Green Dot(GDOT) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Green Dot Corporation's unaudited consolidated financial statements for the three months ended March 31, 2024 and 2023, include balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes on accounting policies, revenue, and investments Consolidated Balance Sheets The consolidated balance sheets show the company's financial position as of March 31, 2024, compared to December 31, 2023, highlighting significant changes in assets, liabilities, and stockholders' equity | Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Assets | | | | | | Total current assets | $2,224,426 | $1,637,910 | $586,516 | 35.8% | | Total assets | $5,321,024 | $4,817,122 | $503,902 | 10.5% | | Liabilities | | | | | | Total current liabilities | $4,446,875 | $3,953,190 | $493,685 | 12.5% | | Total liabilities | $4,450,378 | $3,957,772 | $492,606 | 12.4% | | Stockholders' Equity | | | | | | Total stockholders' equity | $870,646 | $859,350 | $11,296 | 1.3% | Consolidated Statements of Operations The consolidated statements of operations detail the company's revenues, expenses, and net income for the three months ended March 31, 2024, compared to the same period in 2023, showing a significant decrease in net income | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :------- | | Total operating revenues | $451,988 | $416,380 | $35,608 | 8.6% | | Total operating expenses | $441,434 | $365,385 | $76,049 | 20.8% | | Operating income | $10,554 | $50,995 | $(40,441) | (79.3)% | | Income before income taxes | $7,287 | $46,327 | $(39,040) | (84.3)% | | Net income | $4,750 | $36,012 | $(31,262) | (86.8)% | | Basic earnings per common share | $0.09 | $0.70 | $(0.61) | (87.1)% | | Diluted earnings per common share | $0.09 | $0.69 | $(0.60) | (87.0)% | Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income show the net income and other comprehensive income/loss components for the three months ended March 31, 2024 and 2023 | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | :------- | | Net income | $4,750 | $36,012 | $(31,262) | (86.8)% | | Unrealized holding (loss) income, net of tax | $(679) | $36,297 | $(36,976) | (101.9)% | | Comprehensive income | $4,071 | $72,309 | $(68,238) | (94.4)% | Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in stockholders' equity for the three months ended March 31, 2024 and 2023, reflecting impacts from net income, stock-based compensation, and other comprehensive loss/income Key Changes (Three Months Ended March 31, 2024) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Stockholders' Equity | $870,646 | $859,350 | $11,296 | - Net income: $4,750[17] - Stock-based compensation: $8,625[17] - Other comprehensive loss: $(679)[17] Consolidated Statements of Cash Flows The consolidated statements of cash flows present the cash generated from or used in operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 | Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------- | | Net cash provided by operating activities | $89,177 | $100,532 | $(11,355) | | Net cash used in investing activities | $(4,526) | $(32,720) | $28,194 | | Net cash provided by (used in) financing activities | $347,877 | $(161,648) | $509,525 | | Net increase (decrease) in unrestricted cash, cash equivalents and restricted cash | $432,528 | $(93,836) | $526,364 | | Unrestricted cash, cash equivalents and restricted cash, end of period | $1,119,030 | $726,009 | $393,021 | Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering the company's organization, significant accounting policies, revenue breakdown, investment securities, loans, equity method investments, deposits, debt, income taxes, stockholders' equity, stock-based compensation, earnings per share, fair value measurements, leases, commitments, contingencies, and segment information Note 1—Organization Green Dot Corporation is a financial technology and registered bank holding company, incorporated in Delaware in 1999, offering a broad range of financial services to consumers and businesses, including debit, checking, credit, prepaid, and payroll cards, as well as money processing services - Green Dot Corporation is a financial technology and registered bank holding company, providing financial services such as debit, checking, credit, prepaid, and payroll cards, and money processing services[22] - The company was incorporated in Delaware in 1999 and became a bank holding company and Federal Reserve System member bank in December 2011[23] Note 2—Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited consolidated financial statements, confirming adherence to GAAP and Form 10-Q instructions, and highlights no material changes to significant accounting policies during the three months ended March 31, 2024. It also mentions recent accounting pronouncements under evaluation - Financial statements are prepared in accordance with GAAP and Form 10-Q instructions, consolidating wholly-owned subsidiaries and eliminating intercompany balances[24][25] - No material changes to significant accounting policies occurred during the three months ended March 31, 2024[25] - The company is evaluating the potential effects of new FASB ASUs 2023-07 (Segment Reporting) and 2023-09 (Income Tax Disclosures), effective for annual periods beginning January 1, 2024, and January 1, 2025, respectively[27][28] Note 3—Revenues Revenue is disaggregated by reportable segment and timing of recognition (point in time vs. over time), with a notable increase in B2B Services revenue for the three months ended March 31, 2024 Operating Revenues by Segment (Three Months Ended March 31) | Segment | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Consumer Services | $98,007 | $136,627 | $(38,620) | (28.3)% | | B2B Services | $234,441 | $170,836 | $63,605 | 37.2% | | Money Movement Services | $106,829 | $98,241 | $8,588 | 8.7% | | Total Operating Revenues | $439,277 | $405,704 | $33,573 | 8.3% | - Revenues recognized at a point in time include interchange fees, ATM fees, overdraft protection fees, and most cash processing revenues[31] - Revenues recognized over time include new card fees, monthly maintenance fees, gift card revenue, and most BaaS partner program management service fees[31] Note 4—Investment Securities The company's available-for-sale investment securities, primarily highly rated, low credit risk fixed-rate securities, show significant unrealized losses due to rising interest rates, but the company intends to hold them to maturity Available-for-Sale Investment Securities (Fair Value in thousands) | Type | March 31, 2024 | December 31, 2023 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Corporate bonds | $9,667 | $9,626 | $41 | | Agency bond securities | $198,527 | $200,230 | $(1,703) | | Agency mortgage-backed securities | $1,947,474 | $2,003,510 | $(56,036) | | Municipal bonds | $23,304 | $23,635 | $(331) | | Total investment securities | $2,178,972 | $2,237,001 | $(58,029) | - Total gross unrealized losses on investment securities were $392,986 thousand as of March 31, 2024, up from $380,265 thousand at December 31, 2023, primarily due to increases in interest rates[35] - The company does not intend to sell these investments and expects to recover their amortized cost bases, as they are predominantly fixed-rate securities purchased before significant interest rate increases[35][36] Note 5—Accounts Receivable Accounts receivable, net, decreased from December 31, 2023, to March 31, 2024, primarily due to a significant reduction in fee advances, net, and a decrease in the reserve for uncollectible overdrawn accounts Accounts Receivable, Net (in thousands) | Category | March 31, 2024 | December 31, 2023 | Change | | :------------------------------------------- | :------------- | :---------------- | :----- | | Trade receivables, net | $36,132 | $29,677 | $6,455 | | Net overdrawn accountholder balances from purchase transactions | $3,527 | $4,284 | $(757) | | Fee advances, net | $3,169 | $41,974 | $(38,805) | | Other receivables | $42,376 | $29,874 | $12,502 | | Total Accounts receivable, net | $89,325 | $110,141 | $(20,816) | Activity in Reserve for Uncollectible Overdrawn Accounts (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Balance, beginning of period | $5,281 | $2,230 | $3,051 | | Provision for uncollectible overdrawn accounts | $7,623 | $1,188 | $6,435 | | Charge-offs | $(8,761) | $(1,126) | $(7,635) | | Balance, end of period | $4,143 | $2,292 | $1,851 | Note 6—Loans to Bank Customers Total outstanding loans to bank customers increased from December 31, 2023, to March 31, 2024, with a shift in payment status and an increase in non-classified loans. The allowance for credit losses decreased despite a higher provision for loans in 2024 compared to 2023 Total Outstanding Loans (Gross of Allowance for Credit Losses, in thousands) | Category | March 31, 2024 | December 31, 2023 | Change | | :------------------ | :------------- | :---------------- | :----- | | Total Past Due | $5,434 | $6,211 | $(777) | | Total Current | $44,571 | $35,706 | $8,865 | | Total Outstanding | $50,005 | $41,917 | $8,088 | Nonperforming Loans (Carrying Value, Gross of Allowance, in thousands) | Category | March 31, 2024 | December 31, 2023 | Change | | :---------------- | :------------- | :---------------- | :----- | | Total loans | $2,570 | $2,703 | $(133) | Allowance for Credit Losses (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Balance, beginning of period | $11,383 | $9,078 | $2,305 | | Provision for loans | $4,788 | $10,252 | $(5,464) | | Loans charged off | $(5,859) | $(6,101) | $242 | | Balance, end of period | $10,376 | $13,254 | $(2,878) | Note 7—Equity Method Investments Green Dot Corporation holds a 20% ownership interest in TailFin Labs, LLC, a fintech accelerator with Walmart, and made its final $35.0 million capital contribution in January 2024. The investment is accounted for using the HLBV method, and the company recorded equity in losses from TailFin Labs - Green Dot holds a 20% ownership in TailFin Labs, LLC, a fintech accelerator with Walmart, with a final $35.0 million capital contribution made in January 2024[49][195] - Net investment in TailFin Labs increased to approximately $141.3 million as of March 31, 2024, from $109.5 million at December 31, 2023[53] - Equity in losses from TailFin Labs was $3.1 million for the three months ended March 31, 2024, compared to $4.1 million for the same period in 2023[53] Note 8—Deposits Total deposits increased significantly from December 31, 2023, to March 31, 2024, driven primarily by a substantial rise in non-interest bearing deposit accounts Deposits (in thousands) | Category | March 31, 2024 | December 31, 2023 | Change | | :------------------------------ | :------------- | :---------------- | :----- | | Non-interest bearing deposit accounts | $3,641,850 | $3,214,881 | $426,969 | | Interest-bearing deposit accounts | $101,451 | $78,722 | $22,729 | | Total deposits | $3,743,301 | $3,293,603 | $449,698 | Note 9—Debt The company maintains a $100.0 million revolving line of credit, maturing in October 2024, with an outstanding balance of $45 million as of March 31, 2024. The interest rate is variable, based on SOFR or a base rate, and the company was in compliance with all covenants - Outstanding balance on the 2019 Revolving Facility was $45 million as of March 31, 2024, with $55 million available[57] - The interest rate on the outstanding balance was approximately 6.93% as of March 31, 2024, with rates tied to SOFR or a base rate plus an applicable margin[58] - The company was in compliance with all debt covenants, including minimum fixed charge coverage ratio and maximum consolidated leverage ratio, as of March 31, 2024[59] Note 10—Income Taxes The effective tax rate for the three months ended March 31, 2024, increased to 34.8% from 22.3% in the prior year, primarily due to tax expense from stock-based compensation shortfalls and the surrender of bank-owned life insurance policies, partially offset by other tax benefits Effective Tax Rate Reconciliation | Factor | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | U.S. federal statutory tax rate | 21.0 % | 21.0 % | | State income taxes, net of federal tax benefit | (1.4) % | 0.8 % | | General business credits | (11.5) % | (3.4) % | | Stock-based compensation | 22.7 % | 3.7 % | | Bank owned life insurance surrender | 9.3 % | — % | | Effective tax rate | 34.8 % | 22.3 % | - The increase in effective tax rate was primarily due to a $0.2 million increase in tax expense from stock-based compensation shortfalls and a $0.5 million tax charge plus $0.2 million surrender penalty from the initiated surrender of bank-owned life insurance policies[63] - As of March 31, 2024, the company had federal net operating loss carryforwards of $13.1 million and state net operating loss carryforwards of $108.1 million[67] Note 11—Stockholders' Equity As of March 31, 2024, the company had $4.5 million remaining under its authorized stock repurchase program, with no repurchases made during the three months ended March 31, 2024 - As of March 31, 2024, $4.5 million remained authorized under the stock repurchase program[70] - No stock repurchases were made during the three months ended March 31, 2024[70] Note 12—Stock-Based Compensation Total stock-based compensation expense decreased to $8.6 million for the three months ended March 31, 2024, from $9.2 million in the prior year, reflecting activity in restricted stock units and stock options Stock-Based Compensation Expense (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Three Months Ended March 31, 2024 | $8,625 | | Three Months Ended March 31, 2023 | $9,182 | | Change | $(557) | Restricted Stock Unit Activity (Service Conditions, in thousands of shares) | Metric | March 31, 2024 | | :-------------------------- | :------------- | | Outstanding at Dec 31, 2023 | 2,049 | | Granted | 1,931 | | Vested | (504) | | Canceled | (97) | | Outstanding at Mar 31, 2024 | 3,379 | Performance-Based Restricted Stock Unit Activity (in thousands of shares) | Metric | March 31, 2024 | | :-------------------------- | :------------- | | Outstanding at Dec 31, 2023 | 988 | | Granted | 981 | | Canceled | (62) | | Outstanding at Mar 31, 2024 | 1,907 | Note 13—Earnings per Common Share Basic and diluted earnings per common share significantly decreased for the three months ended March 31, 2024, compared to the prior year, primarily due to lower net income Earnings per Common Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net income | $4,750 | $36,012 | $(31,262) | | Basic earnings per Class A common share | $0.09 | $0.70 | $(0.61) | | Diluted earnings per Class A common share | $0.09 | $0.69 | $(0.60) | | Diluted weighted-average common shares outstanding | 53,270 | 52,021 | 1,249 | - Anti-dilutive shares excluded from diluted EPS calculation totaled 2,428 thousand for Q1 2024, including stock options and restricted stock units[77] Note 14—Fair Value Measurements The company's assets carried at fair value on a recurring basis primarily consist of investment securities classified as Level 2, and loans held for sale classified as Level 3, with no material changes in fair value for Level 3 assets Assets Carried at Fair Value (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Investment securities (Level 2) | $2,178,972 | $2,237,001 | | Loans held for sale (Level 3) | $4,404 | $4,735 | | Total Fair Value | $2,183,376 | $2,241,736 | - Fair values of fixed income securities are based on quoted prices in active markets for similar assets (Level 2)[82] - No material changes in fair value for Level 3 assets or liabilities were presented for the periods[83] Note 15—Fair Value of Financial Instruments This note details the valuation techniques for financial instruments, classifying short-term instruments as Level 1, investment securities and deposits as Level 2, and loans as Level 3, and provides carrying and fair values for instruments not carried at fair value - Short-term financial instruments (cash, settlement assets/obligations, obligations to customers) are classified as Level 1, with carrying amounts approximating fair values[87] - Investment securities and deposits are classified as Level 2, while loans are classified as Level 3[88][89][90] Carrying Values and Fair Values of Certain Financial Instruments (in thousands) | Instrument | March 31, 2024 Carrying Value | March 31, 2024 Fair Value | December 31, 2023 Carrying Value | December 31, 2023 Fair Value | | :------------------------------------ | :---------------------------- | :------------------------ | :------------------------------- | :----------------------- | | Loans to bank customers, net of allowance | $39,629 | $39,428 | $30,534 | $30,307 | | Deposits | $3,743,301 | $3,743,233 | $3,293,603 | $3,293,526 | Note 16—Leases The company's leases are primarily operating leases for corporate and subsidiary office locations, with total lease expense decreasing slightly for the three months ended March 31, 2024 Lease Expense (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Three Months Ended March 31, 2024 | $900 | | Three Months Ended March 31, 2023 | $1,000 | | Change | $(100) | - Weighted average remaining lease term is 3.95 years, with a weighted average discount rate of 5.1% as of March 31, 2024[97] Note 17—Commitments and Contingencies The company is involved in various legal proceedings, including a proposed consent order from the Federal Reserve Board for compliance risk management, for which an estimated liability of $20 million was accrued, with a reasonably possible loss range up to $50 million. Other class action lawsuits and legal matters are also ongoing - Accrued an estimated liability of $20 million related to a proposed consent order from the Federal Reserve Board concerning compliance risk management, including consumer compliance and AML regulations[99][101] - The estimated aggregate range of reasonably possible losses for the proposed consent order is up to $50 million as of March 31, 2024[101] - Ongoing litigation includes a putative class action (Hester v. Green Dot Corporation) regarding blocked funds, which was directed to arbitration, and another alleged class action (Koffsmon v. Green Dot Corp.) concerning misleading statements about business strategy[102][103] Note 18—Significant Retailer and Partner Concentration The company has significant revenue concentration with key partners, with a single BaaS partner generating 46% of total operating revenues and Walmart contributing 10% for the three months ended March 31, 2024 - Approximately 46% of total operating revenues for the three months ended March 31, 2024, were generated from a single BaaS partner[110] - Walmart accounted for 10% of total operating revenues for the three months ended March 31, 2024, down from 17% in the prior year[110] Note 19—Segment Information The company operates through three reportable segments: Consumer Services, B2B Services, and Money Movement Services, with Corporate and Other covering unallocated expenses and net interest income. B2B Services showed significant revenue growth, while Consumer Services declined - The company's operations are aggregated into three reportable segments: Consumer Services, B2B Services, and Money Movement Services[111] Segment Revenue (in thousands) | Segment | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (in thousands) | % Change | | :---------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Consumer Services | $100,612 | $139,833 | $(39,221) | (28.0)% | | B2B Services | $241,200 | $171,292 | $69,908 | 40.8% | | Money Movement Services | $103,150 | $98,241 | $4,909 | 5.0% | | Corporate and Other | $2,461 | $2,997 | $(536) | (17.9)% | | Total segment revenues | $447,423 | $412,363 | $35,060 | 8.5% | Segment Profit (in thousands) | Segment | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (in thousands) | % Change | | :---------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Consumer Services | $33,259 | $52,752 | $(19,493) | (37.0)% | | B2B Services | $18,283 | $22,219 | $(3,936) | (17.7)% | | Money Movement Services | $65,847 | $61,026 | $4,821 | 7.9% | | Corporate and Other | $(58,157) | $(53,454) | $(4,703) | 8.8% | | Total segment profit | $59,232 | $82,543 | $(23,311) | (28.2)% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and results of operations for the three months ended March 31, 2024, discussing key trends, segment performance, liquidity, and capital resources Overview Green Dot Corporation, a financial technology and bank holding company, offers diverse financial products and money processing services. Its business is managed across three reportable segments: Consumer Services, B2B Services, and Money Movement Services, with unallocated corporate expenses in Corporate and Other - Green Dot Corporation is a financial technology and registered bank holding company offering debit, prepaid, checking, credit, and payroll cards, along with money processing services[122] - Operations are organized into three reportable segments: Consumer Services, B2B Services, and Money Movement Services, with Corporate and Other covering unallocated expenses and net interest income[123] Consolidated Financial Results and Trends Total operating revenues increased by 8.6% year-over-year, driven by B2B and Money Movement Services, despite a decline in Consumer Services. However, total operating expenses rose by 20.8%, leading to an 86.8% decrease in net income Consolidated Financial Results (Three Months Ended March 31) | Metric | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total operating revenues | $451,988 | $416,380 | $35,608 | 8.6% | | Total operating expenses | $441,434 | $365,385 | $76,049 | 20.8% | | Net income | $4,750 | $36,012 | $(31,262) | (86.8)% | - Total operating revenues increased due to growth in certain BaaS partner programs, leading to a 32% increase in total gross dollar volume[125][126] - Consumer Services revenues decreased by 28% due to the wind-down of legacy programs, macroeconomic factors, and a retail partner non-renewal, impacting active accounts, direct deposit accounts, and purchase volume[127] - B2B Services revenues increased by 41%, driven by a 49% growth in gross dollar volume from BaaS programs and higher program management service fees[128] - Money Movement Services revenues increased by 5%, primarily from tax processing revenues due to a favorable mix-shift and expansion of taxpayer advance programs, despite a 6% decrease in tax refunds processed[129] - Total operating expenses increased by 21%, mainly due to higher processing expenses from BaaS growth, increased transaction losses, and expenses related to core banking system termination, partially offset by lower sales and marketing and compensation expenses[131][132][133] Outlook and Other Trends Affecting Our Business The company expects stabilization in 2024 financial results due to anticipated growth initiatives and cost reduction measures, including processor migration savings and workforce reduction, despite ongoing investments in compliance and potential impacts from high inflation and interest rates - Expects 2024 financial results to stabilize year-over-year due to growth initiatives and cost reduction measures[136] - Growth-oriented investments focus on re-engaging strategic marketing for GO2bank and other account programs to return to active account growth[137] - Anticipates continued reductions in processing expenses from processor conversion and card management platform implementation, and improved cost structure from workforce reduction[139] - Cost reductions will be partially offset by increased investments in AML programs and compliance controls to remediate regulatory matters and reduce fraud losses[140] - The proposed consent order from the Federal Reserve Board has an accrued liability of $20 million, with a reasonably possible loss range up to $50 million as of March 31, 2024[141] Consolidated Key Metrics Key consolidated metrics for the three months ended March 31, 2024, show significant growth in gross dollar volume but declines in active accounts, purchase volume, and cash transfers compared to the prior year Consolidated Key Metrics (Three Months Ended March 31, in millions, except percentages) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------- | :--- | :--- | :----- | :------- | | Gross dollar volume | $30,755 | $23,289 | $7,466 | 32.1% | | Number of active accounts* | 3.51 | 3.84 | (0.33) | (8.6)% | | Purchase volume | $5,274 | $6,145 | $(871) | (14.2)% | | Number of cash transfers | 7.77 | 8.70 | (0.93) | (10.7)% | | Number of tax refunds processed | 9.28 | 9.91 | (0.63) | (6.4)% | Represents the number of active accounts as of March 31, 2024 and 2023, respectively. Key components of our results of operations This section defines the company's operating revenue categories (Card Revenues and Other Fees, Cash Processing Revenues, Interchange Revenues, Interest Income, net) and operating expense categories (Sales and Marketing, Compensation and Benefits, Processing, Other General and Administrative Expenses), explaining the factors influencing each - Operating revenues are classified into Card revenues and other fees, Cash processing revenues, Interchange revenues, and Interest income, net[151][153][154][155] - Operating expenses include Sales and marketing expenses, Compensation and benefits expenses, Processing expenses, and Other general and administrative expenses[156][158][159][160] Comparison of Consolidated Results for the Three Months Ended March 31, 2024 and 2023 A detailed comparison of consolidated operating revenues and expenses for Q1 2024 versus Q1 2023 shows an increase in total revenues driven by card and cash processing, but a significant rise in processing and other general and administrative expenses, leading to a substantial decrease in net income and a higher effective tax rate Operating Revenues Breakdown (Three Months Ended March 31, in thousands) | Revenue Category | 2024 Amount | 2024 % of Total | 2023 Amount | 2023 % of Total | Change (in thousands) | % Change | | :-------------------------- | :---------- | :-------------- | :---------- | :-------------- | :-------------------- | :------- | | Card revenues and other fees | $281,503 | 62.3% | $239,866 | 57.5% | $41,637 | 17.4% | | Cash processing revenues | $106,806 | 23.6% | $101,823 | 24.5% | $4,983 | 4.9% | | Interchange revenues | $50,968 | 11.3% | $64,015 | 15.4% | $(13,047) | (20.4)% | | Interest income, net | $12,711 | 2.8% | $10,676 | 2.6% | $2,035 | 19.1% | | Total operating revenues | $451,988 | 100.0% | $416,380 | 100.0% | $35,608 | 8.6% | Operating Expenses Breakdown (Three Months Ended March 31, in thousands) | Expense Category | 2024 Amount | 2024 % of Total | 2023 Amount | 2023 % of Total | Change (in thousands) | % Change | | :-------------------------------- | :---------- | :-------------- | :---------- | :-------------- | :-------------------- | :------- | | Sales and marketing expenses | $62,375 | 13.8% | $75,212 | 18.1% | $(12,837) | (17.1)% | | Compensation and benefits expenses | $66,824 | 14.8% | $68,781 | 16.5% | $(1,957) | (2.8)% | | Processing expenses | $195,666 | 43.3% | $145,054 | 34.8% | $50,612 | 34.9% | | Other general and administrative expenses | $116,569 | 25.8% | $76,338 | 18.3% | $40,231 | 52.7% | | Total operating expenses | $441,434 | 97.7% | $365,385 | 87.7% | $76,049 | 20.8% | - Income tax expense decreased by $7.8 million (75%) due to lower taxable income, but the effective tax rate increased to 34.8% from 22.3% due to stock-based compensation shortfalls and bank-owned life insurance surrender[171][172] Segment Results Segment results show a significant decline in Consumer Services revenue and profit, strong revenue growth in B2B Services with margin compression, and modest revenue and profit growth in Money Movement Services. Corporate and Other expenses increased due to higher professional services fees Consumer Services Consumer Services segment revenues decreased by 28% and segment profit by 37% year-over-year, driven by declines in gross dollar volume, active accounts, and purchase volume due to legacy program wind-downs, macroeconomic factors, and a retail partner non-renewal Consumer Services Financial Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Segment revenues | $100,612 | $139,833 | $(39,221) | (28.0)% | | Segment profit | $33,259 | $52,752 | $(19,493) | (37.0)% | Consumer Services Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------- | :--- | :--- | :----- | :------- | | Gross dollar volume | $4,500 | $5,677 | $(1,177) | (20.7)% | | Number of active accounts | 1.93 | 2.41 | (0.48) | (19.9)% | | Direct deposit active accounts* | 0.46 | 0.60 | (0.14) | (23.3)% | | Purchase volume | $3,339 | $4,344 | $(1,005) | (23.1)% | Represents total number of active and direct deposit active accounts as of March 31, 2024 and 2023, respectively. - Decreases are attributed to winding down legacy accountholder programs for GO2bank, macroeconomic challenges, and the non-renewal of a retail partner program[176] B2B Services B2B Services segment revenues increased by 40.8% year-over-year, driven by strong growth in gross dollar volume from BaaS programs, but segment profit decreased by 17.7% due to higher processing expenses and margin compression from fixed-profit partnerships B2B Services Financial Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Segment revenues | $241,200 | $171,292 | $69,908 | 40.8% | | Segment profit | $18,283 | $22,219 | $(3,936) | (17.7)% | B2B Services Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------- | :--- | :--- | :----- | :------- | | Gross dollar volume | $26,255 | $17,612 | $8,643 | 49.1% | | Number of active accounts | 1.58 | 1.43 | 0.15 | 10.5% | | Purchase volume | $1,935 | $1,801 | $134 | 7.4% | *Represents total number of active accounts as of March 31, 2024 and 2023, respectively. - Growth in gross dollar volume from BaaS programs led to higher program management service fees, partially offset by non-renewals of certain BaaS partners[182] Money Movement Services Money Movement Services segment revenues increased by 5% and segment profit by 7.9% year-over-year, primarily due to higher tax processing revenues from a favorable mix-shift and expanded taxpayer advance programs, despite a decrease in the number of tax refunds processed and cash transfers Money Movement Services Financial Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change | | :-------------- | :--- | :--- | :----- | :------- | | Segment revenues | $103,150 | $98,241 | $4,909 | 5.0% | | Segment profit | $65,847 | $61,026 | $4,821 | 7.9% | Money Movement Services Key Metrics (Three Months Ended March 31, in millions) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------- | :--- | :--- | :----- | :------- | | Number of cash transfers | 7.77 | 8.70 | (0.93) | (10.7)% | | Number of tax refunds processed | 9.28 | 9.91 | (0.63) | (6.4)% | - Increase in tax processing revenues was driven by a favorable mix-shift in distribution channels and expansion of taxpayer advance programs[185] Corporate and Other Revenues in Corporate and Other decreased due to increased interest sharing with BaaS partners, despite higher net interest income from rising short-term interest rates. Unallocated corporate expenses increased by 7% due to higher professional services fees for AML programs, partially offset by lower salary and wages from workforce reduction Corporate and Other Financial Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Unallocated revenue and inter-segment eliminations | $2,461 | $2,997 | $(536) | (17.9)% | | Unallocated corporate expenses and inter-segment eliminations | $60,618 | $56,451 | $4,167 | 7.4% | | Total | $(58,157) | $(53,454) | $(4,703) | 8.8% | - Net interest income increased by 19% due to higher yields on cash balances from Federal Reserve rate increases, partially offset by increased interest shared with BaaS partners[189] - Unallocated corporate expenses increased primarily due to higher professional services fees for AML program improvements, offset by lower salary and wages from workforce reduction[190] Liquidity and Capital Resources The company's liquidity is strong, with $1.1 billion in unrestricted cash and cash equivalents and $2.2 billion in available-for-sale investment securities. Cash flows from operating activities decreased, while financing activities provided significant cash, primarily from increased customer deposits. The company remains well-capitalized under regulatory standards Major Sources and Uses of Cash (Three Months Ended March 31, in thousands) | Activity | 2024 | 2023 | Change | | :---------------------------------------------------------- | :--- | :--- | :----- | | Operating activities | $89,177 | $100,532 | $(11,355) | | Investing activities | $(4,526) | $(32,720) | $28,194 | | Financing activities | $347,877 | $(161,648) | $509,525 | | Increase (decrease) in unrestricted cash, cash equivalents and restricted cash | $432,528 | $(93,836) | $526,364 | - Primary liquidity sources include $1.1 billion in unrestricted cash and cash equivalents and $2.2 billion in available-for-sale investment securities as of March 31, 2024[191] - Net cash provided by financing activities in Q1 2024 was $347.9 million, primarily from a $452.0 million net increase in customer deposits[197] - The company and Green Dot Bank were categorized as 'well capitalized' under applicable regulatory standards as of March 31, 2024, and December 31, 2023[208] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company has limited exposure to market risks, primarily interest rate, inflation, credit, and liquidity risks. While interest rate increases benefit cash yields, they are partially offset by interest sharing with BaaS partners. Credit and liquidity risks are managed through investment policies and monitoring of partners - Limited exposure to foreign currency exchange rates, interest rates, and equity prices; no derivatives for trading or speculation[210][213] - Interest rate changes impact net interest income, with increases benefiting cash yields but partially offset by interest sharing with BaaS partners[211] - Credit and liquidity risks are managed by restricting investments to highly liquid, low credit risk assets and monitoring partner creditworthiness and settlement exposure[216][218] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2024. There were no material changes in internal control over financial reporting, and the company continues to monitor its remote work environment's impact on controls - Disclosure controls and procedures were effective as of March 31, 2024[219] - No material change in internal control over financial reporting occurred during the three months ended March 31, 2024[220] - Control systems provide reasonable, not absolute, assurance and are subject to inherent limitations[221] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 17 of the Consolidated Financial Statements for information regarding the company's legal proceedings, commitments, and contingencies - Information on legal proceedings is incorporated by reference from Note 17—Commitments and Contingencies to the Consolidated Financial Statements[224] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect the company's business, financial condition, and results of operations, categorized into risks related to business, operations, regulatory and legal matters, capital needs and indebtedness, and general risks RISKS RELATED TO OUR BUSINESS Risks include significant revenue concentration with key partners like Walmart and a single BaaS partner, dependence on partner promotion, challenges in retaining and attracting long-term users, seasonal fluctuations, intense competition, rapid technological changes, and exposure to fraudulent activities and customer account losses - Loss of operating revenues from key BaaS partners (46% from one partner) or Walmart (10% of total operating revenues) would adversely affect the business[225] - Future success depends on retaining and attracting new long-term users, which can be impacted by distribution channels, consumer preferences, and new product features[230] - The company faces intense competition from larger, more diversified entities and new digital-centric financial services platforms offering low-cost alternatives[232][233][235] - Fraudulent and illegal activities, including social engineering schemes and tax-related fraud, pose risks of reputational damage and financial losses, leading to costly risk control mechanisms that may impact new card activations[237][238][239] - Exposure to losses from customer overdrafts and settlement risks from retail distributors and banking partners, which could increase during economic recessions[241][243] RISKS RELATED TO OUR OPERATIONS Operational risks include dependence on efficient and uninterrupted computer network systems and third-party vendors, susceptibility to data security breaches, challenges in complying with privacy and data protection laws, and additional risks associated with international operations - Business is dependent on the efficient and uninterrupted operation of computer network systems and data centers, including third-party systems, susceptible to outages and interruptions[251][252] - A data security breach could lead to liability, costly litigation, regulatory penalties, reputational damage, and increased compliance costs[256][257] - Failure to comply with evolving privacy and data protection laws and regulations could result in enforcement actions, fines, and reputational harm[260] - Replacing third-party vendors for critical services (e.g., fraud management, customer service, card production) would be difficult and disruptive[261] - International operations, particularly software development in Shanghai, China, expose the company to increased complexity, geopolitical instability, and compliance challenges[263][264] REGULATORY AND LEGAL RISKS The company faces extensive and changing regulatory oversight as a bank holding company, including potential enforcement actions and civil money penalties. Non-compliance with laws and regulations, changes in payment network rules, or litigation could result in significant financial and reputational harm - As a bank holding company, the company is subject to extensive supervision by the Federal Reserve Board and Utah Department of Financial Institutions, with potential for enforcement actions and penalties for non-compliance[265] - Failure to comply with applicable laws and regulations (e.g., BSA, PATRIOT Act, consumer protection) could lead to enforcement actions, lawsuits, fines, and reputational harm[268][269] - Changes in rules or standards set by payment networks, or changes in interchange rates, could adversely affect business and financial results, potentially requiring fee structure changes[273][274][276] - Litigation or investigations, such as the proposed consent order from the Federal Reserve Board, could result in significant settlements, sanctions, fines, or penalties, with an estimated possible loss range up to $50 million[277] RISKS RELATED TO OUR CAPITAL NEEDS AND INDEBTEDNESS The company may require additional capital that might not be available on acceptable terms, and its debt agreements contain restrictive covenants and financial ratio tests that could limit operational flexibility or lead to accelerated debt repayment if not met - Future capital needs may not be met on acceptable terms, potentially leading to dilutive financings or operational restrictions from debt[281] - Debt agreements contain restrictive covenants and financial ratio tests (e.g., maximum consolidated leverage ratio, minimum fixed charge coverage ratio) that limit operational flexibility and could trigger accelerated debt repayment if violated[282] GENERAL RISKS General risks include potential fluctuations in operating results and stock price, the possibility of actual results differing from guidance, dependence on attracting and retaining key personnel, disruptions from acquisitions, and the risk of impairment charges for goodwill and intangible assets - Operating results may fluctuate due to various factors, including timing of product use, tax refunds, new product introductions, customer retention, and economic conditions, potentially causing stock price decline[283][284][289] - Actual operating results may differ significantly from guidance, especially during economic uncertainty[286] - Future success depends on attracting, integrating, retaining, and incentivizing key personnel, with competition for talent and stock price volatility impacting this ability[287] - Acquisitions or investments carry risks of disruption, integration challenges, unanticipated liabilities, and potential dilution or impairment charges[288][289][292] - An impairment charge of goodwill or other intangible assets, which were $414.1 million as of March 31, 2024, could materially impact financial condition and results of operations[293] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section states that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the fiscal quarter ended March 31, 2024 - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the fiscal quarter ended March 31, 2024[298] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended March 31, 2024[299] Item 6. Exhibits This section lists the documents filed as exhibits to the report, including certifications from the Principal Executive Officer and Principal Financial Officer, and financial statements formatted in Inline XBRL - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) from the Principal Executive Officer and Principal Financial Officer[301] - Financial statements for the quarter ended March 31, 2024, are provided in Inline XBRL format (Exhibit 101), including Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows, along with Notes[301] Signature The report was duly signed on May 10, 2024, by George Gresham, President and Chief Executive Officer of Green Dot Corporation, as the duly authorized officer and Principal Executive Officer - The report was signed by George Gresham, President and Chief Executive Officer, on May 10, 2024[306]