Edgar Filing: GREEN DOT CORP

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

Document

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 June 30, 2016



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):

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 48,698,939 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 July 31, 2016.

GREEN DOT CORPORATION

TABLE OF CONTENTS



		Page

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets – June 30, 2016 and December 31, 2015	1
	Consolidated Statements of Operations – Three and Six Months Ended June 30, 2016 and 2015	2
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2016 and 2015	3
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2016 and 2015	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 5.	Other Information	51
Item 6.	Exhibits	52
	Signature	53

Table of Contents

PART I

ITEM 1. Financial Statements

GREEN DOT CORPORATION

CONSOLIDATED BALANCE SHEETS



	June 30, 2016		December 31, 2015
	(unaudited)
Assets	(In thousands, except par value)
Current assets:
Unrestricted cash and cash equivalents	$	570,119	$	772,128
Federal funds sold	—		1
Restricted cash	8,921		5,793
Investment securities available-for-sale, at fair value	48,914		49,106
Settlement assets	121,180		69,165
Accounts receivable, net	28,449		42,153
Prepaid expenses and other assets	30,800		30,511
Income tax receivable	—		6,434
Total current assets	808,383		975,291
Investment securities, available-for-sale, at fair value	158,436		132,433
Loans to bank customers, net of allowance for loan losses of $266 and $426 as of June 30, 2016 and December 31, 2015, respectively	5,894		6,279
Prepaid expenses and other assets	3,594		6,416
Property and equipment, net	80,076		78,877
Deferred expenses	6,191		14,509
Net deferred tax assets	3,572		3,864
Goodwill and intangible assets	462,541		473,779
Total assets	$	1,528,687	$	1,691,448
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,720	$	37,186
Deposits	558,046		652,145
Obligations to customers	35,301		61,300
Settlement obligations	2,947		5,074
Amounts due to card issuing banks for overdrawn accounts	1,531		1,067
Other accrued liabilities	102,305		87,635
Deferred revenue	10,227		22,901
Note payable	20,966		20,966
Income tax payable	4,950		—
Total current liabilities	751,993		888,274
Other accrued liabilities	20,737		37,894
Note payable	90,203		100,686
Net deferred tax liabilities	1,634		1,272
Total liabilities	864,567		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 June 30, 2016 and December 31, 2015; 2 shares issued and outstanding as of June 30, 2016 and December 31, 2015	2		2
Class A common stock, $0.001 par value: 100,000 shares authorized as of June 30, 2016 and December 31, 2015; 48,544 and 50,502 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively	49		51
Additional paid-in capital	338,597		379,376
Retained earnings	325,013		284,108
Accumulated other comprehensive income (loss)	459		(215		)
Total stockholders’ equity	664,120		663,322
Total liabilities and stockholders’ equity	$	1,528,687	$	1,691,448

See notes to unaudited consolidated financial statements

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GREEN DOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands, except per share data)
Operating revenues:
Card revenues and other fees	$	84,542		$	83,810		$	176,428		$	171,034
Processing and settlement service revenues	41,887			39,416			122,903			126,537
Interchange revenues	47,059			47,635			102,181			102,361
Stock-based retailer incentive compensation	—			(614		)	—			(2,520		)
Total operating revenues	173,488			170,247			401,512			397,412
Operating expenses:
Sales and marketing expenses	63,077			55,845			126,941			117,124
Compensation and benefits expenses	41,092			41,461			84,179			82,815
Processing expenses	26,544			27,120			55,057			57,720
Other general and administrative expenses	29,906			38,903			67,980			66,939
Total operating expenses	160,619			163,329			334,157			324,598
Operating income	12,869			6,918			67,355			72,814
Interest income	1,533			1,118			3,834			2,496
Interest expense	(1,408		)	(1,549		)	(6,189		)	(3,045		)
Income before income taxes	12,994			6,487			65,000			72,265
Income tax expense	4,968			2,991			24,092			27,956
Net income	8,026			3,496			40,908			44,309
Income attributable to preferred stock	(244		)	(99		)	(1,226		)	(1,263		)
Net income available to common stockholders	$	7,782		$	3,397		$	39,682		$	43,046

Basic earnings per common share:	$	0.16		$	0.07		$	0.81		$	0.83
Diluted earnings per common share:	$	0.16		$	0.06		$	0.79		$	0.83
Basic weighted-average common shares issued and outstanding:	48,471			51,811			49,167			51,631
Diluted weighted-average common shares issued and outstanding:	49,818			52,275			50,396			52,104

See notes to unaudited consolidated financial statements

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GREEN DOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended June 30,					Six Months Ended June 30,
	2016		2015			2016		2015
	(In thousands)
Net income	$	8,026	$	3,496		$	40,908	$	44,309
Other comprehensive income
Unrealized holding gains (losses), net of tax	301		(363		)	674		(278		)
Comprehensive income	$	8,327	$	3,133		$	41,582	$	44,031

See notes to unaudited consolidated financial statements

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GREEN DOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Six Months Ended June 30,
	2016			2015
	(In thousands)
Operating activities
Net income	$	40,908		$	44,309
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	21,623			18,478
Amortization of intangible assets	11,523			11,209
Provision for uncollectible overdrawn accounts	39,787			31,566
Employee stock-based compensation	13,052			11,623
Stock-based retailer incentive compensation	—			2,520
Amortization of premium on available-for-sale investment securities	599			508
Change in fair value of contingent consideration	(5,500		)	(7,516		)
Amortization of deferred financing costs	767			767
Impairment of capitalized software	136			4,997
Deferred income tax expense	1			12
Changes in operating assets and liabilities:
Accounts receivable, net	(26,269		)	(3,765		)
Prepaid expenses and other assets	2,533			(3,417		)
Deferred expenses	8,318			9,521
Accounts payable and other accrued liabilities	(16,349		)	(19,898		)
Amounts due to card issuing banks for overdrawn accounts	464			497
Deferred revenue	(12,724		)	(10,719		)
Income tax payable	11,396			27,424
Other, net	179			56
Net cash provided by operating activities	90,444			118,172

Investing activities
Purchases of available-for-sale investment securities	(79,835		)	(126,036		)
Proceeds from maturities of available-for-sale securities	53,884			33,531
Proceeds from sales of available-for-sale securities	575			12,935
Increase in restricted cash	(3,128		)	(1,253		)
Payments for acquisition of property and equipment	(23,980		)	(25,042		)
Net decrease in loans	385			99
Acquisition, net of cash acquired	—			(65,209		)
Net cash used in investing activities	(52,099		)	(170,975		)

Financing activities
Repayments of borrowings from note payable	(11,250		)	(11,250		)
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	7,114			1,836
Excess tax benefits from exercise of options	1,235			27
Taxes paid related to net share settlement of equity awards	(3,834		)	(1,038		)
Net (decrease) increase in deposits	(94,099		)	42,680
Net (decrease) increase in obligations to customers	(80,141		)	60,929
Contingent consideration payments	(367		)	(668		)
Repurchase of Class A common stock	(59,013		)	—
Net cash (used in) provided by financing activities	(240,355		)	92,516

Net (decrease) increase in unrestricted cash, cash equivalents, and federal funds sold	(202,010		)	39,713
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	$	570,119		$	764,351

Cash paid for interest	$	5,422		$	2,278
Cash paid for income taxes	$	11,472		$	891

See notes to unaudited consolidated financial statements

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Organization

Green Dot Corporation (“we,” “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 and MoneyPak 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 six months ended June 30, 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") that requires financial assets measured at amortized cost be presented at the net amount expected to be collected. Credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited by the amount that the fair value is less than amortized cost. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

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.

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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. 2016-08, 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 ASU 2016-08 on our consolidated financial statements.

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 do not expect the adoption of ASU 2016-04 to have a material impact 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 ASU 2016-02 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 ASU 2016-01 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 it 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.

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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)
June 30, 2016
Corporate bonds	$	27,048	$	48	$	(5	)	$	27,091
Commercial paper	8,403		5		—			8,408
U.S. Treasury notes	20,808		23		—			20,831
Agency securities	4,018		—		—			4,018
Mortgage-backed securities	120,399		735		(294		)	120,840
Municipal bonds	1,570		6		(36		)	1,540
Asset-backed securities	24,620		7		(5		)	24,622
Total investment securities	$	206,866	$	824	$	(340	)	$	207,350

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 June 30, 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			Total fair value		Total unrealized loss
	(In thousands)
June 30, 2016
Corporate bonds	$	4,354	$	(1	)	$	1,995	$	(4	)	$	6,349	$	(5	)
Mortgage-backed securities	19,412		(126		)	27,224		(168		)	46,636		(294		)
Municipal bonds	—		—			960		(36		)	960		(36		)
Asset-backed securities	5,614		(5		)	—		—			5,614		(5		)
Total investment securities	$	29,380	$	(132	)	$	30,179	$	(208	)	$	59,559	$	(340	)

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 and six months ended June 30, 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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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 3—Investment Securities (continued)

As of June 30, 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	$	48,893	$	48,914
Due after one year through five years	13,217		13,271
Due after five years through ten years	67		68
Due after ten years	996		960
Mortgage and asset-backed securities	143,693		144,137
Total investment securities	$	206,866	$	207,350

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:



	June 30, 2016			December 31, 2015
	(In thousands)
Overdrawn account balances due from cardholders	$	17,209		$	10,198
Reserve for uncollectible overdrawn accounts	(14,506		)	(7,999		)
Net overdrawn account balances due from cardholders	2,703			2,199

Trade receivables	3,795			10,644
Reserve for uncollectible trade receivables	(244		)	(58		)
Net trade receivables	3,551			10,586

Receivables due from card issuing banks	9,732			8,852
Fee advances	796			11,621
Other receivables	11,667			8,895
Accounts receivable, net	$	28,449		$	42,153

Activity in the reserve for uncollectible overdrawn accounts consisted of the following:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands)
Balance, beginning of period	$	11,088		$	12,580		$	7,999		$	11,196
Provision for uncollectible overdrawn accounts:
Fees	20,854			13,737			35,705			27,381
Purchase transactions	2,167			2,637			4,082			4,185
Charge-offs	(19,603		)	(16,915		)	(33,280		)	(30,723		)
Balance, end of period	$	14,506		$	12,039		$	14,506		$	12,039

Note 5—Property and Equipment

We recorded impairment charges of $5.0 million during the three months ended June 30, 2015 and $0.1 million and $5.0 million during the six months ended June 30, 2016 and 2015, respectively, associated with capitalized internal-use software we determined were no longer viable. During the three months ended June 30, 2016, we did not record any impairment charges. The impairment charge is included within other general and administrative expenses in our consolidated statements of operations.

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 6—Loans to Bank Customers

The following table presents total outstanding loans, gross of the related allowance for loan losses, and a summary of the related payment status:



	30-59 Days Past Due			60-89 Days Past Due			90 Days or More Past Due			Total Past Due			Total Current or Less Than 30 Days Past Due			Total Outstanding
	(In thousands)
June 30, 2016
Residential	$	120		$	—		$	—		$	120		$	3,717		$	3,837
Commercial	—			—			—			—			357			357
Installment	—			—			—			—			1,966			1,966
Total loans	$	120		$	—		$	—		$	120		$	6,040		$	6,160

Percentage of outstanding	2.0		%	—		%	—		%	2.0		%	98.0		%	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.



	June 30, 2016		December 31, 2015
	(In thousands)
Residential	$	411	$	366
Commercial	—		19
Installment	244		279
Total loans	$	655	$	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:



	June 30, 2016				December 31, 2015
	Non-Classified		Classified		Non-Classified		Classified
	(In thousands)
Residential	$	3,334	$	503	$	3,404	$	459
Commercial	357		—		294		19
Installment	1,622		344		2,173		356
Total loans	$	5,313	$	847	$	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 June 30, 2016 and December 31, 2015:



	June 30, 2016				December 31, 2015
	Unpaid Principal Balance		Carrying Value		Unpaid Principal Balance		Carrying Value
	(In thousands)
Residential	$	351	$	286	$	24	$	19
Commercial	—		—		257		19
Installment	242		110		241		128

Allowance for Loan Losses

Activity in the allowance for loan losses consisted of the following:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands)
Balance, beginning of period	$	278		$	340		$	426		$	444
Provision for loans	—			39			(151		)	(34		)
Loans charged off	(22		)	(9		)	(22		)	(44		)
Recoveries of loans previously charged off	10			7			13			11
Balance, end of period	$	266		$	377		$	266		$	377

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 June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	(In thousands, except per share data)
Restricted stock units granted	792		1,070		1,210		1,650
Weighted-average grant-date fair value	$	23.10	$	15.07	$	22.65	$	16.10

We issued no stock options during the three and six months ended June 30, 2016 and 2015.

Included in the number of restricted stock units granted during the six months ended June 30, 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 $7.4 million and $6.4 million for the three months ended June 30, 2016 and 2015, respectively, and $13.1 million and $11.6 million for the six months ended June 30, 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:



	June 30, 2016		December 31, 2015
	(In thousands)
Non-interest bearing deposit accounts
GPR deposits	$	430,726	$	610,652
Other demand deposits	106,251		23,644
Total non-interest bearing deposit accounts	536,977		634,296
Interest-bearing deposit accounts
Negotiable order of withdrawal (NOW)	1,008		851
Savings	11,723		8,848
Time deposits, denominations greater than or equal to $100	6,505		6,268
Time deposits, denominations less than $100	1,833		1,882
Total interest-bearing deposit accounts	21,069		17,849
Total deposits	$	558,046	$	652,145

The scheduled contractual maturities for total time deposits are presented in the table below:



	June 30, 2016
	(In thousands)
Due in 2016	$	1,720
Due in 2017	3,765
Due in 2018	606
Due in 2019	365
Due in 2020	1,320
Thereafter	562
Total time deposits	$	8,338

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 June 30, 2016 and December 31, 2015, our outstanding debt, net of deferred financing costs of $5.1 million and $5.8 million, respectively, consisted of the following:



	June 30, 2016		December 31, 2015
	(In thousands)
Term facility	$	111,169	$	121,652
Revolving facility	—		—
Total notes payable	$	111,169	$	121,652

Quarterly principal payments of $5.6 million are payable on the loans under the Term Facility. During each of the six months ended June 30, 2016 and 2015, we made scheduled quarterly principal payments totaling $11.3 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 June 30, 2016 was 3.21%. Interest expense, excluding the amortization of debt issuance costs, related to our Senior Credit Facility was $1.0 million and $1.1 million for the three months ended June 30, 2016 and 2015, respectively, and $2.1 million and $2.2 million for the six months ended June 30, 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 June 30, 2016, we were in compliance with all such covenants.

Note 10—Income Taxes

Income tax expense for the six months ended June 30, 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:



	Six Months Ended June 30,
	2016		2015
U.S. federal statutory tax rate	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.1		2.5
General business credits	(2.6	)	(1.1	)
Employee stock-based compensation	0.6		1.0
Other	1.0		1.3
Effective tax rate	37.1	%	38.7	%

The effective tax rate for the six months ended June 30, 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 six months ended June 30, 2016 as compared to the six months ended June 30, 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 June 30, 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 June 30, 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 June 30, 2016 and December 31, 2015, we had a liability of $8.3 million and $7.4 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows:



	Six Months Ended June 30,
	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		854
Ending balance	$	8,260	$	7,044

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate	$	8,260	$	7,044

As of June 30, 2016 and December 31, 2015, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $0.9 million.

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 June 30, 2016, we have repurchased $100 million of Class A Common Stock under the repurchase program.

Accelerated Share Repurchases

We have entered into accelerated share repurchase arrangements (“ASRs”) with a financial institution. 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 summarizes 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. Final settlement is scheduled to occur 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.

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. We completed all repurchases under this plan during the first quarter of 2016 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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands, except per share data)
Basic earnings per Class A common share
Net income	$	8,026		$	3,496		$	40,908		$	44,309
Income attributable to preferred stock	(244		)	(99		)	(1,226		)	(1,263		)
Income attributable to common stock subject to repurchase	—			(1		)	—			(48		)
Net income allocated to Class A common stockholders	$	7,782		$	3,396		$	39,682		$	42,998
Weighted-average Class A shares issued and outstanding	48,471			51,811			49,167			51,631
Basic earnings per Class A common share	$	0.16		$	0.07		$	0.81		$	0.83

Diluted earnings per Class A common share
Net income allocated to Class A common stockholders	$	7,782		$	3,396		$	39,682		$	42,998
Re-allocated earnings	6			1			29			12
Diluted net income allocated to Class A common stockholders	$	7,788		$	3,397		$	39,711		$	43,010
Weighted-average Class A shares issued and outstanding	48,471			51,811			49,167			51,631
Dilutive potential common shares:
Stock options	524			272			482			276
Restricted stock units	820			185			745			189
Employee stock purchase plan	3			7			2			8
Diluted weighted-average Class A shares issued and outstanding	49,818			52,275			50,396			52,104
Diluted earnings per Class A common share	$	0.16		$	0.06		$	0.79		$	0.83

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 12—Earnings per Common Share (continued)

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:



	Three Months Ended June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
	(In thousands)
Class A common stock
Options to purchase Class A common stock	118	794	176	789
Restricted stock units	5	85	11	96
Conversion of convertible preferred stock	1,519	1,518	1,519	1,516
Total options, restricted stock units and convertible preferred stock	1,642	2,397	1,706	2,401

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 June 30, 2016 and December 31, 2015, our assets and liabilities carried at fair value on a recurring basis were as follows:

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 13—Fair Value Measurements (continued)



	Level 1		Level 2		Level 3		Total Fair Value
June 30, 2016	(In thousands)
Assets
Corporate bonds	$	—	$	27,091	$	—	$	27,091
Commercial paper	—		8,408		—		8,408
U.S. Treasury notes	—		20,831		—		20,831
Agency securities	—		4,018		—		4,018
Mortgage-backed securities	—		120,840		—		120,840
Municipal bonds	—		1,540		—		1,540
Asset-backed securities	—		24,622		—		24,622
Total assets	$	—	$	207,350	$	—	$	207,350

Liabilities
Contingent consideration	$	—	$	—	$	8,022	$	8,022

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

We based the fair value of our fixed income securities held as of June 30, 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 and six months ended June 30, 2016 or 2015.

The following table presents changes in our contingent consideration payable for the three and six months ended June 30, 2016 and 2015, which is categorized in Level 3 of the fair value hierarchy:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(In thousands)
Balance, beginning of period	$	13,700		$	15,375		$	13,889		$	23,160
Payments of contingent consideration	(178		)	(499		)	(367		)	(668		)
Change in fair value of contingent consideration	(5,500		)	100			(5,500		)	(7,516		)
Balance, end of period	$	8,022		$	14,976		$	8,022		$	14,976

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.

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 14—Fair Value of Financial Instruments (continued)

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.

Fair Value of Financial Instruments

The carrying values and fair values of certain financial instruments that were not carried at fair value, excluding short-term financial instruments for which the carrying value approximates fair value, at June 30, 2016 and December 31, 2015 are presented in the table below.



	June 30, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
Financial Assets
Loans to bank customers, net of allowance	$	5,894	$	5,231	$	6,279	$	5,847

Financial Liabilities
Deposits	$	558,046	$	557,955	$	652,145	$	652,060
Note payable	$	111,169	$	111,169	$	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.

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 15—Commitments and Contingencies (continued)

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 June 30, 2016 and December 31, 2015, we had $1.5 million outstanding in standby letters of credit related to our corporate facility lease.

During the three months ended June 30, 2016, we continued our planned conversion of customer files from our legacy third-party card processor to our new third-party card processor, which included the migration of our Walmart MoneyCard portfolio. As part of the conversion process, our cardholders experienced limited disruptions in service that resulted in approximately $4.1 million in customer credits and transaction losses incurred by us. These losses have been fully reimbursed by the new third-party processor.

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.

Revenues derived from our products sold at retail distributors constituting greater than 10% of our total operating revenues were as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
Walmart	46%	48%	41%	42%

Excluding stock-based retailer incentive compensation of $0 and $0.6 million for the three months ended June 30, 2016 and 2015, respectively, and $0 and $2.5 million for the six months ended June 30, 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 June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
Walmart	46%	48%	41%	43%

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 16—Significant Customer Concentration (continued)

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 June 30,		Six Months Ended June 30,
	2016	2015	2016	2015
Concentration of GPR cards activated (in units)	57%	59%	57%	60%
Concentration of sales of cash transfer products (in units)	73%	81%	73%	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:



	June 30, 2016	December 31, 2015
Walmart	25%	62%
Three other largest retail distributors, as a group	4%	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 June 30, 2016
	Account Services		Processing and Settlement Services		Corporate and Other			Total
	(In thousands)
Operating revenues	$	135,109	$	45,257	$	(6,878	)	$	173,488
Operating expenses	114,959		33,020		12,640			160,619
Operating income	$	20,150	$	12,237	$	(19,518	)	$	12,869



	Three Months Ended June 30, 2015
	Account Services		Processing and Settlement Services		Corporate and Other			Total
	(In thousands)
Operating revenues	$	134,772	$	42,631	$	(7,156	)	$	170,247
Operating expenses	112,827		30,363		20,139			163,329
Operating income	$	21,945	$	12,268	$	(27,295	)	$	6,918

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GREEN DOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

Note 17—Segment Information (continued)



	Six Months Ended June 30, 2016
	Account Services		Processing and Settlement Services		Corporate and Other			Total
	(In thousands)
Operating revenues	$	280,249	$	136,627	$	(15,364	)	$	401,512
Operating expenses	234,111		72,042		28,004			334,157
Operating income	$	46,138	$	64,585	$	(43,368	)	$	67,355



	Six Months Ended June 30, 2015
	Account Services		Processing and Settlement Services		Corporate and Other			Total
	(In thousands)
Operating revenues	$	282,631	$	132,807	$	(18,026	)	$	397,412
Operating expenses	230,980		67,220		26,398			324,598
Operating income	$	51,651	$	65,587	$	(44,424	)	$	72,814

Note 18— Subsequent Event

Upon formation of Green Dot Corporation as a Bank Holding Company in November 2011, we committed to our federal and state regulators that no dividends would be paid by Green Dot Bank, our wholly-owned subsidiary, for 3 years. Our dividend restrictions have ended and in July 2016, the Board of Directors of Green Dot Bank declared a cash dividend payment in the amount of $27 million to Green Dot Corporation. The dividend will be paid in August 2016.

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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 and six months ended June 30, 2016 and 2015 were as follows:



	Three Months Ended June 30,									Six Months Ended June 30,
	2016		2015		Change			%		2016		2015		Change			%
	(In thousands, except percentages)
Total operating revenues	$	173,488	$	170,247	$	3,241		1.9	%	$	401,512	$	397,412	$	4,100		1.0	%
Total operating expenses	160,619		163,329		(2,710		)	(1.7	)%	334,157		324,598		9,559			2.9	%
Net income	8,026		3,496		4,530			129.6	%	40,908		44,309		(3,401		)	(7.7	)%

Total operating revenues

Our total operating revenues for the three months ended June 30, 2016 increased from the three months ended June 30, 2015 by 2% as a result of improved unit economics in both our Account Services segment, which consists of our branded and private label deposit account programs, and our Processing and Settlement Services segment, which consists of cash transfer revenues, fees assessed on MoneyPaks and tax refund processing services.

Despite a year-over-year decline in the number of active cards in our portfolio of 11%, 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 our portfolio consisting of a greater proportion of higher revenue generating customers as we entered 2016, as compared to 2015, and higher unit economics on our new suite of prepaid card products at our retail distributors that we began rolling out in the first quarter of 2016. Due to the recent launch, these new products comprise a smaller, but increasing portion of the number of active cards in our portfolio. While we expect our new cards to contribute more to our operating revenues throughout the year, the timing of our roll-out of our new suite of prepaid card products at our retail distributors and uncertainty of future customer behavioral patterns make it difficult to predict the overall impact these new cards will have on our portfolio until more historical data becomes available.