GREEN DOT CORP 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Annual Report on Form 10-K, 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, as amended, (the "Securities Act") and the Securities Exchange Act of 1934, as amended, (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 continuing impact of the coronavirus (COVID-19) pandemic on our business, results of operations and financial condition and our and the U.S. government or regulator’s further responses to it, and those identified above, under “Part I, 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 Annual 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 committed to giving all people the power to bank seamlessly, affordably, and with confidence. Our technology platform enables us to build products and features that address the most pressing financial challenges of consumers and businesses, transforming the way they manage and move money, and making financial empowerment more accessible for all. 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 tax refund processing, cash deposits and disbursements. Effective beginning with the first quarter of 2021, we have realigned our segment reporting based on how our current Chief Operating Decision Maker (our “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 year ended December 31, 2021. Refer to " Part 1, Item 1. Business " for more detailed information regarding the organization of our business. Consolidated Financial Results and Trends Our results of operations for the years ended December 31, 2021 and 2020 were as follows: Year Ended December 31, 2021 2020 Change % (In thousands, except percentages) Total operating revenues $ 1,433,197 $ 1,253,760 $ 179,437 14.3 % Total operating expenses 1,366,723 1,223,687 143,036 11.7 % Net income 47,480 23,131 24,349 105.3 % Refer to "Segment Results" below for a summary of financial results of each of our reportable segments. 30 Table of Contents Total operating revenues Our total operating revenues for the year ended December 31, 2021 increased $179.4 million , or 14% 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 demand for digital payments. 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 have 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. In March 2021, another $1.9 trillion economic package was authorized under the American Rescue Plan Act of 2021, which provided for additional direct payments, enhanced unemployment benefits that expired in September 2021 and monthly child tax credit payments which expired in December 2021. As a result of these consumer trends and economic factors, our consolidated gross dollar volume and purchase volume grew by 22% and 8%, respectively, for the year ended December 31, 2021, despite a year-over-year decline in total active accounts. This increase was driven by strong organic growth from new and existing partners in our B2B Services segment. Within our B2B Services segment, gross dollar volume and purchase volume each grew 51%, and 18%, respectively, for the year ended December 31, 2021, and the average number of active accounts in this segment across the year grew 8%. This growth resulted in an increase in program management service fee revenues earned from BaaS partners and interchange revenues. In our Consumer Services segment, gross dollar volume declined 2% for the year ended December 31, 2021. Gross dollar volume was impacted by the reduction in enhanced federal unemployment benefits, as the weekly benefit to cardholders was reduced by half in 2021 compared with the prior year period and discontinued in early September 2021. The average number of active accounts and direct deposit accounts across the year declined by 6% and 3%, respectively, for the year ended December 31, 2021. Active accounts and direct deposit accounts in this segment declined, principally in the second half of 2021, as a result of the timing of when stimulus funds were received by cardholders at the end of December 2020, which resulted in a sizable increase in new and existing customers utilizing our account programs in the prior year. To a lesser extent, these metrics were also impacted by enhanced fraud monitoring controls we implemented to protect our customers. Despite these year-over-year declines in our Consumer Services segment, revenue growth in the segment benefited from customer adoption of new features, such as the introduction of our optional overdraft protection program services made available to cardholders across our portfolios, including our GO2bank product launched earlier this year, and favorable decreases in the amount of cash back rewards on our legacy card programs due to changes in consumer behavioral trends and the estimated redemption amounts. While many of our cardholders have benefited from federal relief programs, much of the enhanced pandemic related unemployment benefits provided by the federal government ended in September 2021. The impact of further governmental actions and whether or not these benefits are reinstituted may also impact our future results. We expect our key performance indicators will continue to normalize as the effect of governmental actions continues to lessen. Total Money Movement Services segment revenues for the year ended December 31, 2021 decreased by 17% compared with the prior year comparable period. The decrease in our Money Movement Services was primarily attributable to the number of cash transfers processed, which also decreased by 17% compared with the prior year comparable period. The decrease in volume of cash transfers was largely due to our decision not to renew a reload partner agreement in the fourth quarter of 2020. While the non-renewal of this agreement has impacted segment revenues and the number of cash transfers we process, the effect on segment profit was less impactful due to the higher than average sales commission rate associated with this agreement. Any year-over-year growth or decline in cash transfers in 2022 will be dependent on multiple factors, including the level of growth of deposit account programs in our Consumer Services and B2B Services segments. Our tax processing revenues have also decreased year-over-year for the year ended December 31, 2021 as a result of a decrease in the number of tax refunds processed of 3% for the comparable period. The decrease in number of tax refunds processed for the year ended December 31, 2021 compared to the prior year period was attributable to lower volumes in both our online consumer and professional tax channels. Tax processing revenues were also impacted by lower unit economics earned from refund transfers with one of our largest customers due to the terms that were agreed upon in connection with a new multi-year arrangement. 31 Table of Contents Total operating expenses Our total operating expenses for the year ended December 31, 2021 increased $143.0 million, or 12%, 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 third-party call center support (a component of compensation and benefits expenses) within Consumer Services and B2B Services, to meet the increased demand in our customer service center as a result of our efforts to improve our customers' overall experience. In addition, both of these segments experienced year-over-year growth in transaction losses, a component within other general and administrative expenses, from increases in gross dollar volume and purchase volume in our B2B Services segment and the introduction of our overdraft protection services in our Consumer Services segment. The increase in total operating expenses for the year ended December 31, 2021 was partially offset by a decrease in sales and marketing expenses due to a decrease in sales commissions from lower revenues within our Money Movement Services segment, as well as impairment charges we recorded during the fourth quarter 2020 that did not recur in 2021. As a result of our shift to a remote workforce strategy in 2020, we recorded impairment charges in 2020 to our operating lease right-of-use assets and related property and equipment located at our office facilities, as well as certain internal-use software that were replaced by newer technology platforms. We intend to continue to make growth-oriented investments and incur other expenditures that will benefit our financial results in 2022 and beyond. Our growth-oriented investments are focused on marketing efforts for our GO2bank product 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. To support our efforts in building a modern banking platform, we expect our software license and hosting costs, a component of other general and administrative expenses, and salary and wage expenses, a component of compensation and benefits expenses to increase year-over-year. Income taxes Our income tax expense for the year ended December 31, 2021 increased $11.3 million, or 227% over the prior year comparable period. The increase in our income tax expense was due primarily to a 127% increase in income before taxes and an increase in our effective tax rate. Our effective tax rate for the years ended December 31, 2021 and 2020 was 25.5% and 17.7%, respectively. The increase in our effective tax rate was primarily attributable to lower tax benefits from general business credits, stock-based compensation and higher expenses related to state taxes, net of federal benefits. COVID-19 Update The health and safety of our employees remains a top priority for our business and most of our U.S. personnel continue to operate remotely. In response to our remote workforce strategy, we have closed most of our U.S. leased office locations. However, we will be required to continue making our contractual payments until our operating leases are formally terminated or expire. In response to the economic impact caused by COVID-19, the Federal Reserve announced reductions in short-term interest rates in March 2020, which has impacted the yields on our cash and investment balances. We have continued to experience a reduction in the amount of interest income we earn compared to recent periods prior to COVID-19. While it is expected that the Federal Reserve will increase interest rates in 2022 to slow the effects of economic inflation tied to the COVID-19 pandemic, it is uncertain when or how many times interest rates will be increased. The Federal Reserve's decision-making policies for 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 mandates, and the type of stimulus measures and other policy responses that the U.S. government may further adopt, if any. See Part II, Item 1A, Risk Factors , for an additional discussion of risk related to the COVID-19 pandemic. 32 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 revenues: Year Ended December 31, Year Ended December 31, 2021 2020 Change % 2020 2019 Change % (In millions, except percentages) Gross Dollar Volume $ 70,822 $ 58,203 $ 12,619 21.7 % $ 58,203 $ 43,459 $ 14,744 33.9 % Number of Active Accounts* 5.07 5.45 (0.38) (7.0) % 5.45 5.04 0.41 8.1 % Purchase Volume $ 33,736 $ 31,220 $ 2,516 8.1 % $ 31,220 $ 27,004 $ 4,216 15.6 % Cash Transfers 40.51 48.71 (8.2) (16.8) % 48.71 46.04 2.67 5.8 % Tax Refunds Processed 12.14 12.46 (0.32) (2.6) % 12.46 12.09 0.37 3.1 % * Represents number of active accounts as of December 31, 2021 , 2020, and 2019 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 the USA PATRIOT Act of 2001 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. Refer to sub-section entitled Consumer Services under “Segment Results” below for key metric results for direct deposit 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. 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. 33 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 prepaid 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 prepaid card, gift card, or a checking account product through our Retail channel. 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, such as our overdraft protection program, 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 prepaid 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. 34 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 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 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 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, amortization of our intangible assets, impairment charges of long-lived assets, 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, impairment charges of long-lived 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 We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, current circumstances and various other assumptions that our management believes to be reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the 35 Table of Contents accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Revenue Recognition As prescribed under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, we recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services, as determined under a five-step process. We charge new card fees, if applicable, when a consumer purchases a prepaid card, gift card, or a checking account product through our Retail channel. Our new card fee provides our cardholders a material right and accordingly we defer and recognize new card fee revenues on a straight-line basis over the period commensurate with our performance obligation to our customers. We consider the performance obligation period to be the average card lifetime, which is currently less than one year for our deposit account programs acquired through our Retail channel. The average card lifetime is determined based on recent historical data using the period from sale (or activation) of the card through the date of last positive balance. We reassess average card lifetime quarterly for prepaid cards and checking accounts and annually for gift cards. Average card lifetimes may vary in the future as cardholder behavior changes relative to historical experience because customers are influenced by changes in the pricing of our services, the availability of substitute products, and other factors. We also defer commissions paid to retail distributors related to new card sales as costs to obtain contracts and expense ratably over the average card lifetime commensurate with our deposit account programs acquired through our Retail channel. Transaction prices related to our account services are based on stand-alone fees stated within the terms and conditions and may also include certain elements of variable consideration depending upon the product’s features, such as cash-back rewards and fee assessments that may overdraw an account. We estimate such amounts using historical data and customer behavior patterns to determine these estimates which are recorded as a reduction to the corresponding fee revenue. Additionally, while the number of transactions that a cardholder may perform is unknown, any uncertainty is resolved at the end of each daily service contract. The amount of cash-back rewards on our programs varies based on multiple factors, including the terms and conditions for cardholder eligibility, the redemption amount based on cardholder activity, and the cardholder redemption rates. Our estimated cash-back rewards are recorded as a reduction to card revenues and other fees on our consolidated statements of operations and as a component of other accrued liabilities on our consolidated balance sheets. Cash rewards have decreased by approximately 51% for the year ended December 31, 2021 compared to the prior year period, as our cash-back programs have declined, principally from our decision to shift from our Green Dot Unlimited product to our recently launched GO2bank product which does not have a cash rewards feature. Increases or decreases in our estimate of cash-back rewards is dependent upon cardholder behavioral changes and we periodically evaluate our estimation process and assumptions based on developments in redemption patterns, dollars redeemed and other cardholder behavioral trends. A relatively small change in any of our assumptions could result in a sizable increase or decrease in the amount of cash-back rewards we accrue. For example, on our Green Dot Unlimited product, a combination of a 1% increase in cardholder eligibility and a $1 increase in the average redemption amount would translate to additional cash rewards of approximately $0.7 million. Differences between actual results and our estimates are adjusted in the period that each cardholder's annual rewards cycle is completed. Reserve for Uncollectible Overdrawn Accounts For cardholders who are not enrolled or do not meet the eligibility requirements of our overdraft protection program, we generally decline authorization attempts for amounts that exceed the available balance in a cardholder’s account, however, the application of card association rules, the timing of the settlement of transactions and the assessment of the card’s monthly maintenance fee, among other things, can still result in overdrawn accounts. These overdrawn account balances are deemed to be receivables due from cardholders, and are included as a component of accounts receivable, net, on our consolidated balance sheets. We generally recover overdrawn account balances from those cardholders that perform a reload transaction and in some cases, through enforcement of payment network rules, which allow us to recover the amounts from the merchant where the purchase transaction was conducted. However, we are exposed to losses from any unrecovered overdrawn account balances. The probability of recovering these amounts is primarily related to the number of days that have elapsed since an account had transaction activity, such as a purchase, ATM transaction or fee assessment. We generally recover approximately 50-60% of overdrawn account balances in accounts that have 36 Table of Contents had transaction activity in the last 30 days and less than 10% when more than 30 days have elapsed. As such, we establish a reserve for uncollectible overdrawn accounts. We classify overdrawn accounts by transaction type and age groups based on the number of days since the account last had activity. We then calculate a reserve factor for each transaction type and age group based on the average recovery rate for the most recent six months discussed above. These factors are applied to these groups to estimate our overall reserve. We rely on these historical rates because they have remained relatively consistent over time. Generally, when more than 60 days have passed without any activity in an account, we consider recovery to be remote and charge off the full amount of the overdrawn account balance against the reserve for uncollectible overdrawn accounts. Our actual recovery rates and related estimates thereof may change in the future in response to factors such as customer behavior, product pricing and features that impact the frequency and velocity of reloads and other deposits to such accounts. We include our provision for uncollectible overdrawn accounts related to purchase transactions in other general and administrative expenses in our consolidated statements of operations. Allowance for Credit Losses We establish an allowance for estimated credit losses inherent in our loan portfolio over the life of the loans, including our secured credit cards and overdrawn balances associated with our overdraft protection program. For each portfolio of loans, we analyze historical loss rates and other factors to determine a loss rate, and consider if adjustments are needed for current conditions, and other reasonable and supportable forecasts beyond our balance sheet date that may differ from historical results. We also consider adjustments based on qualitative factors which in our judgment may affect the expected credit losses including, but not limited to, changes in prevailing economic or market conditions and the estimated value of the underlying collateral for collateral dependent loans. We separately establish specific allowances for impaired loans based on the present value of changes in cash flows expected to be collected, or for impaired loans that are considered collateral dependent, the estimated fair value of the collateral less estimated costs to sell, if any. Goodwill and Intangible Assets We review the recoverability of goodwill at least annually or whenever significant events or changes occur, which might impair the recovery of recorded costs. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill may not be recoverable include a decline in our stock price and market capitalization, declines in the market conditions of our products, reductions in our future cash flow estimates, and significant adverse industry or economic market trends. We test for impairment of goodwill by first assessing various qualitative factors with respect to developments in our business and the overall economy to determine if it is more likely than not our goodwill is impaired. In the event it is more likely than not the carrying value of our reporting units is greater than its fair value, we calculate the estimated fair value of the reporting unit and record an impairment charge for the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying amount of goodwill. The estimate of fair value requires management to make a number of assumptions and projections, which could include, but would not be limited to, future revenues, earnings and the probability of certain outcomes. We completed our annual goodwill impairment test as of September 30, 2021 and concluded there was no impairment in any of our reporting units. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to, the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the underlying assets; and significant adverse industry or market economic trends. In reviewing for impairment, we compare the carrying value of such assets to the estimated undiscounted future net cash flows expected from the use of the assets and their eventual disposition. In the event that the carrying value of assets is determined to be unrecoverable, we would estimate the fair value of the assets and record an impairment charge for the excess of the carrying value over the fair value. The estimate of fair value requires management to make a number of assumptions and projections, which could include, but would not be limited to, future revenues, earnings and the probability of certain outcomes. No impairment charges were recognized related to our intangible assets for the years ended December 31, 2021 and 2020. 37 Table of Contents Results of Operations Pursuant to instruction 1 of the instructions to paragraph 303(a) of Regulation S-K, discussion of the results of operations for the fiscal year ended December 31, 2020 to fiscal year ended December 31, 2019 has been omitted. Such omitted discussion can be found under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 26, 2021. Comparison of Consolidated Results for the Years Ended December 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: Year Ended December 31, 2021 2020 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating revenues: Card revenues and other fees $ 788,834 55.0 % $ 593,915 47.4 % Cash processing revenues 245,539 17.1 293,216 23.4 Interchange revenues 380,037 26.6 351,843 28.0 Interest income, net 18,787 1.3 14,786 1.2 Total operating revenues $ 1,433,197 100.0 % $ 1,253,760 100.0 % Card Revenues and Other Fees — Card revenues and other fees totaled $788.8 million for the year ended December 31, 2021, an increase of $194.9 million, or 33%, from the comparable prior year period. Our card revenues and other fees increased in part as a result of an increase in total gross dollar volume of 22%. The increase in total gross dollar volume resulted in an increase in program management service fee revenues earned from BaaS partners. Card revenues and other fees also increased as a result of optional features recently launched on our card programs, such as our overdraft protection program, as well as a favorable decrease in the estimated accrual of cash back rewards, which we record as a reduction to revenue. Our estimate of cash rewards varies based on multiple factors including the terms and conditions of the cash back program currently in effect, customer activity and customer redemption rates. Cash Processing Revenues — Cash processing revenues totaled $245.5 million for the year ended December 31, 2021, a decrease of $47.7 million, or 16%, from the comparable prior year period. The decrease is primarily due to a decline in the number of cash transfers processed year-over-year, largely due to our decision not to renew a reload network agreement with a partner in the fourth quarter of 2020. Additionally, we experienced a lower number of tax refunds processed between the comparable periods and lower unit economics earned from refund transfers with one of our largest customers due to the terms that were agreed upon in connection with a new multi-year arrangement. Interchange Revenues — Interchange revenues totaled $380.0 million for the year ended December 31, 2021, an increase of $28.2 million, or 8%, from the comparable prior year period. The increase was primarily due to an increase in purchase volume during the year ended December 31, 2021. Interest Income, net — Net interest income totaled $18.8 million for the year ended December 31, 2021, an increase of $4.0 million, or 27%, from the comparable prior year period. The increase in net interest income earned was the result of an increase in the size of our investment securities portfolio, funded primarily from increases in deposit accounts attributed to economic stimulus funds and other government benefit programs, as well as organic growth in certain deposit account programs. 38 Table of Contents 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: Year Ended December 31, 2021 2020 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating expenses: Sales and marketing expenses $ 382,163 26.7 % $ 415,111 33.1 % Compensation and benefits expenses 264,686 18.5 233,155 18.6 Processing expenses 389,284 27.2 293,711 23.4 Other general and administrative expenses 330,590 23.1 281,710 22.5 Total operating expenses $ 1,366,723 95.5 % $ 1,223,687 97.6 % Sales and Marketing Expenses — Sales and marketing expenses totaled $382.2 million for the year ended December 31, 2021, a decrease of $32.9 million, or 8% compared to the year ended December 31, 2020. This decrease was primarily driven by a decrease in sales commissions due to lower revenues within our Money Movement Services segment, partially offset by higher advertising and supply chain expenses in connection with the continued roll-out of GO2bank, which we launched in the first quarter of 2021. Compensation and Benefits Expenses — Compensation and benefits expenses totaled $264.7 million for the year ended December 31, 2021, an increase of $31.5 million, or 14%, compared to the year ended December 31, 2020. The increase was primarily due to higher third-party call center support costs to meet increased demand in our customer service center from the volume of federal relief funds deposited into our account programs and our effort to improve our customer's overall experience, partially offset by lower employee stock-based compensation due to the acceleration of awards in the prior year period associated with certain former executive employees. Processing Expenses — Processing expenses totaled $389.3 million for the year ended December 31, 2021, an increase of $95.6 million, or 33%, compared to the year ended December 31, 2020. 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 $330.6 million for the year ended December 31, 2021, an increase of $48.9 million, or 17%, from the comparable prior year period. This increase was primarily due to a year-over-year growth in transaction losses as a result of increases in gross dollar volume and purchase volume in our B2B Services segment and the introduction of our overdraft protection services in our Consumer Services segment, as well as higher professional fees and software license expenses for the reasons discussed above. These increases were partially offset by lower rent expenses as a result of our office closures in the U.S and related impairment charges of long-lived assets recorded during the year ended December 31, 2020. Income Tax Expense The following table presents a breakdown of our effective tax rate among federal, state and other: Year Ended December 31, 2021 2020 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 1.2 (2.0) General business credits (2.2) (10.9) Employee stock-based compensation (2.6) (7.7) IRC 162(m) limitation 8.0 17.2 Non-deductible penalties — 1.1 Capital loss valuation allowance release — (1.1) Other 0.1 0.1 Effective tax rate 25.5 % 17.7 % 39 Table of Contents Our income tax expense totaled $16.2 million for the year ended December 31, 2021, representing an increase of $11.3 million from the comparable prior year period. The increase in income tax expense was primarily driven by the increase in our operating income. Our effective tax rate for the year ended December 31, 2021 is higher than our statutory federal income tax rate primarily due to higher taxes from non-deductible executive compensation and expenses related to state taxes, net of federal benefits. Our effective tax rate for the year ended December 31, 2020 was lower than our statutory federal income tax rate primarily due to tax benefits from general business credits and stock-based compensation, offset by higher taxes from non-deductible executive compensation. The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant. Segment Results Supplemental financial results and key metric data under our revised reportable segments structure for the fiscal year ended December 31, 2019 may be referenced on Form 8-K filed with the SEC on May 3, 2021. These changes had no impact on our previously reported consolidated financial results for the year ended December 31, 2019. Consumer Services Year Ended December 31, 2021 2020 Change % (In thousands, except percentages) Financial Results Segment revenues $ 694,725 $ 620,414 $ 74,311 12.0 % Segment expenses 471,121 408,244 62,877 15.4 % Segment profit $ 223,604 $ 212,170 $ 11,434 5.4 % Key Metrics (In millions, except percentages) Gross Dollar Volume $ 31,455 $ 32,139 $ (684) (2.1) % Active Accounts* 3.10 3.73 (0.63) (16.9) % Direct Deposit Active Accounts* 0.76 0.88 (0.12) (13.6) % Purchase Volume $ 23,640 $ 22,694 $ 946 4.2 % * Represents number of active and direct deposit active accounts as of December 31, 2021 and 2020, respectively. As additional supplemental information, our key metrics within our Consumer Services segment is presented on a quarterly basis as follows: 2021 2020 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 6,300 $ 6,811 $ 8,188 $ 10,156 $ 7,562 $ 8,333 $ 8,683 $ 7,561 Number of active accounts 3.10 3.38 3.97 4.07 3.73 3.98 4.10 3.70 Direct deposit active accounts 0.76 0.83 0.92 0.97 0.88 0.91 0.90 0.89 Purchase volume $ 4,881 $ 5,166 $ 6,455 $ 7,138 $ 5,176 $ 5,840 $ 6,123 $ 5,555 Segment revenues within Consumer Services for the year ended December 31, 2021 increased $74.3 million, or 12%, compared to the prior year comparable period, while our segment expenses for the year ended December 31, 2021 increased $62.9 million, or 15%. Our gross dollar volume and the average number of active accounts and direct deposit active accounts across the year decreased by 2%, 6% and 3%, respectively, during the year ended December 31, 2021 from the comparable prior year period, due to varying factors, including decreases in enhanced federal unemployment benefits in 2021, the timing of economic stimulus received by cardholders at the end of December 2020, and to a lesser extent, enhanced fraud monitoring controls implemented in the current year, as described above under "Overview." Purchase volume increased by 4% during the year ended December 31, 2021 from the comparable prior year period. 40 Table of Contents Despite these decreases in some of our key metrics, we generated total revenue growth within this segment for the year ended December 31, 2021 from higher interchange revenue associated with the increase in purchase volume, customer adoption of new features, such as the introduction of our recent overdraft protection program, which is an optional service offered to our cardholders, and a favorable decrease in the estimated accrual of cash back rewards. Our cash back rewards are recorded as a reduction to revenue and is attributable to changes in consumer behavioral trends and estimated redemption amounts. These increases were partially offset by decreases in the amount of monthly maintenance fees and ATM revenue as a result of the decreases in our gross dollar volume stated above. Consumer Services expenses increased for the year ended December 31, 2021 from the comparable prior year period, 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 our effort to improve our customer's overall experience and growth in transaction losses, in part due to the introduction of our overdraft protection services. Expenses in our Consumer Services segment also increased due to higher advertising and supply chain expenses in connection with the continued roll-out of GO2bank. B2B Services Year Ended December 31, 2021 2020 Change % (In thousands, except percentages) Financial Results Segment revenues $ 458,584 $ 304,651 $ 153,933 50.5 % Segment expenses 385,428 238,759 146,669 61.4 % Segment profit $ 73,156 $ 65,892 $ 7,264 11.0 % Key Metrics (In millions, except percentages) Gross Dollar Volume $ 39,367 $ 26,064 $ 13,303 51.0 % Active Accounts* 1.97 1.72 $ 0.25 14.5 % Purchase Volume $ 10,096 $ 8,526 $ 1,570 18.4 % * Represents number of active accounts as of December 31, 2021 and 2020, respectively. As additional supplemental information, our key metrics within our B2B Services segment is presented on a quarterly basis as follows: 2021 2020 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 10,053 $ 9,593 $ 9,211 $ 10,510 $ 6,787 $ 6,120 $ 6,424 $ 6,733 Number of active accounts 1.97 1.99 2.06 2.28 1.72 1.74 2.15 2.04 Purchase volume $ 2,184 $ 2,190 $ 2,415 $ 3,307 $ 1,685 $ 1,760 $ 2,354 $ 2,727 Segment revenues within our B2B Services for the year ended December 31, 2021 increased $153.9 million, or 51%, compared to the prior year period, while our segment expenses for the year ended December 31, 2021 increased $146.7 million, or 61%. Our total gross dollar volume increased 51% during the year ended December 31, 2021 from the comparable prior year period, and the average number of active accounts within our B2B Services segment across the year increased by 8% year-over-year as of December 31, 2021 as we continued to experience organic growth from both new and existing users in certain BaaS programs as the demand for digital payments continues, as well as economic stimulus received by our partner programs. Purchase volume also increased approximately 18% for the year ended December 31, 2021 from the comparable prior year periods, as result of this increased gross dollar volume. The increase in gross dollar volume and purchase volume drove an increase in our program management service fee revenues earned from our BaaS partners and an increase in the amount of interchange revenue earned. Despite year-over-year revenue growth for the year ended December 31, 2021, our segment profit has been impacted by the increased staffing of third-party call center support to meet the increased demand in our customer service center and growth in transaction losses as a result of the year-over-year increases in gross dollar volume and purchase volume. This segment also experienced margin compression because certain BaaS partnerships were structured based on a fixed profit and therefore, our segment profit for certain arrangements will not scale with 41 Table of Contents revenue growth. BaaS is our newest channel of business and we remain focused on investing in it and exploring new partnership agreements moving forward. Money Movement Services Year Ended December 31, 2021 2020 Change % (In thousands, except percentages) Financial Results Segment revenues $ 239,735 $ 288,009 $ (48,274) (16.8) % Segment expenses 123,770 164,128 (40,358) (24.6) % Segment profit $ 115,965 $ 123,881 $ (7,916) (6.4) % Key Metrics (In millions, except percentages) Cash Transfers 40.51 48.71 (8.2) (16.8) % Tax Refunds Processed 12.14 12.46 (0.32) (2.6) % As additional supplemental information, our key metrics within our Money Movement Services segment is presented on a quarterly basis as follows: 2021 2020 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Number of cash transfers 9.95 10.05 10.19 10.32 11.29 12.81 12.48 12.13 Number of tax refunds processed 0.12 0.43 4.15 7.44 0.11 0.75 1.90 9.70 Segment revenues within our Money Movement services for the year ended December 31, 2021 decreased $48.3 million, or 17%, from the comparable prior year period, and segment expenses for the year ended December 31, 2021 decreased $40.4 million, or 25%. The number of cash transfers processed decreased for the year ended December 31, 2021, was largely due to our decision not to renew a reload partner agreement in the fourth quarter of 2020. While the non-renewal of this agreement has impacted segment revenues and the number of cash transfers we process, the effect on segment profitability was less impactful due to the higher than average sales commission rate associated with this agreement. Any year-over-year growth or decline in cash transfers in 2022 will be dependent on multiple factors, including the level of growth of deposit account programs in our Consumer Services and B2B Services segments. In addition, our tax processing revenues decreased for the year ended December 31, 2021 primarily due to a lower number of tax refunds processed and lower unit economics earned from refund transfers with one of our largest customers due to the terms that were agreed upon in connection with a new multi-year arrangement. Corporate and Other Year Ended December 31, 2021 2020 Change % (In thousands, except percentages) Financial Results Unallocated revenue and inter-segment eliminations $ ( 5,169 ) $ ( 12,554 ) $ 7,385 (58.8) % Unallocated corporate expenses and inter-segment eliminations 190,592 183,577 7,015 3.8 % $ ( 195,761 ) $ ( 196,131 ) $ 370 (0.2) % 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, insurance and inter-segment eliminations. 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, impairment charges and other non-recurring expenses that are not considered by our CODM when 42 Table of Contents evaluating our overall consolidated financial results are excluded from our unallocated corporate expenses above. Refer to Note 24— Segment Information to the Consolidated Financial Statements included herein for a summary reconciliation. Net interest income increased year-over-year for the year ended December 31, 2021 as a result of an increase in the size of our investment securities portfolio. Unallocated corporate expenses for the year ended December 31, 2021 increased year-over-year by approximately 4%, as a result of higher professional services expenses, software licenses and telecommunication expenses, partially offset by lower corporate reserves and rent expenses. 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 and Green Dot Bank 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 and Green Dot Bank 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. 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%. Either or both of Green Dot Corporation and Green Dot Bank may qualify for and opt to use, from time to time, the community bank leverage ratio framework under the Federal Reserve’s version of the U.S. Basel III Rules. Under the community bank leverage ratio framework, a qualifying community banking organization may generally satisfy its capital requirements (and capital conservation buffer) under the U.S. Basel III rules provided that it has a Tier 1 leverage ratio greater than 9% and satisfies other applicable conditions. In 2021, Green Dot Corporation and Green Dot Bank qualified for (including, in the case of Green Dot Bank, through grace periods) and opted to use the community bank leverage ratio framework. Going forward, we expect that Green Dot Corporation will continue to qualify for and use the community bank leverage ratio framework, and that Green Dot Bank will calculate and disclose its risk-based capital ratios and Tier 1 leverage ratio under standardized approach of the U.S. Basel III Rules. As of December 31, 2021 and 2020, we and Green Dot Bank were categorized as "well capitalized" under applicable regulatory standards. To be categorized as "well capitalized," we and Green Dot Bank must maintain specific total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There were no conditions or events since December 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 credit 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 43 Table of Contents The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at December 31, 2021 and 2020, were as follows: December 31, 2021 Amount Ratio Regulatory Minimum "Well-capitalized" Minimum (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 637,338 15.9 % 4.0 % n/a Common equity Tier 1 capital $ 637,338 54.0 % 4.5 % n/a Tier 1 capital $ 637,338 54.0 % 6.0 % 6.0 % Total risk-based capital $ 648,038 54.9 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 329,162 9.1 % 4.0 % 5.0 % Common equity Tier 1 capital $ 329,162 40.7 % 4.5 % 6.5 % Tier 1 capital $ 329,162 40.7 % 6.0 % 8.0 % Total risk-based capital $ 336,461 41.6 % 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 % Liquidity and Capital Resources The following table summarizes our major sources and uses of cash for the periods presented: Year Ended December 31, 2021 2020 (In thousands) Total cash provided by (used in) Operating activities $ 162,533 $ 209,178 Investing activities (1,368,487) (785,832) Financing activities 1,034,893 1,007,201 (Decrease) increase in unrestricted cash, cash equivalents and restricted cash $ (171,061) $ 430,547 During the years ended December 31, 2021 and 2020, we financed our operations primarily through our cash flows provided by operating activities 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. At December 31, 2021, our primary source of liquidity was unrestricted cash and cash equivalents totaling $1.3 billion. We also consider our $2.1 billion of investment securities available-for-sale 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 44 Table of Contents at least the next 12 months. We are currently not aware of any 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 $162.5 million of net cash provided by operating activities in the year ended December 31, 2021 principally resulted from $47.5 million of net income, adjusted for certain non-cash operating expenses of $184.9 million, and a decrease in net working capital assets and liabilities of $69.8 million. Our $209.2 million of net cash provided by operating activities in the year ended December 31, 2020 principally resulted from $23.1 million of net income, adjusted for certain non-cash operating expenses of $157.5 million, and an increase in net working capital assets and liabilities of $28.6 million. Cash Flows from Investing Activities Our $1.4 billion of net cash used in investing activities in the year ended December 31, 2021 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $1.2 billion, payments for the development and acquisition of property and equipment of $57.4 million, purchases of bank-owned life insurance policies of $55.0 million, and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million. Capital commitment relief granted to us at the end of 2020 by the Federal Reserve on our prepaid card deposits has provided greater flexibility in how we can utilize our cash and cash equivalents, and as a result, we purchased additional available-for-sale investment securities compared to the prior year period. Our $785.8 million of net cash used in investing activities in the year ended December 31, 2020 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $687.8 million, payments for the development and acquisition of property and equipment of $59.0 million and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million. Cash Flows from Financing Activities Our $1.0 billion of net cash provided by financing activities for the year ended December 31, 2021 was principally the result of a net increase in customer deposits of $555.1 million, and a net increase in obligations to customers of $488.7 million. Our $1.0 billion of net cash provided by financing activities for the year ended December 31, 2020 was principally the result of a net increase in customer deposits of $1.6 billion, partially offset by a net decrease in obligations to customers of $512.5 million and net repayments on our revolving credit facility of $35.0 million. Total customer deposit balances increased substantially for the years ended December 31, 2021 and 2020 driven primarily by stimulus funds and other government benefits received by our cardholders under the CARES Act and the American Rescue Plan Act. 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 $100.0 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. The terms of our existing agreement also provide for a method to determine an alternative benchmark interest rate in anticipation of the discontinuation of LIBOR under reference rate reform. This alternative benchmark rate will be selected between the parties taking into consideration recommendations from regulatory bodies or based on prevailing market conventions at the time the alternative rate is established, and may include the Secured Overnight Financing Rate. As of December 31, 2021, we had no borrowings outstanding on the 2019 Revolving Facility and had the full amount available for use. 45 Table of Contents 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 December 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 such as our core banking and card management systems in order to scale and operate effectively to meet our strategic objectives. While we expect these capital expenditures will exceed the amount of our capital expenditures in 2021, 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. If another economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions to Green Dot Bank to maintain its capital, leverage and other financial commitments. We also have certain contractual payment obligations, in each case, as described in more detail below. Contractual Obligations 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. We hold a 20% ownership interest in the entity, in exchange for annual capital contributions of $35.0 million per year from January 2020 through January 2024. See Note 7 - Equity Method Investment of the Notes to our Consolidated Financial Statements for additional information. In response to our remote employee workforce strategy in the U.S., we have closed most our leased office locations. However, we are required to continue making our contractual payments until our operating leases are formally terminated or expire. Our remaining leases have terms of less than 1 year to approximately 5 years, subject to renewal options of varying terms, and as of December 31, 2021, we had a total lease liability of $15.1 million. See Note 20 - Leases of the Notes to our Consolidated Financial Statements for additional information regarding our lease liabilities as of December 31, 2021. Our definitive agreement to acquire all of the equity interests of UniRush provides for a minimum $4 million annual earn-out payment for five years following the closing, ending in February 2022. In the normal course of business, we enter into various agreements with our vendors and retail distributors that may subject us to minimum annual requirements. While our contractual commitments will have an impact on our future liquidity, we believe that we will be able to adequately fulfill these obligations through cash generated from operations and from our existing cash balances. 46 Table of Contents Statistical Disclosure by Bank Holding Companies The following section presents supplemental information for Bank Holding Companies. The tables in this section include Green Dot Bank information only. Distribution of Assets, Liabilities and Stockholders' Equity The following table presents average balance data and interest income and expense data for our banking operations, as well as the related interest yields and rates for the years ended December 31, 2021, 2020 and 2019: Year ended December 31, 2021 2020 2019 Average balance Interest income/ interest expense Yield/ rate Average balance Interest income/ interest expense Yield/ rate Average balance Interest income/ interest expense Yield/ rate (In thousands, except percentages) Assets Interest-bearing assets Loans (1) $ 37,347 $ 6,166 16.5 % $ 22,533 $ 2,454 10.9 % $ 23,656 $ 2,050 8.7 % Taxable investment securities 1,271,329 13,831 1.1 506,152 7,031 1.4 229,575 6,722 2.9 Non-taxable investment securities 28,956 712 2.5 11,481 278 2.4 399 10 2.5 Federal reserve stock 7,069 322 4.6 5,473 272 5.0 5,377 273 5.1 Fee advances 6,756 1,491 22.1 7,775 1,455 18.7 6,301 1,296 20.6 Cash 2,012,597 2,539 0.1 1,769,837 5,709 0.3 1,124,979 24,616 2.2 Total interest-bearing assets 3,364,054 25,061 0.7 % 2,323,251 17,199 0.7 % 1,390,287 34,967 2.5 % Non-interest bearing assets 274,145 131,612 255,997 Total assets $ 3,638,199 $ 2,454,863 $ 1,646,284 Liabilities Interest-bearing liabilities Checking accounts $ 5,345 $ 5 0.1 % $ 9,271 $ 54 0.6 % $ 80,642 $ 1,750 2.2 % Savings deposits 26,745 25 0.1 20,702 41 0.2 23,598 41 0.2 Time deposits, denominations greater than or equal to $250 1,827 26 1.4 1,146 16 1.4 373 13 3.5 Time deposits, denominations less than $250 3,142 37 1.2 3,682 37 1.0 3,966 27 0.7 Total interest-bearing liabilities 37,059 93 0.3 % 34,801 148 0.4 % 108,579 1,831 1.7 % Non-interest bearing liabilities 3,304,652 2,173,578 1,225,023 Total liabilities 3,341,711 2,208,379 1,333,602 Total stockholders' equity 296,488 246,484 312,682 Total liabilities and stockholders' equity $ 3,638,199 $ 2,454,863 $ 1,646,284 Net interest income/yield on earning assets $ 24,968 0.4 % $ 17,051 0.3 % $ 33,136 0.8 % ___________ (1) Non-performing loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis. The following table presents the amount of changes in interest income and interest expense due to changes in both average volume and average rate for the years ended: 47 Table of Contents December 31, 2021 December 31, 2020 Total Change in Interest Income/ Expense Change Due to Rate (1) Change Due to Volume (1) Total Change in Interest Income/ Expense Change Due to Rate (1) Change Due to Volume (1) (In thousands) Interest-earning assets Loans $ 3,712 $ 1,266 $ 2,446 $ 404 $ 526 $ (122) Taxable investment securities 6,800 (1,524) 8,324 309 (3,533) 3,842 Non-taxable investment securities 434 4 430 268 (1) 269 Federal reserve stock 50 (23) 73 (1) (6) 5 Fee advances 36 261 (225) 159 (116) 275 Cash (3,170) (3,476) 306 (18,907) (20,987) 2,080 Change in interest income $ 7,862 $ (3,492) $ 11,354 $ (17,768) $ (24,117) $ 6,349 Interest-bearing liabilities Checking accounts $ (49) $ (43) $ (6) $ (1,696) $ (1,205) $ (491) Savings deposits (16) (22) 6 — 6 (6) Time deposits, denominations greater than or equal to $250 10 — 10 3 (8) 11 Time deposits, denominations less than $250 — 7 (7) 10 12 (2) Change in interest expense (55) (58) 3 (1,683) (1,195) (488) Change in net interest income and expense $ 7,917 $ (3,434) $ 11,351 $ (16,085) $ (22,922) $ 6,837 ___________ (1) The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns. Maturities and Sensitivities to Changes in Interest Rates The following table presents contractual maturities of loans by type. All of our loans due after one year are based upon fixed interest rates under the stated terms of the loan agreements: Due in one year or less Due after one year through five years Due after five years through fifteen years Due after fifteen years Total (In thousands) Residential $ 526 $ 629 $ 2,286 $ 281 $ 3,722 Commercial 2,533 11 848 — 3,392 Installment 42 1,261 40 — 1,343 Consumer 10,032 — — — 10,032 Secured credit card 6,336 — — — 6,336 Total fixed-income securities $ 19,469 $ 1,901 $ 3,174 $ 281 $ 24,825 Allocation of Reserve of Credit Losses The following table shows the reserve for credit losses allocated to each loan category: December 31, 2021 December 31, 2020 Amount Percentage Amount Percentage (In thousands, except percentages) Residential $ 87 1.6 % $ 93 12.3 % Commercial 32 0.6 34 4.5 Installment 42 0.8 37 4.9 Consumer 4,384 78.9 — — Secured credit card 1,010 18.2 593 78.3 Total $ 5,555 100.0 % $ 757 100.0 % 48 Table of Contents Deposits The following table shows Green Dot Bank’s average deposits and the annualized average rate paid on those deposits for the years ended December 31, 2021, 2020, and 2019: December 31, 2021 December 31, 2020 December 31, 2019 Average Balance Weighted-Average Rate Average Balance Weighted-Average Rate Average Balance Weighted-Average Rate (In thousands, except percentages) Interest-bearing deposit accounts Checking accounts $ 5,345 0.1 % $ 9,271 0.6 % $ 80,642 2.2 % Savings deposits 26,745 0.1 20,702 0.2 23,598 0.2 Time deposits, denominations greater than or equal to $250 1,827 1.4 1,146 1.4 373 3.5 Time deposits, denominations less than $250 3,142 1.2 3,682 1.0 3,966 0.7 Total interest-bearing deposit accounts 37,059 0.3 % 34,801 0.4 % 108,579 1.7 % Non-interest bearing deposit accounts 2,926,280 1,898,216 839,657 Total deposits $ 2,963,339 $ 1,933,017 $ 948,236 Our aggregate deposits in denominations that met or exceeded FDIC limits were $180 million, $115 million and $98 million as of December 31, 2021, 2020 and 2019, respectively. Our time deposits portfolio in excess of FDIC limits is not material at December 31, 2021. Key Financial and Credit Ratios The following tables show certain of Green Dot Bank’s key financial and credit ratios for the years ended December 31, 2021, 2020, and 2019: December 31, 2021 December 31, 2020 December 31, 2019 Net return on assets 2.0 % 2.0 % 3.4 % Net return on equity 24.6 19.7 17.7 Equity to assets ratio 8.1 10.0 19.0 Allowance for credit losses to total loans outstanding 22.4 3.5 5.2 Nonaccrual loans to total loans outstanding 3.4 6.3 9.7 Allowance for credit losses to nonaccrual loans 648.9 55.5 53.4 December 31, 2021 December 31, 2020 December 31, 2019 Net charge-offs during the period to average loans outstanding: (In thousands) Consumer Net charge-off during the period $ 18,798 $ — $ — Average amount outstanding 7,578 — — Secured credit card Net charge-off during the period 1,382 1,269 1,678 Average amount outstanding 14,062 14,703 17,476