| 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, patented 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 loan 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 than they could otherwise achieve on their own. 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 10, 2021 (the "2020 Form 10-K"), in order to carry on the business of GreenSky, LLC (“GSLLC”), a Georgia limited liability company. GSLLC is an operating entity and wholly-owned subsidiary of GS Holdings, LLC ("GS Holdings"). GS Holdings, a holding company with no operating assets or operations other than its equity interest in GSLLC, was organized to serve as a holding company for GSLLC. On August 24, 2017, GS Holdings acquired a 100% interest in GSLLC. The equity of GS Holdings is owned partially by GreenSky, Inc. and partially by certain pre-IPO equity owners of GS Holdings. 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 2020 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 Depositor I, LLC (“Depositor”), an indirect subsidiary of the Company, and GS Investment I, LLC (the “Warehouse SPV”), a special purpose vehicle and indirect subsidiary of the Company, to facilitate purchases of participation interests in loans (“Warehouse Loan Participations") originated by Bank Partners through the GreenSky program. These purchases are made by Depositor and then transferred to the Warehouse SPV. Each of the Warehouse SPV and Depositor is a separate legal entity from the Company, and the assets of the Warehouse SPV and Depositor are solely available to satisfy the creditors of the Warehouse SPV or Depositor, respectively. Pending Merger On September 14, 2021, GreenSky, Inc. and GS Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Goldman Sachs Group, Inc., a Delaware corporation (“Goldman Sachs”), and Goldman Sachs Bank USA, a bank organized under the laws of the State of New York and wholly owned subsidiary of Goldman Sachs (“Goldman Sachs Bank”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (a) Goldman Sachs Bank will establish a new wholly owned subsidiary, which will be a Delaware limited liability company (“Merger Sub 1”), and GreenSky, Inc. will be merged with and into Merger Sub 1 (the “Company Merger”), with Merger Sub 1 surviving the Company Merger as a wholly owned subsidiary of Goldman Sachs Bank (“Surviving LLC 1”), and (b) Goldman Sachs Bank will establish a new wholly owned subsidiary, which will be a Georgia limited liability company (“Merger Sub 2”), and Merger Sub 2 will be merged with and into GS Holdings (the “Holdings Merger” and, together with the Company Merger, the “Mergers”), with GS Holdings surviving the Holdings Merger as a subsidiary of Goldman Sachs Bank and Merger Sub 1 (“Surviving LLC 2”). Consummation of the Mergers is subject to the approval of the Company’s stockholders, the receipt of required regulatory approvals, and satisfaction of other customary closing conditions. As a condition to Goldman Sachs’s entry into the Merger Agreement, the Company and certain beneficiaries party to the Tax Receivable Agreement, dated as of May 23, 2018 (the “TRA”), by and among the Company, GS Holdings, GreenSky, LLC and the blocker corporations and beneficiaries party thereto, were required to enter into an amendment to the TRA (the "TRA Amendment"), which amendment provided that no payments under the TRA will be made following or as a result of the consummation of the Mergers. 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 2020 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, 2020, 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 nine months ended September 30, 2021 are not necessarily indicative of results expected for the full year. Certain reclassifications have been made to the prior year presentation to conform to the current year presentation in the Unaudited Condensed Consolidated Statements of Operations. These reclassifications were not material to the financial statements. 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 and Cash Equivalents Cash includes non-interest and interest-bearing demand deposit accounts with various financial institutions. 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 Note 3 for additional information on our fair value measurement. Restricted Cash Restricted cash includes cash held in interest-bearing escrow accounts to provide limited protection to our Bank Partners in the event of certain Bank Partner portfolio credit losses or in the event that the finance charges billed to borrowers do not exceed the sum of an agreed-upon portfolio yield, a fixed servicing fee and realized credit losses. Restricted cash also includes cash maintained for certain Bank Partners related to our finance charge reversal ("FCR") liability, certain custodial in-transit loan funding and consumer borrower payments that were restricted from use for our operations, and cash related to collections in connection with Warehouse Loan Participations. Refer to Note 14 for additional information. 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. September 30, 2021 2020 Cash and cash equivalents $ 241,970 $ 113,573 Restricted cash 264,387 324,934 Cash and cash equivalents and restricted cash in Unaudited Condensed Consolidated Statements of Cash Flows $ 506,357 $ 438,507 Accounts Receivable Accounts receivable are recorded at their original invoice amounts, which are reduced by any allowance for uncollectible amounts. 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. Refer to 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, contingent consideration receivables, 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 and loan receivables held for sale. We apply the income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount, to value our FCR liability, contingent consideration receivables, and servicing assets and liabilities. We determine the fair values of our interest rate swap, interest rate cap, and term loan 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 through 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. We have other embedded derivative instruments that are not designated as hedges. Refer to Note 3 and Note 8 for additional fair value and 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 certain Bank Partner portfolio credit losses or in the event that the finance charges billed to borrowers do not exceed the sum of (i) an agreed-upon portfolio yield, (ii) a fixed servicing fee and (iii) realized 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 under these financial guarantees 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 (i) an agreed-upon portfolio yield, (ii) a fixed servicing fee and (iii) 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. Under ASU 2016-13, 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 established with each Bank Partner. Typically, additional financial guarantee liabilities are recorded as new loans for our Bank Partners are facilitated on our platform, along with a corresponding non-cash charge recorded as financial guarantee expense in the Unaudited Condensed Consolidated Statements of Operations. 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 Note 14 for additional information on our financial guarantees. Revenue Recognition Disaggregated revenue Revenue disaggregated by type of service was as follows for the periods presented: Three Months Ended Nine Months Ended 2021 2020 2021 2020 Merchant fees $ 94,632 $ 100,036 $ 273,786 $ 275,158 Interchange fees 3,965 7,502 12,908 24,041 Transaction fees 98,597 107,538 286,694 299,199 Servicing (1) 26,116 27,446 92,158 87,210 Interest income (2) 3,436 7,037 10,986 10,426 Other (3) — 2 1 7 Interest and other 3,436 7,039 10,987 10,433 Total revenue $ 128,149 $ 142,023 $ 389,839 $ 396,842 (1) For the three and nine months ended September 30, 2021, includes changes in fair value of our servicing assets and liabilities related to Bank Partner arrangements of $(1.8) million and $9.0 million, respectively, compared to $(0.8) million and $(0.1) million, respectively, for the three and nine months ended September 30, 2020. 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 September 30, 2021. No assets were recognized from the costs to obtain or fulfill a contract with a customer as of September 30, 2021 and December 31, 2020. Because we recognize revenue as invoiced, no contract assets or contract liabilities were recorded as of September 30, 2021 and December 31, 2020. V olume-based price concessions as well as amortization of incentive assets to merchants and Sponsors that were both netted against the gross transaction price, totaling $5.3 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively, and $16.1 million and $11.5 million for the nine months ended September 30, 2021 and 2020, respectively. "Sponsors" refers to manufacturers, their captive and franchised showroom operations, and trade associations with which we partner to attract merchants to the GreenSky platform. Consolidation In the normal course of our business, we may enter into an agreement for management, servicing, or related services or hold ownership interests in special purpose entities. We evaluate our interests and/or involvement in these entities to determine whether they meet the definition of a variable interest entity ("VIE"), pursuant to ASC 810, Consolidation , and whether we are required to consolidate these entities. Recently Adopted Accounting Standards Simplifying the Accounting for Income Taxes In December 2019, the FASB issued ASU 2019-12, which modifies ASC 740, Income Taxes, to simplify the accounting for income taxes by removing certain exceptions, including intraperiod tax allocations and the calculation of income taxes in an interim period when in a loss position. The provisions of the standard applicable to us must be applied on a prospective basis. Our adoption of this standard on January 1, 2021 did not have a material effect on our Unaudited Condensed Consolidated Financial Statements. Accounting Standards Issued, But Not Yet Adopted Facilitation of the Effects of Reference Rate Reform on Financial Reporting In March 2020, the FASB issued ASU 2020-04, which was subsequently amended in January 2021 by ASU 2021-01, related to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The standard provides optional expedients and exceptions for applying GAAP if certain criteria are met. The standard applies to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. Further, the standard provides exceptions to certain guidance in ASC 815, Derivatives and Hedging , related to changes to the critical terms of a hedging relationship due to reference rate reform and provides optional expedients for fair value, cash flow and net investment hedging relationships for which the component excluded from the assessment of hedge effectiveness is affected by reference rate reform. This standard is effective as of March 12, 2020, and an entity may elect to adopt it through December 31, 2022 based on applying as of the beginning of an interim period up to the date that the financial statements are available to be issued. Once elected, the provisions of the standard must be applied prospectively for all similar eligible contract modifications. We have not yet elected an adoption date, are currently identifying arrangements referenced to rates, such as US dollar LIBOR, that are expected to be discontinued, and are evaluating our options for modifying such arrangements in accordance with the standard. We will continue to assess and plan for how the phase out of LIBOR will affect the Company. While the LIBOR transition could adversely affect the Company, we do not expect the impact to be material to the Company. |
