GREEN DOT CORP 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemed to be forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may” and “assumes,” variations of such words and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including the impact of the coronavirus (COVID-19) pandemic on our business, results of operations and financial condition and our response to it, and those identified below, under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason. In this Quarterly Report, unless otherwise specified or the context otherwise requires, “Green Dot,” “we,” “us,” and “our” refer to Green Dot Corporation and its consolidated subsidiaries. Overview Green Dot Corporation 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) Total operating revenues $ 393,486 $ 362,169 $ 31,317 8.6 % Total operating expenses 359,501 303,320 56,181 18.5 % 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. 23 Table of Contents Total operating revenues 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 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 24 Table of Contents 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. Income taxes 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. 25 Table of Contents 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 March 31, 2021 2020 Change % (In millions, except percentages) Gross Dollar Volume $ 20,666 $ 14,294 $ 6,372 44.6 % Number of Active Accounts* 6.35 5.74 0.61 10.6 % Purchase Volume $ 10,445 $ 8,282 $ 2,163 26.1 % Cash Transfers 10.32 12.13 (1.81) (14.9) % Tax Refunds Processed 7.44 9.70 (2.26) (23.3) % * 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 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. 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 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. 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. This metric excludes disbursements made through our Simply Paid wage disbursement platform. 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. Number of Tax Refunds Processed — represents the total number of tax refunds processed in a specified period. Due to seasonality, the number of tax refunds processed is most concentrated during the first half of each year and is minimal during the second half of each year. We review this metric as a measure of the size and scale of our tax refund processing platform and as an indicator of customer engagement and usage of its products and services. 26 Table of Contents Key components of our results of operations Operating Revenues We classify our operating revenues into the following four categories: Card Revenues and Other Fees — Card revenues consist of monthly maintenance fees, ATM fees, new card fees and other revenues. We charge maintenance fees on GPR cards, checking accounts and certain cash transfer products, such as MoneyPak, pursuant to the terms and conditions in our customer agreements. We charge ATM fees to cardholders when they withdraw money at certain ATMs in accordance with the terms and conditions in our cardholder agreements. We charge new card fees, if applicable, when a consumer purchases a GPR card, gift card, or a checking account product. Other revenues consist primarily of revenue associated with our gift card program, annual fees associated with our secured credit card portfolio, transaction-based fees, fees associated with optional products or services, and cash-back rewards we offer to cardholders. Our cash-back rewards are recorded as a reduction to card revenues and other fees. Also included in card revenues and other fees are program management fees earned from our BaaS partners for programs we manage on their behalf. Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active accounts in our portfolio and the average fee assessed per account. Our average monthly maintenance fee per active account depends upon the mix of products in our portfolio at any given point in time and upon the extent to which fees are waived based on various incentives provided to customers in an effort to encourage higher usage and retention. Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction. The average fee per ATM transaction depends upon the mix of products in our portfolio at any given point in time and the extent to which cardholders use ATMs within our free network that carry no fee for cash withdrawal transactions. Our aggregate new card fee revenues vary based upon the number of GPR cards and checking accounts activated and the average new card fee. The average new card fee depends primarily upon the mix of products that we sell since there are variations in new account fees based on the product and/or the location or source where our products are purchased. The revenue we earn from each of these fees may also vary depending upon the channel in which the active accounts were acquired. For example, certain BaaS programs may not assess monthly maintenance fees and as a result, these accounts may generate lower fee revenue than other active accounts. 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. 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. Our aggregate cash transfer revenues vary based upon the mix of locations where reload transactions occur, since reload fees vary by location. We earn tax refund processing service revenues at the point in time when a customer of a third-party tax preparation company chooses to pay his or her tax preparation fee through the use of our tax refund processing services. We earn Simply Paid disbursement fees from our business partners at the point in time payment disbursements are made. Interchange Revenues — We earn interchange revenues from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, at the point in time when customers make purchase transactions using our products. Our aggregate interchange revenues vary based primarily on the number of active accounts in our portfolio, the average transactional volume of the active accounts in our portfolio and on the mix of cardholder purchases between those using signature identification technologies and those using personal identification numbers and the corresponding rates. 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 cash from customer deposits, loans, and investment securities. Our interest-bearing liabilities held at Green Dot Bank include interest-bearing deposits. Our net interest income and our net interest margin fluctuate based on changes in the federal funds interest rates and changes in the amount and composition of our interest-bearing assets and liabilities. 27 Table of Contents Operating Expenses 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 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. Aggregate commissions with our retail distributors are determined by the number of account products and cash transfers sold at their respective retail stores. Commissions with our platform partners and, in certain cases, our retail distributors are determined by the revenue generated from the ongoing use of the associated card programs. We incur advertising and marketing expenses for television, sponsorships, online and in-store promotions. Advertising and marketing expenses are recognized as incurred and typically deliver a benefit over an extended period of time. For this reason, these expenses do not always track changes in our operating revenues. 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. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations, handle routine customer service inquiries and provide consulting support in the area of IT operations and elsewhere. Compensation and benefits expenses associated with our customer service and loss management functions generally vary in line with the size of our active account portfolio, while the expenses associated with other functions do not. Processing Expenses — Processing expenses consist primarily of the fees charged to us by the payment networks, which process transactions for us, the third-party card processors that maintain the records of our customers' accounts and process transaction authorizations and postings for us and the third-party banks that issue our accounts. These costs generally vary based on the total number of active accounts in our portfolio and gross dollar volume transacted by those accounts. Also included in processing expenses are bank fees associated with our tax refund processing services and gateway and network fees associated with our Simply Paid disbursement services. Bank fees generally vary based on the total number of tax refund transfers processed and gateway and network fees vary based on the numbers of disbursements made. Other General and Administrative Expenses — Other general and administrative expenses consist primarily of professional service fees, telephone and communication costs, depreciation and amortization of our property and equipment and intangible assets, changes in contingent consideration, transaction losses (losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud), rent and utilities, and insurance. We incur telephone and communication costs primarily from customers contacting us through our toll-free telephone numbers. These costs vary with the total number of active accounts in our portfolio, as do losses from customer disputed transactions, unrecovered customer purchase transaction overdrafts and fraud. Costs associated with professional services, depreciation and amortization of our property and equipment, amortization of our acquired intangible assets, rent and utilities vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics. Income Tax Expense Our income tax expense consists of the federal and state corporate income taxes accrued on income resulting from the sale of our products and services. Critical Accounting 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. 28 Table of Contents 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, cash processing revenues, interchange revenues and net interest income: Three Months Ended March 31, 2021 2020 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating revenues: Card revenues and other fees $ 186,012 47.2 % $ 141,394 39.0 % Cash processing revenues 90,915 23.1 123,066 34.0 Interchange revenues 111,226 28.3 90,866 25.1 Interest income, net 5,333 1.4 6,843 1.9 Total operating revenues $ 393,486 100.0 % $ 362,169 100.0 % 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: Three Months Ended March 31, 2021 2020 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating expenses: Sales and marketing expenses $ 118,903 30.2 % $ 116,738 32.2 % Compensation and benefits expenses 74,967 19.1 53,065 14.7 Processing expenses 97,669 24.8 71,095 19.6 Other general and administrative expenses 67,962 17.3 62,422 17.2 Total operating expenses $ 359,501 91.4 % $ 303,320 83.7 % 29 Table of Contents 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. Income Taxes The following table presents a breakdown of our effective tax rate among federal, state, and other: Three Months Ended March 31, 2021 2020 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 0.7 (1.1) General business credits (2.2) (6.6) Employee stock-based compensation (6.1) 2.1 Nondeductible executive compensation 8.4 4.2 Nondeductible expenses 0.3 0.6 Other (0.4) 0.1 Effective tax rate 21.7 % 20.3 % 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. 30 Table of Contents 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. B2B Services 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. 31 Table of Contents 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. 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 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. 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. 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 % 32 Table of Contents 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: Three Months Ended March 31, 2021 2020 (In thousands) Total cash provided by (used in) Operating activities $ 80,672 $ 104,130 Investing activities (108,261) (73,870) Financing activities 1,247,579 469,893 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 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 $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 $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. 33 Table of Contents Cash Flows from Financing Activities 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 In October 2019, we entered into a revolving credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto. The credit agreement provides for a $100 million five-year revolving facility and matures in October 2024. At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus 0.50%, (b) the Wells Fargo prime rate, and (c) one-month LIBOR rate plus 1.0% (the “Base Rate"), plus in either case an applicable margin. The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans. 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 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. 34 Table of Contents Capital Requirements for Bank Holding Companies Our subsidiary bank, Green Dot Bank, is a member bank of the Federal Reserve System and our primary regulators are the Federal Reserve Board and the Utah Department of Financial Institutions. We are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Basel III rules, which were promulgated by the Federal Reserve and other U.S. banking regulators, provide for risk-based capital, leverage and liquidity standards. The U.S. Basel III rules contain capital standards that change the composition of capital, increase minimum capital ratios and strengthen counter-party credit risk capital requirements. The Basel III rules also include a new definition of common equity Tier 1 capital and require that certain levels of such common equity Tier 1 capital be maintained. The rules also include a new capital conservation buffer, which 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 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 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: Ratio Definition Tier 1 leverage ratio Tier 1 capital divided by average total assets Common equity Tier 1 capital ratio Common equity Tier 1 capital divided by risk-weighted assets Tier 1 capital ratio Tier 1 capital divided by risk-weighted assets Total risk-based capital ratio Total capital divided by risk-weighted assets Terms Definition Tier 1 capital and 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. Total capital Tier 1 capital plus supplemental capital items such as the allowance for loan losses, subject to certain limits Average total assets Average total consolidated assets during the period less deductions and adjustments primarily related to goodwill, deferred tax assets and intangibles assets Risk-weighted assets Represents the amount of assets or exposure multiplied by the standardized risk weight (%) associated with that type of asset or exposure. 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 35 Table of Contents 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 (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 560,179 15.7 % 4.0 % n/a Common equity Tier 1 capital $ 560,179 63.6 % 4.5 % n/a Tier 1 capital $ 560,179 63.6 % 6.0 % 6.0 % Total risk-based capital $ 564,529 64.1 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 278,725 9.0 % 4.0 % 5.0 % Common equity Tier 1 capital $ 278,725 55.3 % 4.5 % 6.5 % Tier 1 capital $ 278,725 55.3 % 6.0 % 8.0 % Total risk-based capital $ 280,592 55.7 % 8.0 % 10.0 % December 31, 2020 Amount Ratio Regulatory Minimum "Well-capitalized" Minimum (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 515,134 17.5 % 4.0 % n/a Common equity Tier 1 capital $ 515,134 57.8 % 4.5 % n/a Tier 1 capital $ 515,134 57.8 % 6.0 % 6.0 % Total risk-based capital $ 518,358 58.2 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 253,895 10.1 % 4.0 % 5.0 % Common equity Tier 1 capital $ 253,895 46.1 % 4.5 % 6.5 % Tier 1 capital $ 253,895 46.1 % 6.0 % 8.0 % Total risk-based capital $ 254,855 46.3 % 8.0 % 10.0 % 36 Table of Contents