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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________
FORM 10-Q

☑ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
OR

☐ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission file number 001-34819

(Exact name of Registrant as specified in its charter)

Delaware |  | 95-4766827
(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

| 3465 E. Foothill Blvd. |  |  |  |  |  |  |  |
| Pasadena, | California | 91107 |  |  |  | (626) | 765-2000 |
(Address of principal executive offices, including zip code) |  |  |  |  |  | (Registrant's telephone number, including area code) |  |  |

Securities registered pursuant to Section 12(b) of the Act: |  |
Title of each class: | Trading Symbol(s): | Name of each exchange on which registered:
Class A Common Stock, $0.001 par value | GDOT | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☑ |  | Accelerated filer | ☐
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐
Emerging growth company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
There were 53,372,108 shares of Class A common stock outstanding, par value $.001 per share as of July 31, 2020.

GREEN DOT CORPORATION
TABLE OF CONTENTS

|  | Page
| PART I – FINANCIAL INFORMATION |
Item 1. | Financial Statements | 1
| Consolidated Balance Sheets – June 30, 2020 and December 31, 2019 | 1
| Consolidated Statements of Operations – Three and Six Months Ended June 30, 2020 and 2019 | 2
| Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2020 and 2019 | 3
| Consolidated Statements of Changes in Stockholders' Equity – Three and Six Months Ended June 30, 2020 and 2019 | 4
| Consolidated Statements of Cash Flows – Six Months Ended June 30, 2020 and 2019 | 6
| Notes to Consolidated Financial Statements | 7
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 40
Item 4. | Controls and Procedures | 41
| PART II – OTHER INFORMATION |
Item 1. | Legal Proceedings | 42
Item 1A. | Risk Factors | 42
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59
Item 5. | Other Information | 59
Item 6. | Exhibits | 60
| Signature | 61

Table of Contents
PART I
ITEM 1. Financial Statements
GREEN DOT CORPORATION
CONSOLIDATED BALANCE SHEETS

| June 30, 2020 |  | December 31, 2019
| (unaudited) |  |
Assets | (In thousands, except par value) |  |
Current assets: |  |  |
Unrestricted cash and cash equivalents | $ | 1,931,467 |  |  | $ | 1,063,426 |
Restricted cash | 5,944 |  |  | 2,728 |
Investment securities available-for-sale, at fair value | — |  |  | 10,020 |
Settlement assets | 312,401 |  |  | 239,222 |
Accounts receivable, net | 46,562 |  |  | 59,543 |
Prepaid expenses and other assets | 57,694 |  |  | 66,183 |
Income tax receivable | 1,364 |  |  | 870 |
Total current assets | 2,355,432 |  |  | 1,441,992 |
Investment securities available-for-sale, at fair value | 241,534 |  |  | 267,419 |
Loans to bank customers, net of allowance for loan losses of $570 and $1,166 as of June 30, 2020 and December 31, 2019, respectively | 19,551 |  |  | 21,417 |
Prepaid expenses and other assets | 42,346 |  |  | 10,991 |
Property, equipment, and internal-use software, net | 148,258 |  |  | 145,476 |
Operating lease right-of-use assets | 23,476 |  |  | 26,373 |
Deferred expenses | 6,910 |  |  | 16,891 |
Net deferred tax assets | 9,097 |  |  | 9,037 |
Goodwill and intangible assets | 506,117 |  |  | 520,994 |
Total assets | $ | 3,352,721 |  |  | $ | 2,460,590 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 27,351 |  |  | $ | 37,876 |
Deposits | 2,000,570 |  |  | 1,175,341 |
Obligations to customers | 88,508 |  |  | 69,377 |
Settlement obligations | 10,696 |  |  | 13,251 |
Amounts due to card issuing banks for overdrawn accounts | 255 |  |  | 380 |
Other accrued liabilities | 133,256 |  |  | 107,842 |
Operating lease liabilities | 8,075 |  |  | 8,764 |
Deferred revenue | 13,448 |  |  | 28,355 |
Income tax payable | 20,035 |  |  | 3,948 |
Total current liabilities | 2,302,194 |  |  | 1,445,134 |
Other accrued liabilities | 7,547 |  |  | 10,883 |
Operating lease liabilities | 20,912 |  |  | 24,445 |
Line of credit | — |  |  | 35,000 |
Net deferred tax liabilities | 17,843 |  |  | 17,772 |
Total liabilities | 2,348,496 |  |  | 1,533,234 |
Commitments and contingencies (Note 17) |  |  |
Stockholders’ equity: |  |  |
Class A common stock, $0.001 par value; 100,000 shares authorized as of June 30, 2020 and December 31, 2019; 53,297 and 51,807 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively | 53 |  |  | 52 |
Additional paid-in capital | 323,083 |  |  | 296,224 |
Retained earnings | 678,898 |  |  | 629,040 |
Accumulated other comprehensive income | 2,191 |  |  | 2,040 |
Total stockholders’ equity | 1,004,225 |  |  | 927,356 |
Total liabilities and stockholders’ equity | $ | 3,352,721 |  |  | $ | 2,460,590 |

See notes to unaudited consolidated financial statements
1

Table of Contents
GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share data) |  |  |  |  |  |
Operating revenues: |  |  |  |  |  |  |
Card revenues and other fees | $ | 152,681 |  |  | $ | 121,613 |  |  | $ | 294,075 |  |  | $ | 251,190 |
Processing and settlement service revenues | 65,450 |  |  | 67,073 |  |  | 188,516 |  |  | 174,652 |
Interchange revenues | 95,970 |  |  | 81,334 |  |  | 186,836 |  |  | 173,875 |
Interest income, net | 2,139 |  |  | 8,306 |  |  | 8,982 |  |  | 19,123 |
Total operating revenues | 316,240 |  |  | 278,326 |  |  | 678,409 |  |  | 618,840 |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing expenses | 106,811 |  |  | 87,432 |  |  | 223,549 |  |  | 186,133 |
Compensation and benefits expenses | 58,867 |  |  | 48,298 |  |  | 111,932 |  |  | 109,773 |
Processing expenses | 71,371 |  |  | 49,222 |  |  | 142,466 |  |  | 100,854 |
Other general and administrative expenses | 73,801 |  |  | 49,411 |  |  | 136,223 |  |  | 96,732 |
Total operating expenses | 310,850 |  |  | 234,363 |  |  | 614,170 |  |  | 493,492 |
Operating income | 5,390 |  |  | 43,963 |  |  | 64,239 |  |  | 125,348 |
Interest expense, net | 443 |  |  | 66 |  |  | 684 |  |  | 1,670 |
Other income (expense), net | 2,154 |  |  | (99) |  |  | 2,346 |  |  | 34 |
Income before income taxes | 7,101 |  |  | 43,798 |  |  | 65,901 |  |  | 123,712 |
Income tax expense | 3,807 |  |  | 9,106 |  |  | 15,762 |  |  | 24,977 |
Net income | $ | 3,294 |  |  | $ | 34,692 |  |  | $ | 50,139 |  |  | $ | 98,735 |
Basic earnings per common share: | $ | 0.06 |  |  | $ | 0.66 |  |  | $ | 0.95 |  |  | $ | 1.87 |
Diluted earnings per common share: | $ | 0.06 |  |  | $ | 0.64 |  |  | $ | 0.93 |  |  | $ | 1.82 |
Basic weighted-average common shares issued and outstanding: | 52,275 |  |  | 52,588 |  |  | 52,084 |  |  | 52,818 |
Diluted weighted-average common shares issued and outstanding: | 53,164 |  |  | 53,811 |  |  | 52,913 |  |  | 54,154 |

See notes to unaudited consolidated financial statements
2

Table of Contents
GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |
Net income | $ | 3,294 |  |  | $ | 34,692 |  |  | $ | 50,139 |  |  | $ | 98,735 |
Other comprehensive income |  |  |  |  |  |  |
Unrealized holding (loss) gain, net of tax | (4,006) |  |  | 996 |  |  | 151 |  |  | 2,162 |
Comprehensive (loss) income | $ | (712) |  |  | $ | 35,688 |  |  | $ | 50,290 |  |  | $ | 100,897 |

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 June 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 March 31, 2020 | 52,854 |  |  | $ | 53 |  |  | $ | 306,151 |  |  | $ | 675,604 |  |  | $ | 6,197 |  |  | $ | 988,005 |
Common stock issued under stock plans, net of withholdings and related tax effects | 443 |  |  | — |  |  | 3,330 |  |  | — |  |  | — |  |  | 3,330 |
Stock-based compensation | — |  |  | — |  |  | 13,602 |  |  | — |  |  | — |  |  | 13,602 |
Net income | — |  |  | — |  |  | — |  |  | 3,294 |  |  | — |  |  | 3,294 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | (4,006) |  |  | (4,006) |
Balance at June 30, 2020 | 53,297 |  |  | $ | 53 |  |  | $ | 323,083 |  |  | $ | 678,898 |  |  | $ | 2,191 |  |  | $ | 1,004,225 |

| Three Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |
| Class A Common Stock |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |  |  |  |  |  |
| (In thousands) |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2019 | 53,148 |  |  | $ | 53 |  |  | $ | 384,447 |  |  | $ | 593,186 |  |  | $ | 1,029 |  |  | $ | 978,715 |
Common stock issued under stock plans, net of withholdings and related tax effects | 327 |  |  | 1 |  |  | (918) |  |  | — |  |  | — |  |  | (917) |
Stock-based compensation | — |  |  | — |  |  | 8,427 |  |  | — |  |  | — |  |  | 8,427 |
Repurchases of Class A common stock | (1,666) |  |  | (2) |  |  | (99,998) |  |  | — |  |  | — |  |  | (100,000) |
Net income | — |  |  | — |  |  | — |  |  | 34,692 |  |  | — |  |  | 34,692 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 996 |  |  | 996 |
Balance at June 30, 2019 | 51,809 |  |  | $ | 52 |  |  | $ | 291,958 |  |  | $ | 627,878 |  |  | $ | 2,025 |  |  | $ | 921,913 |

See notes to unaudited consolidated financial statements
4

Table of Contents
GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)

| Six Months Ended June 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 | 515 |  |  | — |  |  | 1,873 |  |  | — |  |  | — |  |  | 1,873 |
Stock-based compensation | — |  |  | — |  |  | 24,987 |  |  | — |  |  | — |  |  | 24,987 |
Walmart restricted shares | 975 |  |  | 1 |  |  | (1) |  |  | — |  |  | — |  |  | — |
Net income | — |  |  | — |  |  | — |  |  | 50,139 |  |  | — |  |  | 50,139 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 151 |  |  | 151 |
Cumulative effect adjustment for adoption of ASU No. 2016-13 (CECL) | — |  |  | — |  |  | — |  |  | (281) |  |  | — |  |  | (281) |
Balance at June 30, 2020 | 53,297 |  |  | $ | 53 |  |  | $ | 323,083 |  |  | $ | 678,898 |  |  | $ | 2,191 |  |  | $ | 1,004,225 |

| Six Months Ended June 30, 2019 |  |  |  |  |  |  |  |  |  |
| Class A Common Stock |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity
| Shares |  | Amount |  |  |  |  |  |  |  |
| (In thousands) |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2018 | 52,917 |  |  | $ | 53 |  |  | $ | 380,753 |  |  | $ | 529,143 |  |  | $ | (137) |  |  | $ | 909,812 |
Common stock issued under stock plans, net of withholdings and related tax effects | 558 |  |  | 1 |  |  | (12,039) |  |  | — |  |  | — |  |  | (12,038) |
Stock-based compensation | — |  |  | — |  |  | 23,242 |  |  | — |  |  | — |  |  | 23,242 |
Repurchases of Class A common stock | (1,666) |  |  | (2) |  |  | (99,998) |  |  | — |  |  | — |  |  | (100,000) |
Net income | — |  |  | — |  |  | — |  |  | 98,735 |  |  | — |  |  | 98,735 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 2,162 |  |  | 2,162 |
Balance at June 30, 2019 | 51,809 |  |  | $ | 52 |  |  | $ | 291,958 |  |  | $ | 627,878 |  |  | $ | 2,025 |  |  | $ | 921,913 |

See notes to unaudited consolidated financial statements
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GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Six Months Ended June 30, |  |
| 2020 |  | 2019
| (In thousands) |  |
Operating activities |  |  |
Net income | $ | 50,139 |  |  | $ | 98,735 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization of property, equipment and internal-use software | 28,175 |  |  | 23,003 |
Amortization of intangible assets | 14,231 |  |  | 16,349 |
Provision for uncollectible overdrawn accounts from purchase transactions | 4,398 |  |  | 4,047 |
Stock-based compensation | 24,987 |  |  | 23,242 |
Losses in equity method investment | 2,716 |  |  | — |
Realized gain on sale of available-for-sale investment securities | (5,062) |  |  | — |
Amortization of premium (discount) on available-for-sale investment securities | 432 |  |  | (224) |
Amortization of deferred financing costs | 84 |  |  | 1,124 |
Impairment of internal-use software | 1,068 |  |  | 104 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable, net | 8,583 |  |  | 8,696 |
Prepaid expenses and other assets | 9,285 |  |  | 8,051 |
Deferred expenses | 9,981 |  |  | 13,634 |
Accounts payable and other accrued liabilities | 13,665 |  |  | (31,207) |
Deferred revenue | (15,096) |  |  | (18,799) |
Income tax receivable/payable | 15,407 |  |  | 20,929 |
Other, net | (1,477) |  |  | (616) |
Net cash provided by operating activities | 161,516 |  |  | 167,068 |
Investing activities |  |  |
Purchases of available-for-sale investment securities | (208,502) |  |  | (90,216) |
Proceeds from maturities of available-for-sale securities | 61,717 |  |  | 50,354 |
Proceeds from sales of available-for-sale securities | 187,668 |  |  | 101 |
Payments for acquisition of property and equipment | (31,395) |  |  | (37,746) |
Net changes in loans | 1,612 |  |  | (1,296) |
Investment in TailFin Labs, LLC | (35,000) |  |  | — |
Other | (832) |  |  | — |
Net cash used in investing activities | (24,732) |  |  | (78,803) |
Financing activities |  |  |
Repayments of borrowings from notes payable | — |  |  | (60,000) |
Borrowings on revolving line of credit | 100,000 |  |  | — |
Repayments on revolving line of credit | (135,000) |  |  | — |
Proceeds from exercise of options and ESPP purchases | 4,858 |  |  | 4,836 |
Taxes paid related to net share settlement of equity awards | (2,985) |  |  | (16,874) |
Net increase in deposits | 826,203 |  |  | 140,110 |
Net decrease in obligations to customers | (56,603) |  |  | (48,306) |
Contingent consideration payments | (2,000) |  |  | (2,634) |
Repurchase of Class A common stock | — |  |  | (100,000) |
Net cash provided by (used in) financing activities | 734,473 |  |  | (82,868) |
Net increase in unrestricted cash, cash equivalents and restricted cash | 871,257 |  |  | 5,397 |
Unrestricted cash, cash equivalents and restricted cash, beginning of period | 1,066,154 |  |  | 1,095,218 |
Unrestricted cash, cash equivalents and restricted cash, end of period | $ | 1,937,411 |  |  | $ | 1,100,615 |
Cash paid for interest | $ | 759 |  |  | $ | 1,604 |
Cash paid for income taxes | $ | 34 |  |  | $ | 3,702 |
Reconciliation of unrestricted cash, cash equivalents and restricted cash at end of period: |  |  |
Unrestricted cash and cash equivalents | $ | 1,931,467 |  |  | $ | 1,096,498 |
Restricted cash | 5,944 |  |  | 4,117 |
Total unrestricted cash, cash equivalents and restricted cash, end of period | $ | 1,937,411 |  |  | $ | 1,100,615 |

See notes to unaudited consolidated financial statements
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1—Organization
Green Dot Corporation (“we,” “our,” or “us” refer to Green Dot Corporation and its consolidated subsidiaries) is a financial technology leader and bank holding company with a mission to reinvent banking for the masses. Our company’s long-term strategy is to create a unique, sustainable and highly valuable fintech ecosystem, in part through the continued evolution of our innovative Banking as a Service (“BaaS”) platform, that’s intended to fuel the engine of innovation and growth for us and our business partners.
Enabled by proprietary technology, our commercial bank charter and our high-scale program management operating capability, our vertically integrated technology and banking platform is used by a growing list of America’s most prominent consumer and technology companies to design and deploy their own bespoke financial services solutions to their customers and partners, while we use that same integrated platform for our own leading collection of banking and financial services products marketed directly to consumers through what we believe to be the most broadly distributed, omni-channel branchless banking platforms in the United States.
We were incorporated in Delaware in 1999 and became a bank holding company under the Bank Holding Company Act and a member bank of the Federal Reserve System in December 2011. We are headquartered in Pasadena, California, with additional facilities throughout the United States and in Shanghai, China.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. We consolidated our wholly-owned subsidiaries and eliminated all significant intercompany balances and transactions.
We have also prepared the accompanying unaudited consolidated financial statements in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X and, consequently, they do not include all of the annual disclosures required by GAAP. Reference is made to our Annual Report on Form 10-K for the year ended December 31, 2019 for additional disclosures, including a summary of our significant accounting policies. There have been no material changes to our significant accounting policies during the six months ended June 30, 2020, other than the adoption of the accounting pronouncements discussed herein. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal and recurring items, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available as of June 30, 2020 and through the date of this Report. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates due to the uncertainty around the magnitude, duration and effects of the COVID-19 pandemic, as well as other factors.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") that requires financial assets measured at amortized cost be presented at the net amount expected to be collected. Credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited by the amount that the fair value is less than amortized cost. The amendments under ASU 2016-13 eliminate the probable incurred loss recognition model under GAAP and introduce a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments. The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. The new ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 2—Summary of Significant Accounting Policies (continued)
assumptions, models, and methods for estimating expected credit losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under previously applicable accounting standards. The adoption of ASU 2016-13 resulted in an adjustment of approximately $0.3 million, net of tax, to beginning retained earnings, the effect of which we do not consider material to our consolidated financial statements.
Most of our financial assets within the scope of ASU 2016-13 are considered highly short-term in nature and therefore, we are less susceptible to risks and uncertainty of credit losses over extended periods of time. The adoption of ASU 2016-13 did not result in any material changes to our methods for developing our allowance for credit losses, or the information we assess in developing our current estimate of expected credit losses. See Notes 4, 5 and 6 to these consolidated financial statements for additional information on our financial assets within scope of the new accounting standard.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other ("ASU 2017-04"): Simplifying the Test for Goodwill Impairment, which simplifies the existing two-step guidance for goodwill impairment testing by eliminating the second step resulting in a write-down to goodwill equal to the initial amount of impairment determined in step one. The ASU is to be applied prospectively for reporting periods beginning after December 15, 2019. We adopted the provisions of ASU 2017-04 on January 1, 2020, the effect of which did not have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and improves consistent application of Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of ASU 2019-12 on our consolidated financial statements.
Note 3—Revenues
Disaggregation of Revenues
Our products and services are offered only to customers within the United States. We determine our operating segments based on how our chief operating decision maker manages our operations, makes operating decisions and evaluates operating performance. Within our segments, we believe that the nature, amount, timing and uncertainty of our revenue and cash flows and how they are affected by economic factors can be further illustrated based on the timing in which revenue for each of our products and services is recognized.
The following table disaggregates our revenues by the timing in which the revenue is recognized:

| Three Months Ended June 30, 2020 |  |  |  | Three Months Ended June 30, 2019 |  |
| Account Services |  | Processing and Settlement Services |  | Account Services |  | Processing and Settlement Services
Timing of revenue recognition | (In thousands) |  |  |  |  |  |
Transferred at a point in time | $ | 132,059 |  |  | $ | 65,450 |  |  | $ | 123,152 |  |  | $ | 67,071 |
Transferred over time | 115,290 |  |  | 1,302 |  |  | 77,564 |  |  | 2,233 |
Operating revenues (1) | $ | 247,349 |  |  | $ | 66,752 |  |  | $ | 200,716 |  |  | $ | 69,304 |

| Six Months Ended June 30, 2020 |  |  |  | Six Months Ended June 30, 2019 |  |
| Account Services |  | Processing and Settlement Services |  | Account Services |  | Processing and Settlement Services
Timing of revenue recognition | (In thousands) |  |  |  |  |  |
Transferred at a point in time | $ | 256,179 |  |  | $ | 188,516 |  |  | $ | 264,074 |  |  | $ | 174,647 |
Transferred over time | 222,479 |  |  | 2,253 |  |  | 157,331 |  |  | 3,665 |
Operating revenues (1) | $ | 478,658 |  |  | $ | 190,769 |  |  | $ | 421,405 |  |  | $ | 178,312 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 3—Revenues (continued)

(1) | Excludes net interest income, a component of total operating revenues, as it is outside the scope of ASC 606, Revenues

Within our Account Services segment, revenues recognized at a point in time are comprised principally of ATM fees, interchange, and other similar transaction-based fees. Revenues recognized over time consist of new card fees, monthly maintenance fees, revenue earned from gift cards and substantially all BaaS partner program management fees. Substantially all of our processing and settlement services are recognized at a point in time.
Refer to Note 19 — Segment Informatio n for our revenues disaggregated by our products and services and the components to our total operating revenues on our Consolidated Statements of Operations for additional information.
Contract Balances
As disclosed on our Consolidated Balance Sheets, we record deferred revenue for any upfront payments received in advance of our performance obligations being satisfied. These contract liabilities consist principally of unearned new card fees and monthly maintenance fees. We recognized approximately $8.9 million and $10.2 million in revenue for the three months ended June 30, 2020 and 2019, respectively, and $25.9 million and $31.4 million for the six months ended June 30, 2020 and 2019, respectively, that were included in deferred revenue at the beginning of the periods and did not recognize any revenue during these periods from performance obligations satisfied in previous periods. Changes in the deferred revenue balance are driven primarily by the amount of new card fees recognized during the period, and the degree to which these reductions to the deferred revenue balance are offset by the deferral of new card fees associated with cards sold during the period.
Note 4—Investment Securities
Our available-for-sale investment securities were as follows:

| Amortized cost |  | Gross unrealized gains |  | Gross unrealized losses |  | Fair value
| (In thousands) |  |  |  |  |  |
June 30, 2020 |  |  |  |  |  |  |
Corporate bonds | $ | 10,000 |  |  | $ | 58 |  |  | $ | — |  |  | $ | 10,058 |
Agency bond securities | 15,000 |  |  | 44 |  |  | — |  |  | 15,044 |
Agency mortgage-backed securities | 189,533 |  |  | 2,320 |  |  | (49) |  |  | 191,804 |
Municipal bonds | 4,275 |  |  | 143 |  |  | — |  |  | 4,418 |
Asset-backed securities | 19,896 |  |  | 314 |  |  | — |  |  | 20,210 |
Total investment securities | $ | 238,704 |  |  | $ | 2,879 |  |  | $ | (49) |  |  | $ | 241,534 |
December 31, 2019 |  |  |  |  |  |  |
Corporate bonds | $ | 10,000 |  |  | $ | 12 |  |  | $ | — |  |  | $ | 10,012 |
Agency bond securities | 19,980 |  |  | 20 |  |  | — |  |  | 20,000 |
Agency mortgage-backed securities | 208,821 |  |  | 2,453 |  |  | (241) |  |  | 211,033 |
Municipal bonds | 4,342 |  |  | 2 |  |  | (2) |  |  | 4,342 |
Asset-backed securities | 31,814 |  |  | 238 |  |  | — |  |  | 32,052 |
Total investment securities | $ | 274,957 |  |  | $ | 2,725 |  |  | $ | (243) |  |  | $ | 277,439 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 4—Investment Securities (continued)
As of June 30, 2020 and December 31, 2019, the gross unrealized losses and fair values of available-for-sale investment securities that were in unrealized loss positions were as follows:

| Less than 12 months |  |  |  | 12 months or more |  |  |  | Total fair value |  | Total unrealized loss
| Fair value |  | Unrealized loss |  | Fair value |  | Unrealized loss |  |  |  |
| (In thousands) |  |  |  |  |  |  |  |  |  |
June 30, 2020 |  |  |  |  |  |  |  |  |  |  |
Agency mortgage-backed securities | $ | 6,768 |  |  | $ | (45) |  |  | $ | 1,371 |  |  | $ | (4) |  |  | $ | 8,139 |  |  | $ | (49) |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Agency mortgage-backed securities | $ | 43,337 |  |  | $ | (153) |  |  | $ | 8,735 |  |  | $ | (88) |  |  | $ | 52,072 |  |  | $ | (241) |
Municipal bonds | — |  |  | — |  |  | 113 |  |  | (2) |  |  | 113 |  |  | (2) |
Total investment securities | $ | 43,337 |  |  | $ | (153) |  |  | $ | 8,848 |  |  | $ | (90) |  |  | $ | 52,185 |  |  | $ | (243) |

Our investments generally consist of highly rated securities, as our investment policy restricts our investments to highly liquid, low credit risk assets. We did not record any significant credit-related impairment losses during the three and six months ended June 30, 2020 or 2019 on our available-for-sale investment securities. Upon adoption of ASU 2016-13, we establish an allowance for credit losses limited by the amount that the fair value of the investment is less than its amortized cost, rather than a direct write down under previous GAAP. Any subsequent improvements in credit will be recognized in income through a reversal of the allowance established. We continue to record non-credit-related losses as a component of accumulated other comprehensive income or loss. We do not intend to sell our investments and we have determined that it is more likely than not that we will not be required to sell our investments before recovery of their amortized cost bases, which may be at maturity.
For the three months ended June 30, 2020, we recorded a realized gain of approximately $5.1 million as a result of the sale of certain investment securities. The gain recognized upon sale of the investments was reclassified from accumulated other comprehensive income and is recorded as a component of other income and expenses on our consolidated statements of operations.
As of June 30, 2020, the contractual maturities of our available-for-sale investment securities were as follows:

| Amortized cost |  | Fair value
| (In thousands) |  |
Due after one year through five years | 10,000 |  |  | 10,058 |
Due after five years through ten years | 10,000 |  |  | 10,000 |
Due after ten years | 9,275 |  |  | 9,462 |
Mortgage and asset-backed securities | 209,429 |  |  | 212,014 |
Total investment securities | $ | 238,704 |  |  | $ | 241,534 |

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.
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 5—Accounts Receivable
Accounts receivable, net consisted of the following:

| June 30, 2020 |  | December 31, 2019
| (In thousands) |  |
Trade receivables | $ | 17,141 |  |  | $ | 14,512 |
Reserve for uncollectible trade receivables | (241) |  |  | (202) |
Net trade receivables | 16,900 |  |  | 14,310 |
Overdrawn cardholder balances from purchase transactions | 6,615 |  |  | 4,327 |
Reserve for uncollectible overdrawn accounts from purchase transactions | (5,070) |  |  | (3,398) |
Net overdrawn cardholder balances from purchase transactions | 1,545 |  |  | 929 |
Overdrawn cardholder balances from maintenance fees | 3,335 |  |  | 2,235 |
Total net overdrawn account balances due from cardholders | 4,880 |  |  | 3,164 |
Receivables due from card issuing banks | 5,382 |  |  | 5,758 |
Fee advances, net | 1,677 |  |  | 26,268 |
Other receivables | 17,723 |  |  | 10,043 |
Accounts receivable, net | $ | 46,562 |  |  | $ | 59,543 |

Our net overdrawn account balances due from cardholders are a result of purchase transactions that we honor or maintenance fee assessments, in each case, in excess of the funds in the cardholder’s account. Reserves for overdrawn account balances from purchase transactions are subject to our recent adoption of ASU 2016-13 and are included as a component of other general and administrative expenses on our consolidated statements of operations. Overdrawn cardholder balances from maintenance fee assessments are presented net of the consideration we expect to receive under ASC 606 and are recorded as contra-revenue within card revenues and other fees. The adoption of ASU 2016-13 did not result in any material changes to our methods for developing allowances for any component within our accounts receivable.
Activity in the reserve for uncollectible overdrawn accounts from purchase transactions consisted of the following:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |
Balance, beginning of period | $ | 3,680 |  |  | $ | 3,329 |  |  | $ | 3,398 |  |  | $ | 2,710 |
Provision for uncollectible overdrawn accounts from purchase transactions | 3,082 |  |  | 1,316 |  |  | 4,398 |  |  | 4,047 |
Charge-offs | (1,692) |  |  | (2,277) |  |  | (2,726) |  |  | (4,389) |
Balance, end of period | $ | 5,070 |  |  | $ | 2,368 |  |  | $ | 5,070 |  |  | $ | 2,368 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 6—Loans to Bank Customers
The following table presents total outstanding loans, gross of the related allowance for loan losses, and a summary of the related payment status:

| 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90 Days or More Past Due |  | Total Past Due |  | Total Current or Less Than 30 Days Past Due |  | Total Outstanding
| (In thousands) |  |  |  |  |  |  |  |  |  |
June 30, 2020 |  |  |  |  |  |  |  |  |  |  |
Residential | $ | 125 |  |  | $ | — |  |  | $ | — |  |  | $ | 125 |  |  | $ | 3,645 |  |  | $ | 3,770 |
Commercial | — |  |  | — |  |  | — |  |  | — |  |  | 1,074 |  |  | 1,074 |
Installment | 2 |  |  | — |  |  | — |  |  | 2 |  |  | 1,215 |  |  | 1,217 |
Secured credit card | 488 |  |  | 435 |  |  | 759 |  |  | 1,682 |  |  | 12,378 |  |  | 14,060 |
Total loans | $ | 615 |  |  | $ | 435 |  |  | $ | 759 |  |  | $ | 1,809 |  |  | $ | 18,312 |  |  | $ | 20,121 |
Percentage of outstanding | 3.1 | % |  | 2.2 | % |  | 3.8 | % |  | 9.0 | % |  | 91.0 | % |  | 100.0 | %
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Residential | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | 4,530 |  |  | $ | 4,531 |
Commercial | — |  |  | — |  |  | — |  |  | — |  |  | 158 |  |  | 158 |
Installment | 1 |  |  | — |  |  | — |  |  | 1 |  |  | 1,246 |  |  | 1,247 |
Secured credit card | 1,080 |  |  | 939 |  |  | 2,183 |  |  | 4,202 |  |  | 12,445 |  |  | 16,647 |
Total loans | $ | 1,082 |  |  | $ | 939 |  |  | $ | 2,183 |  |  | $ | 4,204 |  |  | $ | 18,379 |  |  | $ | 22,583 |
Percentage of outstanding | 4.8 | % |  | 4.2 | % |  | 9.7 | % |  | 18.6 | % |  | 81.4 | % |  | 100.0 | %

Nonperforming Loans
The following table presents the carrying value, gross of the related allowance for loan losses, of our nonperforming loans. See Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on the criteria for classification as nonperforming.

| June 30, 2020 |  | December 31, 2019
| (In thousands) |  |
Residential | $ | 262 |  |  | $ | 290 |
Installment | 131 |  |  | 147 |
Secured credit card | 759 |  |  | 2,183 |
Total loans | $ | 1,152 |  |  | $ | 2,620 |

Credit Quality Indicators
We closely monitor and assess the credit quality and credit risk of our loan portfolio on an ongoing basis. We continuously review and update loan risk classifications. We evaluate our loans using non-classified or classified as the primary credit quality indicator. Classified loans are those loans that have demonstrated credit weakness where we believe there is a heightened risk of principal loss, including all impaired loans. Classified loans are generally internally categorized as substandard, doubtful or loss, consistent with regulatory guidelines.
Our secured credit card portfolio is collateralized by cash deposits made by each cardholder in an amount equal to the user's available credit limit, which mitigates the risk of any significant credit losses we expect to incur.
The table below presents the carrying value, gross of the related allowance for loan losses, of our loans within the primary credit quality indicators related to our loan portfolio:
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 6—Loans to Bank Customers (continued)

| June 30, 2020 |  |  |  | December 31, 2019 |  |
| Non-Classified |  | Classified |  | Non-Classified |  | Classified
| (In thousands) |  |  |  |  |  |
Residential | $ | 3,508 |  |  | $ | 262 |  |  | $ | 4,241 |  |  | $ | 290 |
Commercial | 1,074 |  |  | — |  |  | 158 |  |  | — |
Installment | 1,062 |  |  | 155 |  |  | 1,058 |  |  | 189 |
Secured credit card | 13,301 |  |  | 759 |  |  | 14,464 |  |  | 2,183 |
Total loans | $ | 18,945 |  |  | $ | 1,176 |  |  | $ | 19,921 |  |  | $ | 2,662 |

Impaired Loans and Troubled Debt Restructurings
When, for economic or legal reasons related to a borrower’s financial difficulties, we grant a concession for other than an insignificant period of time to a borrower that we would not otherwise consider, the related loan is classified as a Troubled Debt Restructuring, or TDR. Our TDR modifications involve an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. As of June 30, 2020, none of our TDR modifications have been made in response to the COVID-19 pandemic.
The following table presents our impaired loans and loans that we modified as TDRs as of June 30, 2020 and December 31, 2019:

| June 30, 2020 |  |  |  | December 31, 2019 |  |
| Unpaid Principal Balance |  | Carrying Value |  | Unpaid Principal Balance |  | Carrying Value
| (In thousands) |  |  |  |  |  |
Residential | $ | 262 |  |  | $ | 196 |  |  | $ | 290 |  |  | $ | 221 |
Installment | 142 |  |  | 138 |  |  | 160 |  |  | 48 |

Allowance for Loan Losses
Activity in the allowance for loan losses consisted of the following:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |
Balance, beginning of period | $ | 1,057 |  |  | $ | 948 |  |  | $ | 1,166 |  |  | $ | 1,144 |
Provision for loans | 62 |  |  | 590 |  |  | 254 |  |  | 1,256 |
Loans charged off | (634) |  |  | (637) |  |  | (1,121) |  |  | (1,549) |
Recoveries of loans previously charged off | 85 |  |  | 69 |  |  | 271 |  |  | 119 |
Balance, end of period | $ | 570 |  |  | $ | 970 |  |  | $ | 570 |  |  | $ | 970 |

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 will focus 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 through January 2024.
We account for our investment in TailFin Labs under the equity method of accounting in accordance with ASC 323, Investments – Equity Method and Joint Ventures. Under the equity method of accounting, the initial investment is recorded at cost and the investment is subsequently adjusted for, among other things, its proportionate share of earnings or losses. However, given the capital structure of the TailFin Labs arrangement, we apply the Hypothetical Liquidation Book Value ("HLBV") method to determine the allocation of profits and losses since our liquidation rights and priorities, as defined by the agreement, differ from our underlying ownership interest. The HLBV method calculates the proceeds that would be attributable to each partner in an investment based on the liquidation provisions of the agreement if the partnership was to be liquidated at book value as of the balance sheet date. Each partner’s allocation of income or loss in the period is equal to the change in the amount of net equity they are legally
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Note 7—Equity Method Investment (continued)
able to claim based on a hypothetical liquidation of the entity at the end of a reporting period compared to the beginning of that period, adjusted for any capital transactions.
Any future economic benefits derived from products or services developed by TailFin Labs will be negotiated on a case-by-case basis between the parties.
We recorded total equity in losses of approximately $2.9 million and $2.7 million for the three and six months ended June 30, 2020, which is recorded as a component of other income and expense on our consolidated statements of operations. As of June 30, 2020, our net investment balance is included in the long term portion of the caption entitled prepaid expenses and other assets on our consolidated balance sheet. Total equity in losses also includes income and losses from an investment held by our bank under the Community Reinvestment Act, which is not material to these consolidated financial statements.
Note 8—Deposits
Deposits are categorized as non-interest or interest-bearing deposits as follows:

| June 30, 2020 |  | December 31, 2019
| (In thousands) |  |
Non-interest bearing deposit accounts | $ | 1,964,690 |  |  | $ | 1,055,818 |
Interest-bearing deposit accounts |  |  |
Checking accounts | 8,304 |  |  | 95,995 |
Savings | 8,110 |  |  | 6,619 |
GPR deposits | 14,576 |  |  | 11,892 |
Time deposits, denominations greater than or equal to $100 | 3,830 |  |  | 3,854 |
Time deposits, denominations less than $100 | 1,060 |  |  | 1,163 |
Total interest-bearing deposit accounts | 35,880 |  |  | 119,523 |
Total deposits | $ | 2,000,570 |  |  | $ | 1,175,341 |

Total deposit balances have increased substantially as compared to December 31, 2019, principally as a result of stimulus funds and other government benefits received by our cardholders under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
The scheduled contractual maturities for total time deposits are presented in the table below:

| June 30, 2020
| (In thousands)
Due in 2020 | $ | 818 |
Due in 2021 | 1,150 |
Due in 2022 | 1,484 |
Due in 2023 | 627 |
Due in 2024 | 454 |
Thereafter | 357 |
Total time deposits | $ | 4,890 |

Note 9—Debt
2019 Revolving Facility
In October 2019, we entered into a secured credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit facility provides for a $100.0 million five-year revolving line of credit (the "2019 Revolving Facility"), maturing in October 2024. We use the proceeds of any borrowings under the revolving facility for working capital and other general corporate purposes, subject to the terms and conditions set forth in the credit agreement. We classify amounts outstanding as long-term on our consolidated balance sheets, however, we may make voluntary repayments at any time prior to maturity. In March 2020, we drew down the full amount available under our 2019 Revolving Facility to strengthen our liquidity position as a precautionary measure due to the uncertainty associated with the COVID-19 pandemic and to provide flexibility to pursue strategic priorities, but have since repaid the entire balance drawn as of June 30, 2020. As of December 31, 2019, the outstanding balance

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 9—Debt (continued)
on our revolving line of credit was $35.0 million. The entire $100.0 million remains available for use under the credit facility as of June 30, 2020.
At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus .50%, (a) the Wells Fargo prime rate and (c) a daily rate equal to one-month LIBOR rate plus 1.0% (the “Base Rate"), plus in either case an applicable margin. The margin is dependent upon on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and .25% to 1.00% for Base Rate loans.
We also pay a commitment fee, which varies from .20% to .35% per annum on the actual daily unused portions of the 2019 Revolving Facility. Letter of credit fees are payable in respect of outstanding letters of credit at a rate per annum equal to the applicable margin for LIBOR Rate loans.
The 2019 Revolving Facility contains certain affirmative and negative covenants including negative covenants that limit or restrict, among other things, liens, indebtedness, investments and acquisitions, mergers and fundamental changes, asset sales, restricted payments, changes in the nature of the business, transactions with affiliates and other matters customarily restricted in such agreements. We must also maintain a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as set forth in the credit agreement. At June 30, 2020, we were in compliance with all such covenants.
If an event of default shall occur and be continuing under the facility, the commitments may be terminated and the principal amounts outstanding under the 2019 Revolving Facility, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.
Senior Credit Facility
In October 2014, we entered into a $225.0 million credit agreement with Bank of America, N.A., as an administrative agent, Wells Fargo Bank, National Association, and the other lenders party thereto. The credit agreement provided for 1) a $75.0 million five-year revolving facility (the "Revolving Facility") and 2) a five-year $150.0 million term loan facility ("Term Facility" and, together with the Revolving Facility, the "Senior Credit Facility"). In March 2019, we elected to make a voluntary prepayment of $60.0 million to retire the Term Facility without penalty or additional premium. The Revolving Facility remained available for use until the Senior Credit Facility matured in October 2019, at which point we entered into the 2019 Revolving Facility discussed above.
Cash interest expense related to our debt was $0.4 million for the three months ended June 30, 2020 and $0.6 million for each of the six months ended June 30, 2020 and 2019. We did not incur any cash interest expense during the three months ended June 30, 2019.
Note 10—Income Taxes
Income tax expense for the six months ended June 30, 2020 and 2019 differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows:

| Six Months Ended June 30, |  |
| 2020 |  | 2019
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | (0.6) |  |  | 1.7 |
General business credits | (6.6) |  |  | (1.5) |
Employee stock-based compensation | 1.8 |  |  | (3.7) |
IRC 162(m) limitation | 8.1 |  |  | 2.4 |
Nondeductible expenses | 0.7 |  |  | 0.1 |
Other | (0.5) |  |  | 0.2 |
Effective tax rate | 23.9 | % |  | 20.2 | %

The effective tax rate for the six months ended June 30, 2020 and 2019 differs from the statutory federal income tax rate of 21%, primarily due to state income taxes, net of federal tax benefits, general business credits, employee stock-based compensation, and the Internal Revenue Code (IRC) 162(m) limitation on the deductibility of certain executive compensation. The increase in the effective tax rate for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 is primarily due to an increase of $2.4 million as a result of the IRC 162(m)
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 10—Income Taxes (continued)
limitation on the deductibility of certain executive compensation and a $5.8 million decline in excess tax benefits from stock-based compensation. We recognized a discrete tax expense related to tax shortfalls from stock based-compensation of $1.2 million for the six months ended June 30, 2020, compared to a $4.6 million excess tax benefit for the prior year comparable period. These increases were partially offset by the impact of general business credits.
On March 27, 2020, the CARES Act was signed into law, which, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact our current tax provision.
We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the six months ended June 30, 2020, the provision for GILTI tax expense was not material to our financial statements.
We establish a valuation allowance when we consider it more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of June 30, 2020, we released our valuation allowance against our capital loss carryforwards, as we recognized capital gains on the sale of certain investment securities during the current period sufficient to offset our capital loss carryforward amount. Accordingly, it is more-likely-than-not that the tax benefits related to the capital loss carryforwards will be realized before they expire. As of June 30, 2019, we did not have a valuation allowance on any of our deferred tax assets as we believed it was more-likely-than-not that we would realize the benefits of our deferred tax assets.
We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. We remain subject to examination of our federal income tax return for the years ended December 31, 2016 through 2019. We generally remain subject to examination of our various state income tax returns for a period of four to five years from the respective dates the returns were filed. During the quarter ended June 30, 2020, the IRS initiated an examination of our 2017 U.S. federal tax return. We do not expect that this examination will have a material impact on our consolidated financial statements.
As of June 30, 2020, we have federal net operating loss carryforwards of approximately $31.9 million and state net operating loss carryforwards of approximately $57.9 million which will be available to offset future income. If not used, the federal net operating losses will expire between 2021 and 2035. Of our total state net operating loss carryforwards, approximately $31.7 million will expire between 2021 and 2039, while the remaining balance of approximately $26.2 million does not expire and carries forward indefinitely. The net operating losses are subject to an annual IRC Section 382 limitation, which restricts their utilization against taxable income in future periods. In addition, we have state business tax credits of approximately $16.3 million that can be carried forward indefinitely and other state business tax credits of approximately $1.1 million that will expire between 2023 and 2027.
As of June 30, 2020 and December 31, 2019, we had a liability of $9.7 million and $8.3 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:

| Six Months Ended June 30, |  |
| 2020 |  | 2019
| (In thousands) |  |
Beginning balance | $ | 8,398 |  |  | $ | 6,965 |
Increases related to positions taken during prior years | 235 |  |  | — |
Increases related to positions taken during the current year | 1,200 |  |  | 1,569 |
Ending balance | $ | 9,833 |  |  | $ | 8,534 |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate | $ | 9,660 |  |  | $ | 8,481 |

As of June 30, 2020 and 2019, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $0.7 million and $0.5 million, respectively.
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 11—Stockholders' Equity
Stock Repurchase Program
In May 2017, our Board of Directors authorized, subject to regulatory approval, expansion of our stock repurchase program by an additional $150 million. We sought and received regulatory approval during the second quarter of 2019 and entered into an accelerated share repurchase agreement for $100 million in May 2019. In August 2019, we completed final settlement of shares purchased under this agreement, receiving in total approximately 2.1 million shares at an average repurchase price of $48.26. As of June 30, 2020, we have an authorized $50 million remaining under our current stock repurchase program for any additional repurchases.
Walmart Restricted Shares
On January 2, 2020, we issued Walmart, in a private placement, 975,000 restricted shares of our Class A Common Stock. The shares vest in equal monthly increments through December 1, 2022. Walmart is entitled to voting rights and participate in any dividends paid from the issuance date on the unvested balance, and therefore, the total amount of restricted shares issued are included in our total Class A shares outstanding. As of June 30, 2020, there were 812,502 unvested shares outstanding.
The estimated grant-date fair value of the restricted shares is recorded as a component of stock-based compensation expense over the related period we expect to benefit under our relationship with Walmart.
Note 12—Stock-Based Compensation
We currently grant restricted equity awards to employees, directors and non-employee consultants under our 2010 Equity Incentive Plan. Additionally, through our 2010 Employee Stock Purchase Plan, employees are able to purchase shares of our Class A common stock at a discount through payroll deductions. We have reserved shares of our Class A common stock for issuance under these plans.
Restricted Stock Units
The following table summarizes restricted stock units subject to only service conditions granted under our 2010 Equity Incentive Plan:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share data) |  |  |  |  |  |
Restricted stock units granted | 266 |  |  | 53 |  |  | 1,500 |  |  | 89 |
Weighted-average grant-date fair value | $ | 38.49 |  |  | $ | 48.63 |  |  | $ | 28.62 |  |  | $ | 55.92 |

Performance-Based Restricted Stock Units
We grant performance-based restricted stock units to certain employees which are subject to the attainment of pre-established annual performance targets. The actual number of shares subject to the award is determined at the end of the annual performance period and may range from 0% to 200% of the target shares granted. These awards generally contain an additional service component after each annual performance period is concluded and the unvested balance of the shares determined at the end of the annual performance period will vest over the remaining requisite service period. Compensation expense related to these awards is recognized using the accelerated attribution method over the vesting period (generally, a period of four years) based on the fair value of the closing market price of our Class A common stock on the date of the grant and the estimated performance that is expected to be achieved.
The following table summarizes the performance-based restricted stock units granted under our 2010 Equity Incentive Plan:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share data) |  |  |  |  |  |
Performance-based restricted stock units granted (1) | 128 |  |  | 627 |  |  | 572 |  |  | 883 |
Weighted-average grant-date fair value | $ | 41.84 |  |  | $ | 49.17 |  |  | $ | 32.18 |  |  | $ | 50.15 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 12—Stock-Based Compensation (continued)

(1) |  | Performance awards granted also reflects, as applicable, the issuance of any shares awarded in excess of their original target amount based on the Compensation Committee's certification of completed performance years. The grant date fair value for these awards are based on the grant price at the time of the original award.

Performance-Based Stock Options
In connection with the recent hiring of certain executive officers, we granted performance-based stock options with a seven-year term that vest subject to continued service over three years, and upon our company achieving certain stock trading prices within a five-year period. Compensation expense related to these awards is recognized over the greater of the explicit service period or a derived implicit period based on when the performance targets are expected to be achieved. The grant date fair value is determined through the use of a Monte Carlo simulation and is not subsequently re-measured.
The following table summarizes the performance-based stock options granted to date:

|  |  |  |  | Six Months Ended June 30, |  |
|  |  |  |  | 2020 |  |
|  |  |  |  | (In thousands, except per share data) |  |
Performance-based stock options granted |  |  |  |  | 1,750 |  |  |
Weighted-average exercise price |  |  |  |  | $ | 25.70 |  |  |
Weighted-average grant-date fair value |  |  |  |  | $ | 11.48 |  |  |

The estimated grant-date fair value of each performance option grant was based on the following weighted-average assumptions:

|  |  |  |  | Six Months Ended June 30, |  |
|  |  |  |  | 2020 |  |
Risk-free interest rate |  |  |  |  | 0.68 | % |  |
Expected term (in years) |  |  |  |  | 3.18 |  |
Expected dividends |  |  |  |  | — |  |  |
Expected volatility |  |  |  |  | 53.4 | % |  |

The total stock-based compensation expense recognized was $13.6 million and $8.4 million for the three months ended June 30, 2020 and 2019, respectively, and $25.0 million and $23.2 million for the six months ended June 30, 2020 and 2019, respectively. Total stock-based compensation expense includes amounts related to each of the awards discussed above and purchases made under our 2010 Employee Stock Purchase Plan, and reflects, as applicable, accelerated expense recognition associated with our retirement policy.
Under our retirement policy, following a qualified retirement, any service-based requirement for unvested stock awards held by the eligible employee is eliminated. Accordingly, the related compensation expense is recognized immediately for qualifying awards granted to eligible employees, or in the case of ineligible employees who later become eligible under the retirement policy, over the period from the grant date to the date a qualifying retirement is achieved, if earlier than the standard vesting dates. Performance-based restricted stock units issued to retirement eligible employees remain subject to the stock awards’ annual performance targets and the expense will be adjusted accordingly based expected achievement.
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 13—Earnings per Common Share
The calculation of basic and diluted earnings per share (EPS) was as follows:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share data) |  |  |  |  |  |
Basic earnings per Class A common share |  |  |  |  |  |  |
Numerator: |  |  |  |  |  |  |
Net income | $ | 3,294 |  |  | $ | 34,692 |  |  | $ | 50,139 |  |  | $ | 98,735 |
Income attributable to unvested Walmart restricted shares | (52) |  |  | — |  |  | (828) |  |  | — |
Net income allocated to Class A common stockholders | $ | 3,242 |  |  | $ | 34,692 |  |  | $ | 49,311 |  |  | $ | 98,735 |
Denominator: |  |  |  |  |  |  |
Weighted-average Class A shares issued and outstanding | 52,275 |  |  | 52,588 |  |  | 52,084 |  |  | 52,818 |
Basic earnings per Class A common share | $ | 0.06 |  |  | $ | 0.66 |  |  | $ | 0.95 |  |  | $ | 1.87 |
Diluted earnings per Class A common share |  |  |  |  |  |  |
Numerator: |  |  |  |  |  |  |
Net income allocated to Class A common stockholders | $ | 3,242 |  |  | $ | 34,692 |  |  | $ | 49,311 |  |  | $ | 98,735 |
Re-allocated earnings | 1 |  |  | — |  |  | 13 |  |  | — |
Diluted net income allocated to Class A common stockholders | $ | 3,243 |  |  | $ | 34,692 |  |  | $ | 49,324 |  |  | $ | 98,735 |
Denominator: |  |  |  |  |  |  |
Weighted-average Class A shares issued and outstanding | 52,275 |  |  | 52,588 |  |  | 52,084 |  |  | 52,818 |
Dilutive potential common shares: |  |  |  |  |  |  |
Stock options | 58 |  |  | 131 |  |  | 57 |  |  | 150 |
Restricted stock units | 567 |  |  | 456 |  |  | 469 |  |  | 586 |
Performance-based restricted stock units | 258 |  |  | 630 |  |  | 299 |  |  | 592 |
Employee stock purchase plan | 6 |  |  | 6 |  |  | 4 |  |  | 8 |
Diluted weighted-average Class A shares issued and outstanding | 53,164 |  |  | 53,811 |  |  | 52,913 |  |  | 54,154 |
Diluted earnings per Class A common share | $ | 0.06 |  |  | $ | 0.64 |  |  | $ | 0.93 |  |  | $ | 1.82 |

The restricted shares issued to Walmart contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing EPS pursuant to the two-class method. The computation above excludes income attributable to the unvested restricted shares from the numerator and excludes the dilutive impact of those underlying shares from the denominator.
For the periods presented, we excluded certain restricted stock units and stock options outstanding (as applicable), which could potentially dilute basic EPS in the future, from the computation of diluted EPS as their effect was anti-dilutive. Additionally, we have excluded any performance-based restricted stock units and performance-based stock options where the performance contingency has not been met as of the end of the period. The following table shows the weighted-average number of shares excluded from the diluted EPS calculation as their effects were anti-dilutive:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |
Class A common stock |  |  |  |  |  |  |
Options to purchase Class A common stock | 795 |  |  | — |  |  | 772 |  |  | — |
Restricted stock units | 268 |  |  | 329 |  |  | 295 |  |  | 226 |
Performance-based restricted stock units | 453 |  |  | 431 |  |  | 286 |  |  | 217 |
Unvested Walmart restricted shares | 840 |  |  | — |  |  | 875 |  |  | — |
Total | 2,356 |  |  | 760 |  |  | 2,228 |  |  | 443 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 14—Fair Value Measurements
Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
We determine the fair values of our financial instruments based on the fair value hierarchy established under applicable accounting guidance, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value.
For more information regarding the fair value hierarchy and how we measure fair value, see Note 2–Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019.
As of June 30, 2020 and December 31, 2019, our assets and liabilities carried at fair value on a recurring basis were as follows:

| Level 1 |  | Level 2 |  | Level 3 |  | Total Fair Value
June 30, 2020 | (In thousands) |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Corporate bonds | $ | — |  |  | $ | 10,058 |  |  | $ | — |  |  | $ | 10,058 |
Agency bond securities | — |  |  | 15,044 |  |  | — |  |  | 15,044 |
Agency mortgage-backed securities | — |  |  | 191,804 |  |  | — |  |  | 191,804 |
Municipal bonds | — |  |  | 4,418 |  |  | — |  |  | 4,418 |
Asset-backed securities | — |  |  | 20,210 |  |  | — |  |  | 20,210 |
Total assets | $ | — |  |  | $ | 241,534 |  |  | $ | — |  |  | $ | 241,534 |
Liabilities |  |  |  |  |  |  |
Contingent consideration | $ | — |  |  | $ | — |  |  | $ | 7,300 |  |  | $ | 7,300 |
December 31, 2019 |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Corporate bonds | $ | — |  |  | $ | 10,012 |  |  | $ | — |  |  | $ | 10,012 |
Agency bond securities | — |  |  | 20,000 |  |  | — |  |  | 20,000 |
Agency mortgage-backed securities | — |  |  | 211,033 |  |  | — |  |  | 211,033 |
Municipal bonds | — |  |  | 4,342 |  |  | — |  |  | 4,342 |
Asset-backed securities | — |  |  | 32,052 |  |  | — |  |  | 32,052 |
Total assets | $ | — |  |  | $ | 277,439 |  |  | $ | — |  |  | $ | 277,439 |
Liabilities |  |  |  |  |  |  |
Contingent consideration | $ | — |  |  | $ | — |  |  | $ | 9,300 |  |  | $ | 9,300 |

We based the fair value of our fixed income securities held as of June 30, 2020 and December 31, 2019 on quoted prices in active markets for similar assets. We had no transfers between Level 1, Level 2 or Level 3 assets or liabilities during the three and six months ended June 30, 2020 or 2019.
The following table presents changes in our contingent consideration payable for the three and six months ended June 30, 2020 and 2019, which is categorized in Level 3 of the fair value hierarchy:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands) |  |  |  |  |  |
Balance, beginning of period | $ | 8,300 |  |  | $ | 15,800 |  |  | $ | 9,300 |  |  | $ | 15,800 |
Payments of contingent consideration | (1,000) |  |  | (2,634) |  |  | (2,000) |  |  | (2,634) |
Balance, end of period | $ | 7,300 |  |  | $ | 13,166 |  |  | $ | 7,300 |  |  | $ | 13,166 |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 15—Fair Value of Financial Instruments
The following describes the valuation technique for determining the fair value of financial instruments, whether or not such instruments are carried at fair value on our consolidated balance sheets.
Short-term Financial Instruments
Our short-term financial instruments consist principally of unrestricted and restricted cash and cash equivalents, settlement assets and obligations, and obligations to customers. These financial instruments are short-term in nature, and, accordingly, we believe their carrying amounts approximate their fair values. Under the fair value hierarchy, these instruments are classified as Level 1.
Investment Securities
The fair values of investment securities have been derived using methodologies referenced in Note 2–Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2019. Under the fair value hierarchy, our investment securities are classified as Level 2.
Loans
We determined the fair values of loans by discounting both principal and interest cash flows expected to be collected using a discount rate commensurate with the risk that we believe a market participant would consider in determining fair value. Under the fair value hierarchy, our loans are classified as Level 3.
Deposits
The fair value of demand and interest checking deposits and savings deposits is the amount payable on demand at the reporting date. We determined the fair value of time deposits by discounting expected future cash flows using market-derived rates based on our market yields on certificates of deposit, by maturity, at the measurement date. Under the fair value hierarchy, our deposits are classified as Level 2.
Contingent Consideration
The fair value of contingent consideration obligations, such as the earn-out associated with our acquisition of UniRush LLC ("UniRush") in 2017, is estimated through valuation models designed to estimate the probability of such contingent payments based on various assumptions. Estimated payments are discounted using present value techniques to arrive at an estimated fair value. Our contingent consideration payable is classified as Level 3 because we use unobservable inputs to estimate fair value, including the probability of achieving certain earnings thresholds and appropriate discount rates. Changes in fair value of contingent consideration are recorded through operating expenses.
Debt
The fair value of our revolving line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. The fair value of the revolving line of credit is classified as a Level 2 liability in the fair value hierarchy.
Fair Value of Financial Instruments
The carrying values and fair values of certain financial instruments that were not carried at fair value, excluding short-term financial instruments for which the carrying value approximates fair value, at June 30, 2020 and December 31, 2019 are presented in the table below.
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 15—Fair Value of Financial Instruments (continued)

| June 30, 2020 |  |  |  | December 31, 2019 |  |
| Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
| (In thousands) |  |  |  |  |  |
Financial Assets |  |  |  |  |  |  |
Loans to bank customers, net of allowance | $ | 19,551 |  |  | $ | 18,056 |  |  | $ | 21,417 |  |  | $ | 19,563 |
Financial Liabilities |  |  |  |  |  |  |
Deposits | $ | 2,000,570 |  |  | $ | 2,000,512 |  |  | $ | 1,175,341 |  |  | $ | 1,175,298 |
Line of credit | $ | — |  |  | $ | — |  |  | $ | 35,000 |  |  | $ | 35,000 |

Note 16—Leases
We enter into operating lease agreements principally related to our corporate office locations. Currently, we do not enter into any financing lease agreements. Our leases have remaining lease terms of less than 1 year to approximately 5 years, most of which include renewal options of varying terms. We made a policy election to adopt the short term lease exemption for all leases with an initial term of 12 months or less.
Significant Assumptions, Judgments and Policies
Under Topic 842, we determine if an arrangement is or contains a lease at inception. Right-of-use (ROU) assets and liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term. For this purpose, we consider only fixed payments stated in the leases at the time of commencement. Variable lease payments that are not based on a specified rate or index are expensed when incurred. Since an implicit interest rate for our leases cannot be determined under our contracts, we use an incremental borrowing rate based on the information available to us at the commencement date in determining the present value of our lease payments. Our incremental borrowing rate is based on a variety of considerations, including borrowing rates currently available to us for loans with similar terms and market participant information based on credit spreads for issuers of similar risk and credit rating.
The ROU asset also reflects any lease payments made prior to commencement and is recorded net of any lease incentives received. Our ROU asset and liability reflects, as applicable, options to extend or terminate a lease when it is reasonably certain that we will exercise such options. We also made a policy election to combine our lease and non-lease components for each of our existing classes of leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Lease expense is recognized on a straight-line basis over the lease term.
Our total lease expense amounted to approximately $2.2 million and $2.7 million for the three months ended June 30, 2020 and 2019, respectively, and $4.6 million for each of the six months ended June 30, 2020 and 2019. 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:

| June 30, 2020 |  |  |  |
Cash paid for operating lease liabilities (in thousands) | $ | 4,993 |  |  |  |  |
Weighted average remaining lease term (years) | 3.7 |  |  |  |
Weighted average discount rate | 4.7 | % |  |  |  |

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 16—Leases (continued)
Maturities of our operating lease liabilities as of June 30, 2020 is as follows:

| Operating Leases
| (In thousands)
Remainder of 2020 | $ | 4,871 |
2021 | 9,707 |
2022 | 8,740 |
2023 | 3,500 |
2024 | 3,464 |
Thereafter | 1,732 |
| 32,014 |
Less: imputed interest | (3,027) |
Total lease liabilities | $ | 28,987 |

Note 17—Commitments and Contingencies
Litigation and Claims
In the ordinary course of business, we are a party to various legal proceedings, including, from time to time, actions which are asserted to be maintainable as class action suits. We review these actions on an ongoing basis to determine whether it is probable and estimable that a loss has occurred and use that information when making accrual and disclosure decisions. We have provided reserves where necessary for all claims and, based on current knowledge and in part upon the advice of legal counsel, all matters are believed to be adequately covered by insurance, or, if not covered, we do not expect the outcome in any legal proceedings, individually or collectively, to have a material adverse impact on our financial condition or results of operations.
On December 18, 2019, an alleged class action entitled Koffsmon v. Green Dot Corp., et al., No. 19-cv-10701-DDP-E, was filed in the United States District Court for the Central District of California, against us and two of our officers. The suit asserts purported claims under Sections 10(b) and 20(a) of the Exchange Act for allegedly misleading statements regarding our business strategy. Plaintiff alleges that defendants made statements that were misleading because they allegedly failed to disclose details regarding our customer acquisition strategy and its impact on our financial performance. The suit is purportedly brought on behalf of purchasers of our securities between May 9, 2018 and November 7, 2019, and seeks compensatory damages, fees and costs. On February 18, 2020, a shareholder derivative suit and securities class action entitled Hellman v. Streit, et al, No. 20-cv-01572-SVW-PVC was filed in United States District Court for the Central District of California, against us and certain of our officers and directors. The suit avers purported breach of fiduciary duty and unjust enrichment claims, as well as claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, on the basis of the same wrongdoing alleged in the first lawsuit described above. The suit does not define the purported class allegedly damaged. These cases have been related. The defendants have not yet responded to the complaints in these matters.
Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of this matter. We are unable at this time to determine whether the outcome of the litigation would have a material impact on our results of operations, financial condition or cash flows.
Other Legal Matters
We monitor the laws of all 50 states to identify state laws or regulations that apply (or may apply) to our products and services. We have obtained money transmitter licenses (or similar such licenses) where applicable, based on advice of counsel or when we have been requested to do so. If we were found to be in violation of any laws and regulations governing banking, money transmitters, electronic fund transfers, or money laundering in the United States or abroad, we could be subject to penalties or could be forced to change our business practices.
From time to time we enter into contracts containing provisions that contingently require us to indemnify various parties against claims from third parties. These contracts primarily relate to: (i) contracts with our card issuing banks, under which we are responsible to them for any unrecovered overdrafts on cardholders’ accounts; (ii) certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities, and other claims arising from our use of the premises; (iii) certain agreements with our officers, directors,
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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 17—Commitments and Contingencies (continued)
and employees, under which we may be required to indemnify these persons for liabilities arising out of their relationship with us; and (iv) contracts under which we may be required to indemnify our retail distributors, suppliers, vendors and other parties with whom we have contracts against claims arising from certain of our actions, omissions, violations of law and/or infringement of patents, trademarks, copyrights and/or other intellectual property rights.
Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. With the exception of overdrafts on cardholders’ accounts, historically, we have not been required to make payments under these and similar contingent obligations, and no liabilities have been recorded for these obligations in our consolidated balance sheets.
For additional information regarding overdrafts on cardholders’ accounts, refer to Note 5 — Accounts Receivable.
Financial Commitments
As discussed in Note 7 — Equity Method Investments, we are committed to make annual capital contributions in TailFin Labs, LLC of $35.0 million per year through January 2024.
On February 28, 2017, we completed our acquisition of all the membership interests of UniRush, an online direct-to-consumer GPR card and corporate payroll card provider. The transaction terms include an earn-out equal to the greater of (i) a specified percentage of the revenue generated by the online direct-to-consumer GPR card portfolio for the five-year period following the closing or (ii) $20 million, payable quarterly over five years.
Note 18—Significant Retailer Concentration
A credit concentration may exist if customers are involved in similar industries, economic sectors, and geographic regions. Our retail distributors operate in similar economic sectors but diverse domestic geographic regions. The loss of a significant retail distributor could have a material adverse effect upon our card sales, profitability, and revenue growth.
Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows:

| Three Months Ended June 30, |  |  |  | Six Months Ended June 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019
Walmart | 29% |  | 35% |  | 27% |  | 32%

Settlement assets derived from our products sold at retail distributors constituting greater than 10% of the settlement assets outstanding on our consolidated balance sheets were as follows:

| June 30, 2020 |  | December 31, 2019
Walmart | * |  | 13%

* | Constitutes less than 10% for the period presented.

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
Note 19—Segment Information
Our operations are comprised of two reportable segments: 1) Account Services and 2) Processing and Settlement Services. We identified our reportable segments based on factors such as how we manage our operations and how our chief operating decision maker, who is our Chief Executive Officer, views results. Our chief operating decision maker organizes and manages our business primarily on the basis of product and service offerings and uses operating income to assess profitability.
The Account Services segment consists of revenues and expenses derived from our deposit account programs, such as prepaid cards, debit cards, consumer and small business checking accounts, secured credit cards, payroll debit cards and gift cards. These deposit account programs are marketed under several of our leading consumer brand names and under the brand names of our BaaS partners. The Processing and Settlement Services segment consists of revenues and expenses derived from our products and services that specialize in facilitating the movement of cash on behalf of consumers and businesses, such as consumer cash processing services, wage disbursements and tax refund processing services. The Corporate and Other segment primarily consists of eliminations of intersegment revenues and expenses, unallocated corporate expenses, depreciation and amortization, and other costs that are not considered when management evaluates segment performance. We do not evaluate performance or allocate resources based on segment asset data, and therefore such information is not presented.
The following tables present certain financial information for each of our reportable segments for the periods then ended:

| Three Months Ended June 30, 2020 |  |  |  |  |  |
| Account Services |  | Processing and Settlement Services |  | Corporate and Other |  | Total
| (In thousands) |  |  |  |  |  |
Operating revenues | $ | 255,766 |  |  | $ | 67,877 |  |  | $ | (7,403) |  |  | $ | 316,240 |
Operating expenses | 228,723 |  |  | 49,669 |  |  | 32,458 |  |  | 310,850 |
Operating income | $ | 27,043 |  |  | $ | 18,208 |  |  | $ | (39,861) |  |  | $ | 5,390 |

| Three Months Ended June 30, 2019 |  |  |  |  |  |
| Account Services |  | Processing and Settlement Services |  | Corporate and Other |  | Total
| (In thousands) |  |  |  |  |  |
Operating revenues | $ | 216,032 |  |  | $ | 70,040 |  |  | $ | (7,746) |  |  | $ | 278,326 |
Operating expenses | 165,574 |  |  | 45,867 |  |  | 22,922 |  |  | 234,363 |
Operating income | $ | 50,458 |  |  | $ | 24,173 |  |  | $ | (30,668) |  |  | $ | 43,963 |

| Six Months Ended June 30, 2020 |  |  |  |  |  |
| Account Services |  | Processing and Settlement Services |  | Corporate and Other |  | Total
| (In thousands) |  |  |  |  |  |
Operating revenues | $ | 501,116 |  |  | $ | 193,507 |  |  | $ | (16,214) |  |  | $ | 678,409 |
Operating expenses | 440,266 |  |  | 116,988 |  |  | 56,916 |  |  | 614,170 |
Operating income | $ | 60,850 |  |  | $ | 76,519 |  |  | $ | (73,130) |  |  | $ | 64,239 |

| Six Months Ended June 30, 2019 |  |  |  |  |  |
| Account Services |  | Processing and Settlement Services |  | Corporate and Other |  | Total
| (In thousands) |  |  |  |  |  |
Operating revenues | $ | 455,665 |  |  | $ | 180,689 |  |  | $ | (17,514) |  |  | $ | 618,840 |
Operating expenses | 342,361 |  |  | 100,382 |  |  | 50,749 |  |  | 493,492 |
Operating income | $ | 113,304 |  |  | $ | 80,307 |  |  | $ | (68,263) |  |  | $ | 125,348 |

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may” and “assumes,” variations of such words and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including the impact of the coronavirus (COVID-19) pandemic on our business, results of operations and financial condition, results of operations and financial condition, and our response 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 leader and bank holding company with a mission to reinvent banking for the masses. Our company’s long-term strategy is to create a unique, sustainable and highly valuable fintech ecosystem, in part through the continued evolution of Green Dot’s innovative Banking as a Service (“BaaS”) platform, that’s intended to fuel the engine of innovation and growth for Green Dot and its business partners.
Enabled by proprietary technology, our commercial bank charter and our high-scale program management operating capability, our vertically integrated technology and banking platform is used by a growing list of America’s most prominent consumer and technology companies to design and deploy their own bespoke financial services solutions to their customers and partners, while we use that same integrated platform for our own leading collection of banking and financial services products marketed directly to consumers through what we believe to be the most broadly distributed, omni-channel branchless banking platforms in the United States.
Our products and services are divided among our two reportable segments: 1) Account Services and 2) Processing and Settlement Services. We also consider our product and service offerings based on our market distribution strategies, which we refer to as our Consumer Business and Platform Services Business. Refer to our latest Annual Report on Form 10-K "Part 1, Item 1. Business" for more detailed information.
Financial Results and Trends
Our consolidated results of operations for the three and six months ended June 30, 2020 and 2019 were as follows:

| Three Months Ended June 30, |  |  |  |  |  |  |  | Six Months Ended June 30, |  |  |  |  |  |
| 2020 |  | 2019 |  | Change |  | % |  | 2020 |  | 2019 |  | Change |  | %
| (In thousands, except percentages) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total operating revenues | $ | 316,240 |  |  | $ | 278,326 |  |  | $ | 37,914 |  |  | 13.6 | % |  | $ | 678,409 |  |  | $ | 618,840 |  |  | $ | 59,569 |  |  | 9.6 | %
Total operating expenses | 310,850 |  |  | 234,363 |  |  | 76,487 |  |  | 32.6 | % |  | 614,170 |  |  | 493,492 |  |  | 120,678 |  |  | 24.5 | %
Net income | 3,294 |  |  | 34,692 |  |  | (31,398) |  |  | (90.5) | % |  | 50,139 |  |  | 98,735 |  |  | (48,596) |  |  | (49.2) | %

Impact of COVID-19
The unprecedented and rapid spread of the COVID-19 pandemic and the measures implemented to contain it have created a significant amount of economic volatility in our markets. We have taken steps to ensure the health and safety of our employees and continued service to our customers and partners, while at the same time seeking to mitigate the impact of the pandemic on our financial condition and results of operations. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time and the ultimate business and economic impact remains unknown.
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Our employees and business continuity
In response to the pandemic, we enacted business continuity plans in Shanghai, China and across the U.S., mandated that our employees work from home, required contractors to work remotely and implemented strict travel restrictions. To date, our U.S. employees have been successful in maintaining our operations in a remote work environment and our offices in China have since reopened consistent with local guidelines. While we experienced disruption in staffing levels at our third-party call centers across the globe during March and the second quarter of 2020 staffing level have been restored to appropriate levels and we continue to monitor the situation, as we evaluate future operating plans.
Demand for our products and services
Beginning in March 2020, the business and operations of our retail distributors, employers offering our PayCard programs and certain of our BaaS partners have been disrupted, with many experiencing reduced foot traffic or usage of their products and services. The conditions caused by the COVID-19 pandemic adversely affected our customers’ spending levels and the ability or willingness to purchase our products and services through our retail distributors, lowered the volume of transactions through our BaaS and PayCard programs and delayed the launching of new products and services.
Governmental actions such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) helped mitigate the effects of COVID-19 on our business during the second quarter of 2020. In particular, stimulus funds and incremental unemployment benefits provided under the CARES Act created a higher demand and usage of our products and services. In the second quarter of 2020, our gross dollar volume, purchase volume and the number of active accounts grew year-over-year by 51%, 31% and 10%, respectively.
However, the incremental federal unemployment benefits from the CARES Act expired on July 31, 2020 and unless the government extends the duration of these additional unemployment benefits and does not significantly reduce these benefits, or offers comparable or better benefits, our customers' spending levels and usage of our products may be impacted, resulting in additional uncertainty on our revenue results for the remainder of the year.
Impact on interest income, cost structure and liquidity
Interest Income
The Federal Reserve recently announced reductions in short-term interest rates that have lowered the yields on our cash and investment balances and therefore, we expect a reduction in the amount of interest income we earn for the remainder of the year.
Cost Structure
We have experienced and may continue to experience increased costs, including higher call center costs and disputed transaction losses, which were exacerbated by the disruption in staffing levels at our third-party call centers in the first half of 2020. While we have implemented cost-saving measures to offset increased costs and are otherwise working to mitigate the conditions driving our higher costs, the conditions caused by the pandemic could continue to adversely affect our business, results of operations, and financial condition in future periods.
Liquidity
We have taken steps to strengthen our liquidity position and ensure we have ample flexibility to pursue strategic priorities, including utilizing our revolving credit facility, instituting an enterprise-wide headcount freeze and delaying or reducing non-critical projects. In March 2020, we drew down the full $100 million available to us under our revolving credit facility as a precautionary measure due to the uncertainty associated with the COVID-19 pandemic. We have since repaid the entire balance drawn as of June 30, 2020 and continue to have the full amount available to us should we need it to invest in strategic initiatives.
Additionally, the CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. This is expected to provide us with approximately $6 million of additional liquidity during the current year.
The duration and magnitude of the effects of COVID-19 remains uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, the nature of and duration for which the preventative measures remain in place, the extent and effectiveness of containment and mitigation actions, the type of stimulus measures and other policy responses that the U.S. government may further adopt, and the impact of these and other factors on our employees, customers, retail distributors, partners and vendors.
See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to the COVID-19 pandemic.
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Total operating revenues
Our total operating revenues for the three and six months ended June 30, 2020 increased $37.9 million, or 14%, and $59.6 million, or 10%, respectively, over the prior year comparable periods, generating revenue growth from both our Account Services and Processing and Settlement Services segments.
Account Services
Within our Account Services segment, total operating revenues increased year-over-year for the three and six months ended June 30, 2020 by 18% and 10%, respectively, primarily attributable to growth in BaaS program management service fee revenues earned from platform partners and growth in the number of direct deposit active accounts as new and existing customers utilized our platform to receive stimulus funds and unemployment benefits and in turn, drove gross dollar volume and purchase volume growth of 51% and 31%, respectively. Our account holders enrolled in direct deposit tend to generate higher levels of gross dollar volume and purchase volume than other active accounts, and consequently have a greater impact on the amount of interchange revenue we earn.
We also experienced a year-over-year decline in net interest income during the three and six months ended June 30, 2020 due to lower yields on our cash and investment balances as a result of rate decreases by the Federal Reserve.
While we believe gross dollar volume is a strong indicator of our revenue for all our account programs and believe our long term strategy and unique collection of assets provide a competitive advantage to address the competitive pressures we face from new entrants, current economic conditions caused by the COVID-19 pandemic have created mixed trends in our business that make it difficult to forecast future results. We continue to monitor our direct deposit active base to better understand sources of our gross dollar volume. We have seen an increased proportion of ACH deposits coming from government benefits as account holders file for unemployment benefits. While state and federal unemployment benefits afforded under the CARES Act has helped offset erosion in payroll deposits, as we noted above, such benefits have since expired and it is unclear whether or how long such benefits will be extended or whether such benefits will be maintained, significantly reduced or replaced.
Processing and Settlement Services
Within our Processing and Settlement Services segment, total operating revenues decreased slightly year-over-year by 3% for the three months ended June 30, 2020 due to a shift in the number of tax refunds processed from the second quarter of 2020 to the third quarter of 2020 as a result of the extension of tax filing deadlines and a year-over-year decline in Simply Paid disbursement transactions, partially offset by growth in the number of cash transfers. The deferral of the deadline to submit tax returns to July 2020 in response to the COVID-19 pandemic has shifted volumes from the first half to the second half of the year, but we do not expect it to have a material impact on the number of tax refunds processed for the full year 2020.
Total operating revenues increased 7% for the six months ended June 30, 2020, as a result of year-over-year growth in the number of cash transfers, expanded adoption of our taxpayer advance programs and the introduction of new tax processing services compared with the prior year periods.
Total operating expenses
Our total operating expenses for the three and six months ended June 30, 2020 increased $76.5 million, or 33%, and $120.7 million, or 24%, respectively, over the prior year comparable periods. This increase was primarily the result of several factors, including higher processing expenses associated with the growth of BaaS account programs, higher sales and marketing expenses attributable to the year-over-year increases in operating revenues generated from products and services that are subject to revenue-sharing arrangements with our distributors and partners, our continued marketing investment in our Green Dot Unlimited Cash Back Bank Account ("Green Dot Unlimited") and higher compensation and benefits expenses, principally due to accrued bonus compensation for non-executive employees and employee stock-based compensation expenses associated with performance-based equity awards. We also experienced an increase in other general and administrative expenses, primarily due to a year-over-year growth in dispute transaction losses and higher depreciation and amortization of property, plant and equipment as a result of growth in capital expenditures in recent years.
While we continue to build operational efficiencies and implement best practices within our customer service operations, in the short-term, we continue to incur significantly higher dispute transaction losses year-over-year, primarily due to higher volumes of customer complaints and reserves for credits to be issued for previously denied disputes. While we do not anticipate these conditions to persist over a long duration, dispute transaction losses have negatively impacted other general and administrative expenses for the three and six months ended June 30, 2020 and are expected to impact the same during the three months ending September 30, 2020.
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Additionally, under our new Walmart MoneyCard agreement, beginning January 1, 2020, the sales commission rate we pay to Walmart for the MoneyCard program increased from the prior agreement. Consequently, we expect our sales and marketing expenses throughout 2020 to be negatively impacted by the increased commission rate.
Income taxes
Our income tax expense for the three and six months ended June 30, 2020 decreased $5.3 million and $9.2 million, respectively, or 58% and 37%, respectively, from the prior year comparable periods. The decrease was primarily due to a decline in operating income generated, offset by a higher effective tax rate year-over-year.
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 June 30, |  |  |  |  |  |  |  | Six Months Ended June 30, |  |  |  |  |  |
| 2020 |  | 2019 |  | Change |  | % |  | 2020 |  | 2019 |  | Change |  | %
| (In millions, except percentages) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross Dollar Volume | $ | 15,107 |  |  | $ | 10,019 |  |  | $ | 5,088 |  |  | 50.8 | % |  | $ | 29,401 |  |  | $ | 22,996 |  |  | $ | 6,405 |  |  | 27.9 | %
GDV from Direct Deposit Sources | $ | 10,568 |  |  | $ | 7,208 |  |  | $ | 3,360 |  |  | 46.6 | % |  | $ | 21,222 |  |  | $ | 17,425 |  |  | $ | 3,797 |  |  | 21.8 | %
Number of Active Accounts* | 6.25 |  |  | 5.66 |  |  | 0.59 |  |  | 10.4 | % |  | n/a |  | n/a |  | n/a |  | n/a
Direct Deposit Active Accounts* | 3.12 |  |  | 2.31 |  |  | 0.81 |  |  | 35.1 | % |  | n/a |  | n/a |  | n/a |  | n/a
Purchase Volume | $ | 8,477 |  |  | $ | 6,470 |  |  | $ | 2,007 |  |  | 31.0 | % |  | $ | 16,759 |  |  | $ | 14,670 |  |  | $ | 2,089 |  |  | 14.2 | %
Cash Transfers | 12.48 |  |  | 11.25 |  |  | 1.23 |  |  | 10.9 | % |  | 24.61 |  |  | 22.23 |  |  | 2.38 |  |  | 10.7 | %
Tax Refunds Processed | 1.90 |  |  | 2.52 |  |  | (0.62) |  |  | (24.6) | % |  | 11.6 |  |  | 11.91 |  |  | (0.31) |  |  | (2.6) | %

* Represents number of active and direct deposit active accounts as of June 30, 2020 and 2019, respectively.
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 these metrics to analyze the total amount of money moving onto our account programs, 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 Account Services segment products, inclusive of interest income generated on deposits held at Green Dot Bank, fees charged to account holders and interchange revenues generated through the spending of account balances. The increases in total dollar volume of 51% and 28% during the three and six months ended June 30, 2020, respectively, and the increases in gross dollar volume from direct deposit sources of 47% and 22% during the three and six months ended June 30, 2020, respectively, from the comparable prior year periods were principally driven by an increase in the number of direct deposit active accounts and stimulus funds and unemployment benefits received under the CARES Act.
Number of Active Accounts — represents any bank account within our Account Services segment that is subject to United States Patriot Act compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits. This metric includes general purpose reloadable prepaid card accounts, demand deposit or checking accounts, and credit card accounts in our portfolio that had a 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. Within our active accounts, we monitor the mix of direct deposit accounts and non-direct deposit accounts. Our direct deposit active accounts, on average, have the longest tenure and generate the majority of our gross dollar volume in any period and thus, generate more revenue over their lifetime than other active accounts. We experienced an increase in direct deposit active accounts of 35% as of June 30, 2020 on a year-over-year basis, primarily driven by new and existing customers utilizing our platform to receive stimulus funds and unemployment benefits provided for under the CARES Act.
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 in 2020, excludes volume generated by certain BaaS programs where the BaaS partner earns interchange and we earn a platform fee. We use this metric to analyze interchange revenue, which is a key component of our financial performance. Purchase volume increased approximately 31% and 14% during the three and six months ended June 30, 2020, respectively, from the comparable prior year periods, in line with the increase in Gross Dollar Volume as described above.
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Number of Cash Transfers — represents the total number of cash transfer transactions conducted by consumers, such as a point-of-sale swipe reload transaction, the purchase of a MoneyPak or an e-cash mobile remittance transaction marketed under various brand names, that we conducted through our retail distributors in a specified period. This metric excludes disbursements made through our Simply Paid wage disbursement platform. We review this metric as a measure of the size and scale of our retail cash processing network, as an indicator of customer engagement and usage of our products and services, and to analyze cash transfer revenue, which is a key component of our financial performance. Our cash transfers increased 11% during the three and six months ended June 30, 2020, respectively, over the prior year comparable periods primarily due to an increase in transactions and the number of third-party account programs that utilize the Green Dot Network to accept funds through our cash processing network.
Number of Tax Refunds Processed — represents the total number of tax refunds processed in a specified period. Due to seasonality, 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. The overall decrease in the number of tax refunds processed of 3% during the six months ended June 30, 2020 compared to the prior year period is primarily attributable to a shift in volume from the second quarter of 2020 to the third quarter of 2020 as a result of the extension of the tax filing deadline to July 2020.
Key components of our results of operations
Operating Revenues
We classify our operating revenues into the following four categories:
Card Revenues and Other Fees — Card revenues consist of monthly maintenance fees, ATM fees, new card fees and other revenues. We charge maintenance fees on GPR cards, checking accounts and certain cash transfer products, such as MoneyPak, pursuant to the terms and conditions in our customer agreements. We charge ATM fees to cardholders when they withdraw money at certain ATMs in accordance with the terms and conditions in our cardholder agreements. We charge new card fees, if applicable, when a consumer purchases a GPR card, gift card, or a checking account product. Other revenues consist primarily of revenue associated with our gift card program, annual fees associated with our secured credit card portfolio, transaction-based fees, fees associated with optional products or services, and cash-back rewards we offer to cardholders. Our cash-back rewards are recorded as a reduction to card revenues and other fees. Also included in card revenues and other fees are program management fees earned from our BaaS partners for programs we manage on their behalf.
Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active accounts in our portfolio and the average fee assessed per account. Our average monthly maintenance fee per active account depends upon the mix of products in our portfolio at any given point in time and upon the extent to which fees are waived based on various incentives provided to customers in an effort to encourage higher usage and retention. Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction. The average fee per ATM transaction depends upon the mix of products in our portfolio at any given point in time and the extent to which cardholders use ATMs within our free network that carry no fee for cash withdrawal transactions. Our aggregate new card fee revenues vary based upon the number of GPR cards and checking accounts activated and the average new card fee. The average new card fee depends primarily upon the mix of products that we sell since there are variations in new account fees based on the product and/or the location or source where our products are purchased. The revenue we earn from each of these fees may also vary depending upon the channel in which the active accounts were acquired. For example, certain BaaS programs may not assess monthly maintenance fees and as a result, these accounts may generate lower fee revenue than other active accounts. Our aggregate other fees vary primarily based upon account sales of all types, gift card sales, purchase transactions and the number of active accounts in our portfolio.
Processing and Settlement Service Revenues — Processing and settlement service revenues consist of cash transfer revenues, tax refund processing service revenues and Simply Paid disbursement 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
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transactions using our products. Our aggregate interchange revenues vary based primarily on the number of active accounts in our portfolio, the average transactional volume of the active accounts in our portfolio and on the mix of cardholder purchases between those using signature identification technologies and those using personal identification numbers and the corresponding rates.
Interest Income, net — Net interest income represents the difference between the interest income earned on our interest-earning assets and the interest expense on our interest-bearing liabilities held at Green Dot Bank. Interest-earning assets include customer deposits, loans, and investment securities. Our interest-bearing liabilities held at Green Dot Bank include interest-bearing deposits. Our net interest income and our net interest margin fluctuate based on changes in the federal funds interest rates and changes in the amount and composition of our interest-bearing assets and liabilities.
Operating Expenses
We classify our operating expenses into the following four categories:
Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the commissions we pay to our retail distributors, brokers and platform partners, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards and promotional materials to our retail distributors and personalized GPR and GoBank cards to consumers who have activated their cards. We generally establish commission percentages in long-term distribution agreements with our retail distributors and platform partners. Aggregate commissions with our retail distributors are determined by the number of account products and cash transfers sold at their respective retail stores. Commissions with our platform partners and, in certain cases, our retail distributors are determined by the revenue generated from the ongoing use of the associated card programs. We incur advertising and marketing expenses for television, sponsorships, online and in-store promotions. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an extended period of time. For this reason, these expenses do not always track changes in our operating revenues. Our manufacturing and distribution costs vary primarily based on the number of GPR and GoBank accounts activated by consumers.
Compensation and Benefits Expenses — Compensation and benefits expenses represent the compensation and benefits that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations, handle routine customer service inquiries and provide consulting support in the area of IT operations and elsewhere. Compensation and benefits expenses associated with our customer service and loss management functions generally vary in line with the size of our active account portfolio, while the expenses associated with other functions do not.
Processing Expenses — Processing expenses consist primarily of the fees charged to us by the payment networks, which process transactions for us, the third-party card processors that maintain the records of our customers' accounts and process transaction authorizations and postings for us and the third-party banks that issue our accounts. These costs generally vary based on the total number of active accounts in our portfolio and gross dollar volume transacted by those accounts. Also included in processing expenses are bank fees associated with our tax refund processing services and gateway and network fees associated with our Simply Paid disbursement services. Bank fees generally vary based on the total number of tax refund transfers processed and gateway and network fees vary based on the numbers of disbursements made.
Other General and Administrative Expenses — Other general and administrative expenses consist primarily of professional service fees, telephone and communication costs, depreciation and amortization of our property and equipment and intangible assets, changes in contingent consideration, transaction losses (losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and communication costs primarily from customers contacting us through our toll-free telephone numbers. These costs vary with the total number of active accounts in our portfolio, as do losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud. Costs associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.
Income Tax Expense
Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting from the sale of our products and services. On March 27, 2020, the CARES Act was signed into law, which among
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other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact our current tax provision.
Critical Accounting Policies and Estimates
Reference is made to the critical accounting policies and 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 December 31, 2019. Except as disclosed in Note 2 — Summary of Significant Accounting Policies under Recently Adopted Accounting Pronouncements to the Consolidated Financial Statements included herein, there have been no changes to our critical accounting policies and estimates during the six months ended June 30, 2020.
Recent Accounting Pronouncements
Reference is made to the recent accounting pronouncements disclosed in Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements included herein.
Comparison of Three-Month Periods Ended June 30, 2020 and 2019
Operating Revenues
The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues, interchange revenues and net interest income:

| Three Months Ended June 30, |  |  |  |  |  |
| 2020 |  |  |  | 2019 |  |
| Amount |  | % of Total Operating Revenues |  | Amount |  | % of Total Operating Revenues
| (In thousands, except percentages) |  |  |  |  |  |
Operating revenues: |  |  |  |  |  |  |
Card revenues and other fees | $ | 152,681 |  |  | 48.3 | % |  | $ | 121,613 |  |  | 43.7 | %
Processing and settlement service revenues | 65,450 |  |  | 20.7 |  |  | 67,073 |  |  | 24.1 |
Interchange revenues | 95,970 |  |  | 30.3 |  |  | 81,334 |  |  | 29.2 |
Interest income, net | 2,139 |  |  | 0.7 |  |  | 8,306 |  |  | 3.0 |
Total operating revenues | $ | 316,240 |  |  | 100.0 | % |  | $ | 278,326 |  |  | 100.0 | %

Card Revenues and Other Fees — Card revenues and other fees totaled $152.7 million for the three months ended June 30, 2020, an increase of $31.1 million, or 25.6%, from the comparable prior year period. Our card revenues and other fees increased principally as a result of BaaS program management service fee revenues earned from platform partners. This increase was offset partially by an increase in estimated cash back rewards that we record as a reduction to card revenues and other fees. Our estimate of cash rewards varies based on multiple factors including the terms and conditions of the cash back program, customer activity and customer redemption rates. Cash rewards have increased steadily year-over-year as our cash-back programs have grown, principally from those launched in 2016 and to a lesser extent, new cash-back programs launched in 2019.
Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $65.5 million for the three months ended June 30, 2020, a decrease of $1.6 million, or 2%, from the comparable prior year period. The decrease is attributable in part to a shift in the timing of tax refunds processed from the second quarter of 2020 to the third quarter of 2020 as a result of the extension of the tax filing deadline to July 2020, partially offset by growth in the number of cash transfers.
Interchange Revenues — Interchange revenues totaled $96.0 million for the three months ended June 30, 2020, an increase of $14.7 million, or 18%, from the comparable prior year period. The increase was primarily due to an increase in the amount of purchase volume during the three months ended June 30, 2020 compared to the prior year period, which we attribute primarily to stimulus funds and unemployment benefits made available under the CARES Act, partially offset by a decline in the interchange rate earned as a result of an increase in the average dollar amount purchased per transaction.
Interest Income, net — Net interest income totaled $2.1 million for the three months ended June 30, 2020, a decrease of $6.2 million, or 75%, from the comparable prior year period. The decrease was principally the result of lower yields on our investment securities portfolio and customer funds on deposit as a result of rate decreases by the Federal Reserve during the first quarter of 2020.
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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 June 30, |  |  |  |  |  |
| 2020 |  |  |  | 2019 |  |
| Amount |  | % of Total Operating Revenues |  | Amount |  | % of Total Operating Revenues
| (In thousands, except percentages) |  |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing expenses | $ | 106,811 |  |  | 33.8 | % |  | $ | 87,432 |  |  | 31.4 | %
Compensation and benefits expenses | 58,867 |  |  | 18.6 |  |  | 48,298 |  |  | 17.4 |
Processing expenses | 71,371 |  |  | 22.6 |  |  | 49,222 |  |  | 17.7 |
Other general and administrative expenses | 73,801 |  |  | 23.3 |  |  | 49,411 |  |  | 17.7 |
Total operating expenses | $ | 310,850 |  |  | 98.3 | % |  | $ | 234,363 |  |  | 84.2 | %

Sales and Marketing Expenses — Sales and marketing expenses totaled $106.8 million for the three months ended June 30, 2020, an increase of $19.4 million, or 22% from the comparable prior year period. This increase was primarily driven by an increase in sales commissions associated with higher revenues generated from products that are subject to revenue-sharing agreements and an increase in advertising expenses in continued support of our Green Dot Unlimited product launched in the second half of 2019. Under our new agreement with Walmart, beginning on January 1, 2020, the sales commission rate we pay for the MoneyCard program increased from the prior agreement. As such, we expect our sales and marketing expenses in 2020 to be negatively impacted by the increased commission rate.
Compensation and Benefits Expenses — Compensation and benefits expenses totaled $58.9 million for the three months ended June 30, 2020, an increase of $10.6 million or 22% from the comparable prior year period. The increase was due to higher salaries and wages of $8.6 million, a portion of which was attributable to accrued bonus compensation for non-executive employees and an increase in stock-based compensation expense of approximately $5.2 million due to certain performance-based awards. These increases were partially offset by lower third-party contractor and employee benefit expenses.
Processing Expenses — Processing expenses totaled $71.4 million for the three months ended June 30, 2020, an increase of $22.2 million or 45% from the comparable prior year period. This increase was principally due to growth in BaaS account programs within our Account Services segment and overall volume of transactions processed through our platform.
Other General and Administrative Expenses — Other general and administrative expenses totaled $73.8 million for the three months ended June 30, 2020, an increase of $24.4 million or 49%, from the comparable prior year period. This increase was primarily due to a year-over-year growth in dispute transaction losses, as discussed above, and higher depreciation and amortization of property, plant and equipment as a result of growth in capital expenditures in recent years.
Income Tax Expense
The following table presents a breakdown of our effective tax rate among federal, state and other:

| Three Months Ended June 30, |  |
| 2020 |  | 2019
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | 3.0 |  |  | 1.8 |
General business credits | (6.6) |  |  | (1.6) |
Employee stock-based compensation | (0.5) |  |  | (3.3) |
IRC 162(m) limitation | 40.2 |  |  | 2.5 |
Nondeductible expenses | 1.1 |  |  | 0.2 |
Capital loss valuation allowance release | (4.4) |  |  | — |
Other | (0.2) |  |  | 0.2 |
Effective tax rate | 53.6 | % |  | 20.8 | %

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Our income tax expense decreased by $5.3 million to $3.8 million for the three months ended June 30, 2020 from the comparable prior year period primarily due to a decline in our operating income. The increase in the effective tax rate for the three months ended June 30, 2020, as compared to the same period in 2019, was primarily due to a decline in excess tax benefits from stock-based compensation and an increase in the IRC 162(m) limitation on the deductibility of certain executive compensation. The IRC 162(m) limitation increased principally due to performance-based stock awards granted in connection with the recent hiring of certain executive officers. These increases were partially offset by the impact of general business credits and the release of the valuation allowance reserve on capital losses.
The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.
Comparison of Six-Month Periods Ended June 30, 2020 and 2019
Operating Revenues
The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues, interchange revenues and net interest income:

| Six Months Ended June 30, |  |  |  |  |  |
| 2020 |  |  |  | 2019 |  |
| Amount |  | % of Total Operating Revenues |  | Amount |  | % of Total Operating Revenues
| (In thousands, except percentages) |  |  |  |  |  |
Operating revenues: |  |  |  |  |  |  |
Card revenues and other fees | $ | 294,075 |  |  | 43.3 | % |  | $ | 251,190 |  |  | 40.6 | %
Processing and settlement service revenues | 188,516 |  |  | 27.8 |  |  | 174,652 |  |  | 28.2 |
Interchange revenues | 186,836 |  |  | 27.6 |  |  | 173,875 |  |  | 28.1 |
Interest income, net | 8,982 |  |  | 1.3 |  |  | 19,123 |  |  | 3.1 |
Total operating revenues | $ | 678,409 |  |  | 100.0 | % |  | $ | 618,840 |  |  | 100.0 | %

Card Revenues and Other Fees — Card revenues and other fees totaled $294.1 million for the six months ended June 30, 2020, an increase of $42.9 million, or 17%, from the comparable prior year period. This increase was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Revenues—Card Revenues and Other Fees."
Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $188.5 million for the six months ended June 30, 2020, an increase of $13.8 million, or 8%, from the comparable prior year period. This increase was driven primarily by year-over-year growth in transaction volume associated with cash transfers, expanded adoption of our taxpayer advance programs and the introduction of new tax processing services for the six months ended June 30, 2020 compared to the prior year period.
Interchange Revenues — Interchange revenues totaled $186.8 million for the six months ended June 30, 2020, an increase of $12.9 million, or 7%, from the comparable prior year period. This increase was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Revenues—Interchange Revenues."
Interest Income, net — Net interest income totaled $9.0 million for the six months ended June 30, 2020, a decrease of $10.1 million, or 53%, from the comparable prior year period. This decrease was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Revenues—Interest Income, net."
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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:

| Six Months Ended June 30, |  |  |  |  |  |
| 2020 |  |  |  | 2019 |  |
| Amount |  | % of Total Operating Revenues |  | Amount |  | % of Total Operating Revenues
| (In thousands, except percentages) |  |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |
Sales and marketing expenses | $ | 223,549 |  |  | 33.0 | % |  | $ | 186,133 |  |  | 30.1 | %
Compensation and benefits expenses | 111,932 |  |  | 16.5 |  |  | 109,773 |  |  | 17.7 |
Processing expenses | 142,466 |  |  | 21.0 |  |  | 100,854 |  |  | 16.3 |
Other general and administrative expenses | 136,223 |  |  | 20.0 |  |  | 96,732 |  |  | 15.6 |
Total operating expenses | $ | 614,170 |  |  | 90.5 | % |  | $ | 493,492 |  |  | 79.7 | %

Sales and Marketing Expenses — Sales and marketing expenses totaled $223.5 million for the six months ended June 30, 2020, an increase of $37.4 million, or 20% from the comparable prior year period. This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Expenses—Sales and Marketing Expenses."
Compensation and Benefits Expenses — Compensation and benefits expenses totaled $111.9 million for the six months ended June 30, 2020, an increase of $2.1 million or 2% from the comparable prior year period. This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Expenses—Compensation and Benefits Expenses."
Processing Expenses — Processing expenses totaled $142.5 million for the six months ended June 30, 2020, an increase of $41.6 million or 41% from the comparable prior year period. This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Expenses—Processing Expenses."
Other General and Administrative Expenses — Other general and administrative expenses totaled $136.2 million for the six months ended June 30, 2020, an increase of $39.5 million or 41%, from the comparable prior year period. This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2020 and 2019—Operating Expenses—Other General and Administrative Expenses."
Income Tax Expense
The following table presents a breakdown of our effective tax rate among federal, state and other:

| Six Months Ended June 30, |  |
| 2020 |  | 2019
U.S. federal statutory tax rate | 21.0 | % |  | 21.0 | %
State income taxes, net of federal tax benefit | (0.6) |  |  | 1.7 |
General business credits | (6.6) |  |  | (1.5) |
Employee stock-based compensation | 1.8 |  |  | (3.7) |
IRC 162(m) limitation | 8.1 |  |  | 2.4 |
Nondeductible expenses | 0.7 |  |  | 0.1 |
Other | (0.5) |  |  | 0.2 |
Effective tax rate | 23.9 | % |  | 20.2 | %

Our income tax expense decreased by $9.2 million to $15.8 million for the six months ended June 30, 2020 from the comparable prior year period primarily due to a decline in our operating income. The increase in the effective tax rate was primarily due to a year-over-year increase of $2.4 million as a result of the IRC 162(m) limitations on the deductibility of certain executive compensation and a year-over-year decline of $5.8 million in excess tax benefits from stock-based compensation, partially offset by the impact of general business credits.
The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.
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Liquidity and Capital Resources
The following table summarizes our major sources and uses of cash for the periods presented:

| Six Months Ended June 30, |  |
| 2020 |  | 2019
| (In thousands) |  |
Total cash provided by (used in) |  |  |
Operating activities | $ | 161,516 |  |  | $ | 167,068 |
Investing activities | (24,732) |  |  | (78,803) |
Financing activities | 734,473 |  |  | (82,868) |
Increase in unrestricted cash, cash equivalents and restricted cash | $ | 871,257 |  |  | $ | 5,397 |

For the six months ended June 30, 2020 and 2019, we financed our operations primarily through our cash flows generated from operations and customer funds held on deposit. As of June 30, 2020, our primary source of liquidity was unrestricted cash and cash equivalents totaling $1.9 billion. We also consider our $241.5 million 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 our current unrestricted cash and cash equivalents, cash flows from operations and financing from our revolving credit facility will be sufficient to meet our working capital, capital expenditure and other commitments for at least the next 12 months, as discussed below. 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 $161.5 million of net cash provided by operating activities during the six months ended June 30, 2020 was the result of $50.1 million of net income, adjusted for certain non-cash operating items of $71.0 million and increases in net changes in our working capital assets and liabilities of $40.3 million. Our $167.1 million of net cash provided by operating activities during the six months ended June 30, 2019 was primarily the result of $98.7 million of net income, adjusted for certain non-cash operating items of $67.6 million and increases in net changes in our working capital assets and liabilities of $0.7 million.
Cash Flows from Investing Activities
Our $24.7 million of net cash used in investing activities during the six months ended June 30, 2020 was primarily due to the acquisition of property and equipment of $31.4 million, and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million, partially offset by proceeds from the sale and maturities of available-for-sale investment securities, net of purchases, of $40.9 million. Our $78.8 million of net cash used in investing activities during the six months ended June 30, 2019 was due to the purchase of available-for-sale investment securities, net of proceeds from sales and maturities, of $39.8 million and the acquisition of property and equipment of $37.7 million.
Cash Flows from Financing Activities
Our $734.5 million of net cash provided from financing activities during the six months ended June 30, 2020 was principally the result of a net increase in customer deposits of $826.2 million, offset by a net decrease of $56.6 million in obligations to customers and net repayments on our revolving credit facility of $35.0 million. Our $82.9 million of net cash used in financing activities during the six months ended June 30, 2019 was primarily the result of $100 million used for stock repurchases under our stock repurchase program, a $60.0 million voluntary prepayment of our note payable, a net decrease of $48.3 million in obligations to customers and $16.9 million in tax payments made to net settle equity awards, offset by a net increase in customer deposits of $140.1 million.
Commitments
While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate we will continue to purchase property and equipment we consider necessary to support our business. The amount and timing of these purchases and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors including when we begin hiring 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, new features for our existing products and IT infrastructure to scale and operate effectively to meet our strategic
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objectives. However, we do not expect these capital expenditures will exceed the amount of our capital expenditures in the previous year.
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 makes it difficult to predict the amount and timing of such cash requirements. We may also be required to raise additional financing to complete future acquisitions.
See Note 17—Commitments and Contingencies of the Notes to our Consolidated Financial Statements for additional financial commitments. We may also 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.
2019 Revolving Facility
In October 2019, we entered into a revolving credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit agreement provides for a $100 million five-year revolving facility and matures in October 2024. At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus 0.50%, (b) the Wells Fargo prime rate, and (c) one-month LIBOR rate plus 1.0% (the “Base Rate"), plus in either case an applicable margin. The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans. During the first quarter of 2020, we drew the maximum amount available of $100 million as a precautionary measure due to the uncertainty associated with the COVID-19 pandemic, but have since repaid the entire balance resulting in there being no borrowings outstanding as of June 30, 2020.
We are also subject to certain financial covenants, which include maintaining a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as defined in the agreement. At June 30, 2020, we were in compliance with all such covenants.
Stock Repurchase Program
In previous years, we have repurchased shares of our Class A Common Stock under an authorized stock repurchase program. In May 2017, our Board of Directors authorized, subject to regulatory approval, expansion of our stock repurchase program by an additional $150 million. We sought and received regulatory approval during the second quarter of 2019, at which point we made an up-front payment of $100 million to enter into an accelerated share repurchase agreement. In August 2019, we completed final settlement of shares purchased under this agreement, receiving in total approximately 2.1 million shares at an average repurchase price of $48.26. We have an authorized $50 million remaining under our current stock repurchase program for any additional repurchases.
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 December 31, 2019.
Off-Balance Sheet Arrangements
On January 2, 2020, we effectuated our agreement with Walmart to jointly establish a new fintech accelerator under the name TailFin Labs, LLC, with a mission to develop innovative products, services and technologies that sit at the intersection of retail shopping and consumer financial services. See Note 7—Equity Method Investments of the Notes to our Consolidated Financial Statements for additional information.
As of and for the six months ended June 30, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Capital Requirements for Bank Holding Companies
Our subsidiary bank, Green Dot Bank, is a member bank of the Federal Reserve System and our primary regulators are the Federal Reserve Board and the Utah Department of Financial Institutions. We 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 must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance sheet items as calculated under
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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 the Federal Reserve and other U.S. banking regulators, provide for risk-based capital, leverage and liquidity standards. The U.S. Basel III rules contain capital standards that change the composition of capital, increase minimum capital ratios and strengthen counter-party credit risk capital requirements. The Basel III rules also include a new definition of common equity Tier 1 capital and require that certain levels of such common equity Tier 1 capital be maintained. The rules also include a new capital conservation buffer, which imposes a common equity requirement above the new minimum that can be depleted under stress and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances, as well as a new standardized approach for calculating risk-weighted assets. Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%.
As of June 30, 2020 and December 31, 2019, we were categorized as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," we must maintain specific total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since June 30, 2020 which management believes would have changed our category as "well capitalized."
As a result of the economic disruption caused by the COVID-19 pandemic, in March 2020 the joint federal bank regulatory agencies issued an interim final rule (the "Interim Rule") that allows banking organizations that were required to implement the Current Expected Credit Loss ("CECL") accounting standard in 2020 optional relief that delays an estimate of the impact of CECL on its regulatory capital for two years. This two-year delay is in addition to the three-year transition period that the agencies had already made available. We did not adopt the option provided by the Interim Rule because the impact of adopting CECL was not material to our financial statements and regulatory capital.
The definitions associated with the amounts and ratios below are as follows:

Ratio |  | Definition
Tier 1 leverage ratio |  | Tier 1 capital divided by average total assets
Common equity Tier 1 capital ratio |  | Common equity Tier 1 capital divided by risk-weighted assets
Tier 1 capital ratio |  | Tier 1 capital divided by risk-weighted assets
Total risk-based capital ratio |  | Total capital divided by risk-weighted assets
Terms |  | Definition
Tier 1 capital and Common equity Tier 1 capital |  | Primarily includes common stock, retained earnings and accumulated OCI, net of deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles. Under the regulatory capital rules, certain deductions and adjustments to these capital figures are phased in through January 1, 2018.
Total capital |  | Tier 1 capital plus supplemental capital items such as the allowance for loan losses, subject to certain limits
Average total assets |  | Average total consolidated assets during the period less deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles assets
Risk-weighted assets |  | Represents the amount of assets or exposure multiplied by the standardized risk weight (%) associated with that type of asset or exposure. The standardized risk weights are prescribed in the bank capital rules and reflect regulatory judgment regarding the riskiness of a type of asset or exposure

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The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at June 30, 2020 and December 31, 2019 were as follows:

| June 30, 2020 |  |  |  |  |  |
| Amount |  | Ratio |  | Regulatory Minimum |  | "Well-capitalized" Minimum
| (In thousands, except ratios) |  |  |  |  |  |
Green Dot Corporation: |  |  |  |  |  |  |
Tier 1 leverage | $ | 494,218 |  |  | 16.0 | % |  | 4.0 | % |  | n/a
Common equity Tier 1 capital | $ | 494,218 |  |  | 81.9 | % |  | 4.5 | % |  | n/a
Tier 1 capital | $ | 494,218 |  |  | 81.9 | % |  | 6.0 | % |  | 6.0 | %
Total risk-based capital | $ | 500,168 |  |  | 82.9 | % |  | 8.0 | % |  | 10.0 | %
Green Dot Bank: |  |  |  |  |  |  |
Tier 1 leverage | $ | 234,384 |  |  | 9.0 | % |  | 4.0 | % |  | 5.0 | %
Common equity Tier 1 capital | $ | 234,384 |  |  | 87.3 | % |  | 4.5 | % |  | 6.5 | %
Tier 1 capital | $ | 234,384 |  |  | 87.3 | % |  | 6.0 | % |  | 8.0 | %
Total risk-based capital | $ | 235,092 |  |  | 87.6 | % |  | 8.0 | % |  | 10.0 | %
| December 31, 2019 |  |  |  |  |  |
| Amount |  | Ratio |  | Regulatory Minimum |  | "Well-capitalized" Minimum
| (In thousands, except ratios) |  |  |  |  |  |
Green Dot Corporation: |  |  |  |  |  |  |
Tier 1 leverage | $ | 400,445 |  |  | 22.2 | % |  | 4.0 | % |  | n/a
Common equity Tier 1 capital | $ | 400,445 |  |  | 70.5 | % |  | 4.5 | % |  | n/a
Tier 1 capital | $ | 400,445 |  |  | 70.5 | % |  | 6.0 | % |  | 6.0 | %
Total risk-based capital | $ | 404,469 |  |  | 71.2 | % |  | 8.0 | % |  | 10.0 | %
Green Dot Bank: |  |  |  |  |  |  |
Tier 1 leverage | $ | 204,141 |  |  | 13.9 | % |  | 4.0 | % |  | 5.0 | %
Common equity Tier 1 capital | $ | 204,141 |  |  | 82.8 | % |  | 4.5 | % |  | 6.5 | %
Tier 1 capital | $ | 204,141 |  |  | 82.8 | % |  | 6.0 | % |  | 8.0 | %
Total risk-based capital | $ | 205,548 |  |  | 83.4 | % |  | 8.0 | % |  | 10.0 | %

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential for economic losses from changes in market factors such as foreign currency exchange rates, credit, interest rates and equity prices. We believe that we have limited exposure to risks associated with changes in foreign currency exchange rates, interest rates and equity prices. We have no significant foreign operations. We do not hold or enter into derivatives or other financial instruments for trading or speculative purposes.
Interest rates
While operating net interest income has become a more meaningful component to our consolidated operating results, we do not consider our cash and cash equivalents or our investment securities to be subject to material interest rate risk due to their short duration. However, the Federal Open Market Committee (FOMC) decreased the federal funds target rate in March 2020 to a range of 0%-0.25%. An extended duration of near zero short-term interest rates could adversely impact the amount of net interest income we earn in the future.
In March 2020, we drew the maximum amount available under our $100.0 million line of credit agreement, but have since repaid the entire amount as of June 30, 2020. Refer to Note 9 — Debt to the Consolidated Financial Statements included herein for additional information. Our revolving credit facility is, and is expected to be, at variable rates of interest and expose us to interest rate risk. Although any short-term borrowings under our revolving credit facility would likely be insensitive to interest rate changes, interest expense on short-term borrowings will increase and decrease with changes in the underlying short-term interest rates. For example, assuming we continued to have our revolving facility drawn up to its maximum borrowing capacity of $100.0 million, based on the applicable LIBOR and margin in effect as of June 30, 2020, each quarter point of change in interest rates would result in a $0.3 million change in our annual interest expense.
We actively monitor our interest rate exposure and our objective is to reduce, where we deem appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. In order to accomplish this objective, we may enter into derivative financial instruments, such as forward contracts and interest rate hedge contracts to the extent necessary to manage our exposure. We do not hold or enter into derivatives or other financial instruments for trading or speculative purposes.
Credit and liquidity risk
We do have exposure to credit and liquidity risk associated with the financial institutions that hold our cash and cash equivalents, restricted cash, available-for-sale investment securities, settlement assets due from our Simply Paid distribution partners and retail distributors that collect funds and fees from our customers and amounts due from our issuing banks for fees collected on our behalf.
We manage the credit and liquidity risk associated with our cash and cash equivalents, available-for-sale investment securities and amounts due from issuing banks by maintaining an investment policy that restricts our correspondent banking relationships to approved, well capitalized institutions and restricts investments to highly liquid, low credit risk assets. Our policy has limits related to liquidity ratios, the concentration that we may have with a single institution or issuer and effective maturity dates as well as restrictions on the type of assets that we may invest in. The management Asset Liability Committee is responsible for monitoring compliance with our Capital Asset Liability Management policy, and related limits on an ongoing basis and reports regularly to the risk committee of our Board of Directors.
Our exposure to credit risk associated with our retail distributors and Simply Paid distribution partners is mitigated due to the short time period, currently an average of two days, that retailer settlement assets are outstanding. We perform an initial credit review and assign a credit limit to each new retail distributor and Simply Paid distribution partner. We monitor each retail distributor’s and Simply Paid distribution partner's settlement asset exposure and its compliance with its specified contractual settlement terms on a daily basis and assess their credit limit and financial condition on a periodic basis. Our management's Enterprise Risk Management Committee is responsible for monitoring our retail distributor and Simply Paid distribution partner exposure and assigning credit limits, and reports regularly to the risk committee of our Board of Directors. We will continue to monitor our exposure to credit risk with our retail distributors and other business partners in light of the COVID-19 pandemic.
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ITEM 4. Controls and Procedures
Disclosure controls and procedures — Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 13d-15(e)) at the end of the period covered by this report. Based on such evaluation of our disclosure controls and procedures, our Chief Executive Officer and Interim Chief Financial Officer have concluded that, at the end of such period, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Change in internal control over financial reporting — There was no material change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the three months ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with accessibility to secure data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.
Limitations on Effectiveness of Controls — Our management, including our Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
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PART II
ITEM 1. Legal Proceedings
Refer to Note 17 — Commitments and Contingencies to the Consolidated Financial Statements included herein for information regarding our legal proceedings.
ITEM 1A. Risk Factors
Risks Related to Our Business
The effects of the COVID-19 pandemic have significantly affected how we and our retail distributors are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide and has reduced consumer spending in the markets in which we operate and across the global economy. Our operations have and may continue to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control. As a result of the COVID-19 pandemic, in the first quarter, we closed our offices in both China and the United States, and required our employees and certain of our contractors to work remotely and implemented certain travel restrictions. While we did not experience a significant decline in productivity during this period and our offices in China have since reopened consistent with local guidelines, our personnel in China and the United States continue to be subject to certain restrictions, which could increase our costs, lower productivity or otherwise impact our business, results of operations and financial condition while these conditions persist. In addition, many of the third-party call centers we rely on to provide customer support were closed during portions of the first and second quarter due to the pandemic, which resulted in delayed responses to customers and a higher usage of automated services, and contributed to higher transaction losses in the first and second quarters as compared to prior periods. While such staffing issues have been largely resolved, it is possible that we may continue to experience similar issues in the future due to the pandemic. The business and operations of our retail distributors and our BaaS and other partners have likewise been disrupted, with many experiencing reduced foot traffic or usage of their services. If the COVID-19 pandemic has a substantial and prolonged impact on our employees, partners or distributors’ attendance or productivity, our results of operations and overall financial performance may adversely harmed.
The duration and magnitude of the effects of COVID-19 remains uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, the nature of and duration for which the preventative measures remain in place, the extent and effectiveness of containment and mitigation actions, the type of stimulus measures and other policy responses that the U.S. government may further adopt, and the impact of these and other factors on our employees, customers, retail distributors, partners and vendors. The COVID-19 pandemic has already had an adverse effect on the global economy, and the ultimate business and economic impact of the COVID-19 pandemic remains unknown. The conditions caused by the COVID-19 pandemic adversely affected our customers’ spending levels and ability or willingness to purchase our products and services through our retail distributors, lowered the volume of transactions through our BaaS and PayCard programs and delayed the launching of new products and services, although governmental actions such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) have helped mitigate the effects of COVID-19 on our business during the second quarter of 2020. However, the incremental federal unemployment benefits from the CARES Act expired on July 31, 2020 and unless the government extends the duration of these additional unemployment benefits and does not significantly reduce these benefits, or offers comparable or better benefits, our customers' spending levels and usage of our products may be impacted, resulting in additional uncertainty on our revenue results for the remainder of the year.
As a result of these conditions since the beginning of this pandemic, we have experienced and may continue to experience increased costs, including higher call center costs and disputed transaction losses, which could continue to adversely affect our business, results of operations, and financial condition in future periods. Furthermore, in March 2020, the Federal Reserve announced reductions in short-term interest rates, which have lowered the yields on our cash and investment balances and therefore, we expect a reduction in the amount of interest income we earn for the remainder of the year. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets, which may adversely affect our stock price and our ability to access capital markets in the future.
We have taken steps to strengthen our liquidity position and to ensure we have ample flexibility to pursue strategic priorities, including utilizing our revolving credit facility, instituting an enterprise-wide headcount freeze and delaying or reducing non-critical projects. Should we require additional credit at levels we are unable to access, the
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cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected. Further, additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.
Please see “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the potential impact of the COVID-19 pandemic and associated economic disruptions.
Our operating results may fluctuate in the future, which could cause our stock price to decline.
Our quarterly and annual results of operations may fluctuate in the future as a result of a variety of factors, many of which are outside of our control. If our results of operations fall below the expectations of investors or any securities analysts who follow our Class A common stock, the trading price of our Class A common stock could decline substantially. Fluctuations in our quarterly or annual results of operations might result from a number of factors, including, but not limited to:
•the timing and volume of purchases and use of our products and services;
•the timing and volume of tax refunds or other government payments (including stimulus payments related to the COVID-19 pandemic) processed by us, including the impact of any general delays in disbursements from the U.S. and State Treasuries;
•the timing and success of new product or service introductions by us or our competitors;
•seasonality in the purchase or use of our products and services;
•changes in the level of interchange rates that can be charged;
•fluctuations in customer retention rates;
•changes in the mix of products and services that we sell;
•changes in the mix of retail distributors through which we sell our products and services;
•the timing of commencement, renegotiation or termination of relationships with significant retail distributors and BaaS platform partners;
•the timing of commencement of new product development and initiatives, the timing of costs of existing product roll-outs and the length of time we must invest in those new products, channels or retail distributors before they generate material operating revenues;
•our ability to effectively sell our products through direct-to-consumer initiatives;
•changes in our or our competitors’ pricing policies or sales terms;
•new product offerings from our competitors;
•costs associated with significant changes in our risk policies and controls;
•the amount and timing of costs related to fraud losses;
•the amount and timing of commencement and termination of major advertising campaigns, including sponsorships;
•the amount and timing of costs related to the acquisition of complementary businesses;
•the amount and timing of costs of any major litigation to which we are a party;
•disruptions in the performance of our products and services, including interruptions in the services we provide to other businesses, and the associated financial impact thereof;
•the amount and timing of capital expenditures and operating costs related to the maintenance and expansion of our business, operations and infrastructure;
•interest rate volatility;
•changes in our executive leadership team;
•accounting charges related to impairment of goodwill and other intangible assets;
•our ability to control costs, including third-party service provider costs and sales and marketing expenses in an increasingly competitive market;
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•volatility in the trading price of our Class A common stock, which may lead to higher or lower stock-based compensation expenses;
•changes in the political or regulatory environment affecting the banking, electronic payments or tax refund processing industries;
•economic recessions or uncertainty in financial markets, including those recently caused by the COVID-19 pandemic; and
•other factors beyond our control, such as terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic.
The loss of operating revenues from Walmart or any of our largest retail distributors would adversely affect our business.
A significant portion of our operating revenues are derived from the products and services sold at our four largest retail distributors. As a percentage of total operating revenues, operating revenues derived from products and services sold at the store locations of Walmart was approximately 29% and 27% for the three and six months ended June 30, 2020, respectively. We expect that Walmart will continue to have a significant impact on our operating revenues in future periods, particularly in our Account Services segment. It would be difficult to replace Walmart and the operating revenues derived from products and services sold at their stores. Accordingly, the loss of Walmart or any significant decrease in customers’ spending levels and ability or willingness to purchase our account products through Walmart, for any reason, including due to the COVID-19 pandemic, would have a material adverse effect on our business and results of operations. In addition, any publicity associated with the loss of any of our large retail distributors could harm our reputation, making it more difficult to attract and retain consumers and other retail distributors, and could lessen our negotiating power with our remaining and prospective retail distributors.
The term of our Walmart Money Card agreement (which governs the MoneyCard program) expires on January 31, 2027, unless renewed under its automatic renewal provision which provides for a one-year extension. Our contracts with our three other largest retail distributors have terms that are set to expire at various dates through 2022, with some subject to automatic renewal provisions. Our contracts with Walmart and our three other largest retail distributors can in limited circumstances, such as our material breach or insolvency or, in the case of Walmart, our failure to meet agreed-upon service levels, certain changes in control, and our inability or unwillingness to agree to requested pricing changes, be terminated by these retail distributors on relatively short notice. There can be no assurance that we will be able to continue our relationships with our largest retail distributors on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them. Our operating revenues and results of operations could suffer if, among other things, any of our retail distributors renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us or otherwise chooses to modify the level of support it provides for our products.
Our base of tax preparation partners is concentrated and the performance of our Processing and Settlement Services segment depends in part on our ability to retain existing partners.
If one or more of our major tax preparation partners were to substantially reduce or stop offering our services to their customers, our tax refund processing services business, a component of our Processing and Settlement Services segment, results of operations and financial condition would be harmed. Substantially all the revenues we generate from our tax refund processing services business have come from sales through a relatively small number of tax preparation firms. We do not have long-term contractual commitments from any of our current tax preparation partners and our tax preparation partners may elect to not renew their contracts with us with little or no advance notice. As a result, we cannot be assured that any of our current tax preparation partners will continue to partner with us past the terms in their current agreements. A termination of our relationships with certain tax preparation partners that provide commercial tax preparation software would result in lost revenue and the loss of the ability to secure future relationships with new or existing tax preparation firms that use such tax software.
Our future success depends upon the active and effective promotion of our products and services by retail distributors and tax preparation partners, but their interests and operational decisions might not always align with our interests.
Most of our operating revenues are derived from our products and services sold at the stores of our retail distributors. In addition, a large portion of our Processing and Settlement Services revenues is dependent on tax preparation partners as the revenues we generate from our tax refund processing services are largely derived from products and services sold through retail tax preparation businesses and income tax software providers. Revenues from our retail distributors and tax preparation partners depend on a number of factors outside our control and may vary from period to period. Because we compete with many other providers of products and services, including
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competing account programs and tax refund processing services, for placement and promotion of products in the stores of our retail distributors or in conjunction with the delivery of tax preparation services by our tax preparation providers, our success depends on our retail distributors and tax preparation partners and their willingness to promote our products and services successfully. In general, our contracts with these third parties allow them to exercise significant discretion over the placement and promotion of our products and services; they could give higher priority to the products and services of other companies for a variety of reasons. Accordingly, losing the support of our retail distributors and tax preparation partners might limit or reduce the sales of our products and services. Our operating revenues and operating expenses may also be negatively affected by operational decisions by our retail distributors and tax preparation partners. For example, if a retail distributor reduces shelf space for our products or implements changes in its systems that disrupt the integration between its systems and ours, our product sales could be reduced or decline and we may incur additional merchandising costs to ensure our products are appropriately stocked. Similarly, for a variety of reasons, many of our tax preparation partners that provide commercial income tax preparation software offer their customers several types for tax refund processing services, including those of our competitors. Even if our retail distributors and tax preparation partners actively and effectively promote our products and services, there can be no assurance that their efforts will maintain or result in growth of our operating revenues.
We make significant investments in products and services that may not be successful.
Our prospects for growth depend on our ability to innovate by offering new, and adding value to our existing, product and service offerings and on our ability to effectively commercialize such innovations. We will continue to make investments in research, development, and marketing for new products and services. Investments in new products and services are speculative. Commercial success depends on many factors, including innovativeness, price, the competitive environment and effective distribution and marketing. If customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services, which would negatively impact our operating revenues. We may not achieve significant operating revenues from new product and service investments for a number of years, if at all. Moreover, new products and services may not be profitable, and even if they are profitable, operating margins for new products and services may not be as high as the margins we have experienced in the past.
Future revenue growth depends on our ability to retain and attract new long-term users of our products.
Our ability to increase account usage and account holder retention and to attract new long-term users of our products can have a significant impact on our operating revenues. We may be unable to generate increases in account usage, account holder retention or attract new long-term users of our products for a number of reasons, including if we are unable to maintain our existing distribution channels, predict accurately consumer preferences or industry changes and modify our products and services on a timely basis in response thereto, produce new features and services that appeal to existing and prospective customers, and influence account holder behavior through cardholder retention and usage incentives. Our results of operations could vary materially from period to period based on the degree to which we are successful in increasing usage and retention and attracting long-term users of our products. Additionally, while the impact on our total operating revenues from the decline in total number of active accounts in our Account Services segment in recent periods has been limited, if this trend persists over a long period or deteriorates more rapidly in the short term, our financial results would be materially impacted.
Seasonal fluctuations in the use of our products and services impact our results of operations and cash flows.
Our results of operations and cash flows vary from quarter to quarter, and periodically decline, due to the seasonal nature of the use of our products and services. For example, our results of operations for the first half of each year have been favorably affected by large numbers of taxpayers electing to receive their tax refunds via direct deposit on our accounts, which caused our operating revenues to be typically higher in the first half of those years than they were in the corresponding second half of those years. Our tax refund processing services business is also highly seasonal as it generates the substantial majority of its revenue in the first quarter, and substantially all of its revenue in the first half of each calendar year. To the extent that seasonal fluctuations become more pronounced, or are not offset by other factors, our results of operations and cash flows from operating activities could fluctuate materially from period to period.
The industries in which we compete are highly competitive, which could adversely affect our results of operations.
The industries in which we compete are highly competitive and subject to rapid and significant changes. We compete against companies and financial institutions across the retail banking, financial services, transaction processing, consumer technology and financial technology services industries and may compete with others in the
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market who may in the future provide offerings similar to ours, particularly vendors who may provide program management and other services though a platform similar to our BaaS platform. These and other competitors in the banking and electronic payments industries are introducing innovative products and services that may compete with ours. We expect that this competition will continue as banking and electronic payments industries continue to evolve, particularly if non-traditional payments processors and other parties gain greater market share in these industries. If we are unable to differentiate our products and platform from and successfully compete with those of our competitors, our business, results of operations and financial condition will be materially and adversely affected.
Many existing and potential competitors are entities substantially larger in size, more highly diversified in revenue and substantially more established with significantly more broadly known brand awareness than ours. As such, many of our competitors can leverage their size, robust networks, financial wherewithal, brand awareness, pricing power and technological assets to compete with us. Additionally, some of our current and potential competitors are subject to fewer regulations and restrictions than we are, and thus may be able to respond more quickly in the face of regulatory and technological changes. We are also experiencing increased price competition as a result of new entrants offering free or low-cost alternatives to our products and services. To the extent these new entrants gain market share, we expect that the purchase and use of our products and services would decline. If price competition materially intensifies, we may have to increase the incentives that we offer to our retail distributors and our tax preparation partners and decrease the prices of our products and services, any of which would likely adversely affect our results of operations.
Our long-term success depends on our ability to compete effectively against existing and potential competitors that seek to provide banking and electronic payment products and services or tax refund processing services. If we fail to compete effectively against these competitors, our revenues, results of operations, prospects for future growth and overall business could be materially and adversely affected.
Our business is dependent on the efficient and uninterrupted operation of computer network systems and data centers, including third party systems, and any disruption in the operations of these systems and data centers could materially and adversely affect our business.
Our ability to provide reliable service to customers and other network participants depends on the efficient and uninterrupted operation of our computer network systems and data centers as well as those of our retail distributors, network acceptance members and third-party processors. Our business involves the movement of large sums of money, processing of large numbers of transactions and management of the data necessary to do both. Our success in our account programs, including our BaaS programs, as well as our processing and settlement services, depends upon the efficient and error-free handling of the money that is collected, remitted or deposited in connection with the provision of our products and services. We rely on the ability of our employees, systems and processes and those of the banks that issue our cards, our retail distributors, tax refund preparation partners, other business partners and third-party processors to process and facilitate these transactions in an efficient, uninterrupted and error-free manner. Their failure to do so could materially and adversely impact our operating revenues and results of operations, particularly during the tax season, when we derive substantially all of our operating revenues for our tax refund processing services and a significant portion of our other operating revenues.
Our systems and the systems of third-party processors are susceptible to outages and interruptions due to fire, natural disaster, power loss, telecommunications failures, software or hardware defects, terrorist attacks, pandemics such as the COVID-19 pandemic and similar events. We use both internally developed and third-party systems, including cloud computing and storage systems, for our services and certain aspects of transaction processing. Interruptions in our service may result for a number of reasons. For example, the data center hosting facilities that we use could be closed without adequate notice or suffer unanticipated problems resulting in lengthy interruptions in our service. Moreover, as we continue to add data centers and add capacity in our existing data centers, we could experience problems transferring customer accounts and data, impairing the delivery of our service.
Any damage to, or failure of, or delay in our processes or systems generally, or those of our vendors (including as a result of disruptions at our third-party data center hosting facilities and cloud providers), or an improper action by our employees, agents or third-party vendors, could result in interruptions in our service, causing customers, retail distributors and other partners to become dissatisfied with our products and services or obligate us to issue credits or pay fines or other penalties to them. Sustained or repeated process or system failures could reduce the attractiveness of our products and services, including our BaaS platform, and result in contract terminations, thereby reducing operating revenue and harming our results of operations. Further, negative publicity arising from these types of disruptions could be damaging to our reputation and may adversely impact use of our products and services, including our BaaS platform, and adversely affect our ability to attract new customers and business partners. Additionally, some of our contracts with retail distributors, including our contract with Walmart, contain service level standards pertaining to the operation of our systems, and provide the retail distributor with the right to
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collect damages and potentially to terminate its contract with us for system downtime exceeding stated limits. If we face system interruptions or failures, our business interruption insurance may not be adequate to cover the losses or damages that we incur. In addition, our insurance costs may also increase substantially in the future to cover the costs our insurance carriers may incur.
If we are unable to keep pace with the rapid technological developments in our industry and the larger electronic payments industry necessary to continue providing our BaaS platform partners and cardholders with new and innovative products and services, the use of our cards and other products and services could decline.
The electronic payments industry is subject to rapid and significant technological changes. We cannot predict the effect of technological changes on our business. We rely in part on third parties for the development of, and access to, new technologies. We expect that new services and technologies applicable to our industry will continue to emerge, and these new services and technologies may be superior to, or render obsolete, the technologies we currently utilize in our products and services. Additionally, we may make future investments in, or enter into strategic alliances to develop, new technologies and services or to implement infrastructure change to further our strategic objectives, strengthen our existing businesses and remain competitive. However, our ability to transition to new services and technologies that we develop may be inhibited by a lack of industry-wide standards, by resistance from our retail distributors, BaaS platform partners, third-party processors or consumers to these changes, or by the intellectual property rights of third parties. Our future success will depend, in part, on our ability to develop new technologies and adapt to technological changes and evolving industry standards. These initiatives are inherently risky, and they may not be successful or may have an adverse effect on our business, financial condition and results of operations.
Fraudulent and other illegal activity involving our products and services could lead to reputational damage to us, reduce the use and acceptance of our cards and reload network, reduce the use of our tax refund processing services, and may adversely affect our financial position and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities using deposit account products (including prepaid cards), reload products, or customer information. Illegal activities involving our products and services often include malicious social engineering schemes. Illegal activities may also include fraudulent payment or refund schemes and identity theft. We rely upon third parties for transaction processing services, which subjects us and our customers to risks related to the vulnerabilities of those third parties. A single significant incident of fraud, or increases in the overall level of fraud, involving our cards and other products and services, have in the past and could in the future, result in reputational damage to us. Such damage could reduce the use and acceptance of our cards and other products and services, cause retail distributors to cease doing business with us, or lead to greater regulation that would increase our compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect our business, results of operations and financial condition.
In addition, to address the challenges we face with respect to fraudulent activity, we have implemented risk control mechanisms that have made it more difficult for all customers, including legitimate customers, to obtain and use our products and services. We believe it is likely that our risk control mechanisms may continue to adversely affect our new card activations for the foreseeable future and that our operating revenues will be negatively impacted as a result.
As a bank holding company, we are subject to extensive and potentially changing regulation and may be required to serve as a source of strength for Green Dot Bank, which may adversely affect our business, financial position and results of operations.
As a bank holding company, we are subject to comprehensive supervision and examination by the Federal Reserve Board and the State of Utah Department of Financial Institutions and must comply with applicable regulations and other commitments we have agreed to, including financial commitments with respect to minimum capital and leverage requirements. If we fail to comply with any of these requirements, we may become subject to formal or informal enforcement actions, proceedings, or investigations, which could result in regulatory orders, restrictions on our business operations or requirements to take corrective actions, which may, individually or in the aggregate, affect our results of operations and restrict our ability to grow. If we fail to comply with the applicable capital and leverage requirements, or if our subsidiary bank fails to comply with its applicable capital and leverage commitments, the Federal Reserve Board may limit our ability to pay dividends or fund stock repurchases, or if we become less than adequately capitalized, require us to raise additional capital. In addition, as a bank holding company and a financial holding company, we are generally prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies and financial holding companies. This restriction
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might limit our ability to pursue future business opportunities which we might otherwise consider but which might fall outside the scope of permissible activities.
A substantial portion of Green Dot Bank’s deposit liabilities are currently classified as brokered deposits, and the failure by Green Dot Bank to maintain its status as a "well-capitalized" institution could have a serious adverse effect on Green Dot Bank’s ability to conduct key portions of its current deposit-taking activity.
A vast majority of Green Dot Bank’s deposits are currently classified as brokered. If Green Dot Bank ceases to be categorized as “well capitalized” under banking regulations, it could be prohibited from accepting, renewing or rolling over brokered deposits without the consent of the FDIC. In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could materially adversely affect the financial condition and operations of Green Dot Bank and the Company and could effectively restrict the ability of Green Dot Bank to operate its business lines as presently conducted.
In February 2020, the FDIC released a notice of proposed rulemaking seeking comment on proposed revisions to its regulations relating to the brokered deposits restrictions that apply to less than well capitalized insured depository institutions. The FDIC states in the notice of proposed rulemaking that through the proposed changes, it intends to modernize its brokered deposit regulations to reflect recent technological changes and innovations. The proposed rule would create a new framework for analyzing certain provisions of the “deposit broker” definition, which will affect the classification of deposits as “brokered”. We cannot predict whether or when the proposed rule will be implemented and whether it will result in a change in the way our deposits are classified.
We operate in a highly regulated environment, and failure by us, the banks that issue our cards, the businesses that participate in our reload network, the banks that assist with our tax refund processing services, and our tax preparation partners to comply with applicable laws and regulations could have an adverse effect on our business, financial position and results of operations.
We operate in a highly regulated environment, and failure by us, the banks that issue our cards or the businesses that participate in our reload network or other business partners to comply with the laws and regulations to which we are subject could negatively impact our business. We are subject to state money transmission licensing requirements and a wide range of federal and other state laws and regulations. In particular, our products and services are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities. For example, we are subject to the anti-money laundering reporting and recordkeeping requirements of the Bank Secrecy Act (“BSA”), as amended by the PATRIOT Act. In addition, legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of personal data continue to increase, along with enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations.
Many of these laws and regulations are evolving, can be unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. Failure by us or those businesses to comply with the laws and regulations to which we are or may become subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.
Changes in laws and regulations to which we are subject, or to which we may become subject, may increase our costs of operation, decrease our operating revenues and disrupt our business.
The banking, financial technology, transaction processing and tax refund processing services industries are highly regulated and, from time to time, the federal and state laws and regulations affecting these industries, and the manner in which they are interpreted, are subject to change and legal action. Accordingly, changes in laws and regulations or the interpretation or enforcement thereof may occur that could increase our compliance and other costs of doing business, require significant systems redevelopment, or render our products or services less profitable or obsolete, any of which could have an adverse effect on our results of operations. For example, we could face more stringent anti-money laundering rules and regulations, as well as more stringent licensing rules and regulations, compliance with which could be expensive and time consuming. In addition, adverse rulings relating to the industries in which we participate could cause our products and services to be subject to additional laws and regulations, which could make our products and services less profitable.
If additional regulatory requirements were imposed on the sale of our products and services and our bank, the requirements could lead to a loss of retail distributors, tax preparation partners or other business partners, which, in turn, could materially and adversely impact our operations. Moreover, if our products are adversely impacted by the
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interpretation or enforcement of these regulations or if we or any of our retail distributors or tax preparation partners were unwilling or unable to make any such operational changes to comply with the interpretation or enforcement thereof, we would no longer be able to sell our products and services through that noncompliant retail distributor or tax preparation partner, which could have a material adverse effect on our business, financial position and results of operations.
From time to time, federal and state legislators and regulatory authorities, including state attorney generals, increase their focus on the banking, consumer financial services and tax preparation industries and may propose and adopt new legislation that could result in significant adverse changes in the regulatory landscape for financial institutions and financial services companies.
If new regulations or laws result in changes in the way we are regulated, these regulations could expose us to increased regulatory oversight, more burdensome regulation of our business, and increased litigation risk, each of which could increase our costs and decrease our operating revenues. Furthermore, limitations placed on the fees we charge or the disclosures that must be provided with respect to our products and services could increase our costs and decrease our operating revenues.
Changes in rules or standards set by the payment networks, such as Visa and MasterCard, or changes in debit network fees or products or interchange rates, could adversely affect our business, financial position and results of operations.
We are subject to association rules that could subject us to a variety of fines or penalties that may be levied by the card associations or networks for acts or omissions by us or businesses that work with us, including card processors, such as MasterCard PTS. The termination of the card association registrations held by us or any changes in card association or other debit network rules or standards, including interpretation and implementation of existing rules or standards, that increase the cost of doing business or limit our ability to provide our products and services could have an adverse effect on our business, operating results and financial condition. In addition, from time to time, card associations may increase the fees that they charge, which could increase our operating expenses, reduce our profit margin and adversely affect our business, results of operations and financial condition.
Furthermore, a substantial portion of our operating revenues is derived from interchange fees. For the three months ended June 30, 2020, interchange revenues represented 30.3% of our total operating revenues, and we expect interchange revenues to continue to represent a significant percentage of our total operating revenues. The amount of interchange revenues that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time.
The enactment of the Dodd-Frank Act required the Federal Reserve Board to implement regulations that have substantially limited interchange fees for many issuers. While the interchange rates that may be earned by us and our subsidiary bank are exempt from the limitations imposed by the Dodd-Frank Act, there can be no assurance that future regulation or changes by the payment networks will not impact our interchange revenues substantially. If interchange rates decline, whether due to actions by the payment networks or future regulation, we would likely need to change our fee structure to offset the loss of interchange revenues. However, our ability to make these changes is limited by the terms of our contracts and other commercial factors, such as price competition. To the extent we increase the pricing of our products and services, we might find it more difficult to acquire consumers and to maintain or grow card usage and customer retention, and we could suffer reputational damage and become subject to greater regulatory scrutiny. We also might have to discontinue certain products or services. As a result, our total operating revenues, operating results, prospects for future growth and overall business could be materially and adversely affected.
Our actual operating results may differ significantly from our guidance.
From time to time, we issue guidance in our quarterly earnings conference calls, or otherwise, regarding our future performance that represents our management’s estimates as of the date of release. This guidance, which constitutes forward-looking statements, is based upon a number of management's assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic, consumer and competitive uncertainties and contingencies, as well other factors, many of which are beyond our control (such as the COVID-19 pandemic), and are based upon specific assumptions with respect to future business decisions, some of which will change. While we have stated and we intend to continue to state possible outcomes as high and low ranges that are intended to provide a sensitivity analysis as variables are changed, we can provide no assurances that actual results will not fall outside of the suggested ranges.
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The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any of these persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will prove to be incorrect or will vary significantly from actual results. For example, on a number of occasions over the last several years we adjusted our revenue guidance when actual results varied from our assumptions. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our guidance and the variations may be material, especially in times of economic uncertainty. In addition, any failure to implement our operating strategy successfully or the occurrence of any of the events or circumstances set forth in this Item 1A could result in our actual operating results being different from our guidance, and such differences may be adverse and material.
Due to the uncertainty around the scope and the duration of the COVID-19 pandemic, we have decided to withdraw our guidance for 2020 until we have better visibility into the effect of the COVID-19 pandemic on our results of operations. If and when we provide guidance in the future, if our operating or financial results for a particular period do not meet our guidance or the expectations of our investors and analysts, or if we reduce our guidance for future periods, the market price of our common stock may decline.
We receive important services from third-party vendors. Replacing them would be difficult and disruptive to our business.
Some services relating to our business, including fraud management and other customer verification services, transaction processing and settlement, card production, and customer service, are outsourced to third-party vendors. We also depend on third-party banks to assist with our tax refund processing services. It would be difficult to replace some of our third-party vendors in a timely manner if they were unwilling or unable to provide us with these services during the term of their agreements with us and our business and operations could be adversely affected. In particular, due to the seasonality in our business, any material service interruptions or service delays with key vendors during the tax season could result in losses that have an even greater adverse effect on that business than would be the case with our overall business.
Further, we have in the past and may in the future experience operational issues with the third-party call centers that we rely on to provide customer support. For example, recently, many of our U.S. third-party call centers were closed during portions of the first and second quarters due to the COVID-19 pandemic, which resulted in delayed responses to customers and a higher usage of automated services. While such issues have largely been resolved, these conditions contributed to transaction losses as compared to prior periods. Any prolonged closure or disruption in the services provided by such call centers could have an adverse effect on our business.
Our business could suffer if there is a decline in the use of prepaid cards as a payment mechanism or there are adverse developments with respect to the prepaid financial services industry in general.
As the prepaid financial services industry evolves, consumers may find prepaid financial services to be less attractive than traditional or other financial services. Consumers might not use prepaid financial services for any number of reasons, including the general perception of our industry, new technologies, a decrease in our distribution partners’ willingness to sell these products as a result of a more challenging regulatory environment or other factors outside of our control such as the current economic recession due to the COVID-19 pandemic. If consumers do not continue or increase their usage of prepaid cards, including making changes in the way prepaid cards are loaded, our operating revenues may decline. Any projected growth for the industry may not occur or may occur more slowly than estimated. If consumer acceptance of prepaid financial services does not continue to develop or develops more slowly than expected or if there is a shift in the mix of payment forms, such as cash, credit cards, traditional debit cards and prepaid cards, away from our products and services, it could have a material adverse effect on our financial position and results of operations.
A data security breach could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.
We and our retail distributors, tax preparation partners, network acceptance members, third-party processors and the merchants that accept our cards receive, transmit and store confidential customer and other information in connection with the sale and use of our products and services. Our encryption software and the other technologies we use to provide security for storage, processing and transmission of confidential customer and other information may not be effective to protect against data security breaches by third parties. The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Our retail distributors, tax preparation partners, network acceptance members,
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other business partners, third-party processors and the merchants that accept our cards also may experience similar security breaches involving the receipt, transmission and storage of our confidential customer and other information. Improper access to our or these third parties’ systems or databases could result in the theft, publication, deletion or modification of confidential customer and other information.
A data security breach of the systems on which sensitive cardholder or other customer or end-customer data and account information are stored could lead to fraudulent activity involving our products and services, reputational damage and claims or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices, any of which could have a material adverse effect on our operating revenues and profitability. We would also likely have to pay (or indemnify the banks that issue our cards for) fines, penalties and/or other assessments imposed by Visa or MasterCard as a result of any data security breach. Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations. In addition, a data security breach at one of the third-party banks that issue our cards or at our retail distributors, tax preparation partners, network acceptance members, other business partners, third-party processors or the merchants that accept our cards could result in significant reputational harm to us and cause the use and acceptance of our cards or other products and services to decline, either of which could have a significant adverse impact on our operating revenues and future growth prospects. Moreover, it may require substantial financial resources to address and remediate any such breach, including additional costs for replacement cards, manufacturing, distribution, re-stocking fees, fraud monitoring and other added security measures, among others, which could have a significant adverse impact on our operating results.
Litigation or investigations could result in significant settlements, fines or penalties.
We are subject to regulatory oversight in the normal course of our business and have been and from time to time may be subject to securities class actions and other litigation or regulatory or judicial proceedings or investigations. The outcome of litigation and regulatory or judicial proceedings or investigations is difficult to predict. Plaintiffs or regulatory agencies or authorities in these matters may seek recovery of very large or indeterminate amounts, seek to have aspects of our business suspended or modified or seek to impose sanctions, including significant monetary fines. The monetary and other impact of these actions, litigations, proceedings or investigations may remain unknown for substantial periods of time. The cost to defend, settle or otherwise resolve these matters may be significant. Further, an unfavorable resolution of litigation, proceedings or investigations against us could have a material adverse effect on our business, operating results, or financial condition. In this regard, such costs could make it more difficult to maintain the capital, leverage and other financial commitments at levels we have agreed to with the Federal Reserve Board and the Utah Department of Financial Institutions. If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, adverse publicity that may be associated with these proceedings or investigations could negatively impact our relationships with retail distributors, tax preparation partners, network acceptance members, other business partners and card processors and decrease acceptance and use of, and loyalty to, our products and related services, and could impact the price of our Class A common stock. In addition, such proceedings or investigations could increase the risk that we will be involved in litigation. The outcome of any such litigation is difficult to predict and the cost to defend, settle or otherwise resolve these matters may be significant. For the foregoing reasons, if regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, our business, results of operations and financial condition could be adversely affected or our stock price could decline.
We may be unable to adequately protect our brand and our intellectual property rights related to our products and services or third parties may allege that we are infringing their intellectual property rights.
The Green Dot, GoBank, MoneyPak, TPG and other brands and marks are important to our business, and we utilize trademark registrations and other means to protect them. Our business would be harmed if we were unable to protect our brand against infringement and its value was to decrease as a result.
We rely on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect the intellectual property rights related to our products and services. We currently have 12 issued patents and 5 patent applications pending. Although we generally seek patent protection for inventions and improvements that we anticipate will be incorporated into our products and services, there is always a chance that our patents or patent applications could be challenged, invalidated or circumvented, or that an issued patent will not adequately cover the scope of our inventions or improvements incorporated into our products or services. Additionally, our patents could be circumvented by third-parties.
We may unknowingly violate the intellectual property or other proprietary rights of others and, thus, may be subject to claims by third parties. These assertions may increase over time as a result of our growth and the general
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increase in the pace of patent claims assertions, particularly in the United States. Because of the existence of a large number of patents in the mobile technology field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its elements infringes or will infringe on the patent rights of others. Regardless of the merit of these claims, we may be required to devote significant time and resources to defending against these claims or to protecting and enforcing our own rights. We might also be required to develop a non-infringing technology or enter into license agreements and there can be no assurance that licenses will be available on acceptable terms and conditions, if at all. Some of our intellectual property rights may not be protected by intellectual property laws, particularly in foreign jurisdictions. The loss of our intellectual property or the inability to secure or enforce our intellectual property rights or to defend successfully against an infringement action could harm our business, results of operations, financial condition and prospects.
We are exposed to losses from customer accounts.
Fraudulent activity involving our products may lead to customer disputed transactions, for which we may be liable under banking regulations and payment network rules. Our fraud detection and risk control mechanisms may not prevent all fraudulent or illegal activity. To the extent we incur losses from disputed transactions, our business, results of operations and financial condition could be materially and adversely affected.
Additionally, our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts. While we decline authorization attempts for amounts that exceed the available balance in a cardholder’s account, the application of card association rules, the timing of the settlement of transactions and the assessment of the card’s monthly maintenance fee, among other things, can result in overdrawn accounts.
Maintenance fee assessment overdrafts occur as a result of our charging a cardholder, pursuant to the card’s terms and conditions, the monthly maintenance fee at a time when he or she does not have sufficient funds in his or her account. Our remaining overdraft exposure arises primarily from late-posting. A late-post occurs when a merchant posts a transaction within a payment network-permitted timeframe but subsequent to our release of the authorization for that transaction, as permitted by card association rules. Under card association rules, we may be liable for the amount of the transaction even if the cardholder has made additional purchases in the intervening period and funds are no longer available on the card at the time the transaction is posted.
We consider overdrawn account balances to be our receivables due from cardholders. We maintain reserves to cover the risk that we may not recover these receivables due from our cardholders, but our exposure may increase above these reserves for a variety of reasons, including our failure to predict the actual recovery rate accurately. To the extent we incur losses from overdrafts above our reserves or we determine that it is necessary to increase our reserves substantially, our business, results of operations and financial condition could be materially and adversely affected.
Acquisitions or investments could disrupt our business and harm our financial condition.
We have in the past acquired, and we expect to acquire in the future, other businesses and technologies. The process of integrating an acquired business, product, service or technology can involve a number of special risks and challenges, including:
•increased regulatory and compliance requirements;
•implementation or remediation of controls, procedures and policies at the acquired company;
•diversion of management time and focus from operation of our then-existing business;
•integration and coordination of product, sales, marketing, program and systems management functions;
•transition of the acquired company’s users and customers onto our systems;
•integration of the acquired company’s accounting, information management, human resource and other administrative systems and operations generally with ours;
•integration of employees from the acquired company into our organization;
•loss or termination of employees, including costs associated with the termination or replacement of those employees;
•liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes, and tax and other known and unknown liabilities; and
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•increased litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.
If we are unable to successfully integrate an acquired business or technology or otherwise address these special risks and challenges or other problems encountered in connection with an acquisition, we might not realize the anticipated benefits of that acquisition, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally. Unanticipated costs, delays or other operational or financial problems related to integrating the acquired company and business with our company may result in the diversion of our management's attention from other business issues and opportunities. To integrate acquired businesses, we must implement our technology systems in the acquired operations and integrate and manage the personnel of the acquired operations. We also must effectively integrate the different cultures of acquired business organizations into our own in a way that aligns various interests and may need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions. Failures or difficulties in integrating the operations of the businesses that we acquire, including their personnel, technology, compliance programs, risk management systems, financial systems, distribution and general business operations and procedures, marketing, promotion and other relationships, may affect our ability to grow and may result in us incurring asset impairment or restructuring charges. Furthermore, acquisitions and investments are often speculative in nature and the actual benefits we derive from them could be lower or take longer to materialize than we expect.
To the extent we pay the consideration for any future acquisitions or investments in cash, it would reduce the amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, or goodwill impairment charges, any of which could harm our financial condition and negatively impact our stockholders.
An impairment charge of goodwill or other intangible assets could have a material adverse impact on our financial condition and results of operations.
Because we have grown in part through acquisitions, our net goodwill and intangible assets represent a significant portion of our consolidated assets. Our net goodwill and intangible assets were $506.1 million as of June 30, 2020. Under accounting principles generally accepted in the United States, or U.S. GAAP, we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors.
U.S. GAAP requires us to assign and then test goodwill at the reporting unit level. If over a sustained period of time we experience a decrease in our stock price and market capitalization, which may serve as an estimate of the fair value of our reporting unit, this may be an indication of impairment. If the fair value of our reporting unit is less than its net book value, we may be required to record goodwill impairment charges in the future. In addition, if the revenue and cash flows generated from any of our other intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge. The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.
We face settlement risks from our distributors and banking partners, which may increase during an economic recession.
The majority of our business is conducted through retail distributors that sell our products and services to consumers at their store locations. Our retail distributors collect funds from the consumers who purchase our products and services and then must remit these funds directly to accounts established for the benefit of these consumers at the banks that issue our cards. The remittance of these funds by the retail distributor takes on average two business days. If a retail distributor becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers. As of June 30, 2020, we had assets subject to settlement risk of $312.4 million. Given the possibility of recurring volatility in global financial markets, the approaches we use to assess and monitor the creditworthiness of our retail distributors may be inadequate, and we may be unable to detect and take steps to mitigate an increased credit risk in a timely manner.
Economic recessions, such as the current recession due to the COVID-19 pandemic, could result in settlement losses, whether or not directly related to our business. We are not insured against these risks. Significant settlement losses could have a material adverse effect on our business, results of operations and financial condition.
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Economic, political and other conditions may adversely affect trends in consumer spending.
The electronic payments industry, including the prepaid financial services segment within that industry, depends heavily upon the overall level of consumer spending. On June 8, 2020, the National Bureau of Economic Research announced that the United States was in an economic recession. A prolonged recession may result in us experiencing a reduction in the number of our accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reload network and related services. A sustained reduction in the use of our products and related services, either as a result of a general reduction in consumer spending or as a result of a disproportionate reduction in the use of card-based payment systems, would materially harm our business, results of operations and financial condition.
We must be able to operate and scale our technology effectively.
Our ability to continue to provide our products and services to network participants, as well as to enhance our existing products and services and offer new products and services, is dependent on our information technology systems. If we are unable to manage and scale the technology associated with our business effectively, we could experience increased costs, reductions in system availability and losses of our network participants. Any failure of our systems in scalability and functionality would adversely impact our business, financial condition and results of operations.
Our future success depends on our ability to attract, integrate, retain and incentivize key personnel.
Our future success will depend, to a significant extent, on our ability to attract, integrate, retain and recognize key personnel, namely our management team and experienced sales, marketing and program and technology development personnel. Replacing departing key personnel can involve organizational disruption and uncertainty. We have experienced transitions among our executive officers, including the departures of our founder, President and Chief Executive Officer, Steven W. Streit, as well as our Chief Operating Officer and Chief Financial Officer since December 31, 2019. We appointed a new Chief Executive Officer in March 2020 and are in the process of appointing a permanent Chief Financial Officer. If we fail to manage these transitions successfully, we could experience significant delays or difficulty in the achievement of our development and strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed. We must retain and motivate existing personnel, and we must also attract, assimilate and motivate additional highly-qualified employees. We may experience difficulty in managing transitions and assimilating our newly-hired personnel, which may adversely affect our business. Competition for qualified management, sales, marketing and program and technology development personnel can be intense. Competitors have in the past and may in the future attempt to recruit our top management and employees. In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation and the volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. If we fail to attract, integrate, retain and incentivize key personnel, our ability to manage and grow our business could be harmed. If we fail to manage any future transitions successfully, we could experience significant delays or difficulty in the achievement of our development and strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed.
We might require additional capital to support our business in the future, and this capital might not be available on acceptable terms, or at all.
If our unrestricted cash and cash equivalents balances and any cash generated from operations are not sufficient to meet our future cash requirements, we will need to access additional capital to fund our operations. We may also need to raise additional capital to take advantage of new business or acquisition opportunities. We may seek to raise capital by, among other things:
•issuing additional shares of our Class A common stock or other equity securities;
•issuing convertible or other debt securities; and
•borrowing funds under a new credit facility.
We may not be able to raise needed cash in a timely basis on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our Class A common stock. In addition, if we were to raise cash through a debt financing, the terms of the financing might impose additional conditions or restrictions on our operations that could adversely affect our business. If we require new sources of financing but they are insufficient or unavailable, we would be required to modify our operating plans to take into account the limitations of available funding, which would harm our ability to maintain or grow our business.
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To maximize our liquidity and increase our available cash on hand in the event of a protracted COVID-19 pandemic, in March 2020 we drew down the full $100 million available under our revolving line of credit, instituted an enterprise-wide headcount freeze and delayed or reduced non-critical projects. We have since repaid the entire balance on our revolving line of credit as of June 30, 2020. Should we require additional credit at levels we are unable to access, the cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected. Further, additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.
Some of our operations, including a significant portion of our software development operations, are located outside of the United States, which subjects us to additional risks, including increased complexity and costs of managing international operations and geopolitical instability.
We have significantly expanded our software development operations in Shanghai, China and we expect to continue to increase headcount and infrastructure as we scale our operations in this region. A prolonged disruption at our China facility for any reason due to natural- or man-made disasters, natural disasters, outbreaks of pandemic disease, such as the COVID-19 pandemic, climate change or other events outside of our control, such as equipment malfunction or large-scale outages or interruptions of service from utilities or telecommunications providers, could potentially delay our ability to launch new products or services, which could materially and adversely affect our business.
Additionally, as a result of our international operations, we face numerous other challenges and risks, including:
•increased complexity and costs of managing international operations;
•regional economic instability;
•geopolitical instability and military conflicts;
•limited protection of our intellectual property and other assets;
•compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;
•foreign currency exchange fluctuations relating to our international operating activities;
•local business and cultural factors that differ from our normal standards and practices; and
•differing employment practices and labor relations.
The occurrence of catastrophic events could damage our facilities or the facilities of third parties on which we depend, which could force us to curtail our operations.
We and some of the third-party service providers on which we depend for various support functions, such as customer service and card processing, are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism, pandemics, such as COVID-19, and similar unforeseen events beyond our control. Our principal offices, for example, are situated in southern California near known earthquake fault zones and are currently subject to the state-wide shelter in place order. If any catastrophic event were to occur, our ability to operate our business could be seriously impaired. In addition, we might not have adequate insurance to cover our losses resulting from catastrophic events or other significant business interruptions. Our insurance costs may also increase substantially in the future to cover the costs our insurance carriers may incur related to such events. Any significant losses that are not recoverable under our insurance policies, as well as the damage to, or interruption of, our infrastructure and processes, could seriously impair our business and financial condition.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. If we are unable to maintain adequate internal control over financial reporting, we might be unable to report our financial information on a timely basis and might suffer adverse regulatory consequences or violate NYSE listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. We have in the past and may in the future discover areas of our internal financial and accounting controls and procedures that need improvement. Our internal control over financial reporting will not prevent or
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detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company will be detected. If we are unable to maintain proper and effective internal controls, we may not be able to produce accurate financial statements on a timely basis, which could adversely affect our ability to operate our business and could result in regulatory action, and could require us to restate our financial statements. Any such restatement could result in a loss of public confidence in the reliability of our financial statements and sanctions imposed on us by the SEC.
Changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial condition and results of operations.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and results of operations and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate prior period financial statements. Accounting standard-setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board, the SEC and banking regulators) may also amend or even reverse their previous interpretations or positions on how various standards should be applied. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the need to revise and republish prior period financial statements.
Our debt agreements contain restrictive covenants and financial ratio tests that restrict or prohibit our ability to engage in or enter into a variety of transactions. If we fail to comply with these covenants or tests, our indebtedness under these agreements could become accelerated, which could adversely affect us.
Under our $100 million five-year revolving facility, we are subject to various covenants that may have the effect of limiting, among other things, our ability and the ability of certain of our subsidiaries to: merge with other entities, enter into a transaction resulting in a change in control, create new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter into transactions with affiliates (other than subsidiaries) or substantially change the general nature of our and our subsidiaries’ business, taken as a whole, make certain investments, enter into restrictive agreements, or make certain dividends or other distributions. These restrictions could limit our ability to take advantage of financing, merger, acquisition or other opportunities, to fund our business operations or to fully implement our current and future operating strategies.
Under the agreement, we have agreed to maintain compliance with a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio of 2.50 and 1.25, respectively, at the end of any fiscal quarter. Our ability to meet these financial ratios and tests will be dependent upon our future performance and may be affected by events beyond our control (including factors discussed in this “Risk Factors" section). If we fail to satisfy these requirements, our indebtedness under these agreements could become accelerated and payable at a time when we are unable to pay them. This would adversely affect our ability to implement our operating strategies and would have a material adverse effect on our financial condition.
Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our future indebtedness and may otherwise adversely affect our financial condition and results of operations.
Certain of our indebtedness is made at variable interest rates that use the London Interbank Offered Rate, or LIBOR (or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established, or alternative reference rates to be established. The potential consequences cannot be fully predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us. Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows. In addition, any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent processes. This could materially and
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adversely affect our results of operations, cash flows, and liquidity. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.
Risks Related to Ownership of Our Class A Common Stock
The price of our Class A common stock may be volatile.
In the recent past, stocks generally, and financial services company stocks in particular, have experienced high levels of volatility. The trading price of our Class A common stock has been highly volatile since our initial public offering and may continue to be subject to wide fluctuations. The trading price of our Class A common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. Factors that could cause fluctuations in the trading price of our Class A common stock include the following:
•price and volume fluctuations in the overall stock market from time to time;
•significant volatility in the market prices and trading volumes of financial services company stocks;
•actual or anticipated changes in our results of operations or fluctuations in our operating results;
•actual or anticipated changes in the expectations of investors or the recommendations of any securities analysts who follow our Class A common stock;
•actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
•the public’s reaction to our press releases, other public announcements and filings with the SEC;
•business disruptions and costs related to shareholder activism;
•litigation and investigations or proceedings involving us, our industry or both or investigations by regulators into our operations or those of our competitors;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•changes in accounting standards, policies, guidelines, interpretations or principles;
•general economic conditions (including those caused by the COVID-19 pandemic);
•changes to the indices in which our Class A common stock is included;
•sales of shares of our Class A common stock by us or our stockholders; and
•other factors beyond our control, such as terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic.
In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Our business could be negatively affected by actions of stockholders.
The actions of stockholders could adversely affect our business. Specifically, certain actions of certain types of stockholders, including without limitation public proposals, requests to pursue a strategic combination or other transaction or special demands or requests, could disrupt our operations, be costly and time-consuming or divert the attention of our management and employees and increase the volatility of our stock. In addition, perceived uncertainties as to our future direction in relation to the actions of our stockholders may result in the loss of potential business opportunities or the perception that we are unstable and need to make changes, which may be exploited by our competitors and make it more difficult to attract and retain personnel as well as customers, service providers and partners. Actions by our stockholders may also cause fluctuations in our stock price based on speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
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Our charter documents, Delaware law and our status as bank holding company could discourage, delay or prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to nominate directors for election to our Board of Directors and take other corporate actions. These provisions, among other things:
•provide for non-cumulative voting in the election of directors;
•authorize our Board of Directors, without stockholder approval, to issue preferred stock with terms determined by our Board of Directors and to issue additional shares of our Class A common stock;
•limit the voting power of a holder, or group of affiliated holders, of more than 24.9% of our common stock to 14.9%;
•provide that only our Board of Directors may set the number of directors constituting our Board of Directors or fill vacant directorships;
•prohibit stockholder action by written consent and limit who may call a special meeting of stockholders; and
•require advance notification of stockholder nominations for election to our Board of Directors and of stockholder proposals.
These and other provisions in our certificate of incorporation and bylaws, as well as provisions under Delaware law, could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our Class A common stock, and result in the trading price of our Class A common stock being lower than it otherwise would be.
In addition to the foregoing, under the BHC Act and the Change in Bank Control Act, and their respective implementing regulations, Federal Reserve Board approval is necessary prior to any person or company acquiring control of a bank or bank holding company, subject to certain exceptions. Control, among other considerations, exists if an individual or company acquires 25% or more of any class of voting securities, and may be presumed to exist if a person acquires 10% or more of any class of voting securities. These restrictions could affect the willingness or ability of a third party to acquire control of us for so long as we are a bank holding company.
If securities analysts do not continue to publish research or reports about our business or if they publish negative evaluations of our Class A common stock, the trading price of our Class A common stock could decline.
We expect that the trading price for our Class A common stock will be affected by any research or reports that securities analysts publish about us or our business. If one or more of the analysts who currently cover us or our business downgrade their evaluations of our Class A common stock, the price of our Class A common stock would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market for our Class A common stock, which in turn could cause our stock price to decline.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 5. Other Information
None.
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ITEM 6. Exhibits
The following documents are filed as exhibits to this report:

Exhibit Number |  | Description of Exhibits
10.1 |  | Green Dot Corporation Inducement Stock Option Award Agreement, dated May 6, 2020. *
10.2 |  | Green Dot Corporation Inducement Award Agreement (Performance Restricted Stock Unit), dated May 6, 2020.
10.3 |  | Green Dot Corporation Inducement Award Agreement (Restricted Stock Unit), dated May 6, 2020.
10.4 |  | Green Dot Corporation 2010 Equity Incentive Plan, as amended (including related forms of agreements and policies).
31.1 |  | Certification of Dan Henry, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification of Jess Unruh, Interim Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification of Dan Henry, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
32.2 |  | Certification of Jess Unruh, Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
101 |  | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_____________
* Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10).
** Furnished and not filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|  | Green Dot Corporation |  |
Date: | August 5, 2020 | By: |  | /s/ Jess Unruh
|  | Name: |  | Jess Unruh
|  | Title: |  | Interim Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

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