Green Dot(US:GDOT)2021-11-07 16:00PART I – FINANCIAL INFORMATION This section provides an overview of Green Dot Corporation's financial performance, condition, and related disclosures for the period Financial Statements This section presents Green Dot Corporation's unaudited consolidated financial statements, highlighting asset growth and increased net income Consolidated Balance Sheets Total assets increased to $4.39 billion, driven by cash and investments, while liabilities and equity also rose Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,391,349 | $4,115,267 | | Unrestricted cash and cash equivalents | $1,804,826 | $1,491,842 | | Investment securities available-for-sale | $1,188,216 | $970,969 | | Total Liabilities | $3,309,410 | $3,105,435 | | Deposits | $2,959,386 | $2,735,116 | | Total Stockholders' Equity | $1,081,939 | $1,009,832 | Consolidated Statements of Operations Operating revenues and net income significantly increased for both the quarter and nine-month periods ending September 30, 2021 Operating Results (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $339,499 | $291,070 | $1,102,358 | $969,479 | | Operating income (loss) | $8,830 | $(2,650) | $74,618 | $61,589 | | Net income (loss) | $7,335 | $(2,992) | $58,003 | $47,147 | | Diluted EPS | $0.13 | $(0.06) | $1.04 | $0.87 | Consolidated Statements of Cash Flows Operating cash flow was $147.2 million, with significant cash provided by financing activities offsetting investing outflows Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $147,234 | $198,851 | | Net cash used in investing activities | $(399,655) | $(105,938) | | Net cash provided by financing activities | $564,696 | $983,001 | | Net increase in cash | $312,275 | $1,075,914 | Notes to Consolidated Financial Statements Detailed notes explain accounting policies, segment realignment, significant revenue concentrations, and subsequent legal events - The company realigned its operations into three reportable segments in Q1 2021: Consumer Services, B2B Services, and Money Movement Services118 - Revenues from Walmart constituted 23% of total operating revenues for both the three and nine months ended September 30, 2021117 - The agreement to acquire Tax Refund Solutions (TRS) was terminated due to lack of Federal Reserve approval, resulting in a $5 million termination fee and a subsequent lawsuit from Republic Bank127128 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting revenue growth from digital payments and stimulus, alongside rising expenses and a strong capital position Consolidated Financial Results and Trends Total operating revenues increased significantly in Q3 2021 and for the nine months, driven by Consumer and B2B Services Consolidated Financial Results (in thousands) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $339,499 | $291,070 | 16.6% | | Total operating expenses | $330,669 | $293,720 | 12.6% | | Net income (loss) | $7,335 | $(2,992) | N/A | - Revenue growth was supported by a fundamental shift to electronic payments and economic stimulus funds136 - Money Movement Services revenue decreased by 19% in Q3 2021, primarily due to a 22% decrease in cash transfers139 Consolidated Key Metrics Gross Dollar Volume increased by 13.5%, while active accounts, purchase volume, and cash transfers experienced declines Consolidated Key Metrics - Q3 2021 vs Q3 2020 | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Gross Dollar Volume (in millions) | $16,404 | $14,453 | 13.5% | | Number of Active Accounts (in millions) | 5.37 | 5.72 | (6.1)% | | Purchase Volume (in millions) | $7,356 | $7,600 | (3.2)% | | Cash Transfers (in millions) | 10.05 | 12.81 | (21.5)% | Segment Results B2B Services revenue grew significantly, Consumer Services revenue increased, and Money Movement Services revenue decreased Segment Profit - Q3 2021 vs Q3 2020 (in thousands) | Segment | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Consumer Services | $60,084 | $51,494 | 16.7% | | B2B Services | $18,501 | $16,372 | 13.0% | | Money Movement Services | $18,718 | $17,974 | 4.1% | - B2B Services segment revenue grew 53.3% in Q3 2021, driven by organic growth in BaaS programs190191192 - Consumer Services segment revenue increased 11.2% in Q3 2021, despite declining active accounts, due to new feature adoption and lower reward accruals185186187 Liquidity and Capital Resources The company maintains strong liquidity with $1.8 billion in cash and $1.2 billion in investments, supported by an undrawn credit facility - Primary liquidity sources include $1.8 billion in unrestricted cash and $1.2 billion in available-for-sale investment securities202 - The company has a $100 million revolving credit facility with no outstanding borrowings as of September 30, 2021207 - Management believes current liquidity is sufficient to meet capital needs for at least the next 12 months203 Capital Requirements for Bank Holding Companies Both Green Dot Corporation and Green Dot Bank are categorized as 'well capitalized', exceeding all regulatory capital requirements Capital Ratios as of September 30, 2021 | Entity / Ratio | Actual Ratio | Regulatory Minimum | "Well-capitalized" Minimum | | :--- | :--- | :--- | :--- | | Green Dot Corporation | | | | | Common equity Tier 1 capital | 64.8% | 4.5% | n/a | | Total risk-based capital | 65.9% | 8.0% | 10.0% | | Green Dot Bank | | | | | Common equity Tier 1 capital | 50.4% | 4.5% | 6.5% | | Total risk-based capital | 51.6% | 8.0% | 10.0% | - Both Green Dot Corporation and Green Dot Bank were categorized as 'well capitalized' as of September 30, 2021216 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations, with credit and liquidity risks managed through restrictive investment policies - The company's primary market risk is interest rate risk, with near-zero short-term rates potentially impacting net interest income219 - Credit and liquidity risks are managed through restrictive investment policies and monitoring of partner creditworthiness223224 - The company does not engage in derivative financial instruments for trading or speculative purposes218221 Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021225 - There were no material changes in internal control over financial reporting during Q3 2021226 PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, and exhibits Legal Proceedings This section details ongoing legal proceedings, including a class action lawsuit and litigation over a terminated acquisition - The company is a defendant in a class action lawsuit alleging misleading statements regarding business strategy and financial performance109 - Republic Bank filed a lawsuit against Green Dot claiming breach of contract over the terminated Tax Refund Solutions (TRS) acquisition agreement128283 Risk Factors The company faces significant risks including pandemic impacts, revenue concentration, competition, fraud, and regulatory oversight COVID-19 Risks The COVID-19 pandemic poses ongoing risks including operational disruptions, workforce effectiveness, and increased costs - The pandemic has led to a remote workforce and office closures, potentially impacting workforce effectiveness and resulting in impairment charges231 - Increased costs, including higher call center expenses and disputed transaction losses, may continue to adversely affect financial results233 Business Risks Business risks include heavy reliance on Walmart, intense competition, potential for fraudulent activities, and customer overdraft losses - 23% of operating revenues are derived from products sold at Walmart, making the relationship critical236 - Intense competition from established financial institutions and 'challenger' banks could erode market share and pressure margins245247 - Significant fraud incidents could lead to reputational damage, regulatory sanctions, and financial losses249250 Operational Risks Operational risks include reliance on computer systems, data security breaches, and dependency on third-party vendor performance - The business depends on uninterrupted computer systems, with failures potentially causing service interruptions and reputational harm260263 - Data security breaches could lead to liability, litigation, regulatory action, and reputational damage264265 - Reliance on third-party vendors for critical functions poses risks if their performance is inadequate268 Regulatory and Legal Risks Extensive regulatory oversight, changes in payment network rules, and ongoing litigation pose significant regulatory and legal risks - As a bank holding company, Green Dot is subject to extensive Federal Reserve supervision, with non-compliance risking enforcement actions272 - Revenue from interchange fees is dependent on payment network rates and vulnerable to future regulation280281 - Litigation and regulatory proceedings, including the Republic Bank lawsuit, could result in significant fines or penalties283 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None301 Other Information The company reported no other information required to be disclosed under this item - None302 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer under Sarbanes-Oxley Act sections304 - The filing includes financial statements formatted in Inline XBRL304