GREEN DOT CORPORATION
This Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our future results that
are subject to the safe harbors created under the Securities Act of 1933, as
amended, (the "Securities Act") and the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"). All statements other than statements of
historical facts are statements that could be deemed to be forward-looking
statements. These statements are based on current expectations, estimates,
forecasts and projections about the industries in which we operate and the
beliefs and assumptions of our management. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "intends," "plans," "believes,"
"seeks," "estimates," "continues," "endeavors," "strives," "may" and "assumes,"
variations of such words and similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
projections of our future financial performance, our anticipated growth and
trends in our businesses, and other characterizations of future events or
circumstances are forward-looking statements. Readers are cautioned that these
forward-looking statements are subject to risks, uncertainties, and assumptions
that are difficult to predict, including the continuing impact of the
coronavirus ("COVID-19") pandemic on our business, results of operations and
financial condition and our and the U.S. government or regulator's further
responses to it, and those identified below, under "Part II, Item 1A. Risk
Factors," and elsewhere herein. Therefore, actual results may differ materially
and adversely from those expressed in any forward-looking statements. We
undertake no obligation to revise or update any forward-looking statements for
any reason.
In this Quarterly Report, unless otherwise specified or the context otherwise
requires, "Green Dot," "we," "us," and "our" refer to Green Dot Corporation and
its consolidated subsidiaries.
Overview
Green Dot Corporation is a financial technology and registered bank holding company committed to giving all people the power to bank seamlessly, affordably, and with confidence. 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. Through our bank, we offer a suite of financial products to consumers and businesses including debit, prepaid, checking, credit and payroll cards, as well as robust money processing services, such as tax refund processing, cash deposits and disbursements. Our Chief Operating Decision Maker (our "CODM" who is our Chief Executive Officer) organizes and manages our businesses primarily on the basis of the channels in which our product and services are offered and uses net revenue 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. Our operations are aggregated amongst three reportable segments: 1) Consumer Services, 2) Business to Business ("B2B") Services, and 3) Money Movement Services. Net interest income and certain other investment income earned by our bank, eliminations of intersegment revenues and expenses, unallocated corporate expenses, and other costs that are not considered when our CODM evaluates the performance of our three reportable segments are recorded in Corporate and Other expenses. Refer to our 2021 Annual Report on Form 10-K "Part 1, Item 1. Business" for more detailed information about our operations and Note 19-Segment Information in the notes to the accompanying unaudited consolidated financial statements.
Consolidated Financial Results and Trends
Our consolidated results of operations for the three months ended
Three Months Ended
March 31,
2022 2021 Change %
(In thousands, except percentages)
Total operating revenues $ 400,617 $ 393,486 $ 7,131 1.8 %
Total operating expenses 349,025 359,501 (10,476) (2.9) %
Net income 38,624 25,735 12,889 50.1 %
Refer to "Segment Results" for a summary of financial results of each of our reportable segments.
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Total operating revenues
Our total operating revenues for the three months endedMarch 31, 2022 increased$7.1 million , or 2% over the prior year comparable period, generating revenue growth across our B2B Services and Money Movement Services segments, partially offset by lower revenues earned from our Consumer Services segment. Our deposit account programs within our Consumer Services and B2B Services segments have benefited from shifts in consumer behavior towards electronic payments throughout the COVID-19 pandemic, which created a higher demand and usage of our products and services. In part, this was driven by the economic stimulus funds and incremental unemployment benefits enacted by theU.S. federal government distributed to new and existing customers. InDecember 2020 , an additional$900 billion economic stimulus package was signed into law, providing for additional direct payments and enhanced unemployment benefits. InMarch 2021 , another$1.9 trillion economic package was authorized under the American Rescue Plan Act of 2021, which provided for additional direct payments, enhanced unemployment benefits that expired inSeptember 2021 and monthly child tax credit payments that expired inDecember 2021 . No such economic stimulus packages have been enacted to date in 2022 and as a result, our key metrics have normalized, creating difficult year-over-year comparisons. The timing and magnitude of these federal relief programs in the prior year has resulted in decreases in our consolidated gross dollar volume, active accounts and purchase volume for the three months endedMarch 31, 2022 , which decreased 16%, 22%, and 31%, respectively. In our Consumer Services segment, gross dollar volume, the number of active accounts, direct deposit accounts and purchase volume declined year-over-year for three months endedMarch 31, 2022 by 35%, 25%, 29% and 30%, respectively. We believe these decreases are primarily attributable to the timing of stimulus payments and other federal benefits received by our cardholders in 2021, as discussed above, which has impacted the amount of revenue we earn, such as monthly maintenance fees, ATM fees and interchange. These revenue declines in our Consumer Services segment were partially offset by the customer adoption of recent features, such as our optional overdraft protection program services made available to cardholders across our portfolios, and favorable decreases in the amount of cash back rewards on our legacy card programs due to changes in consumer behavioral trends and the estimated redemption amounts. Within our B2B Services segment, gross dollar volume grew overall by 3% year-over-year for three months endedMarch 31, 2022 , while active accounts and purchase volume decreased by 17% and 34%, respectively. Overall, many of our BaaS partners within our B2B Services segment were impacted by similar trends seen in our Consumer Services segment, however, growth in gross dollar volume for certain programs resulted in a net increase in segment revenue due to higher program management service fees earned from BaaS partners.
The impact of further governmental actions and whether or not any of these benefits are reinstituted may impact our future results. We expect our key performance indicators to normalize on a year-over-year basis as the effect of federal and state governmental actions continues to lessen.
Total Money Movement Services segment revenues for the three months endedMarch 31, 2022 increased by 8%, over the prior year comparable period, driven by a 29% increase in the number of tax refunds processed. The increase in the number of tax refunds processed is principally attributable to the extension of the prior year tax season, which shifted the number of tax refunds processed from the first quarter of 2021 into the second quarter of 2021. Revenues within our Money Movement Services were partially offset by a decrease of 14% in cash transfers processed. The Green Dot Network is a service provider to accountholders in our Consumer Services and B2B Services segments, as well as third-party programs. The decrease in cash transfers was the result of lower active accounts within our Consumer Services and B2B Services segments discussed above. 25 -------------------------------------------------------------------------------- Table of Contents Total operating expenses Our total operating expenses for the three months endedMarch 31, 2022 decreased by$10.5 million , or 3%, over the prior year comparable period. This decrease was a result of several factors, including lower sales and marketing expenses due to a decrease in sales commissions from lower revenues on products subject to revenue-sharing agreements and lower third-party call center support (a component of compensation and benefits expenses) within our Consumer Services and B2B Services segments. In 2021, we increased our third-party call center support costs to meet the increased demand in our customer service center in an effort to improve our customers' overall experience. We have benefited from these improvements with our customers, which resulted in lower third-party call center costs in the first quarter of 2022. These decreases were partially offset by an increase in processing expenses within our B2B Services segment associated with the growth of certain BaaS account programs, and year-over-year growth in transaction losses, a component within other general and administrative expenses. The increase in transaction losses was the result of increases in gross dollar volume in our B2B Services segment and the increasing customer adoption of our overdraft protection services in our Consumer Services segment since its introduction in early 2021. We intend to continue to make growth-oriented investments and incur other expenditures that will benefit our financial results in 2022 and beyond. Our growth-oriented investments are focused on marketing efforts for our GO2bank product and building a modern and scalable core banking and card management platform that reduces our reliance on third-party processors and increases our ability to innovate and preserve margins. To support our efforts in building a modern banking platform, we expect our software license and hosting costs, a component of other general and administrative expenses, and salary and wage expenses, a component of compensation and benefits expenses to increase year-over-year.
Income taxes
Our income tax expense for the three months endedMarch 31, 2022 increased$5.0 million , or 70%, on a year-over-year basis. The increase in our income tax expense was primarily due to an increase in our taxable income and an increase in our effective tax rate. Our effective tax rate for the three months endedMarch 31, 2022 was 23.9%, compared to 21.7% for the prior year period. The increase in our effective rate was primarily due to a decline in excess tax benefits from stock-based compensation and an increase in state income taxes expense, partially offset by the impact of general business credits and a reduction in the amount of compensation that was subject to the IRC 162(m) limitation on the deductibility of certain executive compensation.
COVID-19 Update
The health and safety of our employees remains a top priority for our business and in theU.S. , we have closed most of ourU.S. leased office locations and shifted to a remote working strategy. However, we will be required to continue making our contractual payments until our operating leases are formally terminated or expire. As a result of the resurgence of the COVID-19 pandemic's Omicron variant inChina during the first quarter of 2022, we closed our offices again inChina and shifted to a remote workforce strategy inChina , which over a prolonged period of time, could potentially delay our ability to launch new products or services. It is possible that we may continue to experience similar issues in the future due to the pandemic. In response to the economic impact caused by COVID-19, theFederal Reserve announced reductions in short-term interest rates inMarch 2020 , which in recent years has impacted the yields on our cash and investment balances. We have continued to experience a reduction in the amount of interest income we have earned compared to recent periods prior to COVID-19. However, in earlyMay 2022 , theFederal Reserve announced an increase in the federal funds rate target range by 0.50%, resulting in a range of 0.75% to 1.00%, and while uncertain, it is expected that theFederal Reserve will continue to increase interest rates in 2022 to slow the effects of economic inflation tied to the COVID-19 pandemic. TheFederal Reserve's decision-making policies for short-term interest rates will continue to impact the amount of net interest income we earn in the future. The duration and magnitude of the continuing effects of COVID-19 remain uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, new variants of the virus, the nature of and duration for which preventative measures remain in place, the extent and effectiveness of containment and mitigation efforts, including vaccination programs and mandates, and the type of stimulus measures and other policy responses that theU.S. government may further adopt, if any.
See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to the COVID-19 pandemic.
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Consolidated Key Metrics
We review a number of metrics to help us monitor the performance of, and identify trends affecting, our business. We believe the following measures are the primary indicators of our quarterly and annual revenues:
Three Months Ended March 31,
2022 2021 Change %
(In millions, except percentages)
Gross Dollar Volume $ 17,436 $ 20,666 $ (3,230) (15.6) %
Number of Active Accounts* 4.93 6.35 (1.42) (22.4) %
Purchase Volume $ 7,192 $ 10,445 $ (3,253) (31.1) %
Cash Transfers 8.87 10.32 (1.45) (14.1) %
Tax Refunds Processed 9.61 7.44 2.17 29.2 %
* Represents the number of active accounts as of
See "Segment Results" for additional information and discussion regarding key metrics performance by segment. The definitions of our key metrics are as follows:
Gross Dollar Volume - Represents the total dollar volume of funds loaded to our account products from direct deposit and non-direct deposit sources. A substantial portion of our gross dollar volume is generated from direct deposit sources. We use this metric to analyze the total amount of money moving onto our account programs, and to determine the overall engagement and usage patterns of our account holder base. This metric also serves as a leading indicator of revenue generated through our Consumer Services and B2B Services segments, inclusive of fees charged to account holders and interchange revenues generated through the spending of account balances. Number of Active Accounts - Represents any bank account within our Consumer Services and B2B Services segments that is subject to theUSA PATRIOT Act of 2001 compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits. This metric includes checking accounts, general purpose reloadable prepaid card accounts, and secured credit card accounts in our portfolio that had at least one purchase, deposit or ATM withdrawal transaction during the applicable quarter. We use this metric to analyze the overall size of our active customer base and to analyze multiple metrics expressed as an average across this active account base. Our direct deposit active accounts within our Consumer Services segment, on average, have the longest tenure and generate the majority of our gross dollar volume in any period and thus, generate more revenue over their lifetime than other active accounts. Refer to sub-section entitled Consumer Services under "Segment Results" below for key metric results for direct deposit active accounts. Purchase Volume - Represents the total dollar volume of purchase transactions made by our account holders. This metric excludes the dollar volume of ATM withdrawals and volume generated by certain BaaS programs where the BaaS partner receives interchange and we earn a platform fee. We use this metric to analyze interchange revenue, which is a key component of our financial performance. Number of Cash Transfers - Represents the total number of cash transfer transactions conducted by consumers, such as a point-of-sale swipe reload transaction, the purchase of a MoneyPak or an e-cash mobile remittance transaction marketed under various brand names, that we conducted through our retail distributors in a specified period. This metric excludes disbursements made through our Simply Paid wage disbursement platform. We review this metric as a measure of the size and scale of our retail cash processing network, as an indicator of customer engagement and usage of our products and services, and to analyze cash transfer revenue, which is a key component of our financial performance. Number of Tax Refunds Processed - Represents the total number of tax refunds processed in a specified period. The number of tax refunds processed is most concentrated during the first half of each year and is minimal during the second half of each year. We review this metric as a measure of the size and scale of our tax refund processing platform and as an indicator of customer engagement and usage of its products and services. 27
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Key components of our results of operations
Operating Revenues
We classify our operating revenues into the following four categories:
Card Revenues and Other Fees - Card revenues consist of monthly maintenance fees, ATM fees, new card fees and other revenues. We charge maintenance fees on prepaid cards, checking accounts and certain cash transfer products, such as MoneyPak, pursuant to the terms and conditions in our customer agreements. We charge ATM fees to cardholders when they withdraw money at certain ATMs in accordance with the terms and conditions in our cardholder agreements. We charge new card fees, if applicable, when a consumer purchases a prepaid card, gift card, or a checking account product through our Retail channel. Other revenues consist primarily of revenue associated with our gift card program, annual fees associated with our secured credit card portfolio, transaction-based fees, fees associated with optional products or services, such as our overdraft protection program, and cash-back rewards we offer to cardholders. Our cash-back rewards are recorded as a reduction to card revenues and other fees. Also included in card revenues and other fees are program management fees earned from our BaaS partners for programs we manage on their behalf. Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active accounts in our portfolio and the average fee assessed per account. Our average monthly maintenance fee per active account depends upon the mix of products in our portfolio at any given point in time and upon the extent to which fees are waived based on various incentives provided to customers in an effort to encourage higher usage and retention. Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction. The average fee per ATM transaction depends upon the mix of products in our portfolio at any given point in time and the extent to which cardholders use ATMs within our free network that carry no fee for cash withdrawal transactions. Our aggregate new card fee revenues vary based upon the number of prepaid cards and checking accounts activated and the average new card fee. The average new card fee depends primarily upon the mix of products that we sell since there are variations in new account fees based on the product and/or the location or source where our products are purchased. The revenue we earn from each of these fees may also vary depending upon the channel in which the active accounts were acquired. For example, certain BaaS programs may not assess monthly maintenance fees and as a result, these accounts may generate lower fee revenue than other active accounts. Our aggregate other fees vary primarily based upon account sales of all types, gift card sales, purchase transactions and the number of active accounts in our portfolio. Cash Processing Revenues - Cash processing revenues (which we have previously referred to as processing and settlement services revenues) consist of cash transfer revenues, tax refund processing service revenues, Simply Paid disbursement revenues and other tax processing service revenues. We earn cash transfer revenues when consumers fund their cards through a reload transaction at a Green Dot Network retail location. Our aggregate cash transfer revenues vary based upon the mix of locations where reload transactions occur, since reload fees vary by location. We earn tax refund processing service revenues at the point in time when a customer of a third-party tax preparation company chooses to pay his or her tax preparation fee through the use of our tax refund processing services. We earn Simply Paid disbursement fees from our business partners at the point in time payment disbursements are made. Interchange Revenues - We earn interchange revenues from fees remitted by the merchant's bank, which are based on rates established by the payment networks, at the point in time when customers make purchase transactions using our products. Our aggregate interchange revenues vary based primarily on the number of active accounts in our portfolio, the average transactional volume of the active accounts in our portfolio and on the mix of cardholder purchases between those using signature identification technologies and those using personal identification numbers and the corresponding rates. Interest Income, net - Net interest income represents the difference between the interest income earned on our interest-earning assets and the interest expense on our interest-bearing liabilities held atGreen Dot Bank . Interest-earning assets include cash from customer deposits, loans, and investment securities. Our interest-bearing liabilities held atGreen Dot Bank include interest-bearing deposits. Our net interest income and our net interest margin fluctuate based on changes in the federal funds interest rates and changes in the amount and composition of our interest-bearing assets and liabilities. 28
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Operating Expenses
We classify our operating expenses into the following four categories:
Sales and Marketing Expenses - Sales and marketing expenses consist primarily of the commissions we pay to our retail distributors, brokers and partners, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards and promotional materials to our retail distributors and personalized debit cards to consumers who have activated their cards. We generally establish commission percentages in long-term distribution agreements with our retail distributors and partners. Aggregate commissions with our retail distributors are determined by the number of account products and cash transfers sold at their respective retail stores. Commissions with our partners and, in certain cases, our retail distributors are determined by the revenue generated from the ongoing use of the associated card programs. We incur advertising and marketing expenses for television, sponsorships, online and in-store promotions. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an extended period of time. For this reason, these expenses do not always track changes in our operating revenues. Our manufacturing and distribution costs vary primarily based on the number of accounts activated by consumers. Compensation and Benefits Expenses - Compensation and benefits expenses represent the compensation and benefits that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations, handle routine customer service inquiries and provide consulting support in the area of IT operations and elsewhere. Compensation and benefits expenses associated with our customer service and loss management functions generally vary in line with the size of our active account portfolio, while the expenses associated with other functions do not. Processing Expenses - Processing expenses consist primarily of the fees charged to us by the payment networks, which process transactions for us, the third-party card processors that maintain the records of our customers' accounts and process transaction authorizations and postings for us and the third-party banks that issue our accounts. These costs generally vary based on the total number of active accounts in our portfolio and gross dollar volume transacted by those accounts. Also included in processing expenses are bank fees associated with our tax refund processing services and gateway and network fees associated with our Simply Paid disbursement services. Bank fees generally vary based on the total number of tax refund transfers processed and gateway and network fees vary based on the numbers of disbursements made. Other General and Administrative Expenses - Other general and administrative expenses consist primarily of professional service fees, telephone and communication costs, depreciation and amortization of our property and equipment, amortization of our intangible assets, impairment charges of long-lived assets, transaction losses (losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and communication costs primarily from customers contacting us through our toll-free telephone numbers. These costs vary with the total number of active accounts in our portfolio, as do losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud. Costs associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, impairment charges of long-lived assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
Income Tax Expense
Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting from the sale of our products and services.
Critical Accounting Estimates
Reference is made to the critical accounting estimates disclosed in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended
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Comparison of Three-Month Periods Ended
Operating Revenues
The following table presents a breakdown of our operating revenues among card
revenues and other fees, cash processing revenues, interchange revenues and net
interest income:
Three Months Ended
2022 2021
% of Total % of Total
Amount Operating Revenues Amount Operating Revenues
(In thousands, except percentages)
Operating revenues:
Card revenues and other fees $ 212,828 53.1 % $ 186,012 47.2 %
Cash processing revenues 100,028 25.0 90,915 23.1
Interchange revenues 78,856 19.7 111,226 28.3
Interest income, net 8,905 2.2 5,333 1.4
Total operating revenues $ 400,617 100.0 % $ 393,486 100.0 %
Card Revenues and Other Fees - Card revenues and other fees totaled $212.8
million for the three months ended March 31, 2022 , an increase of $26.8 million ,
or 14.4%, from the comparable prior year period. Card revenues and other fees
increased primarily due to growth in gross dollar volume for certain B2B
Services segment programs, which resulted in higher program management service
fees earned from BaaS partners. In addition, card revenues and other fees also
increased due to optional features launched on our card programs, such as our
overdraft protection program, as well as a favorable decrease in the estimated
accrual of cash back rewards, which we record as a reduction to revenue. Our
estimate of cash rewards varies based on multiple factors including the terms
and conditions of the cash back program currently in effect, customer activity
and customer redemption rates. These increases were partially offset by
decreases in cardholder fees, such as monthly maintenance fees and ATM fees for
the reasons discussed above in our "Overview."
Cash Processing Revenues - Cash processing revenues totaled $100.0 million for
the three months ended March 31, 2022 , an increase of $9.1 million , or 10%, from
the comparable prior year period. The increase is primarily due to the increase
in number of tax refunds processed, principally attributable to the extension of
the prior year tax season which shifted the number of tax refunds processed from
the first quarter of 2021 into the second quarter of 2021. These increases were
partially offset by a decline in the number of cash transfers processed as a
result of lower active accounts within our Consumer Services and B2B Services
segments.
Interchange Revenues - Interchange revenues totaled $78.9 million for the three
months ended March 31, 2022 , a decrease of $32.3 million , or 29%, from the
comparable prior year period. The decrease was primarily due to a decrease in
purchase volume during the three months ended March 31, 2022 , partially offset
by a higher effective interchange rate earned as a result of a lower average
dollar amount purchased per transaction. As interchange fees have both fixed and
variable components, the effective rate we earn varies based on the size of
transactions, amongst other factors.
Interest Income, net - Net interest income totaled $8.9 million for the three
months ended March 31, 2022 , an increase of $3.6 million , or 68%, from the
comparable prior year period. The increase in net interest income earned was the
result of an increase in the size of our investment securities portfolio, funded
primarily from the use of our cardholder deposit account programs. Capital
commitment relief granted to us at the end of 2020 by the Federal Reserve on our
prepaid card deposits has provided greater flexibility in how we can utilize our
cash and cash equivalents, and as a result, we purchased additional
available-for-sale investment securities compared to the prior year period.
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Operating Expenses
The following table presents a breakdown of our operating expenses among sales and marketing, compensation and benefits, processing, and other general and administrative expenses:
Three Months Ended
2022 2021
% of Total % of Total
Amount Operating Revenues Amount Operating Revenues
(In thousands, except percentages)
Operating expenses:
Sales and marketing expenses $ 83,526 20.8 % $ 118,903 30.2 %
Compensation and benefits expenses 66,264 16.5 74,967 19.1
Processing expenses 112,092 28.0 97,669 24.8
Other general and administrative expenses 87,143 21.8 67,962 17.3
Total operating expenses $ 349,025 87.1 % $ 359,501 91.4 %
Sales and Marketing Expenses - Sales and marketing expenses totaled $83.5
million for the three months ended March 31, 2022 , a decrease of $35.4 million ,
or 30% from the comparable prior year period. This decrease was primarily driven
by a decrease in sales commissions due to lower revenues generated from certain
products that are subject to revenue-sharing agreements and a decrease in
marketing expenses.
Compensation and Benefits Expenses - Compensation and benefits expenses totaled
$66.3 million for the three months ended March 31, 2022 , a decrease of $8.7
million or 12% from the comparable prior year period. The decrease was primarily
due to a reduction in third-party call center support costs due to a decline in
active accounts and our efforts to improve customer service over the course of
2021, as well as lower employee stock-based compensation driven by fluctuations
in the expected achievement of certain performance-based awards for the
comparable periods.
Processing Expenses - Processing expenses totaled $112.1 million for the three
months ended March 31, 2022 , an increase of $14.4 million or 15% from the
comparable prior year period. This increase was principally due to growth in
certain BaaS account programs within our B2B Services segment and overall volume
of transactions processed through our consolidated platform.
Other General and Administrative Expenses - Other general and administrative
expenses totaled $87.1 million for the three months ended March 31, 2022 , an
increase of $19.1 million or 28%, from the comparable prior year period. This
increase was primarily due to a year-over-year growth in transaction losses as a
result of increases in gross dollar volume in our B2B Services segment and the
increasing customer adoption of our overdraft protection services in our
Consumer Services segment, as well as higher professional fees and software
license expenses as a result of our investments in our modern banking platform.
These increases were partially offset by lower telephone and communication
expenses as a result of decreases in third-party call center support.
Income Taxes
The following table presents a breakdown of our effective tax rate among federal, state, and other:
Three Months Ended
2022 2021
U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 1.3
0.7
General business credits (1.6) (2.2) Employee stock-based compensation 1.2 (6.1) IRC 162(m) limitation 2.5 8.4 Nondeductible expenses (0.4) 0.3 Other (0.1) (0.4) Effective tax rate 23.9 % 21.7 % Our income tax expense totaled$12.1 million for the three months endedMarch 31, 2022 , an increase of$5.0 million or 70% from the prior year comparable period, primarily due to an increase in taxable income and our effective tax rate. The increase in the effective tax rate for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 is primarily due to a decline in excess tax benefits from stock-based compensation and an increase in state income taxes expense. These increases were partially offset by the impact 31
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of general business credits and a reduction in the amount of compensation that was subject to the IRC 162(m) limitation on the deductibility of certain executive compensation.
The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.
Segment Results
Consumer Services
The results of operations and key metrics of our Consumer Services segment for
the three months ended
Three Months Ended March
31,
2022 2021 Change %
(In thousands, except percentages)Financial Results Segment revenues$ 158,757 $ 184,341 $ (25,584) (13.9) % Segment expenses 104,469 130,814 (26,345) (20.1) % Segment profit$ 54,288 $ 53,527 $ 761 1.4 % Key Metrics (In millions, except percentages) Gross Dollar Volume$ 6,621 $ 10,156 $ (3,535) (34.8) % Active Accounts* 3.04 4.07 (1.03) (25.3) % Direct Deposit Active Accounts* 0.69 0.97 (0.28) (28.9) % Purchase Volume$ 5,017 $ 7,138 $ (2,121) (29.7) %
* Represents number of active and direct deposit active accounts as of
As additional supplemental information, our key metrics within our Consumer Services segment is presented on a quarterly basis as follows:
2022 2021
Q1 Q4 Q3 Q2 Q1
(In millions)
Key Metrics
Gross dollar volume $ 6,621 $ 6,300 $ 6,811 $ 8,188 $ 10,156
Number of active accounts 3.04 3.10 3.38 3.97 4.07
Direct deposit active accounts 0.69 0.76 0.83 0.92 0.97
Purchase volume $ 5,017 $ 4,881 $ 5,166 $ 6,455 $ 7,138
Segment revenues within Consumer Services for the three months ended March 31,
2022 decreased $25.6 million , or 14%, compared to the prior year comparable
period, while our segment expenses for the three months ended March 31, 2022
decreased $26.3 million , or 20%, respectively.
Our gross dollar volume, purchase volume, the total number of active accounts
and direct deposit active accounts decreased by 35%, 30%, 25% and 29%,
respectively, during the three months ended March 31, 2022 from the comparable
prior year period primarily due to the timing and magnitude of federal relief
programs received late in December 2020 and the first quarter of 2021 that did
not recur in in the first quarter of 2022.
As a result, our monthly maintenance fees, ATM revenue and interchange revenues
decreased as a result of the decreases in each of our key metrics stated above.
These decreases were partially offset by increasing customer adoption of
optional features recently launched on our card programs, such as our overdraft
protection program, as well as a favorable decrease in the estimated accrual of
cash back rewards, which we record as a reduction to revenue.
Consumer Services expenses decreased for the three months ended March 31, 2022
from the comparable prior year period due to several factors, including a
decrease in sales commissions from lower revenues on products subject to
revenue-sharing agreements, a decrease in third-party call center support costs
that were required to meet demand in our customer service center from federal
relief programs in the prior year, a decrease in processing expenses due to
lower purchase volume, and a decrease in marketing and supply chain expenses in
connection with GO2bank.
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B2B Services
Three Months Ended March 31,
2022 2021 Change %
(In thousands, except percentages)
Financial Results
Segment revenues $ 133,900 $ 105,975 $ 27,925 26.4 %
Segment expenses 111,636 88,442 23,194 26.2 %
Segment profit $ 22,264 $ 17,533 $ 4,731 27.0 %
Key Metrics (In millions, except percentages)
Gross Dollar Volume $ 10,815 $ 10,510 $ 305 2.9 %
Active Accounts* 1.89 2.28 (0.39) (17.1) %
Purchase Volume $ 2,175 $ 3,307 $ (1,132) (34.2) %
* Represents number of active accounts as of
As additional supplemental information, our key metrics within our B2B Services segment is presented on a quarterly basis as follows:
2022 2021
Q1 Q4 Q3 Q2 Q1
(In millions)
Key Metrics
Gross dollar volume $ 10,815 $ 10,053 $ 9,593 $ 9,211 $ 10,510
Number of active accounts 1.89 1.97 1.99 2.06 2.28
Purchase volume $ 2,175 $ 2,184 $ 2,190 $ 2,415 $ 3,307
Segment revenues within our B2B Services for the three months ended March 31,
2022 increased $27.9 million , or 26%, compared to the prior year period, while
our segment expenses for the three months ended March 31, 2022 increased $23.2
million , or 26%.
Our total gross dollar volume increased 2.9% during the three months ended March
31, 2022 from the comparable prior year period as we continued to experience
organic growth from both new and existing users in certain BaaS programs as the
demand for digital payments continues. While total gross dollar volume
increased, the number of active accounts within our B2B Services segment
decreased by 17.1% year-over-year as of March 31, 2022 and purchase volume
decreased approximately 34.2% for the three months ended March 31, 2022 from the
comparable prior year period, as many of our BaaS partners within our B2B
Services segment were impacted by similar trends seen in our Consumer Services
segment. The increase in gross dollar volume in certain BaaS programs drove an
increase in our BaaS program management service fee revenues earned from our
platform partners, partially offset by a decrease in the amount of interchange
revenue earned associated with the decrease in purchase volume.
B2B Services expenses increased for the three months ended March 31, 2022 from
the comparable prior year period, principally due to higher processing expenses
and transaction losses associated with the growth of certain BaaS account
programs, partially offset by a decrease in call center costs for the same
reasons as discussed in our Consumer Services segment.
This segment also experiences margin compression because certain BaaS
partnerships were structured based on a fixed profit and therefore, our segment
profit for certain arrangements will not scale with revenue growth. BaaS is our
newest channel of business and we remain focused on investing in it and
exploring new partnership agreements moving forward.
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Money Movement Services
Three Months Ended March 31,
2022 2021 Change %
(In thousands, except percentages)
Financial Results
Segment revenues $ 97,316 $ 90,367 $ 6,949 7.7 %
Segment expenses 35,856 41,553 (5,697) (13.7) %
Segment profit $ 61,460 $ 48,814 $ 12,646 25.9 %
Key Metrics (In millions, except percentages)
Cash Transfers 8.87 10.32 (1.45) (14.1) %
Tax Refunds Processed 9.61 7.44 2.17 29.2 %
As additional supplemental information, our key metrics within our Money Movement Services segment is presented on a quarterly basis as follows:
2022 2021
Q1 Q4 Q3 Q2 Q1
(In millions)
Key Metrics
Number of cash transfers 8.87 9.95 10.05 10.19 10.32
Number of tax refunds processed 9.61 0.12 0.43 4.15 7.44
Segment revenues within ourMoney Movement services for the three months endedMarch 31, 2022 increased$6.9 million , or 7.7%, from the comparable prior year period, and segment expenses for the three months endedMarch 31, 2022 decreased$5.7 million , or 13.7%. Our tax processing revenues increased for the three months endedMarch 31, 2022 primarily due to an increase in number of tax refunds processed, principally attributable to the extension of the prior year tax season which shifted the number of tax refunds processed from the first quarter of 2021 into the second quarter of 2021. The number of cash transfers processed decreased for the three months endedMarch 31, 2022 as a result of lower active accounts within our Consumer Services and B2B Services segments. Segment expenses decreased$5.7 million , or 13.7%, primarily due to a decrease in sales commissions from lower cash transfer revenues and lower third-party costs in support of our tax refund processing services. Corporate and Other Three Months Ended March 31, 2022 2021 Change % (In thousands, except percentages) Financial Results Unallocated revenue and intersegment eliminations$ 4,705 $ (878) $ 5,583 (635.9) % Unallocated corporate expenses and intersegment eliminations 52,391 45,636 6,755 14.8 %$ (47,686) $ (46,514) $ (1,172) 2.5 % Revenues within Corporate and Other are comprised of net interest income and other investment income earned by our bank and inter-segment eliminations. Unallocated corporate expenses include our fixed expenses such as salaries, wages and related benefits for our employees, professional service fees, software licenses, telephone and communication costs, rent and utilities, insurance and inter-segment eliminations. These costs are not considered when our CODM evaluates the performance of our three reportable segments since they are not directly attributable to any reporting segment. Non-cash expenses such as stock-based compensation, depreciation and amortization of long-lived assets, impairment charges and other non-recurring expenses that are not considered by our CODM when evaluating our overall consolidated financial results are excluded from our unallocated corporate expenses above. Refer to Note 19- Segment Information to the Consolidated Financial Statements included herein for a summary reconciliation. 34
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Net interest income increased year-over-year for the three months endedMarch 31, 2022 as a result of an increase in the size of our investment securities portfolio. Unallocated corporate expenses for the three months endedMarch 31, 2022 increased year-over-year by approximately 15% as a result of higher professional services expenses and software licenses in support of our investments to build a modern and scalable core banking and card management platform.
Liquidity and Capital Resources
The following table summarizes our major sources and uses of cash for the
periods presented:
Three Months Ended March 31,
2022 2021
(In thousands)
Total cash provided by (used in)
Operating activities $ 115,642 $ 80,672
Investing activities (300,614) (108,261)
Financing activities 185,974 1,247,579
Increase in unrestricted cash, cash equivalents and restricted cash
$
1,002
For the three months endedMarch 31, 2022 and 2021, we financed our operations primarily through our cash flows generated from operations and customer funds held on deposit. From time to time, we may also finance short term working capital activities through our borrowings under our credit facility. As ofMarch 31, 2022 , our primary source of liquidity was unrestricted cash and cash equivalents totaling$1.3 billion . We also consider our$2.2 billion of available-for-sale investment securities to be highly-liquid instruments. We use trend and variance analysis as well as our detailed budgets and forecasts to project future cash needs, making adjustments to the projections when needed. We believe that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity under our credit facility will be sufficient to meet our working capital, capital expenditures, equity method investee capital commitments, and any other capital needs for at least the next 12 months. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months. We continue to monitor the impact of COVID-19 on our business to ensure our liquidity and capital resources remain appropriate throughout this period of uncertainty.
Cash Flows from Operating Activities
Our$115.6 million of net cash provided by operating activities during the three months endedMarch 31, 2022 was the result of$38.6 million of net income, adjusted for certain non-cash operating items of$53.5 million and net changes in our working capital assets and liabilities of$23.5 million .
Cash Flows from Investing Activities
Our$300.6 million of net cash used in investing activities during the three months endedMarch 31, 2022 was primarily due to purchases of available-for-sale investment securities, net of proceeds from sales and maturities, of$200.0 million , the purchase of other bank investments of$31.9 million , capital contributions related to our investment inTailFin Labs, LLC of$35.0 million , and the acquisition of property and equipment of$19.0 million .
Cash Flows from Financing Activities
Our$186.0 million of net cash provided from financing activities during the three months endedMarch 31, 2022 was principally the result of a net increase in customer deposits of$318.3 million , partially offset by a decrease of$104.7 million in obligations to customers and share repurchases of our Class A common stock of$25.0 million . We also borrowed and repaid$50.0 million on our revolving line of credit during the three months endedMarch 31, 2022 .
Other Sources of Liquidity: 2019 Revolving Facility
InOctober 2019 , we entered into a revolving credit agreement withWells Fargo Bank, National Association , and other lenders party thereto. The credit agreement provides for a$100.0 million five-year revolving facility and matures inOctober 2024 . At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the "LIBOR Rate") or 2) a base rate determined by reference to the highest of (a)the United States federal funds rate plus 0.50%, (b) the Wells Fargo prime rate, and (c) one-month LIBOR rate plus 1.0% (the "Base Rate"), plus in 35
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either case an applicable margin. The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans. The terms of our existing agreement also provide for a method to determine an alternative benchmark interest rate in anticipation of the discontinuation of LIBOR under reference rate reform. This alternative benchmark rate will be selected between the parties taking into consideration recommendations from regulatory bodies or based on prevailing market conventions at the time the alternative rate is established, and may include the Secured Overnight Financing Rate. We are also subject to certain financial covenants, which include maintaining a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as defined in the agreement. AtMarch 31, 2022 , we were in compliance with all such covenants.
Material Cash Requirements
While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate that we will continue to develop and purchase property and equipment as necessary in the normal course of our business. The amount and timing of these payments and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change of computer hardware and software used in our business and our business outlook as a result of the COVID-19 pandemic. We intend to continue to invest in new products and programs we believe are critical, including GO2bank, new features for our existing products and IT infrastructure such as our core banking and card management systems in order to scale and operate effectively to meet our strategic objectives. While we expect these capital expenditures will exceed the amount of our capital expenditures in 2021, we expect to fund these capital expenditures primarily through our cash flows provided by operating activities.
We have used cash to acquire businesses and technologies and we anticipate that we may continue to do so in the future. The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.
Additionally, we may make periodic cash contributions to our subsidiary bank,Green Dot Bank , to maintain its capital, leverage and other financial commitments at levels we have agreed to with our regulators. If another economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions toGreen Dot Bank to maintain its capital, leverage and other financial commitments.
We also have certain contractual payment obligations, in each case, as described in more detail below.
Contractual Obligations
There have been no material changes in our contractual obligations disclosed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended
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Capital Requirements for Bank Holding Companies
Our subsidiary bank,Green Dot Bank , is a member bank of theFederal Reserve System and our primary regulators are theFederal Reserve Board and theUtah Department of Financial Institutions .We and Green Dot Bank are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines, we andGreen 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. The Basel III rules, which were promulgated by theFederal Reserve and otherU.S. banking regulators, provide for risk-based capital, leverage and liquidity standards. Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%. Either or both ofGreen Dot Corporation andGreen Dot Bank may qualify for and opt to use, from time to time, the community bank leverage ratio framework under theFederal Reserve's version of theU.S. Basel III Rules. Under the community bank leverage ratio framework, a qualifying community banking organization may generally satisfy its capital requirements (and capital conservation buffer) under theU.S. Basel III rules provided that it has a Tier 1 leverage ratio greater than 9% and satisfies other applicable conditions. In 2021,Green Dot Corporation andGreen Dot Bank qualified for (including, in the case ofGreen Dot Bank , through grace periods) and opted to use the community bank leverage ratio framework. Going forward, we expect thatGreen Dot Corporation will continue to qualify for and use the community bank leverage ratio framework, and thatGreen Dot Bank will calculate and disclose its risk-based capital ratios and Tier 1 leverage ratio under standardized approach of theU.S. Basel III Rules. As ofMarch 31, 2022 andDecember 31, 2021 , we andGreen Dot Bank were categorized as "well capitalized" under applicable regulatory standards. To be categorized as "well capitalized," we andGreen Dot Bank must maintain specific total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There were no conditions or events sinceMarch 31, 2022 which management believes would have changed our category as "well capitalized." The definitions associated with the amounts and ratios below are as follows: Ratio Definition Tier 1 leverage ratio Tier 1 capital divided by average total assets Common equity Tier 1 capital Common equity Tier 1 capital divided by risk-weighted assets ratio Tier 1 capital ratio Tier 1 capital divided by risk-weighted assets Total risk-based capital ratio Total capital divided by risk-weighted assets Terms Definition Tier 1 capital and Primarily includes common stock, retained earnings and Common equity Tier 1 capital accumulated OCI, net of deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles. Total capital Tier 1 capital plus supplemental capital items such as the allowance for credit losses, subject to certain limits Average total assets Average total consolidated assets during the period less deductions and adjustments
primarily related to goodwill,
deferred tax assets and intangibles assets
Risk-weighted assets Represents the amount of assets or exposure multiplied by the
standardized risk weight (%) associated with that type of
asset or exposure. The standardized risk weights are
prescribed in the bank capital rules and reflect regulatory
judgment regarding the riskiness of a type of asset or
exposure
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The actual amounts and ratios, and required "well capitalized" minimum capital
amounts and ratios at
March 31, 2022
Amount Ratio Regulatory Minimum "Well-capitalized" Minimum
(In thousands, except ratios)
Green Dot Corporation :
Tier 1 leverage $ 636,780 15.0 % 4.0 % n/a
Common equity Tier 1 capital $ 636,780 48.1 % 4.5 % n/a
Tier 1 capital $ 636,780 48.1 % 6.0 % 6.0 %
Total risk-based capital $ 651,903 49.3 % 8.0 % 10.0 %
Green Dot Bank:
Tier 1 leverage $ 357,660 8.4 % 4.0 % 5.0 %
Common equity Tier 1 capital $ 357,660 38.6 % 4.5 % 6.5 %
Tier 1 capital $ 357,660 38.6 % 6.0 % 8.0 %
Total risk-based capital $ 364,165 39.3 % 8.0 % 10.0 %
December 31, 2021
Amount Ratio
Regulatory Minimum "Well-capitalized" Minimum
(In thousands, except ratios)
Green Dot Corporation :
Tier 1 leverage $ 637,338 15.9 % 4.0 % n/a
Common equity Tier 1 capital $ 637,338 54.0 % 4.5 % n/a
Tier 1 capital $ 637,338 54.0 % 6.0 % 6.0 %
Total risk-based capital $ 648,038 54.9 % 8.0 % 10.0 %
Green Dot Bank:
Tier 1 leverage $ 329,162 9.1 % 4.0 % 5.0 %
Common equity Tier 1 capital $ 329,162 40.7 % 4.5 % 6.5 %
Tier 1 capital $ 329,162 40.7 % 6.0 % 8.0 %
Total risk-based capital $ 336,461 41.6 % 8.0 % 10.0 %
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