 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 . As of December 31, 2020 and 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 December 31, 2020 (In thousands) Assets Corporate bonds $ — $ 10,110 $ — $ 10,110 Agency bond securities — 234,157 — 234,157 Agency mortgage-backed securities — 691,029 — 691,029 Municipal bonds — 30,501 — 30,501 Asset-backed securities — 5,172 — 5,172 Total assets $ — $ 970,969 $ — $ 970,969 Liabilities Contingent consideration $ — $ — $ 5,300 $ 5,300 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 December 31, 2020 and 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 years ended December 31, 2020 and 2019. The following table presents changes in our contingent consideration payable for the years ended December 31, 2020 , 2019 and 2018, which is categorized in Level 3 of the fair value hierarchy: Year Ended December 31, 2020 2019 2018 (In thousands) Balance, beginning of period $ 9,300 $ 15,800 $ 17,358 Payments of contingent consideration ( 4,000 ) ( 4,634 ) ( 4,856 ) Change in fair value of contingent consideration — ( 1,866 ) 3,298 Balance, end of period $ 5,300 $ 9,300 $ 15,800 82 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 17— 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. Under the fair value hierarchy, our investment securities are classified as Level 2. Loans We determined the fair values of loans by discounting both principal and interest cash flows expected to be collected using a discount rate commensurate with the risk that we believe a market participant would consider in determining fair value. Under the fair value hierarchy, our loans are classified as Level 3. Deposits The fair value of demand and interest checking deposits and savings deposits is the amount payable on demand at the reporting date. We determined the fair value of time deposits by discounting expected future cash flows using market-derived rates based on our market yields on certificates of deposit, by maturity, at the measurement date. Under the fair value hierarchy, our deposits are classified as Level 2. Contingent Consideration The fair value of contingent consideration obligations are estimated through valuation models designed to estimate the probability of such contingent payments based on various assumptions. Estimated payments are discounted using present value techniques to arrive at an estimated fair value. Our contingent consideration payable is classified as Level 3 because we use unobservable inputs to estimate fair value, including the probability of achieving certain earnings thresholds and appropriate discount rates. Our contingent consideration payable is included as a component of other accrued liabilities on our consolidated balance sheets and changes in fair value are recorded through operating expenses. Debt The fair value of our debt is based on borrowing rates currently required of loans with similar terms, maturity and credit risk. The carrying amount of our debt 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 our debt 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 December 31, 2020 and 2019 are presented in the table below. December 31, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value (In thousands) Financial Assets Loans to bank customers, net of allowance $ 21,011 $ 20,421 $ 21,417 $ 19,563 Financial Liabilities Deposits $ 2,735,116 $ 2,735,072 $ 1,175,341 $ 1,175,298 Line of credit $ — $ — $ 35,000 $ 35,000 83 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 18— Concentrations of Credit Risk Financial instruments that subject us to concentration of credit risk consist primarily of unrestricted cash and cash equivalents, restricted cash, investment securities, accounts receivable, loans and settlement assets. We deposit our unrestricted cash and cash equivalents and our restricted cash with regional and national banking institutions that we periodically monitor and evaluate for creditworthiness. Credit risk for our investment securities is mitigated by the types of investment securities in our portfolio, which must comply with strict investment guidelines that we believe appropriately ensures the preservation of invested capital. Credit risk for our accounts receivable is concentrated with card issuing banks and our customers, and this risk is mitigated by the relatively short collection period and our large customer base. We do not require or maintain collateral for accounts receivable. We maintain reserves for uncollectible overdrawn accounts and uncollectible trade receivables. With respect to our loan portfolio (excluding secured credit cards), as of December 31, 2020 approximately 92.3 % of our borrowers reside in the state of Utah and approximately 42.3 % in the city of Provo. Consequently, this loan portfolio is susceptible to any adverse market or environmental conditions that may impact this specific geographic region. Credit risk associated with our secured credit card portfolio is mitigated by collateral provided by the borrower in the amount of their credit limit. Credit risk for our settlement assets is concentrated with our retail distributors and other business partners, which we frequently monitor and is further mitigated by the short collection period. Note 19— Defined Contribution Plan On January 1, 2004, we established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. Employees who have attained at least 21 years of age are generally eligible to participate in the plan on the first day of the calendar month following the month in which they commence service with us. Participants may make pre-tax or after-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on contributions under the code. We may contribute to the plan at the discretion of our board of directors. Currently, employer contributions amount to 50 % of the first 5 % of a participant's eligible compensation. Our contributions are allocated in the same manner as that of the participant’s elective contributions. We made contributions to the plan of $ 2.2 million, $ 2.2 million, and $ 1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Note 20— Leases Our leases consist of operating lease agreements principally related to our corporate and subsidiary 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, many of which generally include renewal options of varying terms. As of December 31, 2020 and for the foreseeable future, we have committed to a remote workforce strategy for most U.S. based employees. As such, during the fourth quarter of 2020, we recorded an impairment charge of approximately $ 7.0 million related to our lease right-of-use assets as we no longer intend to utilize our leased office spaces in the U.S. for the duration of our remaining lease terms. Our lease agreements have or will be terminated in due course in accordance with our lease provisions, however, we may be contractually obligated to continue making lease payments where no termination option is available. Our total lease expense amounted to approximately $ 9.2 million, $ 11.3 million, and $ 7.6 million for the years ended December 31, 2020, 2019 and 2018, 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: Year Ended December 31, 2020 2019 Cash paid for operating lease liabilities (in thousands) $ 9,910 $ 8,850 Weighted average remaining lease term (years) 3.3 4.1 Weighted average discount rate 4.8 % 4.7 % 84 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 20—Leases (continued) Maturities of our operating lease liabilities as of December 31, 2020 is as follows: Operating Leases (In thousands) 2021 $ 9,715 2022 8,805 2023 3,500 2024 3,464 2025 1,732 27,216 Less: imputed interest ( 2,645 ) Total lease liabilities $ 24,571 Note 21— Commitments and Contingencies 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. 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. As of December 31, 2020, the estimated fair value of our remaining earn-out payments amounted to $ 5.3 million. In addition, through the normal course of business, we may enter into various agreements with our vendors and retail distributors that may subject us to minimum annual requirements. 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 former 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. We 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. 85 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 21—Commitments and Contingencies (continued) 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, 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 . Note 22— Significant Retailer and Partner Concentrations 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. Revenue Concentrations Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows: Year Ended December 31, 2020 2019 2018 Walmart 27 % 34 % 36 % In addition, approximately 13 % of our total operating revenues for the year ended December 31, 2020 were generated from a single BaaS partner, without a corresponding concentration to our gross profit for the period. Settlement Asset Concentrations 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: December 31, 2020 December 31, 2019 Walmart * 13 % * Constitutes less than 10% for the period presented. 86 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 23— Regulatory Requirements Our subsidiary bank, Green Dot Bank, is a member bank of the Federal Reserve System and our primary regulator is the Federal Reserve Board. We and Green Dot Bank are subject to commitments that we have made to the Federal Reserve Board and the Utah Department of Financial Institutions. In addition, we and Green Dot Bank are subject to various regulatory capital requirements administered by the federal 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. As of December 31, 2020 and 2019, we and Green Dot Bank were categorized as "well capitalized" under applicable regulatory standards. There were no conditions or events since December 31, 2020 which management believes would have caused us or Green Dot Bank not to be considered "well capitalized." Our capital ratios and related regulatory requirements 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 % 87 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 24— 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 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 Banking as a Service, or "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: Year Ended December 31, 2020 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 980,314 $ 298,423 $ ( 24,977 ) $ 1,253,760 Operating expenses 857,025 215,900 150,762 1,223,687 Operating income $ 123,289 $ 82,523 $ ( 175,739 ) $ 30,073 Year Ended December 31, 2019 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 842,967 $ 296,721 $ ( 31,093 ) $ 1,108,595 Operating expenses 696,409 202,713 86,555 985,677 Operating income $ 146,558 $ 94,008 $ ( 117,648 ) $ 122,918 Year Ended December 31, 2018 Account Services Processing and Settlement Services Corporate and Other Total (In thousands) Operating revenues $ 843,905 $ 253,360 $ ( 31,690 ) $ 1,065,575 Operating expenses 643,714 179,037 112,409 935,160 Operating income $ 200,191 $ 74,323 $ ( 144,099 ) $ 130,415 88 Table of Contents ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.