What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-06 · 219 added, 231 removed, 191 unchanged (70% of the section changed)

10 unchanged sentences

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.

Green Dot Corporation is a financial technology leader and bank holding company with a mission to reinvent banking for the masses.

Our company’s long-term strategy is to create a unique, sustainable and highly valuable fintech ecosystem, in part through the continued evolution of Green Dot’s innovative Banking as a Service (“BaaS”) platform, that’s intended to fuel the engine of innovation and growth for Green Dot and its business partners.

Enabled by proprietary technology, our commercial bank charter and our high-scale program management operating capability, our vertically integrated technology and banking platform is used by a growing list of America’s most prominent consumer and technology companies to design and deploy their own bespoke financial services solutions to their customers and partners, while we use that same integrated platform for our own leading collection of banking and financial services products marketed directly to consumers through what we believe to be the most broadly distributed, omni-channel branchless banking platforms in the United States.

Our products and services are divided among our two reportable segments:

1) Account Services and 2) Processing and Settlement Services.

We also consider our product and service offerings based on our market distribution strategies, which we refer to as our Consumer Business and Platform Services Business.

Refer to our latest Annual Report on Form 10-K " Part 1, Item 1.

Business " for more detailed information.

Financial Results and Trends

Our consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change % 2020 2019 Change %

Green Dot Corporation is a financial technology and registered bank holding company focused on making modern banking and money movement accessible for all.

Our goal is to deliver trusted, best-in-class money management and payment solutions to our customers and partners, seamlessly connecting people to their money.

Our proprietary technology enables faster, more efficient electronic payments and money management, powering intuitive and seamless ways for people to spend, send, control and save their money.

Through our bank, we offer a suite of financial products to consumers and businesses including debit, prepaid, checking, credit and payroll cards, as well as robust money processing services, such as cash deposits and disbursements, and tax refund processing.

Effective beginning with the first quarter of 2021, we have realigned our segment financial reporting based on how our current Chief Operating Decision Maker (“CODM”) manages our businesses, including resource allocation and performance assessment.

Our CODM (who is our Chief Executive Officer) organizes and manages our businesses primarily on the basis of the channels in which our product and services are offered and uses net revenue and segment profit to assess profitability.

Segment profit reflects each segment's net revenue less direct costs, such as sales and marketing expenses, processing expenses, third-party call center support and transaction losses.

As a result of this realignment, our operations are now aggregated amongst three reportable segments:

1) Consumer Services, 2) Business to Business ("B2B") Services, and 3) Money Movement Services.

Net interest income earned by our bank, eliminations of intersegment revenues and expenses, unallocated corporate expenses, and other costs that are not considered when our CODM evaluates the performance of our three reportable segments are recorded in Corporate and Other expenses.

Prior periods presented have been recast to align with our revised segment presentation for the three months ended March 31, 2021.

Refer to our 2020 Annual Report on Form 10-K "Part 1, Item 1.

Business" for more detailed information about our operations and Note 19—Segment Information in the notes to the accompanying unaudited consolidated financial statements.

Consolidated Financial Results and Trends

Our consolidated results of operations for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,

2021 2020 Change %

(In thousands, except percentages)

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Total operating expenses 359,501 303,320 56,181 18.5 %

Net (loss) income (2,992) (531) (2,461) * 47,147 98,204 (51,057) (52.0) %

* Not meaningful.

Impact of COVID-19

The unprecedented and rapid spread of the COVID-19 pandemic and the measures implemented to contain it have created a significant amount of economic volatility in our markets.

We have taken steps to ensure the health and safety of our employees and continued service to our customers and partners, while at the same time seeking to mitigate the impact of the pandemic on our financial condition and results of operations.

Our employees and business continuity

In response to the pandemic, we enacted business continuity plans in Shanghai, China and across the U.S., mandated that our employees work from home, required contractors to work remotely and implemented strict travel restrictions.

To date, our U.S.

employees have been successful in maintaining our operations in a remote work environment and our offices in China have since reopened consistent with local guidelines.

While we experienced disruption in staffing levels at our third-party call centers across the globe in the first half of 2020, staffing levels have been restored to appropriate levels and we continue to monitor the situation, as we evaluate future operating plans.

Demand for our products and services

Beginning in March 2020, the business and operations of our retail distributors, employers offering our PayCard programs and certain of our BaaS partners have been disrupted, with many experiencing reduced foot traffic or usage of their products and services.

The conditions caused by the COVID-19 pandemic adversely affected our customers’ spending levels and the ability or willingness to purchase our products and services through our retail distributors, lowered the volume of transactions through our BaaS and PayCard programs and delayed the launching of new products and services.

Subsequently, governmental actions in the second quarter of 2020, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) helped mitigate the effects of COVID-19 on our business.

In particular, stimulus funds and incremental unemployment benefits provided under the CARES Act and a fundamental shift in consumer behavior towards electronic payments has created a higher demand and usage of our products and services.

In the third quarter of 2020, our gross dollar volume, purchase volume and the number of active accounts grew year-over-year by 47%, 26% and 10%, respectively.

While we believe we will continue to benefit from the accelerated adoption of digital payments, we expect our key performance indicators to normalize throughout the fourth quarter of 2020 as the effect of past governmental actions lessen.

Impact on interest income, cost structure and liquidity

Interest Income

The Federal Reserve recently announced reductions in short-term interest rates that have lowered the yields on our cash and investment balances and therefore, we expect a reduction in the amount of interest income we earn for the remainder of the year.

Cost Structure

We have experienced increased costs, including higher disputed transaction losses, which were exacerbated by the disruption in staffing levels at our third-party call centers in the first half of 2020.

We have implemented cost-saving measures to offset increased costs and are otherwise working to mitigate the conditions driving our higher costs.

We have taken steps to strengthen our liquidity position and ensure we have ample flexibility to pursue strategic priorities, including utilizing our revolving credit facility, strictly managing our enterprise-wide employee headcount and delaying or reducing non-critical projects.

We currently have the full $100 million available to us under our revolving credit facility should we need it to invest in strategic initiatives.

Additionally, the CARES Act provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

This is expected to provide us with approximately $6 million of additional liquidity during the current year.

The duration and magnitude of the effects of COVID-19 remains uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, the nature of and duration for which the preventative measures remain in place, the extent and effectiveness of containment and mitigation actions, the type of stimulus measures and other policy responses that the U.S.

government may further adopt, and the impact of these and other factors on our employees, customers, retail distributors, partners and vendors.

See Part II, Item 1A, Risk Factors , for an additional discussion of risk related to the COVID-19 pandemic.

Net income 25,735 46,845 (21,110) (45.1) %

Refer to "Segment Results" for a summary of financial results of each of our reportable segments.

Total operating revenues

Our total operating revenues for the three and nine months ended September 30, 2020 increased $50.6 million, or 21%, and $110.2 million, or 13%, respectively, over the prior year comparable periods, generating revenue growth from both our Account Services and Processing and Settlement Services segments.

Account Services

Within our Account Services segment, total operating revenues increased year-over-year for the three and nine months ended September 30, 2020 by 25% and 14%, respectively, primarily attributable to growth in our key metrics, such as gross dollar volume and purchase volume.

The growth in gross dollar volume was driven, in part, by the extension of federal unemployment benefits and higher levels of tax refund payments due to the extension of the tax filing deadlines to July 2020.

The growth in our key metrics resulted in year-over-year increases in BaaS program management service fee revenues earned from platform partners, monthly maintenance fees and interchange revenues, partially offset by an increase in estimated cash back rewards that we record as a reduction to card revenues and other fees.

We also experienced a year-over-year decline in net interest income during the three and nine months ended September 30, 2020 due to lower yields on our cash and investment balances as a result of rate decreases by the Federal Reserve.

While we believe gross dollar volume is a strong indicator of our revenue for all our account programs and believe our long term strategy and unique collection of assets provide a competitive advantage to address the competitive pressures we face from new entrants, current economic conditions caused by the COVID-19 pandemic have created mixed trends in our business that make it difficult to forecast future results.

We continue to monitor gross dollar volume to better understand its sources.

We saw an increased proportion of ACH deposits coming from government benefits when account holders filed for unemployment benefits.

While state and federal unemployment benefits afforded under the CARES Act helped offset erosion in payroll deposits, as we noted above, such benefits have since expired and it is unclear whether or how long such benefits will be extended or whether such benefits will be maintained, significantly reduced or replaced.

Processing and Settlement Services

Within our Processing and Settlement Services segment, total operating revenues increased year-over-year by 6% and 7% for the three and nine months ended September 30, 2020, respectively, primarily due to growth in the number of cash transfers and tax refund payments processed, as well as the introduction of new tax processing services compared with the prior year periods, partially offset by a year-over-year decline in Simply Paid disbursement transactions due to the effects of the COVID-19 pandemic.

During the fourth quarter of 2020, we anticipate a modest decline in the number of cash transfers and the related revenue, as compared to the same period in 2019, as a result of the non-renewal of a reload partner arrangement.

We do not expect a corresponding impact to net income due to the lower profitability of this arrangement.

Our total operating revenues for the three months ended March 31, 2021 increased $31.3 million, or 9% over the prior year comparable period, generating revenue growth across our Consumer Services and B2B Services segments, partially offset by lower revenues earned from our Money Movement Services.

Our deposit account programs within our Consumer Services and B2B Services segments continue to benefit from organic growth as the accelerated demand for digital payments continues.

We have seen a fundamental shift in consumer behavior towards electronic payments throughout the COVID-19 pandemic that has created a higher demand and usage of our products and services.

Additionally, these two segments also benefited from economic stimulus funds and incremental unemployment benefits enacted by the U.S.

federal government.

In December 2020, an additional $900 billion economic stimulus package was signed into law, providing for additional direct payments and enhanced unemployment benefits, and in March 2021, another $1.9 trillion economic package was authorized under the American Rescue Plan Act of 2021.

On a year-over-year basis, our total gross dollar volume, purchase volume and number of active accounts grew year-over-year by 45%, 26% and 11%, respectively, compared to March 31, 2020.

The growth in our key metrics resulted in year-over-year increases in BaaS program management service fee revenues earned from platform partners, monthly maintenance fees, ATM fees and interchange revenues across our deposit account programs.

These increases were partially offset by a year-over-year decline in Simply Paid disbursement transactions in our B2B segment due to the continued effects of the COVID-19 pandemic on the rideshare industry.

In January 2021, we announced the launch of GO2bank, a new mobile bank offered in our Consumer Services segment that is designed to help the majority of Americans living paycheck to paycheck build a stronger financial foundation.

GO2bank is designed to help our customers lower the cost of accessing and managing their money and offers features such as overdraft protection, high-value rewards, high-interest savings, and opportunities to establish, build, and track credit, regardless of credit history.

While still in its early stages, we remain encouraged by the growth opportunity GO2bank provides to our financial results in 2021 and beyond.

Our Money Movement Services have declined on a year-over-year basis in part due to a shift in the number of tax refunds processed from the first quarter of 2021 to the second quarter of 2021.

While the extension of the tax deadline to the latter half of the second quarter of the year has shifted volumes from the first quarter of 2021, we do not expect it to have a material impact on the total number of tax refunds processed for the full year 2021.

In addition, revenues from our tax processing services declined year-over-year as a result of securing a multi-year agreement with one of our largest customers in exchange for lower economics on tax refund transfers and we expect this to continue to impact revenue from refund transfers for the remainder of the year.

We also experienced a decline in cash transfers due in part to our decision not to renew a reload partner agreement in the fourth quarter of 2020.

The impact to segment profit is limited due to the lower profitability of this arrangement.

The non-renewal of this agreement will impact the number of cash transfers in 2021, but any year-over-year growth or decline in cash transfers in 2021 will be dependent on multiple factors, including the level of growth of deposit account programs in our Consumer Services and B2B Services segments.

Total operating expenses

Our total operating expenses for the three and nine months ended September 30, 2020 increased $51.1 million, or 21%, and $171.8 million, or 23%, respectively, over the prior year comparable periods.

This increase was primarily the result of several factors, including higher processing expenses associated with the growth of certain BaaS account programs and an increase in other general and administrative expenses primarily due to a year-over-year growth in dispute transaction losses and higher depreciation and amortization of property, plant and equipment as a result of growth in capital expenditures in recent years.

We also experienced higher compensation and benefits expenses, principally due to accrued bonus compensation for non-executive employees and stock-based compensation expenses associated with performance-based equity awards as a result of our improving performance.

During the three months ended September 30, 2020, sales and marketing expenses declined year-over-year, principally from lower marketing expenses.

In 2019, the majority of our marketing expenses were concentrated in the second half of the year to support the launch of our Green Dot Unlimited product.

For the nine months ended September 30, 2020, we experienced higher sales and marketing expenses attributable to the year-over-year increases in operating revenues generated from products and services that are subject to revenue-sharing arrangements with our distributors and partners.

While we continue to build operational efficiencies within our customer service operations, in the short-term, we continue to incur significantly higher dispute transaction losses year-over-year, primarily due to higher volumes of incoming customer disputes and operational disruptions caused by the COVID-19 pandemic.

While we do not anticipate these conditions to persist over a long duration, dispute transaction losses have negatively impacted

other general and administrative expenses for the three and nine months ended September 30, 2020 and we expect will normalize beginning in 2021 as our improvement measures begin to take effect.

Additionally, under our new Walmart MoneyCard agreement, beginning January 1, 2020, the sales commission rate we pay to Walmart for the MoneyCard program increased from the prior agreement.

Consequently, our sales and marketing expenses throughout 2020 has been negatively impacted by the increased commission rate.

We recorded an income tax benefit of $1.3 million for the three months ended September 30, 2020, a decrease $0.5 million, or 27%, from the prior year comparable period.

The decrease was primarily due to the effect of certain limitations on our income tax deductions on compensation.

Income tax expense for the nine months ended September 30, 2020 decreased $8.8 million, or 38%, from the prior year comparable period primarily due to a decline in operating income generated, offset by a higher effective tax rate year-over-year.

Our total operating expenses for the three months ended March 31, 2021 increased $56.2 million, or 19% over the prior year comparable period.

This increase was the result of several factors, including higher processing expenses within our B2B Services segment associated with the growth of certain BaaS account programs and an increase in sales and marketing expenses in our Consumer Services segment to promote our newly launched GO2bank product during tax season.

As such, we expect to incur more marketing expenses in the first half of 2021 than the second half.

Each of these segments experienced an increase in third-party call center support, a component of compensation and benefits expenses, to meet the increased demand in our customer service center as a result of the federal relief programs described above, as well as year-over-year growth in dispute transaction losses, a component within other general and administrative expenses, in connection with the growth in purchase volume.

Compensation and benefits expenses within Corporate and Other expenses also increased principally due to the timing of bonus compensation.

During 2021, we intend to continue to make growth-oriented investments that we believe will help to accelerate revenue growth and allow margins to expand in 2022 and beyond, including reinvesting any incremental revenue benefit in 2021, such as revenue associated with the March 2021 economic stimulus package, into marketing efforts for our newly launched GO2bank product.

In addition to marketing investments, our other growth oriented investments are focused in improving our customer's overall experience and building a modern and scalable core banking and card management platform that reduces our reliance on third-party processors and increases our ability to innovate and preserve margins.

As such, we expect to incur higher costs year-over-year associated with

third-party call centers, a component of compensation and benefits expenses, in our Consumer Services and B2B Services segments.

We also expect to increase salaries and wages expenses, which are also a component of compensation and benefits expenses, to support our customer experience efforts and our implementation of a modernized banking platform.

Additionally, we expect our implementation to increase components of other general and administrative expenses, such as software license and hosting costs.

Our income tax expense for the three months ended March 31, 2021 decreased $4.9 million, or 41%, from the prior year comparable period.

The decrease in tax expense was driven primarily by the decline in our operating income, offset by a slightly higher effective tax rate year-over-year.

Our effective tax rate for the three months ended March 31, 2021 increased over the prior year comparable period primarily due to an increase in our expected pre-tax income and the corresponding rate impact on items such as general business credits and the IRC 162(m) limitation on the deductibility of executive compensation, partially offset by an increase in tax benefits associated with stock-based compensation.

COVID-19 Update

Most of our U.S.

personnel continue to operate remotely and in response to our remote workforce strategy, we commenced closure of most our U.S.

leased office locations in 2021.

However, we will be required to continue making our contractual payments until our operating leases are formally terminated or expire.

While we believe our cardholder programs will continue to benefit from the governmental economic relief packages signed into law, as well as the accelerated adoption of digital payments during the pandemic, we expect our key performance indicators will normalize as the effect of governmental actions lessen.

In response to the economic impact caused by COVID-19, the Federal Reserve announced reductions in short-term interest rates in March 2020 that have lowered the yields on our cash and investment balances and therefore, we continue to experience a reduction in the amount of interest income we earn.

An extended duration of near zero short-term interest rates will continue to impact the amount of net interest income we earn in the future.

The duration and magnitude of the continuing effects of COVID-19 remain uncertain and dependent on various factors, including the continued severity and transmission rate of the virus, new variants of the virus, the nature of and duration for which preventative measures remain in place, the extent and effectiveness of containment and mitigation efforts, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S.

government may further adopt.

See Part II, Item 1A, Risk Factors , for an additional discussion of risk related to the COVID-19 pandemic.

Consolidated Key Metrics

We review a number of metrics to help us monitor the performance of, and identify trends affecting, our business.

We believe the following measures are the primary indicators of our quarterly and annual revenues:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change % 2020 2019 Change %

Three Months Ended March 31,

2021 2020 Change %

(In millions, except percentages)

Gross Dollar Volume $ 20,666 $ 14,294 $ 6,372 44.6 %

GDV from Direct Deposit Sources $ 9,493 $ 6,843 $ 2,650 38.7 % $ 30,715 $ 24,268 $ 6,447 26.6 %

Number of Active Accounts* 5.72 5.18 0.54 10.4 % n/a n/a n/a n/a

Direct Deposit Active Accounts* 2.37 2.14 0.23 10.7 % n/a n/a n/a n/a

Number of Active Accounts* 6.35 5.74 0.61 10.6 %

Purchase Volume $ 10,445 $ 8,282 $ 2,163 26.1 %

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Tax Refunds Processed 7.44 9.70 (2.26) (23.3) %

* Represents number of active and direct deposit active accounts as of September 30, 2020 and 2019, respectively.

** Not meaningful.

* Represents the number of active accounts as of March 31, 2021 and 2020, respectively.

See “Segment Results” for additional information and discussion regarding key metrics performance by segment.

The definitions of our key metrics are as follows:

Gross Dollar Volume — represents the total dollar volume of funds loaded to our account products from direct deposit and non-direct deposit sources.

A substantial portion of our gross dollar volume is generated from direct deposit sources.

We use these metrics to analyze the total amount of money moving onto our account programs, determine the overall engagement and usage patterns of our account holder base.

This metric also serves as a leading indicator of revenue generated through our Account Services segment products, inclusive of interest income generated on deposits held at Green Dot Bank, fees charged to account holders and interchange revenues generated through the spending of account balances.

The increases in total dollar volume of 47% and 34% during the three and nine months ended September 30, 2020, respectively, and the increases in gross dollar volume from direct deposit sources of 39% and 27% during the three and nine months ended September 30, 2020, respectively, from the comparable prior year periods were principally driven by an increase in the number of direct deposit active accounts and federal benefits received under the CARES Act, as well as uncharacteristically higher levels of tax refund payments in the third quarter of 2020 due to the extension of the tax filing deadlines to July 2020.

Number of Active Accounts — represents any bank account within our Account Services segment that is subject to United States Patriot Act compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits.

This metric includes general purpose reloadable prepaid card accounts, demand deposit or checking accounts, and credit card accounts in our portfolio that had a purchase, deposit or ATM withdrawal transaction during the applicable quarter.

We use this metric to analyze the total amount of money moving onto our account programs, and to determine the overall engagement and usage patterns of our account holder base.

This metric also serves as a leading indicator of revenue generated through our Consumer Services and B2B Services segments, inclusive of fees charged to account holders and interchange revenues generated through the spending of account balances.

Number of Active Accounts — represents any bank account within our Consumer Services and B2B Services segments that is subject to United States Patriot Act compliance and, therefore, requires customer identity verification prior to use and is intended to accept ongoing customer cash or ACH deposits.

This metric includes checking accounts, general purpose reloadable prepaid card accounts, and secured credit card accounts in our portfolio that had at least one purchase, deposit or ATM withdrawal transaction during the applicable quarter.

We use this metric to analyze the overall size of our active customer base and to analyze multiple metrics expressed as an average across this active account base.

Within our active accounts, we monitor the mix of direct deposit accounts and non-direct deposit accounts.

Our direct deposit active accounts, on average, have the longest tenure and generate the majority of our gross dollar volume in any period and thus, generate more revenue over their lifetime than other active accounts.

We experienced an increase in the number of active accounts and direct deposit active accounts of 10% and 11%, respectively, as of September 30, 2020 on a year-over-year basis, primarily driven by new and existing customers utilizing our platform to receive stimulus funds and unemployment benefits provided for under the CARES Act and the extension of tax filing deadlines to July 2020.

Beginning with the first quarter of 2021, we have provided certain key metrics at the realigned segment level and have revised our direct deposit active account metric.

Following these changes, the direct deposit active accounts metric only consists of accounts in our Consumer Services segment and no longer include direct deposit active accounts in our B2B Services segment.

Based on the economic structure of our partnerships within our B2B services segment, we believe that total active accounts is the most relevant key metric for the B2B Services segment.

We also narrowed the definition of "direct deposit active account" to include only active accounts that have received one or more payroll or government benefit transaction during the period.

Prior period metrics have been restated to conform to our current definition.

Our direct deposit active accounts within our Consumer Services segment, on average, have the longest tenure and generate the majority of our gross dollar volume in any period and thus, generate more revenue over their lifetime than other active accounts.

Purchase Volume — represents the total dollar volume of purchase transactions made by our account holders.

This metric excludes the dollar volume of ATM withdrawals and in 2020, excludes volume generated by certain BaaS programs where the BaaS partner earns interchange and we earn a platform fee.

This metric excludes the dollar volume of ATM withdrawals and volume generated by certain BaaS programs where the BaaS partner receives interchange and we earn a platform fee.

We use this metric to analyze interchange revenue, which is a key component of our financial performance.

Purchase volume increased approximately 26% and 18% during the three and nine months ended September 30, 2020, respectively, from the comparable prior year periods, in line with the increase in Gross Dollar Volume as described above.

Number of Cash Transfers — represents the total number of cash transfer transactions conducted by consumers, such as a point-of-sale swipe reload transaction, the purchase of a MoneyPak or an e-cash mobile remittance transaction marketed under various brand names, that we conducted through our retail distributors in a specified period.

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We review this metric as a measure of the size and scale of our retail cash processing network, as an indicator of customer engagement and usage of our products and services, and to analyze cash transfer revenue, which is a key component of our financial performance.

Our cash transfers increased 9% and 10% during the three and nine months ended September 30, 2020, respectively, over the prior year comparable periods primarily due to an increase in transactions driven by the number of third-party account programs that utilize the Green Dot Network to accept funds through our cash processing network.

As discussed above, during the fourth quarter of 2020, we anticipate a modest decline in the number of cash transfers and the related revenue, as compared to the same period in 2019, as a result of the non-renewal of a reload partner arrangement.

Number of Tax Refunds Processed — represents the total number of tax refunds processed in a specified period.

1 unchanged sentence

We review this metric as a measure of the size and scale of our tax refund processing platform and as an indicator of customer engagement and usage of its products and services.

The overall increase in the number of tax refunds processed of 3% during the nine months ended September 30, 2020 was primarily due to an increase in refunds processed through online consumer tax filing software platforms, compared to the prior year period.

Key components of our results of operations

17 unchanged sentences

Our aggregate other fees vary primarily based upon account sales of all types, gift card sales, purchase transactions and the number of active accounts in our portfolio.

Processing and Settlement Service Revenues — Processing and settlement service revenues consist of cash transfer revenues, tax refund processing service revenues, Simply Paid disbursement revenues and other tax

processing service revenues.

Cash Processing Revenues — Cash processing revenues (which we have previously referred to as processing and settlement services revenues) consist of cash transfer revenues, tax refund processing service revenues, Simply Paid disbursement revenues and other tax processing service revenues.

We earn cash transfer revenues when consumers fund their cards through a reload transaction at a Green Dot Network retail location.

5 unchanged sentences

Interest Income, net — Net interest income represents the difference between the interest income earned on our interest-earning assets and the interest expense on our interest-bearing liabilities held at Green Dot Bank.

Interest-earning assets include customer deposits, loans, and investment securities.

Interest-earning assets include cash from customer deposits, loans, and investment securities.

Our interest-bearing liabilities held at Green Dot Bank include interest-bearing deposits.

2 unchanged sentences

We classify our operating expenses into the following four categories:

Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the commissions we pay to our retail distributors, brokers and platform partners, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards and promotional materials to our retail distributors and personalized GPR and GoBank cards to consumers who have activated their cards.

Sales and Marketing Expenses — Sales and marketing expenses consist primarily of the commissions we pay to our retail distributors, brokers and platform partners, advertising and marketing expenses, and the costs of manufacturing and distributing card packages, placards and promotional materials to our retail distributors and personalized debit cards to consumers who have activated their cards.

We generally establish commission percentages in long-term distribution agreements with our retail distributors and platform partners.

4 unchanged sentences

For this reason, these expenses do not always track changes in our operating revenues.

Our manufacturing and distribution costs vary primarily based on the number of GPR and GoBank accounts activated by consumers.

Our manufacturing and distribution costs vary primarily based on the number of accounts activated by consumers.

Compensation and Benefits Expenses — Compensation and benefits expenses represent the compensation and benefits that we provide to our employees and the payments we make to third-party contractors.

8 unchanged sentences

These costs vary with the total number of active accounts in our portfolio, as do losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud.

associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.

Costs associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.

Income Tax Expense

Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting from the sale of our products and services.

On March 27, 2020, the CARES Act was signed into law, which among other things, includes certain income tax provisions for individuals and corporations;

however, these benefits do not impact our current tax provision.

Critical Accounting Policies and Estimates

Reference is made to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Except as disclosed in Note 2 — Summary of Significant Accounting Policies under Recently Adopted Accounting Pronouncements to the Consolidated Financial Statements included herein, there have been no changes to our critical accounting policies and estimates during the nine months ended September 30, 2020.

Recent Accounting Pronouncements

Reference is made to the recent accounting pronouncements disclosed in Note 2 — Summary of Significant Accounting Policies to the Consolidated Financial Statements included herein.

Comparison of Three-Month Periods Ended September 30, 2020 and 2019

Operating Revenues

The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues, interchange revenues and net interest income:

Three Months Ended September 30,

Amount % of Total

Operating Revenues Amount % of Total

Operating Revenues

(In thousands, except percentages)

Operating revenues:

Card revenues and other fees $ 146,648 50.3 % $ 102,231 42.5 %

Processing and settlement service revenues 57,526 19.8 54,620 22.7

Interchange revenues 84,876 29.2 77,080 32.1

Interest income, net 2,020 0.7 6,517 2.7

Total operating revenues $ 291,070 100.0 % $ 240,448 100.0 %

Card Revenues and Other Fees — Card revenues and other fees totaled $146.6 million for the three months ended September 30, 2020, an increase of $44.4 million, or 43.4%, from the comparable prior year period.

Our card revenues and other fees increased principally as a result of BaaS program management service fee revenues earned from platform partners and to a lesser extent, an increase in monthly maintenance fee assessments as a result of higher account balances.

The deposit liability on our balance sheet has increased substantially year-over-year as a result of the increase in gross dollar volume.

These increases were offset partially by an increase in estimated cash back rewards that we record as a reduction to card revenues and other fees.

Our estimate of cash rewards varies based on multiple factors including the terms and conditions of the cash back program, customer activity and customer redemption rates.

Cash rewards have increased steadily year-over-year as our cash-back programs have grown, principally from those programs launched in the second half of 2019.

Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $57.5 million for the three months ended September 30, 2020, an increase of $2.9 million, or 5%, from the comparable prior year period.

The increase is attributable in part to a shift in the timing of tax refunds processed from the second quarter to the third quarter of 2020 as a result of the extension of the tax filing deadline to July 2020, as well as growth in the number of cash transfers processed.

These increases were offset by a decline in the number of Simply Paid disbursement transactions due to the effects of the COVID-19 pandemic.

Interchange Revenues — Interchange revenues totaled $84.9 million for the three months ended September 30, 2020, an increase of $7.8 million, or 10%, from the comparable prior year period.

The increase was primarily

due to an increase in the amount of purchase volume during the three months ended September 30, 2020 compared to the prior year period, which we attribute primarily to stimulus funds and unemployment benefits made available under the CARES Act, partially offset by a decline in the interchange rate earned as a result of an increase in the average dollar amount purchased per transaction.

Interest Income, net — Net interest income totaled $2.0 million for the three months ended September 30, 2020, a decrease of $4.5 million, or 69%, from the comparable prior year period.

The decrease was principally the result of lower yields on our investment securities portfolio and customer funds on deposit as a result of rate decreases by the Federal Reserve during the first quarter of 2020.

Operating Expenses

The following table presents a breakdown of our operating expenses among sales and marketing, compensation and benefits, processing, and other general and administrative expenses:

Three Months Ended September 30,

Amount % of Total

Operating Revenues Amount % of Total

Operating Revenues

(In thousands, except percentages)

Operating expenses:

Sales and marketing expenses $ 96,189 33.0 % $ 98,352 40.9 %

Compensation and benefits expenses 61,077 21.0 46,678 19.4

Processing expenses 74,158 25.5 49,010 20.4

Other general and administrative expenses 62,296 21.4 48,595 20.2

Total operating expenses $ 293,720 100.9 % $ 242,635 100.9 %

Sales and Marketing Expenses — Sales and marketing expenses totaled $96.2 million for the three months ended September 30, 2020, a decrease of $2.2 million, or 2% from the comparable prior year period.

This decrease was primarily driven by lower marketing expenses.

In 2019, the majority of our marketing expenses were concentrated in the second half of the year to support the launch of our Green Dot Unlimited product.

This decrease was partially offset by an increase in sales commissions associated with higher revenues generated from products that are subject to revenue-sharing agreements.

Under our current agreement with Walmart, beginning on January 1, 2020, the sales commission rate we pay for the MoneyCard program increased from the prior agreement.

As such, our sales and marketing expenses in 2020 continue to be negatively impacted by the increased commission rate.

Compensation and Benefits Expenses — Compensation and benefits expenses totaled $61.1 million for the three months ended September 30, 2020, an increase of $14.4 million or 31% from the comparable prior year period.

The increase was primarily due to higher salaries and wages of $11.5 million, a portion of which was attributable to accrued bonus compensation for non-executive employees, and an increase in stock-based compensation expense of approximately $4.9 million associated with certain performance-based awards.

These increases were partially offset by lower third-party contractor and employee travel expenses due to COVID-19 related travel restrictions.

Processing Expenses — Processing expenses totaled $74.2 million for the three months ended September 30, 2020, an increase of $25.2 million or 51% from the comparable prior year period.

This increase was principally due to growth in BaaS account programs within our Account Services segment and overall volume of transactions processed through our platform.

Other General and Administrative Expenses — Other general and administrative expenses totaled $62.3 million for the three months ended September 30, 2020, an increase of $13.7 million or 28%, from the comparable prior year period.

This increase was primarily due to a year-over-year growth in dispute transaction losses, as discussed above, and higher depreciation and amortization of property, plant and equipment as a result of growth in capital expenditures in recent years.

Our income tax benefit totaled $1.3 million for the three months ended September 30, 2020 compared to a $1.8 million income tax benefit for the prior year comparable period, resulting in an effective tax rate of 31.1% and 76.9%, respectively.

We have not included an effective tax rate reconciliation for the three months ended September 30, 2020 and 2019, because the effective tax rate calculation for each period is not meaningful to our consolidated financial statements on a year-over-year basis.

Our income tax benefit decreased by $0.5 million for the three months ended

September 30, 2020 from the prior year comparable period primarily due to the IRC 162(m) limitation on the deduction of certain executive compensation and a decrease in the excess tax benefits deduction for stock-based compensation.

Comparison of Nine-Month Periods Ended September 30, 2020 and 2019

Critical Accounting Estimates

Reference is made to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Comparison of Three-Month Periods Ended March 31, 2021 and 2020

Operating Revenues

The following table presents a breakdown of our operating revenues among card revenues and other fees, processing and settlement service revenues, interchange revenues and net interest income:

Nine Months Ended September 30,

The following table presents a breakdown of our operating revenues among card revenues and other fees, cash processing revenues, interchange revenues and net interest income:

Three Months Ended March 31,

Amount % of Total

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Card revenues and other fees $ 186,012 47.2 % $ 141,394 39.0 %

Processing and settlement service revenues 246,042 25.4 229,272 26.7

Cash processing revenues 90,915 23.1 123,066 34.0

Interchange revenues 111,226 28.3 90,866 25.1

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Total operating revenues $ 393,486 100.0 % $ 362,169 100.0 %

Card Revenues and Other Fees — Card revenues and other fees totaled $440.7 million for the nine months ended September 30, 2020, an increase of $87.3 million, or 25%, from the comparable prior year period.

This increase was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019—Operating Revenues—Card Revenues and Other Fees."

Processing and Settlement Service Revenues — Processing and settlement service revenues totaled $246.0 million for the nine months ended September 30, 2020, an increase of $16.7 million, or 7%, from the comparable prior year period.

This increase was driven primarily by year-over-year growth in transaction volume associated with cash transfers, expanded adoption of our taxpayer advance programs and the introduction of new tax processing services for the nine months ended September 30, 2020 compared to the prior year period, partially offset by lower Simply Paid disbursement transactions due to the effects of the COVID-19 pandemic.

Interchange Revenues — Interchange revenues totaled $271.7 million for the nine months ended September 30, 2020, an increase of $20.7 million, or 8%, from the comparable prior year period.

This increase was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019—Operating Revenues—Interchange Revenues."

Interest Income, net — Net interest income totaled $11.0 million for the nine months ended September 30, 2020, a decrease of $14.6 million, or 57%, from the comparable prior year period.

This decrease was driven by the same factors discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019 Operating Revenues—Interest Income, net."

Card Revenues and Other Fees — Card revenues and other fees totaled $186.0 million for the three months ended March 31, 2021, an increase of $44.6 million, or 31.5%, from the comparable prior year period.

Our card revenues and other fees increased principally as a result of an increase in gross dollar volume due to federal stimulus programs and growth in our active accounts.

The increase in gross dollar volume also resulted in an increase in BaaS program management service fee revenues earned from platform partners and to a lesser extent, an increase in monthly maintenance fee assessments and ATM fees.

Cash Processing Revenues — Cash processing revenues totaled $90.9 million for the three months ended March 31, 2021, a decrease of $32.2 million, or 26%, from the comparable prior year period.

The decrease is attributable in part to a shift in the timing of tax refunds processed from the first quarter to the second quarter of 2021, as a result of the extension of tax filing deadlines into the latter part of the second quarter of 2021 and lower economics on tax refund transfers in exchange for securing a multi-year agreement with one of our largest customers.

The number of cash transfers processed also decreased year-over-year, in part due to our decision not to renew a reload network agreement with a partner in the fourth quarter of 2020, as well as a decline in the number of Simply Paid disbursement transactions due to the effects of the COVID-19 pandemic on the rideshare industry.

Interchange Revenues — Interchange revenues totaled $111.2 million for the three months ended March 31, 2021, an increase of $20.3 million, or 22%, from the comparable prior year period.

The increase was primarily due to an increase in the amount of purchase volume during the three months ended March 31, 2021 compared to the prior year period, which is primarily attributed to the economic stimulus funds and unemployment benefits provided by the federal government, partially offset by a decline in the interchange rate earned as a result of an increase in the average dollar amount purchased per transaction.

Interest Income, net — Net interest income totaled $5.3 million for the three months ended March 31, 2021, a decrease of $1.5 million, or 22%, from the comparable prior year period.

The decrease was principally the result of lower yields on our investment securities portfolio and customer funds on deposit as a result of rate decreases by the Federal Reserve in March 2020.

Operating Expenses

The following table presents a breakdown of our operating expenses among sales and marketing, compensation and benefits, processing, and other general and administrative expenses:

Nine Months Ended September 30,

Three Months Ended March 31,

Amount % of Total

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Total operating expenses $ 359,501 91.4 % $ 303,320 83.7 %

Sales and Marketing Expenses — Sales and marketing expenses totaled $319.7 million for the nine months ended September 30, 2020, an increase of $35.2 million, or 12% from the comparable prior year period.

increase was driven by an increase in sales commissions associated with higher revenues generated from products that are subject to revenue-sharing agreements.

Compensation and Benefits Expenses — Compensation and benefits expenses totaled $173.0 million for the nine months ended September 30, 2020, an increase of $16.5 million or 11% from the comparable prior year period.

This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019—Operating Expenses—Compensation and Benefits Expenses."

Processing Expenses — Processing expenses totaled $216.6 million for the nine months ended September 30, 2020, an increase of $66.7 million or 44% from the comparable prior year period.

This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019—Operating Expenses—Processing Expenses."

Other General and Administrative Expenses — Other general and administrative expenses totaled $198.5 million for the nine months ended September 30, 2020, an increase of $53.2 million or 37%, from the comparable prior year period.

This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended September 30, 2020 and 2019—Operating Expenses—Other General and Administrative Expenses."

Sales and Marketing Expenses — Sales and marketing expenses totaled $118.9 million for the three months ended March 31, 2021, an increase of $2.2 million, or 2% from the comparable prior year period.

This increase was primarily driven by higher marketing and supply chain expenses in connection with the launch of GO2bank in January 2021, partially offset by a decrease in sales commissions due to lower revenues generated from certain products that are subject to revenue-sharing agreements.

Compensation and Benefits Expenses — Compensation and benefits expenses totaled $75.0 million for the three months ended March 31, 2021, an increase of $21.9 million or 41% from the comparable prior year period.

The increase was primarily due to higher third-party call center support costs to meet increased demand in our customer service center as a result of the federal relief programs described above, higher salaries and wages, principally attributable to the timing of accrued bonus compensation, and an increase in stock-based compensation expense of approximately $5.0 million driven by fluctuations in the expected achievement of certain performance-based awards in the prior year period.

Processing Expenses — Processing expenses totaled $97.7 million for the three months ended March 31, 2021, an increase of $26.6 million or 37% from the comparable prior year period.

This increase was principally due to growth in BaaS account programs within our B2B Services segment and overall volume of transactions processed through our consolidated platform.

Other General and Administrative Expenses — Other general and administrative expenses totaled $68.0 million for the three months ended March 31, 2021, an increase of $5.6 million or 9%, from the comparable prior year period.

This increase was primarily due to a year-over-year growth in dispute transaction losses as a result of the increase in purchase volume, as discussed above, partially offset by lower professional fees and rent expenses as a result of our office closures in the U.S.

The following table presents a breakdown of our effective tax rate among federal, state, and other:

Nine Months Ended September 30,

Three Months Ended March 31,

federal statutory tax rate 21.0 % 21.0 %

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Employee stock-based compensation (6.1) 2.1

IRC 162(m) limitation 4.5 1.9

Nondeductible executive compensation 8.4 4.2

Nondeductible expenses 0.3 0.6

1 unchanged sentence

Effective tax rate 21.7 % 20.3 %

Our income tax expense totaled $14.4 million for the nine months ended September 30, 2020, representing a decrease of $8.8 million from the prior year comparable period, and primarily driven by the decline in our operating income.

The increase in the effective tax rate for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is primarily due to an increase of $0.5 million in taxable income resulting from the IRC 162(m) limitation on the deductibility of certain executive compensation and a $3.9 million decline in excess tax benefits from stock-based compensation.

We recognized an excess tax benefit on stock compensation of $0.5 million for the nine months ended September 30, 2020, compared to a $4.4 million excess tax benefit for the prior year comparable period.

These increases were partially offset by the impact of general business credits.

Our income tax expense totaled $7.1 million, a decrease of $4.9 million or 41% from the prior year comparable period primarily due to a decline in operating income.

The increase in the effective tax rate is primarily due to the impact of general business credits and a year-over-year increase of $0.3 million in nondeductible compensation due to IRC 162(m) limitation, partially offset by a year-over-year increase of $3.3 million in excess tax benefits from stock-based compensation.

The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.

Segment Results

Consumer Services

The results of operations and key metrics of our Consumer Services segment for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,

2021 2020 Change %

(In thousands, except percentages)

Financial Results

Segment revenues $ 184,341 $ 152,922 $ 31,419 20.5 %

Segment expenses 130,814 102,537 28,277 27.6 %

Segment profit $ 53,527 $ 50,385 $ 3,142 6.2 %

Key Metrics (In millions, except percentages)

Gross Dollar Volume $ 10,156 $ 7,561 $ 2,595 34.3 %

Active Accounts* 4.07 3.70 0.37 10.0 %

Direct Deposit Active Accounts* 0.97 0.89 0.08 9.0 %

Purchase Volume $ 7,138 $ 5,555 $ 1,583 28.5 %

* Represents number of active and direct deposit active accounts as of March 31, 2021 and 2020, respectively.

Segment revenues within Consumer Services increased $31.4 million, or 21%, compared to the prior year comparable period, while our segment expenses increased $28.3 million, or 28%.

Our revenue growth was the result of increases in our key metrics, including gross dollar volume, active accounts and purchase volume.

Total gross dollar volume on these deposit account programs increased 34% during the three months ended March 31, 2021, from the comparable prior year period, due to organic growth as the accelerated demand for digital payments continues and from customers that have utilized our platform to receive stimulus funds and unemployment benefits enacted by the federal government.

The increase in gross dollar volume has resulted in an increase in monthly maintenance fee assessments and ATM fees we earn on these portfolios.

Consequently, the number of active accounts also increased by 10% as of March 31, 2021 on a year-over-year basis.

Purchase volume increased 28% during the three months ended March 31, 2021, from the comparable prior year period, in line with the increase in gross dollar volume, resulting in an increase in the amount of interchange we earn.

Consumer Services expenses increased principally due to increased staffing of third-party call center support to meet the increased demand in our customer service center as a result of the federal relief programs, marketing expenses to promote our newly launched GO2bank product during tax season, and growth in disputed transaction losses as a result of the year-over-year increase in purchase volume.

We expect to incur more marketing expenses in the first half of 2021 than the second half to support GO2bank during the tax season.

Three Months Ended March 31,

2021 2020 Change %

(In thousands, except percentages)

Financial Results

Segment revenues $ 105,975 $ 73,840 $ 32,135 43.5 %

Segment expenses 88,442 54,013 34,429 63.7 %

Segment profit $ 17,533 $ 19,827 $ (2,294) (11.6) %

Key Metrics (In millions, except percentages)

Gross Dollar Volume $ 10,510 $ 6,733 $ 3,777 56.1 %

Active Accounts* 2.28 2.04 0.24 11.8 %

Purchase Volume $ 3,307 $ 2,727 $ 580 21.3 %

* Represents number of active accounts as of March 31, 2021 and 2020, respectively.

Segment revenues within our B2B Services increased $32.1 million, or 43.5%, compared to the prior year comparable period, while our operating expenses increased $34.4 million, or 63.7%.

For similar reasons as our Consumer Services, total gross dollar volume increased 56% during the three months ended March 31, 2021, from the comparable prior year period.

Consequently, the number of active accounts also increased by 12% as of March 31, 2021 on a year-over-year basis and purchase volume increased approximately 21%, each contributing to our revenue growth within the segment.

These increases drove an increase in our BaaS program management service fee revenues earned from our platform partners and increases in interchange revenue and monthly maintenance fee assessments, partially offset by lower Simply Paid disbursement revenues due to the effects of the COVID-19 pandemic on the rideshare industry.

Despite year-over-year revenue growth, our segment profit decreased $2.3 million, due to increased staffing of third-party call center support to meet the increased demand in our customer service center as a result of the federal relief programs.

This segment also experienced margin compression because some of our BaaS partnerships were structured based on a flat profit and therefore, our segment profit for these arrangements has not scaled with revenue growth.

BaaS is our newest channel of business and we remain focused on investing behind it and exploring new partnership agreements moving forward.

Money Movement Services

Three Months Ended March 31,

2021 2020 Change %

(In thousands, except percentages)

Financial Results

Segment revenues $ 90,367 $ 120,052 $ (29,685) (24.7) %

Segment expenses 41,553 53,333 (11,780) (22.1) %

Segment profit $ 48,814 $ 66,719 $ (17,905) (26.8) %

Key Metrics (In millions, except percentages)

Cash Transfers 10.32 12.13 (1.81) (14.9) %

Tax Refunds Processed 7.44 9.70 (2.26) (23.3) %

Segment revenues within our Money Movement services decreased $29.7 million for the three months ended March 31, 2021, or 24.7%, from the comparable prior year period and segment expenses decreased $11.8 million or 22.1%.

The decrease in revenues and expenses is attributable in part to a shift in the timing of tax refunds processed from the first quarter to the second quarter of 2021, as a result of the extension of the tax filing deadline to the latter part of the second quarter of 2021.

We also experienced a 15% decline year-over-year in the number of cash transfers processed in part due to our decision not to renew a reload partner agreement in the fourth quarter of 2020.

However, the impact to segment profit is limited due to the lower profitability of this arrangement.

Corporate and Other

Three Months Ended March 31,

2021 2020 Change %

(In thousands, except percentages)

Financial Results

Unallocated revenue and intersegment eliminations $ (878) $ (273) $ (605) 221.6 %

Unallocated corporate expenses 45,636 44,540 1,096 2.5 %

$ (46,514) $ (44,813) $ (1,701) 3.8 %

Revenues within Corporate and Other are comprised of net interest income earned by our bank and inter-segment eliminations.

Unallocated corporate expenses include our fixed expenses such as salaries, wages and related benefits for our employees, professional service fees, software licenses, telephone and communication costs, rent and utilities, and insurance.

These costs are not considered when our CODM evaluates the performance of our three reportable segments since they are not directly attributable to any reporting segment.

Non-cash expenses such as stock-based compensation, depreciation and amortization of long-lived assets, and other non-recurring expenses that are not considered by our CODM when evaluating our overall consolidated financial results are excluded from our unallocated corporate expenses above.

Refer to Note 19— Segment Information to the Consolidated Financial Statements included herein for a summary reconciliation.

Unallocated revenue declined year-over-year as a result of lower yields on our investment securities portfolio and customer funds on deposit as a result of rate decreases by the Federal Reserve in March 2020.

Unallocated corporate expenses increased approximately 3% year-over-year as a result of higher salaries and wages, principally due to the timing of accrued bonus compensation, partially offset by lower travel and entertainment costs, professional expenses and rent expense.

Liquidity and Capital Resources

The following table summarizes our major sources and uses of cash for the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

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Financing activities 1,247,579 469,893

Increase (decrease) in unrestricted cash, cash equivalents and restricted cash $ 1,075,914 $ (230,840)

For the nine months ended September 30, 2020 and 2019, we financed our operations primarily through our cash flows generated from operations and customer funds held on deposit.

As of September 30, 2020, our primary source of liquidity was unrestricted cash and cash equivalents totaling $2.1 billion.

Increase in unrestricted cash, cash equivalents and restricted cash $ 1,219,990 $ 500,153

For the three months ended March 31, 2021 and 2020, we financed our operations primarily through our cash flows generated from operations and customer funds held on deposit.

From time to time, we may also finance short term working capital activities through our borrowings under our credit facility.

As of March 31, 2021, our primary source of liquidity was unrestricted cash and cash equivalents totaling $2.7 billion.

We also consider our $996.2 million of available-for-sale investment securities to be highly-liquid instruments.

We use trend and variance analysis as well as our detailed budgets and forecasts to project future cash needs, making adjustments to the projections when needed.

We believe our current unrestricted cash and cash equivalents, cash flows from operations and financing from our revolving credit facility will be sufficient to meet our working capital, capital expenditure and other commitments for at least the next 12 months, as discussed below.

We believe that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity under our credit facility will be sufficient to meet our working capital, capital expenditures, equity method investee capital commitments, and any other capital needs for at least the next 12 months.

We are currently not aware of any other trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyond the next 12 months.

We continue to monitor the impact of COVID-19 on our business to ensure our liquidity and capital resources remain appropriate throughout this period of uncertainty.

Cash Flows from Operating Activities

Our $198.9 million of net cash provided by operating activities during the nine months ended September 30, 2020 was the result of $47.1 million of net income, adjusted for certain non-cash operating items of $108.8 million and increases in net changes in our working capital assets and liabilities of $42.9 million.

Our $204.7 million of net cash provided by operating activities during the nine months ended September 30, 2019 was primarily the result of $98.2 million of net income, adjusted for certain non-cash operating items of $95.2 million and increases in net changes in our working capital assets and liabilities of $11.3 million.

Our $80.7 million of net cash provided by operating activities during the three months ended March 31, 2021 was the result of $25.7 million of net income, adjusted for certain non-cash operating items of $42.0 million and increases in net changes in our working capital assets and liabilities of $13.0 million.

Our $104.1 million of net cash provided by operating activities during the three months ended March 31, 2020 was the result of $46.8 million of net income, adjusted for certain non-cash operating items of $33.6 million and increases in net changes in our working capital assets and liabilities of $23.7 million.

Cash Flows from Investing Activities

Our $105.9 million of net cash used in investing activities during the nine months ended September 30, 2020 was primarily due to the acquisition of property and equipment of $43.9 million, capital contributions related to our investment in TailFin Labs, LLC of $35.0 million, and purchases of available-for-sale investment securities, net of proceeds from sales and maturities, of $26.6 million.

Our $100.1 million of net cash used in investing activities during the nine months ended September 30, 2019 was primarily due to the purchase of available-for-sale investment securities, net of proceeds from sales and maturities, of $40.5 million and the acquisition of property and equipment of $58.2 million.

Our $108.3 million of net cash used in investing activities during the three months ended March 31, 2021 was primarily due to the acquisition of property and equipment of $10.5 million, capital contributions related to our investment in TailFin Labs, LLC of $35.0 million, and purchases of available-for-sale investment securities, net of proceeds from sales and maturities, of $55.8 million.

Our $73.9 million of net cash used in investing activities during the three months ended March 31, 2020 was primarily due to the purchase of available-for-sale investment securities, net of proceeds from sales and maturities, of $24.7 million, the acquisition of property and equipment of $15.7 million, and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million.

Cash Flows from Financing Activities

Our $983.0 million of net cash provided from financing activities during the nine months ended September 30, 2020 was principally the result of a net increase in customer deposits of $1.1 billion, offset by a net decrease of $84.3 million in obligations to customers and net repayments on our revolving credit facility of $35.0 million.

Total customer deposit balances have increased substantially as compared to December 31, 2019, principally as a result of stimulus funds and other government benefits received by our cardholders under the CARES Act.

Our $335.4 million of net cash used in financing activities during the nine months ended September 30, 2019 was principally the result of $100 million used for stock repurchases under our stock repurchase program, our $60.0 million repayment of our note payable, and net decreases in customer deposits and obligations to customers of $133.1 million and $25.3 million, respectively.

While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate we will continue to purchase property and equipment we consider necessary to support our business.

The amount and timing of these purchases and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors, including the extent and timing of hiring new employees, the rate of change of computer hardware and software used in our business and our business outlook as a result of the COVID-19 pandemic.

We intend to continue to invest in new products and programs we believe are critical, new features for our existing products and IT infrastructure to scale and operate effectively to meet our strategic objectives.

However, we do not expect these capital expenditures will exceed the amount of our capital expenditures in the previous year.

We have used cash to acquire businesses and technologies and we anticipate that we may continue to do so in the future.

The nature of these transactions makes it difficult to predict the amount and timing of such cash requirements.

We may also be required to raise additional financing to complete future acquisitions.

See Note 17—Commitments and Contingencies of the Notes to our Consolidated Financial Statements for additional financial commitments.

We may also make periodic cash contributions to our subsidiary bank, Green Dot Bank, to maintain its capital, leverage and other financial commitments at levels we have agreed to with our regulators.

Our $1.2 billion of net cash provided from financing activities during the three months ended March 31, 2021 was principally the result of a net increase in customer deposits of $859.9 million and a net increase of $395.5 million in obligations to customers.

Total customer deposit balances have increased as compared to December 31, 2020, principally as a result of additional economic stimulus funds and other government benefits received by our cardholders.

Our $469.9 million of net cash provided from financing activities during the three months ended March 31, 2020 was principally the result of a net increase in customer deposits of $442.0 million and net borrowings on our revolving credit facility of $65.0 million, offset by a net decrease of $34.7 million in obligations to customers.

Other Sources of Liquidity:

2019 Revolving Facility

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The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans.

During the first quarter of 2020, we drew the maximum amount available of $100 million as a precautionary measure due to the uncertainty associated with the COVID-19 pandemic, but have since repaid the entire balance resulting in there being no borrowings outstanding as of September 30, 2020.

We are also subject to certain financial covenants, which include maintaining a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as defined in the agreement.

At September 30, 2020, we were in compliance with all such covenants.

Stock Repurchase Program

In previous years, we have repurchased shares of our Class A Common Stock under an authorized stock repurchase program.

In May 2017, our Board of Directors authorized, subject to regulatory approval, expansion of our stock repurchase program by an additional $150 million.

We sought and received regulatory approval during the second quarter of 2019, at which point we made an up-front payment of $100 million to enter into an accelerated share repurchase agreement.

In August 2019, we completed final settlement of shares purchased under this agreement, receiving in total approximately 2.1 million shares at an average repurchase price of $48.26.

We have an authorized $50 million remaining under our current stock repurchase program for any additional repurchases.

At March 31, 2021, we were in compliance with all such covenants.

Material Cash Requirements

While the effect of COVID-19 has created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate that we will continue to develop and purchase property and equipment as necessary in the normal course of our business.

The amount and timing of these payments and the related cash outflows in future periods is difficult to predict and is dependent on a number of factors including the hiring of new employees, the rate of change of computer hardware and software used in our business and our business outlook as a result of the COVID-19 pandemic.

We intend to continue to invest in new products and programs we believe are critical, including GO2bank, new features for our existing products and IT infrastructure to scale and operate effectively to meet our strategic objectives.

However, we do not expect these capital expenditures will exceed the amount of our capital expenditures in 2020.

We expect to fund these capital expenditures primarily through our cash flows provided by operating activities.

We have used cash to acquire businesses and technologies and we anticipate that we may continue to do so in the future.

The nature of these transactions, however, makes it difficult to predict the amount and timing of such cash requirements.

Additionally, we may make periodic cash contributions to our subsidiary bank, Green Dot Bank, to maintain its capital, leverage and other financial commitments at levels we have agreed to with our regulators.

Contractual Obligations

There have been no material changes in our contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

On January 2, 2020, we effectuated our agreement with Walmart to jointly establish a new fintech accelerator under the name TailFin Labs, LLC, with a mission to develop innovative products, services and technologies that sit at the intersection of retail shopping and consumer financial services.

See Note 7—Equity Method Investment of the Notes to our Consolidated Financial Statements for additional information.

As of and for the nine months ended September 30, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Capital Requirements for Bank Holding Companies

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The rules also include a new capital conservation buffer, which imposes a common equity requirement above the new minimum that can be depleted under stress and could result in restrictions on capital distributions and discretionary bonuses under certain circumstances, as well as a new standardized approach for calculating risk-weighted assets.

Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-

weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%.

As of September 30, 2020 and December 31, 2019, we were categorized as "well capitalized" under the regulatory framework for prompt corrective action.

Under the Basel III rules, we must maintain a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, a ratio of Tier 1 capital to risk-weighted assets of at least 6%, a ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 leverage ratio of 4.0%.

As of March 31, 2021 and December 31, 2020, we were categorized as "well capitalized" under the regulatory framework for prompt corrective action.

To be categorized as "well capitalized," we must maintain specific total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

There are no conditions or events since September 30, 2020 which management believes would have changed our category as "well capitalized."

As a result of the economic disruption caused by the COVID-19 pandemic, in March 2020 the joint federal bank regulatory agencies issued an interim final rule (the "Interim Rule") that allows banking organizations that were required to implement the Current Expected Credit Loss ("CECL") accounting standard in 2020 optional relief that delays an estimate of the impact of CECL on its regulatory capital for two years.

This two-year delay is in addition to the three-year transition period that the agencies had already made available.

We did not adopt the option provided by the Interim Rule because the impact of adopting CECL was not material to our financial statements and regulatory capital.

There are no conditions or events since March 31, 2021 which management believes would have changed our category as "well capitalized."

The definitions associated with the amounts and ratios below are as follows:

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Common equity Tier 1 capital Primarily includes common stock, retained earnings and accumulated OCI, net of deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles.

Under the regulatory capital rules, certain deductions and adjustments to these capital figures are phased in through January 1, 2018.

Total capital

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The standardized risk weights are prescribed in the bank capital rules and reflect regulatory judgment regarding the riskiness of a type of asset or exposure

The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020

The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

Amount Ratio Regulatory Minimum "Well-capitalized" Minimum

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis