GREEN DOT CORP 10-Q

ITEM 1. Financial Statements GREEN DOT CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (unaudited) Assets (In thousands, except par value) Current assets: Unrestricted cash and cash equivalents $ 1,804,826 $ 1,491,842 Restricted cash 4,150 4,859 Settlement assets 452,602 782,262 Accounts receivable, net 74,474 67,755 Prepaid expenses and other assets 62,764 66,705 Income tax receivable 990 — Total current assets 2,399,806 2,413,423 Investment securities available-for-sale, at fair value 1,188,216 970,969 Loans to bank customers, net of allowance for loan losses of $ 7,451 and $ 757 as of September 30, 2021 and December 31, 2020, respectively 28,157 21,011 Prepaid expenses and other assets 131,180 40,481 Property, equipment, and internal-use software, net 132,276 133,400 Operating lease right-of-use assets 11,308 13,134 Deferred expenses 7,379 18,332 Net deferred tax assets 18,683 12,739 Goodwill and intangible assets 474,344 491,778 Total assets $ 4,391,349 $ 4,115,267 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 41,956 $ 34,823 Deposits 2,959,386 2,735,116 Obligations to customers 122,522 95,375 Settlement obligations 12,705 17,759 Amounts due to card issuing banks for overdrawn accounts 438 235 Other accrued liabilities 120,455 145,359 Operating lease liabilities 7,516 8,175 Deferred revenue 14,576 28,584 Income tax payable 11,265 12,146 Total current liabilities 3,290,819 3,077,572 Other accrued liabilities 2,190 4,275 Operating lease liabilities 9,209 16,396 Net deferred tax liabilities 7,192 7,192 Total liabilities 3,309,410 3,105,435 Commitments and contingencies (Note 17) Stockholders’ equity: Class A common stock, $ 0.001 par value; 100,000 shares authorized as of September 30, 2021 and December 31, 2020; 54,671 and 54,034 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 55 54 Additional paid-in capital 386,465 354,460 Retained earnings 709,893 651,890 Accumulated other comprehensive (loss) income ( 14,474 ) 3,428 Total stockholders’ equity 1,081,939 1,009,832 Total liabilities and stockholders’ equity $ 4,391,349 $ 4,115,267 See notes to unaudited consolidated financial statements 1 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands, except per share data) Operating revenues: Card revenues and other fees $ 202,482 $ 146,648 $ 586,431 $ 440,723 Cash processing revenues 47,516 57,526 205,256 246,042 Interchange revenues 85,888 84,876 298,229 271,712 Interest income, net 3,613 2,020 12,442 11,002 Total operating revenues 339,499 291,070 1,102,358 969,479 Operating expenses: Sales and marketing expenses 84,002 96,189 299,412 319,738 Compensation and benefits expenses 65,045 61,077 199,996 173,009 Processing expenses 95,731 74,158 287,716 216,624 Other general and administrative expenses 85,891 62,296 240,616 198,519 Total operating expenses 330,669 293,720 1,027,740 907,890 Operating income (loss) 8,830 ( 2,650 ) 74,618 61,589 Interest expense, net 38 39 113 723 Other income (expense), net 849 ( 1,650 ) 1,396 696 Income (loss) before income taxes 9,641 ( 4,339 ) 75,901 61,562 Income tax expense (benefit) 2,306 ( 1,347 ) 17,898 14,415 Net income (loss) $ 7,335 $ ( 2,992 ) $ 58,003 $ 47,147 Basic earnings (loss) per common share: $ 0.13 $ ( 0.06 ) $ 1.06 $ 0.89 Diluted earnings (loss) per common share: $ 0.13 $ ( 0.06 ) $ 1.04 $ 0.87 Basic weighted-average common shares issued and outstanding: 54,221 52,635 53,961 52,269 Diluted weighted-average common shares issued and outstanding: 55,415 52,635 55,180 53,455 See notes to unaudited consolidated financial statements 2 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Net income (loss) $ 7,335 $ ( 2,992 ) $ 58,003 $ 47,147 Other comprehensive income (loss) Unrealized holding (loss) gain, net of tax ( 4,010 ) 756 ( 17,902 ) 907 Comprehensive income (loss) $ 3,325 $ ( 2,236 ) $ 40,101 $ 48,054 See notes to unaudited consolidated financial statements 3 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) Three Months Ended September 30, 2021 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity Shares Amount (In thousands) Balance at June 30, 2021 54,640 $ 55 $ 375,551 $ 702,558 $ ( 10,464 ) $ 1,067,700 Common stock issued under stock plans, net of withholdings and related tax effects 31 — ( 594 ) — — ( 594 ) Stock-based compensation — — 11,508 — — 11,508 Net income — — — 7,335 — 7,335 Other comprehensive loss — — — — ( 4,010 ) ( 4,010 ) Balance at September 30, 2021 54,671 $ 55 $ 386,465 $ 709,893 $ ( 14,474 ) $ 1,081,939 Three Months Ended September 30, 2020 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount (In thousands) Balance at June 30, 2020 53,297 $ 53 $ 323,083 $ 678,898 $ 2,191 $ 1,004,225 Common stock issued under stock plans, net of withholdings and related tax effects 162 — ( 4,922 ) — — ( 4,922 ) Stock-based compensation — — 11,806 — — 11,806 Net loss — — — ( 2,992 ) — ( 2,992 ) Other comprehensive income — — — — 756 756 Balance at September 30, 2020 53,459 $ 53 $ 329,967 $ 675,906 $ 2,947 $ 1,008,873 See notes to unaudited consolidated financial statements 4 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) (UNAUDITED) Nine Months Ended September 30, 2021 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, 2020 54,034 $ 54 $ 354,460 $ 651,890 $ 3,428 $ 1,009,832 Common stock issued under stock plans, net of withholdings and related tax effects 637 1 ( 5,106 ) — — ( 5,105 ) Stock-based compensation — — 37,111 — — 37,111 Net income — — — 58,003 — 58,003 Other comprehensive loss — — — — ( 17,902 ) ( 17,902 ) Balance at September 30, 2021 54,671 $ 55 $ 386,465 $ 709,893 $ ( 14,474 ) $ 1,081,939 Nine Months Ended September 30, 2020 Class A Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Stockholders' Equity Shares Amount (In thousands) Balance at December 31, 2019 51,807 $ 52 $ 296,224 $ 629,040 $ 2,040 $ 927,356 Common stock issued under stock plans, net of withholdings and related tax effects 677 — ( 3,049 ) — — ( 3,049 ) Stock-based compensation — — 36,793 — — 36,793 Walmart restricted shares 975 1 ( 1 ) — — — Net income — — — 47,147 — 47,147 Other comprehensive income — — — — 907 907 Cumulative effect adjustment for adoption of ASU No. 2016-13 (CECL) — — — ( 281 ) — ( 281 ) Balance at September 30, 2020 53,459 $ 53 $ 329,967 $ 675,906 $ 2,947 $ 1,008,873 See notes to unaudited consolidated financial statements 5 Table of Contents GREEN DOT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2021 2020 (In thousands) Operating activities Net income $ 58,003 $ 47,147 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment and internal-use software 42,446 43,014 Amortization of intangible assets 20,831 21,175 Provision for uncollectible overdrawn accounts from purchase transactions 14,201 6,743 Provision for loan losses 18,728 501 Stock-based compensation 37,111 36,793 (Earnings) losses in equity method investments ( 1,314 ) 4,313 Realized gain on sale of available-for-sale investment securities — ( 5,062 ) Amortization of premium on available-for-sale investment securities 2,330 618 Amortization of deferred financing costs 127 127 Impairment of long-lived assets — 1,099 Changes in operating assets and liabilities: Accounts receivable, net ( 20,920 ) 8,625 Prepaid expenses and other assets 4,595 12,724 Deferred expenses 10,953 10,031 Accounts payable and other accrued liabilities ( 17,706 ) 19,471 Deferred revenue ( 14,326 ) ( 15,068 ) Income tax receivable/payable ( 1,846 ) 8,842 Other, net ( 5,979 ) ( 2,242 ) Net cash provided by operating activities 147,234 198,851 Investing activities Purchases of available-for-sale investment securities ( 374,754 ) ( 295,287 ) Proceeds from maturities of available-for-sale securities 124,482 80,840 Proceeds from sales and calls of available-for-sale securities 6,823 187,830 Payments for acquisition of property and equipment ( 39,644 ) ( 43,898 ) Net changes in loans ( 25,874 ) 493 Investment in TailFin Labs, LLC ( 35,000 ) ( 35,000 ) Purchase of bank-owned life insurance policies ( 55,000 ) — Other ( 688 ) ( 916 ) Net cash used in investing activities ( 399,655 ) ( 105,938 ) Financing activities Borrowings on revolving line of credit — 100,000 Repayments on revolving line of credit — ( 135,000 ) Proceeds from exercise of options and ESPP purchases 5,283 5,104 Taxes paid related to net share settlement of equity awards ( 10,388 ) ( 8,153 ) Net changes in deposits 221,048 1,108,354 Net changes in settlement assets and obligations to customers 351,753 ( 84,304 ) Contingent consideration payments ( 3,000 ) ( 3,000 ) Net cash provided by financing activities 564,696 983,001 Net increase in unrestricted cash, cash equivalents and restricted cash 312,275 1,075,914 Unrestricted cash, cash equivalents and restricted cash, beginning of period 1,496,701 1,066,154 Unrestricted cash, cash equivalents and restricted cash, end of period $ 1,808,976 $ 2,142,068 Cash paid for interest $ 1,174 $ 839 Cash paid for income taxes $ 19,394 $ 5,497 Reconciliation of unrestricted cash, cash equivalents and restricted cash at end of period: Unrestricted cash and cash equivalents $ 1,804,826 $ 2,136,375 Restricted cash 4,150 5,693 Total unrestricted cash, cash equivalents and restricted cash, end of period $ 1,808,976 $ 2,142,068 See notes to unaudited consolidated financial statements 6 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1— Organization Green Dot Corporation (“we,” “our,” or “us” refer to Green Dot Corporation and its consolidated subsidiaries) is a financial technology and registered bank holding company committed to delivering trusted, best-in-class money management and payment solutions to customers and partners, seamlessly connecting people to their money. Our technology platform enables us to build products and features that address the most pressing financial challenges of consumers and businesses, transforming the way they manage and move money, and making financial empowerment more accessible for all. We offer a broad set of financial services to consumers and businesses including debit, checking, credit, prepaid, and payroll cards, as well as robust money processing services, such as 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 Basis of Presentation The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. We consolidated our wholly-owned subsidiaries and eliminated all significant intercompany balances and transactions. We have also prepared the accompanying unaudited consolidated financial statements in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X and, consequently, they do not include all of the annual disclosures required by GAAP. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2020 for additional disclosures, including a summary of our significant accounting policies. There have been no material changes to our significant accounting policies during the nine months ended September 30, 2021, other than the adoption of the accounting pronouncements discussed herein. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal and recurring items, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available as of September 30, 2021 and through the date of this report. The accounting estimates used in the preparation of our consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. Actual results may differ from these estimates due to the uncertainty around the magnitude, duration and effects of the COVID-19 pandemic, as well as other factors. Recent Accounting Pronouncements Recently adopted accounting pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies various aspects related to the accounting for income taxes. The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and modifies existing guidance to improve 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 the provisions of ASU 2019-12 on January 1, 2021, the results of which did not have a material impact on our consolidated financial statements. Recently issued accounting pronouncements not yet adopted 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. 7 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 2—Summary of Significant Accounting Policies (continued) In March 2020, the FASB issued ASU No. 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 do not expect any material impact on our consolidated financial statements as our existing revolving line of credit is based on variable rates available that we elect at the time of borrowing. See Note 9 — Debt, to these consolidated financial statements for additional information. Note 3— Revenues As discussed in Note 19 — Segment Informatio n, 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. Our products and services are offered only to customers within the United States. The following table disaggregates our revenues earned from external customers by each of our reportable segments: Three Months Ended September 30, 2021 Consumer Services B2B Services Money Movement Services Total Timing of recognition (In thousands) Transferred point in time $ 102,089 $ 42,118 $ 44,636 $ 188,843 Transferred over time 60,040 86,043 960 147,043 Operating revenues (1) $ 162,129 $ 128,161 $ 45,596 $ 335,886 Three Months Ended September 30, 2020 Consumer Services B2B Services Money Movement Services Total Timing of recognition (In thousands) Transferred point in time $ 92,138 $ 35,995 $ 55,367 $ 183,500 Transferred over time 52,237 52,144 1,169 105,550 Operating revenues (1) $ 144,375 $ 88,139 $ 56,536 $ 289,050 Nine Months Ended September 30, 2021 Consumer Services B2B Services Money Movement Services Total Timing of recognition (In thousands) Transferred point in time $ 328,665 $ 133,993 $ 198,471 $ 661,129 Transferred over time 188,572 236,704 3,511 428,787 Operating revenues (1) $ 517,237 $ 370,697 $ 201,982 $ 1,089,916 Nine Months Ended September 30, 2020 Consumer Services B2B Services Money Movement Services Total Timing of recognition (In thousands) Transferred point in time $ 280,868 $ 126,569 $ 238,301 $ 645,738 Transferred over time 165,944 142,841 3,954 312,739 Operating revenues (1) $ 446,812 $ 269,410 $ 242,255 $ 958,477 (1) Excludes net interest income, a component of total operating revenues, as it is outside the scope of ASC 606, Revenues. Also excludes the effects of intersegment revenues. 8 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 3—Revenues (continued) Revenues recognized at a point in time are comprised of interchange, ATM fees, other similar cardholder transaction-based fees, and substantially all of our cash processing revenues. 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. 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 $ 26.6 million and $ 25.9 million for the nine months ended September 30, 2021 and 2020, respectively, that were included in deferred revenue at the beginning of the periods and did not recognize any revenue during these periods from performance obligations satisfied in previous periods. Substantially all of the deferred revenue balances at the beginning of the periods are recognized in the first half of each year. Changes in the deferred revenue balance are driven primarily by the amount of new card fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new card fees associated with cards sold during the period. Note 4— Investment Securities Our available-for-sale investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Fair value (In thousands) September 30, 2021 Corporate bonds $ 10,000 $ — $ ( 79 ) $ 9,921 Agency bond securities 230,840 — ( 6,949 ) 223,891 Agency mortgage-backed securities 930,997 1,150 ( 14,094 ) 918,053 Municipal bonds 28,140 263 ( 179 ) 28,224 Asset-backed securities 7,982 147 ( 2 ) 8,127 Total investment securities $ 1,207,959 $ 1,560 $ ( 21,303 ) $ 1,188,216 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 9 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 4—Investment Securities (continued) As of September 30, 2021 and December 31, 2020, the gross unrealized losses and fair values of available-for-sale investment securities that were in unrealized loss positions were as follows: Less than 12 months 12 months or more Total fair value Total unrealized loss Fair value Unrealized loss Fair value Unrealized loss (In thousands) September 30, 2021 Corporate bonds $ 9,921 $ ( 79 ) $ — $ — $ 9,921 $ ( 79 ) Agency bond securities 214,100 ( 6,740 ) 9,791 ( 209 ) 223,891 ( 6,949 ) Agency mortgage-backed securities 792,093 ( 14,094 ) — — 792,093 ( 14,094 ) Municipal bonds 12,527 ( 179 ) — — 12,527 ( 179 ) Asset-backed securities 3,028 ( 2 ) — — 3,028 ( 2 ) Total investment securities $ 1,031,669 $ ( 21,094 ) $ 9,791 $ ( 209 ) $ 1,041,460 $ ( 21,303 ) 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 ) Our investments generally consist of highly rated securities, substantially all of which are directly or indirectly backed by the U.S. federal government. Our investment policy restricts our investments to highly liquid, low credit risk assets. As such, we have no t recorded any significant credit-related impairment losses during the three and nine months ended September 30, 2021 or 2020 on our available-for-sale investment securities. Unrealized losses as of September 30, 2021 are the result of recent fluctuations in interest rates as our investment portfolio is comprised predominantly of fixed rate securities. 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. As of September 30, 2021, 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 $ 9,921 Due after five years through ten years 190,840 185,513 Due after ten years 68,140 66,602 Mortgage and asset-backed securities 938,979 926,180 Total investment securities $ 1,207,959 $ 1,188,216 The expected payments on mortgage-backed and asset-backed securities may not coincide with their contractual maturities because the issuers have the right to call or prepay certain obligations. 10 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 5— Accounts Receivable Accounts receivable, net consisted of the following: September 30, 2021 December 31, 2020 (In thousands) Trade receivables $ 37,196 $ 25,279 Reserve for uncollectible trade receivables ( 244 ) ( 315 ) Net trade receivables 36,952 24,964 Overdrawn cardholder balances from purchase transactions 4,779 3,229 Reserve for uncollectible overdrawn accounts from purchase transactions ( 2,892 ) ( 1,653 ) Net overdrawn cardholder balances from purchase transactions 1,887 1,576 Overdrawn cardholder balances from maintenance fees 3,131 3,165 Total net overdrawn account balances due from cardholders 5,018 4,741 Receivables due from card issuing banks 4,703 4,377 Fee advances 3,627 21,424 Other receivables 24,174 12,249 Accounts receivable, net $ 74,474 $ 67,755 Our net overdrawn account balances due from cardholders are a result of purchase transactions that we may honor or maintenance fee assessments, in each case, in excess of the funds in the cardholder’s account. While we decline authorization attempts for amounts that exceed the available balance in a cardholder’s account, the application of card association rules, and the timing of the settlement of transactions, among other things, can result in overdrawn accounts. Overdrawn cardholder balances from maintenance fee assessments are presented net of the consideration we expect to receive and are recorded as contra-revenue within card revenues and other fees. Activity in the reserve for uncollectible overdrawn accounts from purchase transactions consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Balance, beginning of period $ 5,512 $ 5,070 $ 1,653 $ 3,398 Provision for uncollectible overdrawn accounts from purchase transactions 3,988 2,345 14,201 6,743 Charge-offs ( 6,608 ) ( 5,240 ) ( 12,962 ) ( 7,966 ) Balance, end of period $ 2,892 $ 2,175 $ 2,892 $ 2,175 11 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6— Loans to Bank Customers The following table presents total outstanding loans, gross of the related allowance for credit losses, and a summary of the related payment status: 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Total Current or Less Than 30 Days Past Due Total Outstanding (In thousands) September 30, 2021 Residential $ — $ — $ — $ — $ 2,367 $ 2,367 Commercial — — — — 3,393 3,393 Installment — — — — 1,109 1,109 Consumer 3,720 537 — 4,257 8,841 13,098 Secured credit card 448 312 571 1,331 14,310 15,641 Total loans $ 4,168 $ 849 $ 571 $ 5,588 $ 30,020 $ 35,608 Percentage of outstanding 11.7 % 2.4 % 1.6 % 15.7 % 84.3 % 100.0 % 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 % Beginning in 2021, we introduced an optional overdraft protection program service on certain demand deposit account programs that allows cardholders who opt-in to spend a pre-determined amount in excess of their available card balance. When overdrawn, these deposit accounts are reclassified as consumer loans. Overdrawn balances are unsecured and considered immediately due from the cardholder. Nonperforming Loans The following table presents the carrying value, gross of the related allowance for credit losses, of our nonperforming loans. See Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2020 for further information on the criteria for classification as nonperforming. September 30, 2021 December 31, 2020 (In thousands) Residential $ 208 $ 240 Installment 121 137 Secured credit card 571 1,363 Total loans $ 900 $ 1,740 Credit Quality Indicators We closely monitor and assess the credit quality and credit risk of our loan portfolio on an ongoing basis. We continuously review and update loan risk classifications. We evaluate our loans using non-classified or classified as the primary credit quality indicator. Classified loans are those loans that have demonstrated credit weakness where we believe there is a heightened risk of principal loss, including all impaired loans. Classified loans are generally internally categorized as substandard, doubtful or loss, consistent with regulatory guidelines. Our secured credit card portfolio is collateralized by cash deposits made by each cardholder in an amount equal to the user's available credit limit, which mitigates the risk of any significant credit losses we expect to incur. The table below presents the carrying value, gross of the related allowance for credit losses, of our loans within the primary credit quality indicators related to our loan portfolio: 12 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 6—Loans to Bank Customers (continued) September 30, 2021 December 31, 2020 Non-Classified Classified Non-Classified Classified (In thousands) Residential $ 2,159 $ 208 $ 2,768 $ 240 Commercial 3,393 — 3,435 — Installment 988 121 360 137 Consumer 13,098 — — — Secured credit card 15,070 571 13,465 1,363 Total loans $ 34,708 $ 900 $ 20,028 $ 1,740 Impaired Loans and Troubled Debt Restructurings When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a Troubled Debt Restructuring, or TDR. Our TDR modifications involve an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. As of September 30, 2021, none of our TDR modifications have been made in response to the COVID-19 pandemic. The following table presents our impaired loans and loans that we modified as TDRs as of September 30, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 Unpaid Principal Balance Carrying Value Unpaid Principal Balance Carrying Value (In thousands) Residential $ 208 $ 156 $ 240 $ 180 Installment 121 90 137 103 Allowance for Credit Losses Activity in the allowance for credit losses on our loan portfolio consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Balance, beginning of period $ 6,693 $ 570 $ 757 $ 1,166 Provision for loans 8,585 247 18,728 501 Loans charged off ( 7,873 ) ( 282 ) ( 12,198 ) ( 1,403 ) Recoveries of loans previously charged off 46 107 164 378 Balance, end of period $ 7,451 $ 642 $ 7,451 $ 642 Activity within our allowance for credit losses has increased during the comparable periods principally due to the introduction of our optional overdraft protection program services on certain demand deposit accounts. 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 13 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 7—Equity Method Investment (continued) 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 September 30, 2021, our net investment in TailFin Labs amounted to approximately $ 61.5 million and is included in the long term portion of prepaid expenses and other assets on our consolidated balance sheet. Equity in earnings and losses from TailFin Labs was an inconsequential amount for the three months ended September 30, 2021. We recorded equity in losses from TailFin Labs of $ 1.6 million for the three months ended September 30, 2020, and $ 2.3 million and $ 4.5 million for the nine months ended September 30, 2021 and 2020, respectively, which are recorded as a component of other income and expense on our consolidated statement of operations. Our total equity in earnings and losses also includes other investments held by our bank that are not material to these consolidated financial statements. Note 8— Deposits Deposits are categorized as non-interest or interest-bearing deposits as follows: September 30, 2021 December 31, 2020 (In thousands) Non-interest bearing deposit accounts $ 2,930,104 $ 2,704,050 Interest-bearing deposit accounts Checking accounts 5,748 5,060 Savings 7,457 8,505 GPR deposits 10,776 12,955 Time deposits, denominations greater than or equal to $100 4,480 3,767 Time deposits, denominations less than $100 821 779 Total interest-bearing deposit accounts 29,282 31,066 Total deposits $ 2,959,386 $ 2,735,116 The scheduled contractual maturities for total time deposits are presented in the table below: September 30, 2021 (In thousands) Due in 2021 $ 348 Due in 2022 2,013 Due in 2023 1,187 Due in 2024 564 Due in 2025 511 Thereafter 678 Total time deposits $ 5,301 Note 9— Debt 2019 Revolving Facility In October 2019, we entered into a secured credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit facility provides for a $ 100.0 million five-year revolving line of credit (the "2019 Revolving Facility"), maturing in October 2024. We use the proceeds of any borrowings under the 2019 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 September 30, 2021, we had no borrowings outstanding on the 2019 Revolving Facility and had the full amount available for use. 14 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 9—Debt (continued) At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus .50 %, (b) the Wells Fargo prime rate and (c) a daily rate equal to one-month LIBOR rate plus 1.0 % (the “Base Rate"), plus in either case an applicable margin. The margin is dependent upon on our total leverage ratio and varies from 1.25 % to 2.00 % for LIBOR Rate loans and .25 % to 1.00 % for Base Rate loans. We also pay a commitment fee, which varies from .20 % to .35 % per annum on the actual daily unused portions of the 2019 Revolving Facility. Letter of credit fees are payable in respect of outstanding letters of credit at a rate per annum equal to the applicable margin for LIBOR Rate loans. The 2019 Revolving Facility contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens, indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature of the business, transactions with affiliates and other matters customarily restricted in such agreements. We must also maintain a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as set forth in the credit agreement. At September 30, 2021, 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. We did no t incur any cash interest expense related to our debt during the three and nine months ended September 30, 2021, or during the three months ended September 30, 2020. Cash interest expense amounted to $ 0.6 million for the nine months ended September 30, 2020. Note 10— Income Taxes Income tax expense for the nine months ended September 30, 2021 and 2020 differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows: Nine Months Ended September 30, 2021 2020 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 0.8 1.3 General business credits ( 1.9 ) ( 2.6 ) Employee stock-based compensation ( 2.5 ) ( 0.7 ) IRC 162(m) limitation 6.4 4.5 Nondeductible expenses 0.1 0.4 Other ( 0.3 ) ( 0.5 ) Effective tax rate 23.6 % 23.4 % The effective tax rate for the nine months ended September 30, 2021 and 2020 differs from the statutory federal income tax rate of 21%, primarily due to state income taxes, net of federal tax benefits, general business credits, employee stock-based compensation, and the Internal Revenue Code (IRC) 162(m) limitation on the deductibility of executive compensation. The overall increase in the effective tax rate for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily due to an increase of $ 2.0 million on the IRC 162(m) limitation on the deductibility of executive compensation, partially offset by an increase of $ 1.5 million in excess tax benefits from stock-based compensation. We recognized an excess tax benefit on stock-based compensation of $ 1.9 million for the nine months ended September 30, 2021, compared to a $ 0.5 million excess tax benefit for the prior year comparable period. We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the nine months ended September 30, 2021, the provision for GILTI tax expense was not material to our financial statements. 15 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 10—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. As of September 30, 2021 and 2020, we did no t 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. During the second quarter of 2020, we released our valuation allowance against our capital loss carryforwards, as we recognized capital gains on the sale of certain investment securities during that period sufficient to offset our capital loss carryforward amount. We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. We remain subject to examination of our federal income tax return for the years ended December 31, 2017 through 2020. 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 that 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 September 30, 2021. We do not expect the outcome of this examination will have any material impact on our consolidated financial statements. As of September 30, 2021, 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. Of our total state net operating loss carryforwards, approximately $ 46.6 million will expire between 2023 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 $ 19.4 million that can be carried forward indefinitely and other state business tax credits of approximately $ 1.1 million that will expire between 2023 and 2027. As of September 30, 2021 and December 31, 2020, we had a liability of $ 11.0 million and $ 9.5 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows: Nine Months Ended September 30, 2021 2020 (In thousands) Beginning balance $ 9,518 $ 8,398 Increases related to positions taken during prior years — 235 Increases related to positions taken during the current year 1,470 1,200 Ending balance $ 10,988 $ 9,833 The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate $ 10,798 $ 9,657 As of September 30, 2021 and 2020, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $ 0.7 million and $ 0.8 million, respectively. Note 11— Stockholders' Equity Stock Repurchase Program In May 2017, our Board of Directors authorized, subject to regulatory approval, expansion of our stock repurchase program by an additional $ 150 million. As of September 30, 2021, we have an authorized $ 50 million remaining under our current stock repurchase program for any additional repurchases. Walmart Restricted Shares On January 2, 2020, we issued Walmart, in a private placement, 975,000 restricted shares of our Class A Common Stock. The shares vest in equal monthly increments through December 1, 2022. Walmart is entitled to voting rights and participate in any dividends paid from the issuance date on the unvested balance, and therefore, the total amount of restricted shares issued are included in our total Class A shares outstanding. As of September 30, 2021, there were 406,253 unvested shares outstanding. The estimated grant-date fair value of the restricted shares is recorded as a component of stock-based compensation expense over the related period we expect to benefit under the term of our relationship with Walmart. 16 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 12— Stock-Based Compensation We currently grant restricted stock unit awards to employees, directors and non-employee consultants under our 2010 Equity Incentive Plan and from time to time may also grant stock option awards. Through our 2010 Employee Stock Purchase Plan, employees are also able to purchase shares of our Class A common stock at a discount through payroll deductions. We have reserved shares of our Class A common stock for issuance under these plans. The total stock-based compensation expense recognized was $ 11.5 million and $ 11.8 million for the three months ended September 30, 2021 and 2020, respectively, and $ 37.1 million and $ 36.8 million for the nine months ended September 30, 2021 and 2020, respectively. Restricted Stock Units Restricted stock unit activity for awards subject to only service conditions was as follows for the nine months ended September 30, 2021: Shares Weighted-Average Grant-Date Fair Value (In thousands, except per share data) Outstanding at December 31, 2020 1,222 $ 36.24 Restricted stock units granted 951 48.74 Restricted stock units vested ( 429 ) 37.50 Restricted stock units canceled ( 205 ) 39.83 Outstanding at September 30, 2021 1,539 $ 43.14 Performance-Based Restricted Stock Units Performance-based restricted stock unit activity for the nine months ended September 30, 2021 was as follows: Shares Weighted-Average Grant-Date Fair Value (In thousands, except per share data) Outstanding at December 31, 2020 946 $ 35.62 Performance restricted stock units granted (at target) 401 46.93 Performance restricted stock units vested ( 241 ) 37.63 Performance restricted stock units canceled ( 65 ) 51.14 Adjustment for completed performance periods 113 34.04 Outstanding at September 30, 2021 1,154 $ 38.74 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 0 % 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 applicable vesting periods. Stock Options Total stock option activity for the nine months ended September 30, 2021 was as follows: Options Weighted-Average Exercise Price (In thousands, except per share data) Outstanding at December 31, 2020 1,634 $ 32.04 Options exercised ( 66 ) 27.85 Options canceled ( 363 ) 50.80 Outstanding at September 30, 2021 1,205 $ 26.62 Exercisable at September 30, 2021 705 $ 28.60 17 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 13— Earnings (Loss) per Common Share The calculation of basic and diluted earnings (loss) per share (EPS) was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands, except per share data) Basic earnings (loss) per Class A common share Numerator: Net income (loss) $ 7,335 $ ( 2,992 ) $ 58,003 $ 47,147 Amount attributable to unvested Walmart restricted shares ( 58 ) 43 ( 547 ) ( 742 ) Net income (loss) allocated to Class A common stockholders $ 7,277 $ ( 2,949 ) $ 57,456 $ 46,405 Denominator: Weighted-average Class A shares issued and outstanding 54,221 52,635 53,961 52,269 Basic earnings (loss) per Class A common share $ 0.13 $ ( 0.06 ) $ 1.06 $ 0.89 Diluted earnings (loss) per Class A common share Numerator: Net income (loss) allocated to Class A common stockholders $ 7,277 $ ( 2,949 ) $ 57,456 $ 46,405 Re-allocated earnings 1 — 12 16 Diluted net income (loss) allocated to Class A common stockholders $ 7,278 $ ( 2,949 ) $ 57,468 $ 46,421 Denominator: Weighted-average Class A shares issued and outstanding 54,221 52,635 53,961 52,269 Dilutive potential common shares: Stock options 506 — 483 208 Service-based restricted stock units 417 — 440 658 Performance-based restricted stock units 252 — 277 298 Employee stock purchase plan 19 — 19 22 Diluted weighted-average Class A shares issued and outstanding 55,415 52,635 55,180 53,455 Diluted earnings (loss) per Class A common share $ 0.13 $ ( 0.06 ) $ 1.04 $ 0.87 The restricted shares issued to Walmart contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing EPS pursuant to the two-class method. The computation above excludes income attributable to the unvested restricted shares from the numerator and excludes the dilutive impact of those underlying shares from the denominator. The number of weighted average shares issued and outstanding in periods of net loss are the same for basic and diluted EPS, as the effects of including potentially dilutive common shares is anti-dilutive. For the periods presented, we excluded certain restricted stock units and stock options outstanding (as applicable), which could potentially dilute basic EPS in the future, from the computation of diluted EPS as their effect was anti-dilutive. Additionally, we have excluded any performance-based restricted stock units where the performance contingency has not been met as of the end of the period. The following table shows the weighted-average number of shares excluded from the diluted EPS calculation as their effects were anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Class A common stock Options to purchase Class A common stock 139 2,192 139 488 Service-based restricted stock units 108 1,353 204 175 Performance-based restricted stock units 829 705 771 292 Unvested Walmart restricted shares 434 759 514 836 Total 1,510 5,009 1,628 1,791 18 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 14— Fair Value Measurements Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We determine the fair values of our financial instruments based on the fair value hierarchy established under applicable accounting guidance, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. For more information regarding the fair value hierarchy and how we measure fair value, see Note 2–Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2020. As of September 30, 2021 and December 31, 2020, our assets and liabilities carried at fair value on a recurring basis were as follows: Level 1 Level 2 Level 3 Total Fair Value September 30, 2021 (In thousands) Assets Corporate bonds $ — $ 9,921 $ — $ 9,921 Agency bond securities — 223,891 — 223,891 Agency mortgage-backed securities — 918,053 — 918,053 Municipal bonds — 28,224 — 28,224 Asset-backed securities — 8,127 — 8,127 Total assets $ — $ 1,188,216 $ — $ 1,188,216 Liabilities Contingent consideration $ — $ — $ 2,300 $ 2,300 December 31, 2020 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 We based the fair value of our fixed income securities held as of September 30, 2021 and December 31, 2020 on quoted prices in active markets for similar assets. We had no transfers between Level 1, Level 2 or Level 3 assets or liabilities during the three and nine months ended September 30, 2021 or 2020. The following table presents changes in our contingent consideration payable for the three and nine months ended September 30, 2021 and 2020, which is categorized in Level 3 of the fair value hierarchy: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Balance, beginning of period $ 3,300 $ 7,300 $ 5,300 $ 9,300 Payments of contingent consideration ( 1,000 ) ( 1,000 ) ( 3,000 ) ( 3,000 ) Balance, end of period $ 2,300 $ 6,300 $ 2,300 $ 6,300 19 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 15— Fair Value of Financial Instruments The following describes the valuation technique for determining the fair value of financial instruments, whether or not such instruments are carried at fair value on our consolidated balance sheets. Short-term Financial Instruments Our short-term financial instruments consist principally of unrestricted and restricted cash and cash equivalents, settlement assets and obligations, and obligations to customers . These financial instruments are short-term in nature, and, accordingly, we believe their carrying amounts approximate their fair values. Under the fair value hierarchy, these instruments are classified as Level 1. Investment Securities The fair values of investment securities have been derived using methodologies referenced in Note 2–Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2020 . Under the fair value hierarchy, our investment securities are classified as Level 2. Loans We determined the fair values of loans by discounting both principal and interest cash flows expected to be collected using a discount rate commensurate with the risk that we believe a market participant would consider in determining fair value. Under the fair value hierarchy, our loans are classified as Level 3. Deposits The fair value of demand and interest checking deposits and savings deposits is the amount payable on demand at the reporting date. We determined the fair value of time deposits by discounting expected future cash flows using market-derived rates based on our market yields on certificates of deposit, by maturity, at the measurement date. Under the fair value hierarchy, our deposits are classified as Level 2. Contingent Consideration The fair value of contingent consideration obligations, such as the earn-out associated with our acquisition of UniRush LLC ("UniRush") in 2017, is estimated through valuation models designed to estimate the probability of such contingent payments based on various assumptions. Estimated payments are discounted using present value techniques to arrive at an estimated fair value. Our contingent consideration payable is classified as Level 3 because we use unobservable inputs to estimate fair value, including the probability of achieving certain earnings thresholds and appropriate discount rates. Changes in fair value of contingent consideration are recorded through operating expenses. Debt The fair value of our revolving line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the revolving line of credit is classified as a Level 2 liability in the fair value hierarchy. Fair Value of Financial Instruments The carrying values and fair values of certain financial instruments that were not carried at fair value, excluding short-term financial instruments for which the carrying value approximates fair value , at September 30, 2021 and December 31, 2020 are presented in the table below. September 30, 2021 December 31, 2020 Carrying Value Fair Value Carrying Value Fair Value (In thousands) Financial Assets Loans to bank customers, net of allowance $ 28,157 $ 27,130 $ 21,011 $ 20,421 Financial Liabilities Deposits $ 2,959,386 $ 2,959,325 $ 2,735,116 $ 2,735,072 20 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 16— 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 between approximately 1 year to 4 years, some of which include renewal options. As of December 31, 2020, we committed to a remote workforce strategy for most U.S. based employees and recorded a substantial impairment charge 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 $ 1.0 million and $ 2.3 million for the three months ended September 30, 2021 and 2020, respectively, and $ 2.8 million and $ 6.9 million for the nine months ended September 30, 2021 and 2020, respectively. Our lease expense is generally based on fixed payments stated within the agreements. Any variable payments for non-lease components and other short term lease expenses are not considered material. Supplemental Information Supplemental information related to our ROU assets and related lease liabilities is as follows: September 30, 2021 Cash paid for operating lease liabilities (in thousands) $ 7,987 Weighted average remaining lease term (years) 3.0 Weighted average discount rate 4.8 % Maturities of our operating lease liabilities as of September 30, 2021 is as follows: Operating Leases (In thousands) Remainder of 2021 $ 2,114 2022 7,819 2023 3,726 2024 3,644 2025 1,008 18,311 Less: imputed interest ( 1,586 ) Total lease liabilities $ 16,725 Note 17— 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 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 September 30, 2021, the estimated fair value of our remaining earn-out payments amounted to $ 2.3 million, and is recorded in the current portion of other accrued liabilities on our consolidated balance sheets. 21 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 17—Commitments and Contingencies (continued) 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. Refer to Note 20 — Subsequent Event for additional information regarding litigation and claims. 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. 22 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 18— Significant Retailer and Partner Concentration A credit concentration may exist if customers are involved in similar industries, economic sectors, and geographic regions. Our retail distributors operate in similar economic sectors, but diverse domestic geographic regions. The loss of a significant retail distributor could have a material adverse effect upon our card sales, profitability, and revenue growth. Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Walmart 23 % 27 % 23 % 27 % In addition, approximately 23 % and 19 % of our total operating revenues for the three and nine months ended September 30, 2021, respectively, were generated from a single BaaS partner, without a corresponding concentration to our gross profit for the period. Note 19— Segment Information Effective beginning with the first quarter of 2021, we have realigned our segment financial reporting based on how our current Chief Operating Decision Maker (“CODM”) manages our businesses, including resource allocation and performance assessment. Our CODM organizes and manages the business primarily on the basis of the channels in which our product and services are offered and uses net revenues and segment profit to assess profitability. Segment profit reflects each segment's net revenue less direct costs, such as sales and marketing expenses, processing expenses, third-party call center support and transaction losses. As a result of this realignment, our operations are now aggregated amongst three reportable segments: 1) Consumer Services, 2) Business to Business ("B2B") Services, and 3) Money Movement Services. Our Consumer Services segment consists of revenues and expenses derived from deposit account programs, such as consumer checking accounts, prepaid cards, secured credit cards, and gift cards that we offer to consumers (i) through distribution arrangements with more than 90,000 retail locations and thousands of neighborhood Financial Service Center locations (the "Retail" channel), and (ii) directly through various marketing channels, such as online search engine optimization, online displays, direct mail campaigns, mobile advertising, and affiliate referral programs (the "Direct" channel). Our B2B Services segment consists of revenues and expenses derived from (i) our partnerships with some of America's most prominent consumer and technology companies that make our banking products and services available to their consumers, partners and workforce through integration with our banking platform (the "Banking-as-a-Service", or "BaaS" channel), and (ii) a comprehensive payroll platform that we offer to corporate enterprises (the "Employer" channel) to facilitate payments for today’s workforce. Our products and services in this segment include deposit account programs, such as consumer and small business checking accounts and prepaid cards, as well as our Simply Paid Disbursements services utilized by our partners. Our Money Movement Services segment consists of revenues and expenses generated on a per transaction basis from our services that specialize in facilitating the movement of cash on behalf of consumers and businesses, such as money processing services and tax refund processing services. Our money processing services are marketed to third-party banks, program managers, and other companies seeking cash deposit and disbursement capabilities for their customers. Those customers, including our own cardholders, can access our cash deposit and disbursement services at any of the locations within our network of retail distributors and neighborhood Financial Service Centers. We market our tax-related financial services through a network of tax preparation franchises, independent tax professionals and online tax preparation providers. The Corporate and Other segment primarily consists of net interest income earned by our bank, eliminations of intersegment revenues and expenses, unallocated corporate expenses, and other fixed costs that are not considered when our CODM evaluates segment performance, such as salaries, wages and related benefits for our employees, professional service fees, software licenses, telephone and communication costs, rent and utilities, and insurance. We do not evaluate performance or allocate resources based on segment asset data, and therefore such information is not presented. 23 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 19—Segment Information (continued) We have restated segment information for the historical periods presented herein to conform to our current presentation. The change in segment presentation does not affect the financial results of our consolidated statements of operations, balance sheets or statements of cash flows as previously presented. The following tables present financial information for each of our reportable segments for the periods then ended: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Segment Revenue (In thousands) Consumer Services $ 167,455 $ 150,554 $ 533,889 $ 466,115 B2B Services 118,171 77,064 336,735 227,523 Money Movement Services 45,596 56,536 201,982 242,255 Corporate and Other ( 2,298 ) ( 4,710 ) ( 5,939 ) ( 9,889 ) Total segment revenues 328,924 279,444 1,066,667 926,004 Net revenue adjustment 10,575 11,626 35,691 43,475 Total operating revenues $ 339,499 $ 291,070 $ 1,102,358 $ 969,479 Net revenue adjustments represent commissions and certain processing-related costs associated with our BaaS products and services, which are netted against our B2B Services revenues when evaluating segment performance. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Segment Profit (In thousands) Consumer Services $ 60,084 $ 51,494 $ 169,401 $ 160,291 B2B Services 18,501 16,372 54,208 52,526 Money Movement Services 18,718 17,974 105,724 112,535 Corporate and Other ( 51,057 ) ( 52,151 ) ( 146,803 ) ( 154,295 ) Total segment profit 46,246 33,689 182,530 171,057 Reconciliation to income (loss) before income taxes Depreciation and amortization of property, equipment and internal-use software 15,265 14,839 42,446 43,014 Stock based compensation and related employer taxes 11,579 12,018 37,205 37,354 Amortization of acquired intangible assets 6,944 6,944 20,831 21,175 Impairment charges — 31 — 1,099 Other expense 3,628 2,507 7,430 6,826 Operating income (loss) 8,830 ( 2,650 ) 74,618 61,589 Interest expense, net 38 39 113 723 Other income (expense), net 849 ( 1,650 ) 1,396 696 Income (loss) before income taxes $ 9,641 $ ( 4,339 ) $ 75,901 $ 61,562 24 Table of Contents GREEN DOT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED) Note 20— Subsequent Event In May 2021, we announced that we entered into a definitive agreement to purchase the assets and operations of Tax Refund Solutions (“TRS”), a business segment of Republic Bank & Trust Company ("Republic Bank"), subject to customary closing conditions. Pursuant to the terms of the definitive agreement, we agreed to pay Republic Bank approximately $ 165 million in cash for the TRS assets. On October 4, 2021, we announced we had been unable to obtain the Federal Reserve’s approval of or non-objection to the transaction, and therefore, the transaction would not be consummated. The agreement provides for a termination fee payable by us of $ 5 million, which we recorded in the fourth quarter of 2021. On October 5, 2021, Republic Bank filed a claim against us in the Court of Chancery of the State of Delaware. The lawsuit claims that we have breached the contract in which we agreed, subject to certain conditions, to purchase the TRS business. The lawsuit seeks, among other forms of relief, an order of specific performance requiring that we close the transaction or, in the alternative, monetary damages. We are defending the action. Given the uncertainty of litigation and the preliminary stage of this claim, we are currently unable to estimate the probability of the outcome of this action or the range of reasonably possible loss, if any. 25 Table of Contents