| Organization, Summary of Significant Accounting Policies and New Accounting Standards | Organization, Summary of Significant Accounting Policies and New Accounting Standards Organization Unless the context requires otherwise, "we," "us," "our," "GreenSky" and "the Company" refer to GreenSky, Inc. and its subsidiaries. "Bank Partners" are the federally insured banks that originate loans under the consumer financing and payments program that we administer for use by merchants on behalf of such banks in connection with which we provide point-of-sale financing and payments technology and related marketing, servicing, collection and other services (the "GreenSky program" or "program"). We are a leading technology company Powering Commerce at the Point of Sale ® . Our platform is powered by a proprietary technology infrastructure that facilitates merchant sales, while reducing the friction and improving the economics associated with a consumer making a purchase and a lender or financial institution extending financing for that purchase. It supports the full transaction lifecycle, including credit application, underwriting, real-time allocation to our Bank Partners, document distribution, funding, settlement and servicing. Merchants using our platform, which presently range from small, owner-operated home improvement contractors and healthcare providers to large national home improvement brands and retailers and healthcare service organizations, rely on us to facilitate low or deferred interest promotional point-of-sale financing and payments solutions that enable higher sales volume. Consumers on our platform, who to date primarily have super-prime or prime credit scores, find financing with promotional terms to be an attractive alternative to other forms of payment. Our Bank Partners' access to our proprietary technology solution and merchant network enables them to build a diversified portfolio of high quality consumer loans with attractive risk-adjusted yields with minimal upfront investment. GreenSky, Inc. was formed as a Delaware corporation on July 12, 2017. The Company was formed for the purpose of completing an initial public offering ("IPO") of its Class A common stock and certain Reorganization Transactions, as further described in the GreenSky, Inc. Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 2, 2020 (the "2019 Form 10-K"), in order to carry on the business of GreenSky Holdings, LLC (“GS Holdings”) and its consolidated subsidiaries. GS Holdings, a holding company with no operating assets or operations, was organized in August 2017. On August 24, 2017, GS Holdings acquired a 100% interest in GreenSky, LLC ("GSLLC"), a Georgia limited liability company, which is an operating entity. Common membership interests of GS Holdings are referred to as "Holdco Units." On May 24, 2018, the Company's Class A common stock commenced trading on the Nasdaq Global Select Market in connection with its IPO. The IPO and Reorganization Transactions resulted in the Company becoming the sole managing member of GS Holdings. As the sole managing member of GS Holdings, we operate and control all of GS Holdings’ operations and, through GS Holdings and its subsidiaries, conduct GS Holdings’ business. The Company consolidates the financial results of GS Holdings and reports a noncontrolling interest in its Unaudited Condensed Consolidated Financial Statements representing the GS Holdings interests held by the Continuing LLC Members, as such term is defined in the 2019 Form 10-K. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to the Company and the noncontrolling interest. In 2020, we formed GS Investment I, LLC (the "SPV" or "GS Investment"), a special purpose vehicle and indirect wholly-owned subsidiary of the Company, to finance purchases of participation interests in loans ("SPV Participations") originated through the GreenSky program. These purchases are made through a newly created wholly-owned subsidiary, GS Depositor I, LLC ("Depositor") and then transferred to the SPV. Each of the SPV and Depositor is a separate legal entity from the Company and from each other subsidiary of the Company, and the respective assets of the SPV and Depositor are owned by the SPV or Depositor, respectively, and are solely available to satisfy the creditors of the SPV or Depositor, respectively. Summary of Significant Accounting Policies Basis of Presentation The Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the rules and regulations of the SEC for interim financial statements. We condensed or omitted certain notes and other information from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these interim statements should be read in conjunction with the 2019 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of our financial condition and results of operations for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2019, was derived from the audited annual consolidated financial statements, but does not contain all of the footnote disclosures from the annual consolidated financial statements required by United States generally accepted accounting principles ("GAAP"). All intercompany balances and transactions are eliminated upon consolidation. The results for the three and six months ended June 30, 2020 are not necessarily indicative of results expected for the full year. Consistent with the 2019 Form 10-K, for the three and six months ended June 30, 2020, we created distinct financial statement line items in our Unaudited Condensed Consolidated Financial Statements associated with the contingent component of our financial guarantee as follows: (i) financial guarantee expense in the Unaudited Condensed Consolidated Statements of Operations (previously presented within general and administrative expense); and (ii) financial guarantee losses as an adjustment to reconcile net income (loss) to net cash provided by operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows (previously presented within the change in other liabilities). The classification of the financial guarantee expense for the three and six months ended June 30, 2019 of $1,696 thousand and $2,918 thousand, respectively, and the classification of the financial guarantee losses for the six months ended June 30, 2019 of $284 thousand were changed to conform to the current presentation. With our formation and use of the SPV, the magnitude of loan receivables held for sale has increased on our Unaudited Condensed Consolidated Balance Sheet. As a result, we have reclassified the presentation of certain items associated with the loan receivables held for sale that were previously presented as non-operating within the Unaudited Condensed Consolidated Statements of Operations; specifically, valuation allowance (inclusive of both credit and market interest rate considerations) for loan receivables held for sale, proceeds from transferring our rights to Charged-Off Receivables attributable to loan receivables held for sale, and interest income for loan receivables held for sale. The classification of such valuation allowance for the three and six months ended June 30, 2019 of $342 thousand and $783 thousand, respectively, and the classification of the proceeds from transferring our rights to Charged-Off Receivables for the three and six months ended June 30, 2019 of $50 thousand and $141 thousand, respectively, were changed from other gains (losses), net to sales, general and administrative expense within the Unaudited Condensed Consolidated Statement of Operations to conform to the current presentation. The classification of such interest income for the three and six months ended June 30, 2019 of $56 thousand and $755 thousand, respectively, was reclassified from interest and dividend income to interest and other revenue within the Unaudited Condensed Consolidated Statement of Operations to conform to the current presentation. Use of Estimates The preparation of our financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, financial guarantees, share-based compensation and income taxes. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions. Cash and Cash Equivalents and Restricted Cash Cash Equivalents We consider all highly liquid investments that mature three months or less from the date of purchase to be cash equivalents. Cash equivalents include money market mutual fund accounts, which are invested in government securities that are either guaranteed by the Federal Deposit Insurance Corporation of the U.S. government ("FDIC") or are secured by U.S. government-issued collateral for which the risk of loss from nonpayment is presumed to be zero. As such, we do not establish an allowance for credit losses on our cash equivalents. Further, the carrying amounts of our cash equivalents approximate their fair values due to their short maturities and highly liquid nature. Refer to "Recently Adopted Accounting Standards" in this Note 1 for discussion of our adoption of the provisions of Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") , effective January 1, 2020 and Note 3 for additional information on our fair value measurement. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Unaudited Condensed Consolidated Balance Sheets to the total included within the Unaudited Condensed Consolidated Statements of Cash Flows as of the dates indicated. June 30, 2020 2019 Cash and cash equivalents $ 147,560 $ 209,176 Restricted cash 289,844 200,252 Cash and cash equivalents and restricted cash in Unaudited Condensed Consolidated Statements of Cash Flows $ 437,404 $ 409,428 Accounts Receivable Accounts receivable are recorded at their original invoice amounts, which are reduced by any allowance for uncollectible amounts. Effective January 1, 2020, we adopted the provisions of ASU 2016-13, which requires upfront recognition of lifetime expected credit losses using a current expected credit loss model. In accordance with the standard, we pool our accounts receivable, all of which are short-term in nature and arise from contracts with customers, based on shared risk characteristics to assess their risk of loss, even when that risk is remote. We use the aging method to establish an allowance for expected credit losses on accounts receivable balances and consider whether current conditions or reasonable and supportable forecasts about future conditions warrant an adjustment to our historical loss experience. In applying such adjustments, we primarily consider changes in counterparty credit risk and changes in the underlying macroeconomic environment. Accounts receivable are written off once delinquency exceeds 90 days. Recoveries of previously written off accounts receivable are recognized on a collected basis as a reduction to the provision for credit losses, which is included within sales, general and administrative expense in the Unaudited Condensed Consolidated Statements of Operations. The allowance for uncollectible amounts for periods prior to January 1, 2020 continue to be presented and disclosed under legacy guidance in Accounting Standards Codification ("ASC") 310, Receivables . Refer to "Recently Adopted Accounting Standards" in this Note 1 for discussion of our adoption of the provisions of ASU 2016-13 and Note 5 for additional information on our accounts receivable. Fair Value of Assets and Liabilities We have financial assets and liabilities subject to fair value measurement or disclosure on either a recurring or nonrecurring basis. Such measurements or disclosures relate to our cash and cash equivalents, loan receivables held for sale, derivative instruments, servicing assets and liabilities, and term loan. ASC 820, Fair Value Measurement , defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In valuing this asset or liability, we utilize market data or reasonable assumptions that market participants would use, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The guidance provides a three-level valuation hierarchy for disclosure of fair value measurements based on the transparency of inputs to the valuation of an asset or a liability as of the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Unobservable inputs for the asset or liability. An asset’s or a liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. We apply the market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities, to value our cash and cash equivalents, purchase price discount/premium, loan receivables held for sale and term loan. We apply the income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount, to value our finance charge reversal ("FCR") liability and servicing assets and liabilities. We determine the fair value of our interest rate swap by applying a discounted cash flow model based on observable market factors and credit factors specific to us. Refer to Note 3 for additional fair value disclosures. Derivative Instruments We are exposed to interest rate risk on our variable-rate term loan, which we manage by entering into an interest rate swap that is determined to be a derivative in accordance with ASC 815, Derivatives and Hedging . Derivatives are recorded on the balance sheet at fair value and are marked-to-market on a quarterly basis. The accounting for the change in fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate the derivative as a hedge and apply hedge accounting, and whether the hedging relationship continues to satisfy the criteria required to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in cash flows of a recognized asset or liability that is attributable to a particular risk are considered cash flow hedges. The primary purpose of cash flow hedge accounting is to link the income statement recognition of a hedging instrument and a hedged item whose changes in cash flows are expected to offset each other. The change in the fair value of the derivative instrument designated as a cash flow hedge is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into earnings in the same period when the hedged item affects earnings. The reclassification into earnings is reported in the same income statement line item in which the hedged item is reported. The FCR component of our Bank Partner contracts, which arrangements are detailed in Note 3, qualifies as an embedded derivative. The FCR liability is not designated as a hedge for accounting purposes and, as such, changes in its fair value are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. The Purchase Price Discount/Premium component of the series of agreements (collectively, the "Facility Bank Partner Agreements") governing the participation sales with Synovus Bank, an existing Bank Partner, which is detailed in Note 3, qualifies as an embedded derivative. The Purchase Price Discount/Premium is not designated as a hedge for accounting purposes and, as such, changes in its fair value are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 8 for additional derivative disclosures. Financial Guarantees Under the terms of the contracts with our Bank Partners, we provide limited protection to the Bank Partners in the event of excess Bank Partner portfolio credit losses by holding cash in restricted, interest-bearing escrow accounts in an amount equal to a contractual percentage of the Bank Partners’ monthly originations and month-end outstanding portfolio balance. Our maximum exposure to Bank Partner portfolio credit losses is contractually limited to the escrow that we establish with each Bank Partner. Cash set aside to meet this requirement is classified as restricted cash in our Unaudited Condensed Consolidated Balance Sheets. Our contracts with our Bank Partners entitle us to incentive payments when the finance charges billed to borrowers exceed the sum of an agreed-upon portfolio yield, a fixed servicing fee and realized credit losses. This incentive payment varies from month to month, primarily due to the amount of realized credit losses. If credit losses exceed an agreed-upon threshold, we are obligated to make limited payments to our Bank Partners, which obligation represents a financial guarantee in accordance with ASC 460, Guarantees . Under ASC 460, the guarantor undertakes a noncontingent obligation to stand ready to perform over the term of the guarantee and a contingent obligation to make future payments if the triggering events or conditions under the guarantee arrangements occur. Effective January 1, 2020, we adopted the provisions of ASU 2016-13, which apply only to the contingent aspect of the guarantee arrangement. Under the new standard, we are required to estimate the expected credit losses over the contractual period in which we are exposed to credit risk via a present contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the issuer. As applied to our financial guarantee arrangements, we are required to estimate expected credit losses, and the impact of those estimates on our potential escrow payments, for loans within our Bank Partner portfolios that are either funded or approved for funding at the measurement date, but are precluded from including future loan originations by our Bank Partners. Consistent with the modeling of loan losses for any consumer loan portfolio assumed to go into "run-off," our recognized financial guarantee liability under this model represents a significant portion of the contractual escrow that we establish with each Bank Partner. Typically, additional financial guarantee liabilities are recorded as new Bank Partner loans are facilitated, along with a corresponding non-cash charge recorded as financial guarantee expense in the Unaudited Condensed Consolidated Statements of Operations. Historically, our actual cash payments required under the financial guarantee arrangements have been immaterial for our ongoing Bank Partners. As the terms of our guarantee arrangements are determined contractually with each Bank Partner, we measure our contingent obligation separately for each Bank Partner using a discounted cash flow method based on estimates of the outstanding loan attributes of the Bank Partner's loan servicing portfolio and our expectations of forecasted information, including macroeconomic conditions, over the period which our financial guarantee is expected to be used in a "run-off" scenario. We use our historical experience as a basis for estimating escrow usage and adjust for current conditions or forecasts of future conditions if they are determined to vary from our historical experience. Refer to "Recently Adopted Accounting Standards" in this Note 1 for discussion of our adoption of the provisions of ASU 2016-13 and Note 14 for additional information on our financial guarantees. For periods prior to January 1, 2020, the contingent aspect of the financial guarantee continues to be presented and disclosed in accordance with legacy guidance in ASC 450, Contingencies . Under this guidance, the contingent aspect of the financial guarantee represented the amount of payments to Bank Partners from the escrow accounts that we expected to be probable of occurring based on Bank Partner portfolio composition and our near-term expectation of credit losses. In estimating the obligation, we considered a variety of factors, including historical experience, management’s expectations of current customer delinquencies converting into Bank Partner portfolio credit losses and recent events and circumstances. Revenue Recognition Disaggregated revenue Revenue disaggregated by type of service was as follows for the periods presented: Three Months Ended Six Months Ended 2020 2019 2020 2019 Merchant fees $ 93,707 $ 96,127 $ 175,122 $ 170,221 Interchange fees 8,070 12,238 16,539 22,192 Transaction fees 101,777 108,365 191,661 192,413 Servicing fees (1) 28,481 30,318 59,764 49,951 Interest income (2) 2,702 57 3,389 755 Other (3) 2 12 5 31 Interest and other 2,704 69 3,394 786 Total revenue $ 132,962 $ 138,752 $ 254,819 $ 243,150 (1) For the three months ended June 30, 2020, includes a $1,048 thousand decrease in fair value of our servicing asset primarily due to the sale of participations in loans from an existing Bank Partner to the SPV. For the six months ended June 30, 2020, includes a $741 thousand increase in fair value of our servicing asset primarily associated with the growth in Bank Partner loan servicing portfolios. For the three and six months ended June 30, 2019, includes a $8,966 thousand change in fair value of our servicing assets. Refer to Note 3 for additional information. (2) Includes interest income received on loan receivables held for sale. (3) Other revenue includes miscellaneous revenue items that are individually immaterial. Other revenue is presented separately herein in order to clearly present merchant, interchange fees, servicing fees, and interest income which are more integral to our primary operations and better enable financial statement users to calculate metrics such as servicing and merchant fee yields. We have no remaining performance obligations as of June 30, 2020. No assets were recognized from the costs to obtain or fulfill a contract with a customer as of June 30, 2020 and December 31, 2019. V olume-based price concessions to merchants and Sponsors that were netted against the gross transaction price were $3,002 thousand and $3,198 thousand for the three months ended June 30, 2020 and 2019, respectively, and $8,031 thousand and $9,106 thousand for the six months ended June 30, 2020 and 2019, respectively. "Sponsors" refers to manufacturers, their captive and franchised showroom operations, and trade associations with which we partner to onboard merchants. We recognized credit losses arising from our contracts with customers of $201 thousand and $387 thousand during the three months ended June 30, 2020 and 2019, respectively, and $378 thousand and $596 thousand during the six months ended June 30, 2020 and 2019, respectively, which is recorded within sales, general and administrative expense in our Unaudited Condensed Consolidated Statements of Operations. Recently Adopted Accounting Standards Measurement of credit losses on financial instruments In June 2016, the FASB issued ASU 2016-13, which requires upfront recognition of lifetime expected credit losses on certain financial instruments (or groups of financial instruments) using a current expected credit loss ("CECL") model. The standard is intended to better align the recognition of credit losses on financial instruments with management’s expectations of the net amount of principal balance expected to be collected on such financial instruments. Under CECL, management must determine expected credit losses for certain financial instruments held at the reporting date based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts. We adopted the standard as of January 1, 2020. Comparative periods continue to be presented and disclosed in accordance with applicable legacy guidance. Our primary financial instruments in the scope of CECL include cash equivalents, accounts receivable and off-balance sheet credit exposures under our financial guarantee arrangements with our Bank Partners, each of which is discussed in further detail below (as it relates to our implementation of the new standard) and within the respective sub-headings under "Summary of Significant Accounting Policies" in this Note 1. Cash Equivalents As our cash equivalents are invested in government securities that are either guaranteed by the FDIC or are secured by U.S. government-issued collateral, the risk of loss from nonpayment is presumed to be zero. As such, we did not establish an allowance for credit losses on our cash equivalents upon our adoption of the standard. Accounts Receivable We pool our accounts receivable, all of which are short-term in nature and arise from contracts with customers, based on shared risk characteristics to assess their risk of loss, even when that risk is remote. Historically, the majority of our accounts receivable did not have write-offs. For accounts receivables for which we historically experienced losses, we used an aging method and the average 12-month historical loss rate as a basis for estimating credit losses on the current accounts receivable balance. In the absence of relevant historical loss experience for the other pools of accounts receivables, we also used this average 12-month loss rate to inform our estimate of credit losses on those balances. For each pool of accounts receivable, we considered the conditions at the adoption date, such as the manner in which we collect funds, our counterparty credit risk and the underlying macroeconomic environment, and determined that the current conditions were comparable to our historical conditions. Further, given that we establish an allowance for all delinquent accounts receivable (typically deemed to be 31 days or more past due), providing for a maximum 30-day term of our accounts receivable balances, we determined that the forecasts about future conditions were also comparable to our historical conditions. As such, we did not adjust our historical loss rates at the adoption date and we continue to establish an allowance for a portion of current accounts receivable and all delinquent accounts receivable. Based on this methodology, we determined that the allowance for uncollectible accounts measured under the new standard at the adoption date for our pools of accounts receivable for which no history of losses existed was immaterial to our consolidated financial statements. Additionally, we determined that there was no impact from our adoption of the standard on the allowance for uncollectible accounts for our accounts receivable for which we historically experienced losses. Therefore, our adoption of the standard on January 1, 2020 did not have any impact on our consolidated financial statements. Refer to Note 5 for additional information on our accounts receivable. Financial Guarantees We are required to estimate expected credit losses, and the impact of those estimates on our potential escrow payments, for loans within our Bank Partner portfolios that are either funded or approved for funding at the measurement date, but are precluded from including future loan originations by our Bank Partners. We used a discounted cash flow method to estimate our expected risk of loss under the contingent aspect of our financial guarantees for each Bank Partner. In determining this measure, we forecasted each Bank Partner's loan portfolio composition in a "run-off" scenario, which is primarily impacted by assumptions around prepayments and loan pay downs. Our prepayment and loan pay down assumptions were derived from historical behavior curves for each loan plan and were applied to each Bank Partner's portfolio based on its composition of loans and where such loans were in their economic life cycle. The loan portfolio composition additionally informs our forecasts of the components that determine our incentive payments or, alternatively, escrow usage. Further, we use lifetime historical credit loss experience for each loan plan as a basis for estimating future credit losses. While there have subsequently been significant changes in macroeconomic conditions, as of our January 1, 2020 adoption date, we determined that the macroeconomic conditions representing the largest potential indicators of changes in credit losses, particularly the unemployment rate, were comparable to our historical conditions. Further, as our forecast period for escrow usage in a "run-off" scenario is typically relatively short-term in nature, we determined that the forecasts about future conditions were also comparable to our historical conditions. As such, we did not adjust our historical credit loss rates at the adoption date for our financial guarantee arrangements. As a result of adopting this standard, we recorded an additional financial guarantee liability of $118.0 million and a corresponding cumulative-effect adjustment to equity at the adoption date, including $32.2 million to retained earnings, net of the impact of a $10.4 million increase in deferred tax assets, and $75.4 million to noncontrolling interest. Our recognized financial guarantee liability subsequent to our adoption of the new standard of $134.7 million represented a significant portion of our $150.4 million contractual escrow that was included in our restricted cash balance as of December 31, 2019. Historically, our actual cash payments required under the financial guarantee arrangements have been immaterial for our ongoing Bank Partners. Refer to Note 14 for additional information on our financial guarantees. Customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. This standard also requires entities to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and to apply the existing impairment guidance in ASC 350-40, Internal-Use Software , to the capitalized implementation costs as if the costs were long-lived assets. The standard clarifies that such capitalized implementation costs are also subject to the guidance on abandonment in ASC 360, Property, Plant, and Equipment . In addition, this standard requires alignment in presentation between: (i) the expense related to the capitalized implementation costs and the fees associated with the hosting element (service) of the arrangement on the statement of operations, (ii) the capitalized implementation costs and any prepayment for the fees of the associated hosting arrangement on the balance sheet, and (iii) the payments for capitalized implementation costs and the payments made for fees associated with the hosting element in the statement of cash flows. We elected to apply the standard prospect |
