SEC Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
 
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

GREEN DOT CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
95-4766827
(IRS Employer Identification No.)
3465 E. Foothill Blvd.
Pasadena, California 91107
(Address of principal executive offices, including zip code)
 
(626) 765-2000
(Registrant's telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
     Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
There were 48,053,368 shares of Class A common stock, par value $.001 per share (which number does not include 1,518,512 shares of Class A common stock issuable upon conversion of Series A Convertible Junior Participating Non-Cumulative Perpetual Preferred Stock) as of April 30, 2016.
 



GREEN DOT CORPORATION
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
 


Table of Contents

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

 
March 31, 2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
(In thousands, except par value)
Current assets:
 
 
 
Unrestricted cash and cash equivalents
$
739,751

 
$
772,128

Federal funds sold
1

 
1

Restricted cash
6,374

 
5,793

Investment securities available-for-sale, at fair value
56,092

 
49,106

Settlement assets
108,694

 
69,165

Accounts receivable, net
27,652

 
42,153

Prepaid expenses and other assets
37,012

 
30,511

Income tax receivable

 
6,434

Total current assets
975,576

 
975,291

Investment securities, available-for-sale, at fair value
138,368

 
132,433

Loans to bank customers, net of allowance for loan losses of $278 and $426 as of March 31, 2016 and December 31, 2015, respectively
6,274

 
6,279

Prepaid expenses and other assets
4,102

 
6,416

Property and equipment, net
79,128

 
78,877

Deferred expenses
9,396

 
14,509

Net deferred tax assets
3,580

 
3,864

Goodwill and intangible assets
468,286

 
473,779

Total assets
$
1,684,710

 
$
1,691,448

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
21,823

 
$
37,186

Deposits
636,934

 
652,145

Obligations to customers
51,056

 
61,300

Settlement obligations
4,771

 
5,074

Amounts due to card issuing banks for overdrawn accounts
1,469

 
1,067

Other accrued liabilities
95,910

 
87,635

Deferred revenue
15,468

 
22,901

Note payable
20,966

 
20,966

Income tax payable
12,212

 

Total current liabilities
860,609

 
888,274

Other accrued liabilities
31,233

 
37,894

Note payable
95,445

 
100,686

Net deferred tax liabilities
1,505

 
1,272

Total liabilities
988,792

 
1,028,126

Commitments and contingencies (Note 15)

 

Stockholders’ equity:
 
 
 
Convertible Series A preferred stock, $0.001 par value (as converted): 10 shares authorized as of March 31, 2016 and December 31, 2015; 2 shares issued and outstanding as of March 31, 2016 and December 31, 2015
2

 
2

Class A common stock, $0.001 par value: 100,000 shares authorized as of March 31, 2016 and December 31, 2015; 49,866 and 50,502 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
50

 
51

Additional paid-in capital
378,722

 
379,376

Retained earnings
316,986

 
284,108

Accumulated other comprehensive income (loss)
158

 
(215
)
Total stockholders’ equity
695,918

 
663,322

Total liabilities and stockholders’ equity
$
1,684,710

 
$
1,691,448

See notes to unaudited consolidated financial statements

1

Table of Contents

GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Operating revenues:
 
 
 
Card revenues and other fees
$
91,886

 
$
87,224

Processing and settlement service revenues
81,016

 
87,121

Interchange revenues
55,122

 
54,726

Stock-based retailer incentive compensation

 
(1,906
)
Total operating revenues
228,024

 
227,165

Operating expenses:
 
 
 
Sales and marketing expenses
63,864

 
61,279

Compensation and benefits expenses
43,087

 
41,354

Processing expenses
28,513

 
30,600

Other general and administrative expenses
38,074

 
28,036

Total operating expenses
173,538

 
161,269

Operating income
54,486

 
65,896

Interest income
2,301

 
1,378

Interest expense
(4,781
)
 
(1,496
)
Income before income taxes
52,006

 
65,778

Income tax expense
19,124

 
24,965

Net income
32,882

 
40,813

Income attributable to preferred stock
(972
)
 
(1,165
)
Net income available to common stockholders
$
31,910

 
$
39,648

 
 
 
 
Basic earnings per common share:
$
0.64

 
$
0.77

Diluted earnings per common share:
$
0.63

 
$
0.76

Basic weighted-average common shares issued and outstanding:
49,863

 
51,448

Diluted weighted-average common shares issued and outstanding:
50,867

 
51,938

See notes to unaudited consolidated financial statements

2

Table of Contents

GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Net income
$
32,882

 
$
40,813

Other comprehensive income
 
 
 
Unrealized holding gains, net of tax
373

 
85

Comprehensive income
$
33,255

 
$
40,898

See notes to unaudited consolidated financial statements

3

Table of Contents

GREEN DOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Operating activities
 
 
 
Net income
$
32,882

 
$
40,813

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of property and equipment
11,404

 
9,375

Amortization of intangible assets
5,774

 
5,325

Provision for uncollectible overdrawn accounts
16,766

 
15,192

Employee stock-based compensation
5,645

 
5,213

Stock-based retailer incentive compensation

 
1,906

Amortization of premium on available-for-sale investment securities
269

 
235

Change in fair value of contingent consideration

 
(7,616
)
Amortization of deferred financing costs
384

 
384

Impairment of capitalized software
105

 

Deferred income tax expense

 
(21
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(2,428
)
 
(2,313
)
Prepaid expenses and other assets
(4,187
)
 
(31
)
Deferred expenses
5,113

 
5,800

Accounts payable and other accrued liabilities
(12,448
)
 
(9,410
)
Amounts due to card issuing banks for overdrawn accounts
402

 
1,169

Deferred revenue
(7,458
)
 
(5,618
)
Income tax receivable
18,591

 
24,091

Other, net
145

 
2

Net cash provided by operating activities
70,959

 
84,496

 
 
 
 
Investing activities
 
 
 
Purchases of available-for-sale investment securities
(38,492
)
 
(34,631
)
Proceeds from maturities of available-for-sale securities
25,945

 
21,972

Proceeds from sales of available-for-sale securities
21

 
12,733

Increase in restricted cash
(581
)
 
(1,429
)
Payments for acquisition of property and equipment
(12,182
)
 
(14,144
)
Decrease (increase) in loans
5

 
(265
)
Acquisition, net of cash acquired

 
(65,209
)
Net cash used in investing activities
(25,284
)
 
(80,973
)
 
 
 
 
Financing activities
 
 
 
Repayments of borrowings from note payable
(5,625
)
 
(5,625
)
Borrowings on revolving line of credit
15,000

 
30,001

Repayments on revolving line of credit
(15,000
)
 
(30,001
)
Proceeds from exercise of options
2,884

 
269

Excess tax benefits from exercise of options
338

 
24

Taxes paid related to net share settlement of equity awards
(1,174
)
 
(152
)
Net (decrease) increase in deposits
(15,211
)
 
78,872

Net (decrease) increase in obligations to customers
(50,062
)
 
77,344

Contingent consideration payments
(189
)
 
(169
)
Repurchase of Class A common stock
(9,013
)
 

Net cash (used in) provided by financing activities
(78,052
)
 
150,563

 
 
 
 
Net (decrease) increase in unrestricted cash, cash equivalents, and federal funds sold
(32,377
)
 
154,086

Unrestricted cash, cash equivalents, and federal funds sold, beginning of year
772,129

 
724,638

Unrestricted cash, cash equivalents, and federal funds sold, end of year
$
739,752

 
$
878,724

 
 
 
 
Cash paid for interest
$
4,397

 
$
1,112

Cash paid for income taxes
$
140

 
$
779

See notes to unaudited consolidated financial statements

4

Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1—Organization
Green Dot Corporation (“we,” “us” and “our” refer to Green Dot Corporation and its wholly-owned subsidiaries) is a pro-consumer technology innovator with a mission to reinvent personal banking for the masses. Our products and services include: Green Dot MasterCard and Visa-branded prepaid debit cards and several co-branded reloadable prepaid card programs, collectively referred to as our GPR cards; Visa-branded gift cards; checking account products, such as GoBank, an innovative checking account developed for use via mobile phones that is available at Walmart and online; our proprietary swipe reload products referred to as our cash transfer products, which enable cash loading and transfer services through our Green Dot Network; and tax refund processing services designed to facilitate the secure receipt of a customer's income tax refund.
Our products and services are available to consumers through a large-scale "branchless bank" distribution network of more than 100,000 U.S. locations, including retailers, neighborhood financial service center locations and tax preparation offices, as well as online, in the leading app stores and through leading online tax preparation providers. The Green Dot Network enables consumers to use cash to reload our prepaid debit cards or to transfer cash to any of our Green Dot Network acceptance members, including competing prepaid card programs and other online accounts. We are also the tax refund processing service provider for several leading consumer tax preparation companies.
We market our products and services to consumers in the United States. Our products are issued by our wholly-owned subsidiary, Green Dot Bank and third-party issuing banks including The Bancorp Bank and Sunrise Banks, N.A. We also have multi-year distribution arrangements with many large and medium-sized retailers, including Walmart, Walgreens, CVS, Rite Aid, 7-Eleven, Kroger, Kmart, and Dollar Tree, and with various industry resellers, including Blackhawk Network and InComm. We refer to participating retailers collectively as our “retail distributors.” Our tax refund processing services are integrated into the offerings of partnering tax software companies, which enables us to serve approximately 25,000 independent online and in-person tax preparers and accountants nationwide.
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, 2015 for additional disclosures, including a summary of our significant accounting policies. There have been no changes to our significant accounting policies during the three months ended March 31, 2016. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal and recurring items, except as otherwise noted, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented.
Recent Accounting Pronouncements    
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09") that will simplify how companies account for certain aspects of share-based payments to employees, including the accounting for income taxes upon vesting or exercise of share-based payments, classification of awards as either equity or liabilities with respect to statutory tax withholding thresholds, accounting for forfeitures, as well as certain classifications on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the impact of ASU 2016-09 on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08"). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The effective date and transition requirements for the ASU is the same as the effective date and transition requirements of ASU 2014-09. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

5

Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 2—Summary of Significant Accounting Policies (continued)
In March 2016, the FASB issued ASU No. 2016-04, Liabilities – Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products ("ASU 2016-04"). ASU 2016-04 aligns recognition of the financial liabilities related to prepaid stored-value products (for example, gift cards) with Topic 606, Revenues from Contracts with Customers, for non-financial liabilities. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. ASU 2016-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We are currently assessing the impact of this ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for leases with a term greater than 12 months. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU 2016-01 requires the change in fair value of many equity investments to be recognized in net income.  The standard is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The adoption of the ASU may result in a cumulative adjustment to retained earnings as of the beginning of the year of adoption. We are currently evaluating the impact of the provisions of ASU 2016-01, however, we do not expect the adoption of the ASU to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. ASU 2014-09, as amended by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We are evaluating the effect of ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on our consolidated financial statements.


 



6

Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 3—Investment Securities
Our available-for-sale investment securities were as follows:
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
 
(In thousands)
March 31, 2016
 
Corporate bonds
$
34,798

 
$
10

 
$
(17
)
 
$
34,791

Commercial paper
8,213

 
3

 

 
8,216

U.S. Treasury notes
21,046

 
9

 

 
21,055

Agency securities
4,026

 

 
(7
)
 
4,019

Mortgage-backed securities
107,999

 
397

 
(242
)
 
108,154

Municipal bonds
1,928

 
7

 
(30
)
 
1,905

Asset-backed securities
16,337

 
1

 
(18
)
 
16,320

Total investment securities
$
194,347

 
$
427

 
$
(314
)
 
$
194,460

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Corporate bonds
$
33,201

 
$

 
$
(47
)
 
$
33,154

Commercial paper
6,504

 
3

 
(2
)
 
6,505

U.S. Treasury notes
17,541

 

 
(16
)
 
17,525

Agency securities
4,034

 

 
(19
)
 
4,015

Mortgage-backed securities
100,131

 
195

 
(554
)
 
99,772

Municipal bonds
1,954

 
11

 
(65
)
 
1,900

Asset-backed securities
18,725

 

 
(57
)
 
18,668

Total investment securities
$
182,090

 
$
209

 
$
(760
)
 
$
181,539

As of March 31, 2016 and December 31, 2015, 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)
March 31, 2016
 
Corporate bonds
$
9,801

 
$
(2
)
 
$
10,488

 
$
(15
)
 
$
20,289

 
$
(17
)
Agency securities
4,019

 
(7
)
 

 

 
4,019

 
(7
)
Mortgage-backed securities
22,878

 
(125
)
 
24,269

 
(117
)
 
47,147

 
(242
)
Municipal bonds

 

 
1,070

 
(30
)
 
1,070

 
(30
)
Asset-backed securities
12,654

 
(18
)
 

 

 
12,654

 
(18
)
Total investment securities
$
49,352

 
$
(152
)
 
$
35,827

 
$
(162
)
 
$
85,179

 
$
(314
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
20,416

 
$
(22
)
 
$
10,679

 
$
(25
)
 
$
31,095

 
$
(47
)
Commercial paper
4,322

 
(2
)
 

 

 
4,322

 
(2
)
U.S. Treasury notes
17,525

 
(16
)
 

 

 
17,525

 
(16
)
Agency securities
4,015

 
(19
)
 

 

 
4,015

 
(19
)
Mortgage-backed securities
53,634

 
(410
)
 
21,518

 
(144
)
 
75,152

 
(554
)
Municipal bonds

 

 
1,035

 
(65
)
 
1,035

 
(65
)
Asset-backed securities
18,668

 
(57
)
 

 

 
18,668

 
(57
)
Total investment securities
$
118,580

 
$
(526
)
 
$
33,232

 
$
(234
)
 
$
151,812

 
$
(760
)
We did not record any other-than-temporary impairment losses during the three months ended March 31, 2016 or 2015 on our available-for-sale investment securities. We do not intend to sell these investments and we have determined that it is more likely than not that we will not be required to sell these investments before recovery of their amortized cost bases, which may be at maturity.

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Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 3—Investment Securities (continued)
As of March 31, 2016, the contractual maturities of our available-for-sale investment securities were as follows:
 
Amortized cost
 
Fair value
 
(In thousands)
Due in one year or less
$
56,110

 
$
56,092

Due after one year through five years
15,114

 
15,131

Due after five years through ten years
318

 
320

Due after ten years
1,100

 
1,070

Mortgage and asset-backed securities
121,705

 
121,847

Total investment securities
$
194,347

 
$
194,460

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.
Note 4—Accounts Receivable
Accounts receivable, net consisted of the following:
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Overdrawn account balances due from cardholders
$
13,407

 
$
10,198

Reserve for uncollectible overdrawn accounts
(11,088
)
 
(7,999
)
Net overdrawn account balances due from cardholders
2,319

 
2,199

 
 
 
 
Trade receivables
1,263

 
10,644

Reserve for uncollectible trade receivables
(207
)
 
(58
)
Net trade receivables
1,056

 
10,586

 
 
 
 
Receivables due from card issuing banks
11,735

 
8,852

Fee advances
2,440

 
11,621

Other receivables
10,102

 
8,895

Accounts receivable, net
$
27,652

 
$
42,153

Activity in the reserve for uncollectible overdrawn accounts consisted of the following:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Balance, beginning of period
$
7,999

 
$
11,196

Provision for uncollectible overdrawn accounts:
 
 
 
Fees
14,851

 
13,644

Purchase transactions
1,915

 
1,548

Charge-offs
(13,677
)
 
(13,808
)
Balance, end of period
$
11,088

 
$
12,580

Note 5—Property and Equipment
During the three months ended March 31, 2016 we recorded impairment charges of $0.1 million, associated with capitalized internal-use software we determined were no longer viable and any remaining carrying value was written off. During the three months ended March 31, 2015, we did not record any impairment charges. The impairment charge is included within other general and administrative expenses in our consolidated statements of operations.

8

Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 6—Loans to Bank Customers
The following table presents total outstanding loans, gross of the related allowance for 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)
March 31, 2016
 
Residential
$

 
$

 
$

 
$

 
$
3,893

 
$
3,893

Commercial

 

 

 

 
380

 
380

Installment
1

 

 

 
1

 
2,278

 
2,279

Total loans
$
1


$

 
$

 
$
1

 
$
6,551

 
$
6,552

 
 
 
 
 
 
 
 
 
 
 
 
Percentage of outstanding
%
 
%
 
%
 
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Residential
$

 
$

 
$

 
$

 
$
3,863

 
$
3,863

Commercial

 

 
19

 
19

 
294

 
313

Installment
2

 

 

 
2

 
2,527

 
2,529

Total loans
$
2

 
$

 
$
19

 
$
21

 
$
6,684

 
$
6,705

 
 
 
 
 
 
 
 
 
 
 
 
Percentage of outstanding
%
 
%
 
0.3
%
 
0.3
%
 
99.7
%
 
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, 2015 for further information on the criteria for classification as nonperforming.
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Residential
$
423

 
$
366

Commercial

 
19

Installment
271

 
279

Total loans
$
694

 
$
664

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.
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:
 
March 31, 2016
 
December 31, 2015
 
Non-Classified
 
Classified
 
Non-Classified
 
Classified
 
(In thousands)
Residential
$
3,377

 
$
516

 
$
3,404

 
$
459

Commercial
380

 

 
294

 
19

Installment
1,896

 
383

 
2,173

 
356

Total loans
$
5,653

 
$
899

 
$
5,871

 
$
834



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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 6—Loans to Bank Customers (continued)
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. The following table presents our impaired loans and loans that we modified as TDRs as of March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
December 31, 2015
 
Unpaid Principal Balance
 
Carrying Value
 
Unpaid Principal Balance
 
Carrying Value
 
(In thousands)
Residential
$
22

 
$
18

 
$
24

 
$
19

Commercial

 

 
257

 
19

Installment
267

 
129

 
241

 
128

Allowance for Loan Losses
Activity in the allowance for loan losses consisted of the following:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Balance, beginning of period
$
426

 
$
444

Provision for loans
(151
)
 
(73
)
Loans charged off

 
(35
)
Recoveries of loans previously charged off
3

 
4

Balance, end of period
$
278

 
$
340

Note 7—Employee Stock-Based Compensation
We currently grant restricted equity awards to employees and directors 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.
The following table summarizes restricted stock units granted under our 2010 Equity Incentive Plan:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Restricted stock units granted
418

 
337

Weighted-average grant-date fair value
$
21.79

 
$
19.48

We issued no stock options during the three months ended March 31, 2016 and 2015.
Included in the number of restricted stock units granted during the three months ended March 31, 2016 and 2015 are performance-based restricted stock units of our Class A common stock of 236,973 and 242,587, respectively, that we granted to certain executive employees under our 2010 Equity Incentive Plan.
The total stock-based compensation expense recognized was $5.6 million and $5.2 million for the three months ended March 31, 2016 and 2015, respectively. Total stock-based compensation expense includes amounts related to awards of stock options and restricted stock units and purchases under our 2010 Employee Stock Purchase Plan.

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 8—Deposits
Deposits are categorized as non-interest or interest-bearing deposits as follows:
 
March 31, 2016
 
December 31, 2015

(In thousands)
Non-interest bearing deposit accounts
 
 
 
GPR deposits
$
566,353

 
$
610,652

Other demand deposits
49,305

 
23,644

Total non-interest bearing deposit accounts
615,658

 
634,296

Interest-bearing deposit accounts
 
 
 
Negotiable order of withdrawal (NOW)
1,005

 
851

Savings
12,108

 
8,848

Time deposits, denominations greater than or equal to $100
6,274

 
6,268

Time deposits, denominations less than $100
1,889

 
1,882

Total interest-bearing deposit accounts
21,276

 
17,849

Total deposits
$
636,934

 
$
652,145

The scheduled contractual maturities for total time deposits are presented in the table below:
 
March 31, 2016
 
(In thousands)
Due in 2016
$
3,184

Due in 2017
2,840

Due in 2018
464

Due in 2019
342

Due in 2020
1,316

Thereafter
17

Total time deposits
$
8,163

Note 9—Note Payable
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 provides for 1) a $75.0 million five years revolving facility (the "Revolving Facility") and 2) a five years $150.0 million term loan facility ("Term Facility" and, together with the Revolving Facility, the “Senior Credit Facility"). The credit agreement also includes an accordion feature that, subject to securing additional commitments from existing lenders or new lending institutions, will allow us to increase the aggregate amount of these facilities by up to an additional $50.0 million.
As of March 31, 2016 and December 31, 2015, our outstanding debt, net of deferred financing costs of $5.5 million and $5.8 million, respectively, consisted of the following:
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Term facility
$
116,411

 
$
121,652

Revolving facility

 

Total notes payable
$
116,411

 
$
121,652

Quarterly principal payments of $5.6 million are payable on the loans under the Term Facility. During each of the three months ended March 31, 2016 and 2015, we made scheduled quarterly principal payments totaling $5.6 million. The Senior Credit Facility matures on October 23, 2019 and any amounts then outstanding are due upon maturity.

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 9—Note Payable (continued)
Interest
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 Bank of America prime rate, (b) the United States federal funds rate plus 0.50% 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 applicable margin for borrowings depends on our total leverage ratio and varies from 2.50% to 3.00% for LIBOR Rate loans and 1.50% to 2.00% for Base Rate loans. The effective interest rate on borrowings outstanding as of March 31, 2016 was 3.18%. Interest expense, excluding the amortization of debt issuance costs, related to our Senior Credit Facility was $1.1 million and $1.2 million for the three months ended March 31, 2016 and 2015, respectively.
Covenants and restrictions
The Senior Credit Facility contains customary representations and warranties relating to us and our subsidiaries. The Senior Credit Facility also 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 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 March 31, 2016, we were in compliance with all such covenants.
Note 10—Income Taxes
Income tax expense for the three months ended March 31, 2016 and 2015 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:
 
Three Months Ended March 31,
 
2016
 
2015
U.S. federal statutory tax rate
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
2.9

 
2.0

General business credits
(2.6
)
 
(0.7
)
Employee stock-based compensation
0.5

 
0.7

Other
1.0

 
1.0

Effective tax rate
36.8
 %
 
38.0
 %
The effective tax rate for the three months ended March 31, 2016 and 2015 differs from the statutory federal income tax rate of 35% primarily due to state income taxes, net of federal tax benefit, general business credits and non-deductible employee stock-based compensation. The decrease in the effective tax rate for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 is primarily due to a benefit that we recognized in the first quarter of 2016 related to the permanent reinstatement of general business credits.
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 March 31, 2016 and 2015, 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. Our consolidated federal income tax returns for the five-months ended December 31, 2009 and the years ended December 31, 2010, 2011 and 2012 are currently under examination by the IRS. We remain subject to examination of our federal income tax return for the years ended December 31, 2013 and 2014. 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.

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 10—Income Taxes (continued)
As of March 31, 2016, we have net operating loss carryforwards of approximately $46.2 million and $31.9 million for federal and state tax purposes, respectively, which will be available to offset future income. If not used, these carryforwards will expire between 2017 and 2035. In addition, we have state business tax credits of approximately $5.8 million that can be carried forward indefinitely and other state business tax credits of approximately $0.9 million that will expire 2025.
As of March 31, 2016 and 2015, we had a liability of $8.3 million and $6.9 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:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Beginning balance
$
7,371

 
$
6,190

Increases related to positions taken during prior years

 

Increases related to positions taken during the current year
889

 
676

Ending balance
$
8,260

 
$
6,866

 
 
 
 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate
$
8,260

 
$
6,866

We recognized accrued interest and penalties related to unrecognized tax benefits as of March 31, 2016 and 2015, of approximately $0.9 million and $0.7 million, respectively.
Note 11—Stockholders' Equity
Stock Repurchase Program
In June 2015, our Board of Directors authorized, subject to regulatory approval, a repurchase of shares of our Class A Common Stock in an amount up to $150 million under a stock repurchase program with no expiration date. The stock repurchase program may be carried out at the direction of management, subject to the limitations set forth in Rule 10b-18 of the Securities and Exchange Commission and other legal requirements, and any further limitations that may be established by the Board of Directors. Repurchases may be made through open market purchases, block trades, and in negotiated private transactions. The stock may be repurchased on an ongoing basis and will be subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital and our financial performance. As of March 31, 2016, we have repurchased $50 million of Class A Common Stock under the repurchase program. As further discussed below, subsequent to March 31, 2016, our accelerated share repurchase agreement with a financial institution became effective, bringing our total repurchases under our stock repurchase plan since inception to $100 million.
Accelerated Share Repurchases
We have entered, and in the future may enter, into accelerated share repurchase arrangements (“ASRs”) with financial institutions. In exchange for an up-front payment, the financial institution delivers shares of our Class A Common Stock during the purchase periods of each ASR. Upon settlement, we will either receive additional shares from the financial institution or we may be required to deliver additional shares or cash to the financial institution, at our election. The final number of shares received upon settlement for the ASR will be determined based on the volume-weighted average price of our common stock over the term of the agreement less an agreed upon discount and subject to adjustments pursuant to the terms and conditions of the ASR. The shares received are retired in the periods they are delivered, but remain authorized for registration and issuance in the future.
The up-front payments are accounted for as a reduction to shareholders’ equity on our consolidated balance sheets in the periods the payments are made. The ASRs are accounted for in two separate transactions: 1) a treasury stock repurchase for the initial shares received and 2) a forward stock purchase contract indexed to our own stock for the unsettled portion of the ASR. The par value of the shares received are recorded as a reduction to common stock with the remainder recorded as a reduction to additional paid-in capital and retained earnings.  The ASRs meet all of the applicable criteria for equity classification, and therefore are not accounted for as derivative instruments. The initial repurchase of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 11—Stockholders' Equity (continued)
The following table shows our ASR activity since inception of the stock repurchase program:
 
 
Purchase Period End Date
 
Number of Shares (In thousands)
 
Average repurchase price per share
 
ASR Amount (In thousands)
April 2016 ASR (2)
 
October 2016
 
1,867

(1) 
(1) 
 
$
50,000

September 2015 ASR
 
January 2016
 
2,342

 
$
17.08

 
$
40,000

(1
)
"Number of Shares" represents those shares delivered in the beginning of the purchase period and does not represent the final number of shares to be delivered under the ASR. The total number of shares ultimately delivered, and therefore the average repurchase price paid per share, will be determined at the end of the applicable purchase period based on the volume-weighted average price of our common stock during that period. The April 2016 ASR purchase period will end in or before October 2016.
(2
)
In February 2016, we entered into an ASR agreement with a financial institution. The agreement was not deemed effective until April 2016, at which point we made an up-front payment of $50 million in exchange for approximately 1.9 million shares. The initial shares received are treated as reduction to our total common shares outstanding beginning in April 2016. Final settlement is scheduled to occur during the fourth quarter of 2016.
Other
In connection with the Repurchase Program, we entered into a repurchase plan in December 2015 under Rule 10b5-1 of the Exchange Act for $10 million. The timing, nature and amount of purchases depend on a variety of factors, including market conditions and the volume limit defined by Rule 10b-18. During the three months ended March 31, 2016, we repurchased a total of 0.5 million shares at an average price of $16.11 under this plan. As of March 31, 2016, we completed all repurchases under this plan and total repurchases amounted to approximately 0.6 million shares at an average price of $16.15.
Note 12—Earnings per Common Share
The calculation of basic and diluted EPS was as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except per share data)
Basic earnings per Class A common share
 
 
 
Net income
$
32,882

 
$
40,813

Income attributable to preferred stock
(972
)
 
(1,165
)
Income attributable to common stock subject to repurchase

 
(81
)
Net income allocated to Class A common stockholders
$
31,910

 
$
39,567

Weighted-average Class A shares issued and outstanding
49,863

 
51,448

Basic earnings per Class A common share
$
0.64

 
$
0.77

 
 
 
 
Diluted earnings per Class A common share
 
 
 
Net income allocated to Class A common stockholders
$
31,910

 
$
39,567

Re-allocated earnings
19

 
11

Diluted net income allocated to Class A common stockholders
31,929

 
39,578

Weighted-average Class A shares issued and outstanding
49,863

 
51,448

Dilutive potential common shares:
 
 
 
Stock options
343

 
281

Restricted stock units
630

 
193

Employee stock purchase plan
31

 
16

Diluted weighted-average Class A shares issued and outstanding
50,867

 
51,938

Diluted earnings per Class A common share
$
0.63

 
$
0.76

For the periods presented, we excluded all shares of convertible preferred stock and certain restricted stock units and stock options outstanding, which could potentially dilute basic EPS in the future, from the computation of diluted EPS as their effect was anti-dilutive. The following table shows the weighted-average number of anti-dilutive shares excluded from the diluted EPS calculation:

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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 12—Earnings per Common Share (continued)
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Class A common stock
 
 
 
Options to purchase Class A common stock
326

 
795

Restricted stock units
8

 
122

Conversion of convertible preferred stock
1,519

 
1,515

Total options, restricted stock units and convertible preferred stock
1,853

 
2,432

Note 13—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, 2015.
As of March 31, 2016 and December 31, 2015, our assets and liabilities carried at fair value on a recurring basis were as follows:
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
March 31, 2016
(In thousands)
Assets
 
 
 
 
 
 
 
Corporate bonds
$

 
$
34,791

 
$

 
$
34,791

Commercial paper

 
8,216

 

 
8,216

U.S. Treasury notes

 
21,055

 

 
21,055

Agency securities

 
4,019

 

 
4,019

Mortgage-backed securities

 
108,154

 

 
108,154

Municipal bonds

 
1,905

 

 
1,905

Asset-backed securities

 
16,320

 

 
16,320

Total assets
$

 
$
194,460

 
$

 
$
194,460

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent consideration
$

 


 
$
13,700

 
$
13,700

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Corporate bonds
$

 
$
33,154

 
$

 
$
33,154

Commercial paper

 
6,505

 

 
6,505

U.S. Treasury notes

 
17,525

 

 
17,525

Agency securities

 
4,015

 

 
4,015

Mortgage-backed securities

 
99,772

 

 
99,772

Municipal bonds

 
1,900

 

 
1,900

Asset-backed securities

 
18,668

 

 
18,668

Total assets
$

 
$
181,539

 
$

 
$
181,539

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Contingent consideration
$

 
$

 
$
13,889

 
$
13,889


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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 13—Fair Value Measurements (continued)
We based the fair value of our fixed income securities held as of March 31, 2016 and December 31, 2015 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 months ended March 31, 2016 or 2015.
The following table presents changes in our contingent consideration payable for the three months ended March 31, 2016 and 2015, which is categorized in Level 3 of the fair value hierarchy:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Balance, beginning of period
$
13,889

 
$
23,160

Payments of contingent consideration
(189
)
 
(169
)
Change in fair value of contingent consideration

 
(7,616
)
Balance, end of period
$
13,700

 
$
15,375

Note 14—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, federal funds sold, 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, 2015. 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 are 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.
Note Payable
The fair value of our note payable is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our note payable 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 note payable is classified as a Level 2 liability in the fair value hierarchy.


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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 14—Fair Value of Financial Instruments (continued)
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 March 31, 2016 and December 31, 2015 are presented in the table below.
 
March 31, 2016
 
December 31, 2015
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
 
(In thousands)
Financial Assets
 
 
 
 
 
 
 
Loans to bank customers, net of allowance
$
6,274

 
$
5,578

 
$
6,279

 
$
5,847

 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
Deposits
$
636,934

 
$
636,860

 
$
652,145

 
$
652,060

Note payable
$
116,411

 
$
116,411

 
$
121,652

 
$
121,652

Note 15—Commitments and Contingencies
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.
In the ordinary course of business, we are a party to various legal proceedings. 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 not established reserves or possible ranges of losses related to these proceedings because, at this time in the proceedings, the matters do not relate to a probable loss and/or the amounts are not reasonably estimable.
From time to time we enter into contracts containing provisions that contingently require us to indemnify various parties against claims from third parties. These contracts primarily relate to: (i) contracts with our card issuing banks, under which we are responsible to them for any unrecovered overdrafts on cardholders’ accounts; (ii) certain real estate leases, under which we may be required to indemnify property owners for environmental and other liabilities, and other claims arising from our use of the premises; (iii) certain agreements with our officers, directors, and employees, under which we may be required to indemnify these persons for liabilities arising out of their relationship with us; and (iv) contracts under which we may be required to indemnify our retail distributors, suppliers, vendors and other parties with whom we have contracts against claims arising from certain of our actions, omissions, violations of law and/or infringement of patents, trademarks, copyrights and/or other intellectual property rights.
Generally, a maximum obligation under these contracts is not explicitly stated. Because the obligated amounts associated with these types of agreements are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. With the exception of overdrafts on cardholders’ accounts, historically, we have not been required to make payments under these and similar contingent obligations, and no liabilities have been recorded for these obligations in our consolidated balance sheets.
For additional information regarding overdrafts on cardholders’ accounts, refer to Note 4 — Accounts Receivable.
As of March 31, 2016 and December 31, 2015, we had $1.5 million outstanding in standby letters of credit related to our corporate facility lease.
Note 16—Significant Customer 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.

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Table of Contents
GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 16—Significant Customer Concentration (continued)
Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Walmart
36%
 
40%
Excluding stock-based retailer incentive compensation of $0 and $1.9 million for the three months ended March 31, 2016 and 2015, respectively, revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Walmart
36%
 
40%
The concentration of GPR cards activated (in units) and the concentration of sales of cash transfer products (in units) derived from our products sold at our four largest retail distributors, including Walmart, was as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Concentration of GPR cards activated (in units)
55%
 
61%
Concentration of sales of cash transfer products (in units)
74%
 
81%
Settlement assets derived from our products sold at our four largest retail distributors comprised the following percentages of the settlement assets recorded on our consolidated balance sheets:
 
March 31, 2016
 
December 31, 2015
Walmart
29%
 
62%
Three other largest retail distributors, as a group
5%
 
9%
Note 17—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 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 branded and private label deposit account programs. These programs include Green Dot-branded and affinity-branded GPR card accounts, private label GPR card accounts, checking accounts and open-loop gift cards. The Processing and Settlement Services segment consists of revenues and expenses derived from reload services through the Green Dot Network and our 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 March 31, 2016
 
Account Services
 
Processing and Settlement Services
 
Corporate and Other
 
Total
 
(In thousands)
Operating revenues
$
145,140

 
$
91,370

 
$
(8,486
)
 
$
228,024

Operating expenses
119,152

 
39,022

 
15,364

 
173,538

Operating income
$
25,988

 
$
52,348

 
$
(23,850
)
 
$
54,486



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GREEN DOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)




Note 17—Segment Information (continued)
 
Three Months Ended March 31, 2015
 
Account Services
 
Processing and Settlement Services
 
Corporate and Other
 
Total
 
(In thousands)
Operating revenues
$
147,859

 
$
90,176

 
$
(10,870
)
 
$
227,165

Operating expenses
118,153

 
36,858

 
6,258

 
161,269

Operating income
$
29,706

 
$
53,318

 
$
(17,128
)
 
$
65,896




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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 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, along with its wholly owned subsidiaries, is a pro-consumer financial technology innovator with a mission to reinvent personal banking for the masses. We are the largest provider of reloadable prepaid debit cards and cash reload processing services in the United States. We are also a leader in mobile technology and mobile banking with our award-winning GoBank mobile checking account. Additionally, we are the largest processor of tax refund disbursements in the U.S. Our products and services are available to consumers through a large-scale "branchless bank" distribution network of more than 100,000 U.S. locations, including retailers, neighborhood financial service center locations and tax preparation offices, as well as online, in the leading app stores and through leading online tax preparation providers.
Financial Results and Trends
Our results of operations for the three months ended March 31, 2016 and 2015 were as follows:
 
Three Months Ended March 31,
 
 
 
 
 
2016
 
2015
 
Change
 
%
 
(In thousands, except percentages)
Total operating revenues
$
228,024

 
$
227,165

 
$
859

 
0.4
 %
Total operating expenses
173,538

 
161,269

 
12,269

 
7.6
 %
Net income
32,882

 
40,813

 
(7,931
)
 
(19.4
)%
Total operating revenues
Our total operating revenues for the three months ended March 31, 2016 were flat compared to the three months ended March 31, 2015. Despite a year-over-year decrease in the number of active cards in our portfolio primarily as a result of our suspension of our MoneyPak PIN product in the first quarter of 2015, our Account Services segment generated greater revenue per number of active cards. We believe this increase is reflective of a higher quality of customers underlying our portfolio as we entered the first quarter of 2016. Our Account Services segment recently began the roll out of a new suite of prepaid card products at our retailers. These new products carry higher unit economics than the existing cards in our portfolio. Given the recent launch, these new products comprised a small portion of the number of active cards in our portfolio and thus had a minimal impact on our first quarter financial results. While we expect our new cards to contribute more to our operating revenues throughout the year, it is difficult to predict the overall impact these new cards will have on our portfolio base until they are fully adopted by our customers.
Total operating revenues from our Processing and Settlement Services segment, which consists of tax refund processing services, cash transfer revenues and MoneyPak fees, were flat for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 on slightly lower number of cash transfers and tax refunds processed. The number of cash transfers was adversely impacted by the suspension of our MoneyPak PIN product in the first quarter of 2015. In April 2016, we announced the re-launch of an enhanced version of our MoneyPak PIN product at certain retailers and expect to continue to roll out at additional retailers throughout the remainder of the year.

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While we expect the new version of our MoneyPak product to offset some of the lost revenues in our cash transfer business, it is difficult to anticipate the impact this product will have on the number of cash transfers processed until it is fully in store at all of our retail locations. We believe the year-over-year decline in the number of tax refunds processed to be primarily attributable to the timing of when the refunds are processed by the Internal Revenue Service during the current tax season. We expect the total number of tax refunds processed during the first half of 2016 will be consistent with the prior year. Due to seasonality, our revenues from our tax refund processing services are generated predominantly during the first half of the year and are minimal during the remaining quarters of the year.
Total operating expenses
Our total operating expenses for the three months ended March 31, 2016 increased from the three months ended March 31, 2015 due primarily to an increase in other general and administrative expenses driven by changes in the fair value of our contingent consideration and higher depreciation and amortization associated with our property and equipment. During the three months ended March 31, 2015, we recorded a $7.6 million favorable adjustment to the fair value of contingent consideration related to our acquisitions in 2014. This reduction in fair value was based primarily on the lower likelihood of our tax refund processing business achieving its earn-out performance targets, thereby decreasing our general and administrative expenses for the prior year. There were no fair value adjustments determined necessary for the three months ended March 31, 2016. The impact that this contingent consideration will have on our 2016 financial results will depend upon the financial performance of those acquired subsidiaries. The increase in depreciation and amortization expense is associated with our recent investments in technology to support new product launches and improve our core infrastructure. For additional information on depreciation and amortization related to internal-use software, refer to Note 7 — Property and Equipment in our latest Annual Report on Form 10-K.
We renewed our Walmart MoneyCard agreement in June 2015. The term of the agreement is retroactive to May 1, 2015 and expires on May 1, 2020, with an automatic renewal clause for an additional period of two years, subject to certain terms as discussed in the agreement. Revenues generated under the MoneyCard program represented a substantial portion of our total operating revenues in all periods presented. Under this new agreement, the sales commission rate we pay to Walmart for the MoneyCard program increased from the prior agreement. Additionally, we are rolling out our new suite of prepaid card products and an enhanced version of our MoneyPak PIN product at our retail distributors during the first half of 2016. Consequently, our sales and marketing expenses during the three months ended March 31, 2016 have been and for the first half of 2016 will be materially impacted by the increased commission rate and higher costs of manufacturing and distributing card packages to our retail distributors.
Income tax expense for the three months ended March 31, 2016 was $19.1 million compared to $25.0 million for the three months ended March 31, 2015. Income tax expense decreased from the comparable period primarily as a result of generating lower income before income taxes and an overall lower effective tax rate.

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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.
Number of Cash Transfers — represents the total number of reload transactions that we conducted through our retail distributors in a specified period. We processed 9.71 million and 10.09 million reload transactions in the three months ended March 31, 2016 and 2015, respectively. We review this metric as a measure of the size and scale of our retail cash reload network, as an indicator of customer engagement and usage of our products and services, and to analyze cash transfer revenue, which is a key component of our financial performance.
Number of Tax Refunds Processed — represents the total number of tax refunds processed in a specified period through TPG. We processed 8.18 million and 8.52 million tax refund transactions in the three months ended March 31, 2016 and 2015, respectively. Due to seasonality, the number of tax refunds processed are most concentrated during the first half of each year and are 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 our products and services.
Number of Active Cards — represents the total number of GPR cards and checking accounts in our portfolio that had a purchase, reload or ATM withdrawal transaction during the previous 90-day period. We had 4.75 million and 5.38 million active cards outstanding as of March 31, 2016 and 2015, respectively. We review this metric and the associated revenue per number of active cards as measures of the overall size and scale of our GPR card portfolio and indicators of customer engagement and usage of our products and services.
Gross Dollar Volume — represents the total dollar volume of funds processed and settled by our consolidated enterprise, excluding tax refunds processed by TPG. Our gross dollar volume was $6.6 billion and $6.4 billion for the three months ended March 31, 2016 and 2015, respectively. We review this metric as a measure of the size and scale of our processing infrastructure and as an indicator of customer engagement and usage of our products and services.
Purchase Volume — represents the total dollar volume of purchase transactions made by customers using our GPR, checking account and gift card products. This metric excludes the dollar volume of ATM withdrawals. Our purchase volume was $4.7 billion for each of the three months ended March 31, 2016 and 2015. We use this metric to analyze interchange revenue, which is a key component of our financial performance.

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Key components of our results of operations
Operating Revenues
We classify our operating revenues into the following four categories:
Card Revenues and Other Fees — Card revenues consist of monthly maintenance fees, ATM fees, new card fees and other revenues. We charge maintenance fees on GPR cards and checking accounts, such as GoBank, to cardholders on a monthly basis pursuant to the terms and conditions in our cardholder 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, transaction-based fees and fees associated with optional products or services, which we offer to cardholders from time to time.
Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active cards 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. 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 and tax refund processing service revenues. We earn cash transfer revenues when consumers fund their cards through a reload transaction at a Green Dot Network retail location. Our aggregate cash transfer revenues vary based upon the mix of locations where reload transactions occur, since reload fees vary by location. We earn tax refund processing service revenues when a customer of a third party tax preparation company chooses to pay their tax preparation fee through the use of our tax refund processing services.
Interchange Revenues — We earn interchange revenues from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, when customers make purchase transactions using our products. Our aggregate interchange revenues vary based primarily on the number of active cards in our portfolio, the average transactional volume of the active cards 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.
Stock-based Retailer Incentive Compensation — In May 2010, we issued to Walmart 2,208,552 shares of our Class A common stock, subject to our right to repurchase them at $0.01 per share upon a qualifying termination of our prepaid card program agreement with Walmart. Prior to May 2015, we recognized each month the fair value of the 36,810 shares issued to Walmart as to which our right to repurchase lapsed using the then-current fair market value of our Class A common stock. We recorded the fair value recognized as stock-based retailer incentive compensation, a contra-revenue component of our total operating revenues. Beginning in May 2015, we no longer record stock-based retailer compensation as a result of our repurchase right lapsing completely. There is no additional stock-based retailer compensation under the terms of the renewed Walmart MoneyCard agreement.
Operating Expenses
We classify our operating expenses into the following four categories:
Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the sales commissions we pay to our retail distributors and brokers, 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 sales commission percentages in long-term distribution agreements with our retail distributors, and aggregate sales commissions are determined by the number of prepaid cards, checking account products and cash transfers sold at their respective retail stores and, in certain cases, by the revenue generated from the ongoing use of those cards. We incur advertising and marketing expenses for television, 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

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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 card 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 processor that maintains the records of our customers' accounts and processes 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. Bank fees generally vary based on the total number of tax refund transfers processed.
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 cards 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.
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, 2015. There have been no changes to our critical accounting policies and estimates during the three months ended March 31, 2016.
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 March 31, 2016 and 2015
Operating Revenues
The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues and interchange revenues, as well as contra-revenue items:
 
Three Months Ended March 31,
 
2016
 
2015
 
Amount
 
% of Total
Operating Revenues
 
Amount
 
% of Total
Operating Revenues
 
(In thousands, except percentages)
Operating revenues:
 
 
 
 
 
 
 
Card revenues and other fees
$
91,886

 
40.3
%
 
$
87,224

 
38.4
 %
Processing and settlement service revenues
81,016

 
35.5

 
87,121

 
38.4

Interchange revenues
55,122

 
24.2

 
54,726

 
24.1

Stock-based retailer incentive compensation

 

 
(1,906
)
 
(0.8
)
Total operating revenues
$
228,024

 
100.0
%
 
$
227,165

 
100.0
 %

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Card Revenues and Other Fees — Card revenues and other fees totaled $91.9 million for the three months ended March 31, 2016, an increase of $4.7 million, or 5%, from the comparable period in 2015. The increase was primarily due to higher monthly maintenance fees and ATM fees driven by period-over-period growth in revenue per active card, which we define as operating revenues for our Account Services segment divided by the number of active cards.
Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $81.0 million for the three months ended March 31, 2016, a decrease of $6.1 million, or 7%, from the comparable period in 2015. The number of cash transfers sold and tax refund transfers processed each decreased period-over-period by approximately 4%. The number of cash transfers sold decreased period-over-period due to the suspension of our MoneyPak PIN product, while our tax refund transfers processed decreased period-over period primarily due to the timing of when tax refunds are processed by the Internal Revenue Service during the current tax season.
Interchange Revenues — Interchange revenues totaled $55.1 million for the three months ended March 31, 2016, an increase of $0.4 million, or 1%, from the comparable period in 2015. The increase was consistent with the period-over-period growth in purchase volume of 1%.
Stock-based Retailer Incentive Compensation — As a result of our repurchase right lapsing in May 2015, we had no stock-based retailer incentive compensation for the three months ended March 31, 2016, a decrease of $1.9 million or 100% with the comparable period in 2015.
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 March 31,
 
2016
 
2015
 
Amount
 
% of Total
Operating Revenues
 
Amount
 
% of Total
Operating Revenues
 
(In thousands, except percentages)
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing expenses
$
63,864

 
28.0
%
 
$
61,279

 
27.0
%
Compensation and benefits expenses
43,087

 
18.9

 
41,354

 
18.2

Processing expenses
28,513

 
12.5

 
30,600

 
13.5

Other general and administrative expenses
38,074

 
16.7

 
28,036

 
12.4

Total operating expenses
$
173,538

 
76.1
%
 
$
161,269

 
71.0
%
Sales and Marketing Expenses — Sales and marketing expenses totaled $63.9 million for the three months ended March 31, 2016, an increase of $2.6 million, or 4% from the comparable period in 2015. This increase was primarily the result of a $1.7 million increase in sales commission expenses due in part to the increased sales commission rate we pay Walmart under the new agreement. Sales and marketing expenses also increased as a result of higher advertising expenses and incremental costs of manufacturing and distributing card packages as a result of the new suite of prepaid card products we introduced at our retailers.
Compensation and Benefits Expenses — Compensation and benefits expenses totaled $43.1 million for the three months ended March 31, 2016, an increase of $1.7 million or 4% from the comparable period in 2015. This increase was primarily the result of an increase of $1.3 million in employee salaries and related benefits and an increase of $0.4 million in stock-based compensation.
Processing Expenses — Processing expenses totaled $28.5 million for the three months ended March 31, 2016, a decrease of $2.1 million or 7% from the comparable period in 2015. This decrease was primarily the result of rebate incentives received from our card processor, as well as an increase in the volume incentives from the payment networks. The amount of volume incentives we record in future periods will vary based on changes in performance expectations, our actual performance and amendments to existing contracts.
Other General and Administrative Expenses — Other general and administrative expenses totaled $38.1 million for the three months ended March 31, 2016, an increase of $10.1 million or 36%, from the comparable period in 2015. This increase was primarily due to a $7.6 million favorable adjustment associated with the change in fair value of contingent consideration during the three months ended March 31, 2015, which decreased other general and administrative expenses for the prior period. There were no fair value adjustments determined necessary during the three months ended March 31, 2016. Other general and administrative expenses also increased due to period-over-period increases of $2.0 million in depreciation and amortization of property and equipment and $1.1 million in professional expenses.

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Income Tax Expense
The following table presents a breakdown of our effective tax rate among federal, state and other:
 
Three Months Ended March 31,
 
2016
 
2015
U.S. federal statutory tax rate
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
2.9

 
2.0

General business credits
(2.6
)
 
(0.7
)
Employee stock-based compensation
0.5

 
0.7

Other
1.0

 
1.0

Effective tax rate
36.8
 %
 
38.0
 %
Our income tax expense decreased by $5.8 million to $19.1 million for the three months ended March 31, 2016 from the comparable period in 2015 due to a lower pretax income on a period-over period basis and an overall lower effective tax rate. Our effective tax rate decreased to 36.8% from 38.0%, primarily due to an increase in general business credits. Due to the timing of tax legislation, certain general business credits were not available to us in the first nine months of 2015. The business credits were permanently reinstated in the fourth quarter of 2015.
The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.
Liquidity and Capital Resources
The following table summarizes our major sources and uses of cash for the periods presented:
 
Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Total cash provided by (used in)
 
 
 
Operating activities
$
70,959

 
$
84,496

Investing activities
(25,284
)
 
(80,973
)
Financing activities
(78,052
)
 
150,563

(Decrease) increase in unrestricted cash and cash equivalents and federal funds sold
$
(32,377
)
 
$
154,086

For the three months ended March 31, 2016 and 2015, we financed our operations primarily through our cash flows from operations and certain financing activities. At March 31, 2016, our primary source of liquidity was unrestricted cash and cash equivalents totaling $739.8 million. We also consider our $194.5 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 that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity under our senior credit facility will be sufficient to meet our working capital, capital expenditure, debt service requirements and remaining purchases under our $150 million stock repurchase program, as discussed below, for at least the next 12 months.
Cash Flows from Operating Activities
Our $71.0 million of net cash provided by operating activities in the three months ended March 31, 2016 was primarily the result of $32.9 million of net income, adjusted for certain non-cash operating items of $23.6 million and a decrease in our income tax receivable of $18.6 million. We used our income tax receivable as of December 31, 2015 to cover a portion of our estimated tax payments for the first quarter of 2016. These were offset by decreases in our accounts payable and other accrued liabilities and deferred revenue. Our $84.5 million of net cash provided by operating activities in the three months ended March 31, 2015 was primarily the result of $40.8 million of net income, adjusted for certain non-cash operating expenses of $14.8 million, and a decrease in our income tax receivable of $24.1 million. We used our income tax receivable as of December 31, 2014 to cover a portion of our estimated tax payments for the first quarter of 2015.

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Cash Flows from Investing Activities
Our $25.3 million of net cash used in investing activities in the three months ended March 31, 2016 reflects payments for the acquisition of property and equipment of $12.2 million, as well as purchases of available-for-sale investment securities, net of sales and maturities, of $12.5 million. Our $81.0 million of net cash used in investing activities during the three months ended March 31, 2015 reflects payments for a business acquisition and the acquisition of property and equipment of $65.2 million and $14.1 million, respectively.
Cash Flows from Financing Activities
Our $78.1 million of net cash used in financing activities during the three months ended March 31, 2016 was primarily the result of decreases of $15.2 million in customer deposits and $50.1 million in obligations to customers, $5.6 million in repayments of our note payable and $9.0 million used for our stock repurchase program. Our $150.6 million of net cash provided by financing activities during the three months ended March 31, 2015 was primarily the result of a $78.9 million increase in customer deposits and an increase in obligations to customers of $77.3 million, partially offset by $5.6 million in repayments of our note payable.
Commitments
We anticipate that we will continue to purchase property and equipment as necessary in the normal course of 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 the hiring of employees, the rate of change of computer hardware and software used in our business and our business outlook. During 2016, we intend to continue to invest in new products and programs, new features for our existing products and IT infrastructure to scale and operate effectively to meet our strategic objectives.
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.
Additionally, we anticipate making ongoing 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. Additionally, our investment securities may act as short-term collateral to Green Dot Bank to satisfy any requirements associated with its legal lending limit.
Senior Credit Facility
In October 2014, we entered into a $225 million credit agreement with Bank of America, N.A., as administrative agent, Wells Fargo Bank, National Association, and other lenders party thereto. The agreement provides for (i) a $75 million five-year revolving facility (the “Revolving Facility”) and (ii) a five-year $150 million term loan facility (the “Term Facility” and, together with the Revolving Facility, the “Senior Credit Facility”). At our election, loans made under the credit agreement bear interest at (1) a LIBOR rate or (2) a base rate as defined in the agreement, plus an applicable margin (3.18% as of March 31, 2016). The balance outstanding on the Term Facility was $116.4 million at March 31, 2016, net of deferred financing fees. Quarterly principal payments of $5.6 million are payable on the loans under the Term Facility. The loans made under the Term Facility mature and all amounts then outstanding thereunder are payable on October 23, 2019. There were no borrowings on the Revolving Facility at March 31, 2016. 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, as amended. At March 31, 2016, we were in compliance with all such covenants.
Stock Repurchase Program
In June 2015, we announced that our Board of Directors had authorized a stock repurchase program. As of March 31, 2016, our Board of Directors had authorized the repurchase of up to $150 million of common stock under this program. The stock repurchase program will continue until otherwise suspended, terminated or modified at any time for any reason by our Board of Directors.
In September 2015, we entered into an accelerated share repurchase agreement ("ASR") with a financial institution to repurchase shares of our common stock as part of our repurchase program. Under the ASR agreement, in exchange for an up-front payment of $40 million, we received an initial delivery of approximately 1.8 million shares on September 4, 2015 based on the then current market price of our stock. The ASR settled in January 2016 and the total number of shares repurchased was approximately 2.3 million at an average price of $17.08 per share.

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In December 2015, we entered into a $10 million agreement to repurchase shares under Rule10b5-1 of the Exchange Act. As of March 31, 2016, we repurchased approximately 0.6 million shares, at an average share price of $16.15 under this plan. Repurchases under this agreement were completed in January 2016.
In February 2016, we entered into an additional ASR with a financial institution. The ASR agreement became effective in April 2016 at which point we were required to make an up-front payment of $50 million in exchange for an initial delivery of approximately 1.9 million shares on April 11, 2016 based on the then current market price of our stock. Final settlement is scheduled to occur during the fourth quarter of 2016 and will be based on the volume-weighted average price of our common stock over the term of the agreement less an agreed upon discount.
After giving effect to our share repurchases during the year, including our ASR subsequent to March 31, 2016, the remaining authorized amount under the current authorization totaled $50 million. We expect to repurchase the remaining $50 million of shares authorized under our repurchase program in 2017.
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, 2015.
Off-Balance Sheet Arrangements
As of and for the three months ended March 31, 2016 and 2015, 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 regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
In July 2013, the Federal Reserve and other U.S. banking regulators approved final rules regarding new risk-based capital, leverage and liquidity standards, known as “Basel III.” The Basel III rules, which became effective for us and our bank on January 1, 2015, are subject to certain phase-in periods that occur over several years. The U.S. Basel III rules contain new capital standards that change the composition of capital, increase minimum capital ratios and strengthen counterparty 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 impose 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 March 31, 2016 and December 31, 2015, 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 March 31, 2016 which management believes would have changed our category as "well capitalized."
The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at March 31, 2016 and December 31, 2015 were as follows:

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Table of Contents

 
March 31, 2016
 
Amount
 
Ratio
 
Regulatory Minimum (1)
 
"Well-capitalized" Minimum (1)
 
(In thousands, except ratios)
Green Dot Corporation:
 
 
 
 
 
 
 
Tier 1 leverage
331,767

 
25.1
%
 
4.0
%
 
n/a

Common equity Tier 1 capital
331,767

 
72.8
%
 
4.5
%
 
n/a

Tier 1 capital
331,767

 
72.8
%
 
6.0
%
 
6.0
%
Total risk-based capital
333,431

 
73.2
%
 
8.0
%
 
10.0
%
 
 
 
 
 
 
 
 
Green Dot Bank:
 
 
 
 
 
 
 
Tier 1 leverage
157,118

 
15.7
%
 
15.0
%
 
15.0
%
Common equity Tier 1 capital
157,118

 
123.2
%
 
4.5
%
 
6.5
%
Tier 1 capital
157,118

 
123.2
%
 
6.0
%
 
8.0
%
Total risk-based capital
157,400

 
123.4
%
 
8.0
%
 
10.0
%
 
 
 
 
 
 
 
 
 
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