What changed in this filing

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Item 1A. Risk Factors

2022-05-09 compared with 2021-11-08 · 116 added, 119 removed, 263 unchanged (47% of the section changed)

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Our operations have and may continue to be negatively affected by a range of external factors related to the COVID-19 pandemic that are not within our control.

As a result of the COVID-19 pandemic, we have shifted to a fully remote workforce strategy for our employees in the U.S.

and we are in the process of closing most of our leased office locations in the U.S., which has resulted in us recording impairment charges and could result in a less effective workforce.

In addition, many of the third-party call centers we rely on to provide customer support were closed during portions of the first half of 2020 due to the pandemic, which resulted in delayed responses to customers and a higher usage of automated services, and contributed to higher transaction losses compared to prior periods.

While such staffing issues have been resolved, it is possible that we may continue to experience similar issues in the future due to the pandemic.

We have shifted to a remote workforce strategy for our employees in the U.S.

and we have closed most of our leased office locations in the U.S., which could result in a less effective workforce in the long-term.

As a result of the resurgence of the COVID-19 pandemic’s Omicron variant in China during the first quarter of 2022, we closed our offices again in China and shifted to a remote workforce strategy in China, which over a prolonged period of time, could potentially delay our ability to launch new products or services.

In addition, many of the third-party call centers we rely on to provide customer support experienced periodic disruptions in 2021 due to the ongoing pandemic, which resulted in delayed responses to customers and a higher usage of automated services, and contributed to higher costs and transaction losses compared to prior periods.

The business and operations of our retail distributors and our BaaS and other partners were likewise disrupted, with many having experienced reduced foot traffic or usage of their services.

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

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

In 2020, the conditions caused by the COVID-19 pandemic adversely affected our customers’ spending levels and ability or willingness to purchase our products and services through our retail distributors, lowered the volume of transactions of certain programs and delayed the launching of new products and services, although governmental actions such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) helped mitigate the effects of COVID-19 on our business in 2020, and in December 2020 and March 2021, two economic stimulus packages totaling $2.8 trillion were signed into law, providing for additional direct payments and enhanced unemployment benefits which expired in September 2021.

As a result of the pandemic, we have experienced and may continue to experience increased costs, including higher call center costs and disputed transaction losses, which could continue to adversely affect our business, results of operations, and financial condition in future periods.

Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets, which may adversely affect our stock price and our ability to access capital markets in the future.

We have taken steps to strengthen our liquidity position and ensure we have ample flexibility to pursue strategic priorities.

Should we require credit at levels we are unable to access, the cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected.

Further, additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.

Please see “Management’s Discussion and Analysis of Financial Position and Results of Operations” for more information regarding the potential impact of the COVID-19 pandemic on our business.

We may continue to experience increased costs, which could continue to adversely affect our business, results of operations, and financial condition in future periods.

Despite widespread vaccination efforts as well as dropping infection and hospitalization rates in the United States, COVID-19 could still have an adverse impact on our business as the duration and magnitude of the continuing effects of COVID-19 remain uncertain and dependent on various factors, including the continued severity and transmission rates of the virus and variants of the virus, the effectiveness of COVID-19 vaccines against such variants, the nature and duration of future preventative measures, the extent and effectiveness of future containment and mitigation efforts, including vaccination programs and mandates, the type of stimulus measures and other policy responses that the U.S.

government or regulators may further adopt, including interest rate increases, if any, and the impact of these and other factors on our employees, customers, retail distributors, partners and vendors.

Governmental actions such as the American Rescue Plan of 2021 helped mitigate the effects of COVID-19 on our business in 2021 but have since expired, and our income has and could continue to be impacted as a result.

Concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets, which may adversely affect our stock price and our ability to access capital markets in the future.

Further, should we require credit at levels we are unable to access, the cost of credit is greater than expected, or the cost-savings measures we have implemented are ineffective or result in us incurring greater costs, our operating results could be adversely affected.

Additional borrowings on our revolving line of credit have and will cause us to incur additional interest expense, which will negatively affect our earnings.

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding the potential impact of the COVID-19 pandemic on our business.

Worsening economic conditions from the continued spread and impact of COVID-19, a rising rate of inflation, or other potential causes of economic distress could materially and adversely impact our business and financial results.

The effects of the economic downturn associated with the COVID-19 pandemic, and other economic factors, has resulted in a significant increase in the rate of inflation, rising interest rates, and may increase unemployment, all of which could reduce consumer credit ratings and credit availability, which may adversely affect our operations.

Such an outcome could cause us to adjust pricing to account for an increasing cost of funds and increased credit risk in a down economy and thereby erode our margins and negatively impact our future financial performance and the price of our Class A Common Stock.

Additionally, if our borrowing rates were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through rate increases.

Our inability or failure to do so could harm our business, financial condition and results of operations.

Additionally, interest rate increases may adversely impact our customers’ spending levels or our customers’ ability to pay outstanding amounts owed to us.

Please see “Quantitative and Qualitative Disclosures about Market Risk” for more information regarding the potential impact of the various market risks on our business.

RISKS RELATED TO OUR BUSINESS

The loss of operating revenues from Walmart or any of our largest retail distributors would adversely affect our business.

A significant portion of our operating revenues are derived from the products and services sold at our four largest retail distributors.

As a percentage of total operating revenues, operating revenues derived from products and services sold at the store locations of Walmart was approximately 23.0% for each of the three and nine months ended September 30, 2021, respectively.

The loss of operating revenues from Walmart or any of our largest retail distributors as well as our significant BaaS partners, third-party processors or other major consumers would adversely affect our business.

A significant portion of our operating revenues are derived from the products and services sold at our largest retail distributors.

As a percentage of total operating revenues, operating revenues derived from products and services sold at the store locations of Walmart was approximately 20.0% for the three months ended March 31, 2022.

We expect that Walmart will continue to have a significant impact on our operating revenues in future periods, particularly in our Consumer Services segment.

It would be difficult to replace Walmart and the operating revenues derived from products and services sold at their stores.

Accordingly, the loss of

Walmart or any significant decrease in customers’ spending levels and ability or willingness to purchase our account products through Walmart, for any reason, including due to the COVID-19 pandemic, would have a material adverse effect on our business and results of operations.

In addition, any publicity associated with the loss of any of our large retail distributors could harm our reputation, making it more difficult to attract and retain consumers and other retail distributors, and could lessen our negotiating power with our remaining and prospective retail distributors.

Accordingly, the loss of Walmart or any significant decrease in customers’ spending levels and ability or willingness to purchase our account products through Walmart, for any reason, including due to the COVID-19 pandemic, would have a material adverse effect on our business and results of operations.

In addition, any publicity associated with the loss of any of our large retail distributors, significant BaaS partners, third-party processors or other major consumers could harm our reputation, making it more difficult to attract and retain consumers, BaaS partners, third-party processors and other retail distributors, and could lessen our negotiating power with our remaining and prospective retail distributors, BaaS partners, third-party processors and consumers.

The term of our Walmart Money Card agreement (which governs the MoneyCard program) expires on January 31, 2027, unless renewed under its automatic renewal provision, which provides for a one-year extension.

Our contracts with our three other largest retail distributors have terms that are set to expire at various dates through 2022, with some subject to automatic renewal provisions.

Our contracts with Walmart and our three other largest retail distributors can in limited circumstances, such as our material breach or insolvency or, in the case of Walmart, our failure to meet agreed-upon service levels, certain changes in control, and our inability or unwillingness to agree to requested pricing changes, be terminated by these retail distributors on relatively short notice.

There can be no assurance that we will be able to continue our relationships with our largest retail distributors on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them.

Our operating revenues and results of operations could suffer if, among other things, any of our retail distributors renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us or otherwise chooses to modify the level of support it provides for our products.

Our contracts with Walmart and our other largest retail distributors can in limited circumstances, such as our material breach or insolvency or, in the case of Walmart, our failure to meet agreed-upon service levels, certain changes in control, and our inability or unwillingness to agree to requested pricing changes, be terminated by these retail distributors on relatively short notice.

There can be no assurance that we will be able to continue our relationships with our largest retail distributors, significant BaaS partners, third-party processors or consumers on the same or more favorable terms in future periods or that our relationships will continue beyond the terms of our existing contracts with them.

Our operating revenues and results of operations could suffer if, among other things, any of our retail distributors, significant BaaS partners, third-party processors or consumers renegotiates, terminates or fails to renew, or to renew on similar or favorable terms, its agreement with us or otherwise chooses to modify the level of support it provides for our products.

Our base of tax preparation partners is concentrated, and the performance of our Money Movement Services segment depends in part on our ability to retain existing partners.

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Our prospects for growth depend on our ability to innovate by offering new, and adding value to our existing, product and service offerings and on our ability to effectively commercialize such innovations.

For example, in January 2021, we launched GO2bank, a new mobile bank account aimed at serving the low-and moderate-income

For example, in 2021, we launched GO2bank, a mobile bank account aimed at serving the low-and moderate-income market and continue to enhance its features and functionality.

We will continue to make investments in research, development, and marketing for new products and services.

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To the extent these new entrants continue to take market share at our expense, we expect that the purchase and use of our products and services would decline.

In response to such challenger banks, we launched GO2bank, a new mobile bank account aimed at serving the low-and moderate-income market with tools that help address common financial challenges and opportunities to improve long-term financial health.

If GO2bank is not successful or our competitive position deteriorates further, we may have to increase the incentives that we offer to our retail distributors and our tax preparation partners, or directly to consumers, and decrease the prices of our products and services, any of which would likely adversely affect our results of operations.

In response to such challenger banks, we launched GO2bank, a mobile bank account aimed at serving the low-and moderate-income market with tools that help address common financial challenges and opportunities to improve long-term financial health.

If GO2bank is not successful in the long-term or our competitive position deteriorates further, we may have to increase the incentives that we offer to our retail distributors and our tax preparation partners, or directly to consumers, and decrease the prices of our products and services, any of which would likely adversely affect our results of operations.

We may not keep pace with the rapid technological developments in our industry and the larger electronic payments industry.

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Additionally, our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts.

While we decline authorization attempts for amounts that exceed the available balance in a cardholder’s account, 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 result in overdrawn accounts.

Maintenance fee assessment overdrafts occur as a result of our charging a cardholder, pursuant to the card’s terms and conditions, the monthly maintenance fee at a time when he or she does not have sufficient funds in his or her account.

Our remaining overdraft exposure arises primarily from late-posting.

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.

Our overdraft exposure in these instances arises primarily from late-posting.

A late-post occurs when a merchant posts a transaction within a payment network-permitted time frame, but subsequent to our release of the authorization for that transaction, as permitted by card association rules.

Under card association rules, we may be liable for the transaction amount even if the cardholder has made additional purchases in the intervening period and funds are no longer available on the card at the time the transaction is posted.

We consider overdrawn account balances to be our receivables due from cardholders.

We maintain reserves to cover the risk that we may not recover these receivables due from our cardholders, but our exposure may increase above these reserves for a variety of reasons, including our failure to predict the actual recovery rate accurately.

the extent we incur losses from overdrafts above our reserves or we determine that it is necessary to increase our reserves substantially, our business, results of operations and financial condition could be materially and adversely affected.

Additionally, in 2021, we introduced an optional overdraft protection program service on certain demand deposit account programs that allows eligible cardholders who opt-in to spend up to a pre-authorized amount in excess of their available card balance.

We maintain reserves to cover the risk that we may not recover these amounts due from our cardholders, but our exposure may increase above these reserves for a variety of reasons, including our failure to predict the actual recovery rate accurately.

To the extent we incur losses from overdrafts above our reserves or we determine that it is necessary to increase our reserves substantially, our business, results of operations and financial condition could be materially and adversely affected.

We face settlement risks from our distributors and banking partners, which may increase during an economic recession.

Most of our business is conducted through retail distributors that sell our products and services to consumers at their store locations.

Our retail distributors collect funds from the consumers who purchase our products and services and then must remit these funds directly to accounts established for the benefit of these consumers at the banks that issue our cards.

The remittance of these funds by the retail distributor takes on average two business days.

If a retail distributor becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers.

As of September 30, 2021, we had assets subject to settlement risk of $452.6 million.

A large portion of our business is conducted through retail distributors that sell our products and services to consumers at their store locations or other partners that collect funds and fees from our customers on our behalf.

Our retail distributors and partners collect funds from the consumers who purchase our products and services and then must remit these funds directly to our subsidiary bank.

The remittance of these funds by the retail distributor or partner takes on average two business days.

If a retail distributor or partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers.

As of March 31, 2022, we had assets subject to settlement risk of $500.3 million.

Given the possibility of recurring volatility in global financial markets, the approaches we use to assess and monitor the creditworthiness of our retail distributors may be inadequate, and we may be unable to detect and take steps to mitigate an increased credit risk in a timely manner.

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Our business involves the movement of large sums of money, the processing of large numbers of transactions and the management of the data necessary to do both.

Our success in our account programs, including our BaaS programs, as well as our money movement services,

depends upon the efficient and error-free handling of the money that is collected, remitted or deposited in connection with the provision of our products and services.

Our success in our account programs, including our BaaS programs, as well as our money movement services, depends upon the efficient and error-free handling of the money that is collected, remitted or deposited in connection with the provision of our products and services.

We rely on the ability of our employees, systems and processes and those of the banks that issue our cards, our retail distributors, tax refund preparation partners, other business partners and third-party processors to process and facilitate these transactions in an efficient, uninterrupted and error-free manner.

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Interruptions in our service may result for a number of reasons.

For example, the data center hosting facilities that we use could be closed without adequate notice or suffer unanticipated problems resulting in lengthy interruptions in our service.

Additionally, the data center hosting facilities that we use could be closed without adequate notice or suffer unanticipated problems resulting in lengthy interruptions in our service.

Moreover, as we continue to add data centers and add capacity in our existing data centers, we could experience problems transferring customer accounts and data, impairing the delivery of our service.

We are currently in the process of bringing processing in-house instead of using third-party processors.

As a result, some customers may experience disruptions in service in connection with this ongoing project despite significant investments in planning and testing on the part of us and our processing technology partners.

In addition, our inability to transition to in-house processing, or any failure by us to process transactions in a timely manner once we begin processing transactions, could cause significant disruptions to our customers and our business.

Any damage to, or failure of, or delay in our processes or systems generally, or those of our vendors (including as a result of disruptions at our third-party data center hosting facilities and cloud providers), or an improper action by our employees, agents or third-party vendors, could result in interruptions in our service, causing customers, retail distributors and other partners to become dissatisfied with our products and services or obligate us to issue credits or pay fines or other penalties to them.

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Further, negative publicity arising from these types of disruptions could be damaging to our reputation and may adversely impact use of our products and services, including our banking platform, and adversely affect our ability to attract new customers and business partners.

Additionally, some of our contracts with retail distributors, including our contract with Walmart, contain service level standards pertaining to the operation of our systems, and provide the retail distributor with the right to collect damages and potentially to terminate its contract with us for system downtime exceeding stated limits.

If we face system interruptions or failures, our business interruption insurance may not be adequate to cover the losses or damages that we incur.

Additionally, some of our contracts with retail distributors, including our contract with Walmart, contain service level standards pertaining to the operation of our systems, and provide the retail distributor with the right to collect damages and to potentially terminate its contract with us for system downtime exceeding stated limits.

If we face system interruptions or failures, our business interruption insurance may not be adequate to cover the losses

or damages that we incur.

In addition, our insurance costs may also increase substantially in the future to cover the costs our insurance carriers may incur.

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A data security breach of the systems on which sensitive cardholder or other customer or end-customer data and account information are stored could lead to fraudulent activity involving our products and services, reputational damage and claims or regulatory actions against us.

Regardless of whether or not we are sued or face regulatory actions, a breach will require us to carefully assess the materiality of a cyber-attack.

Depending on the nature and magnitude of the accessed data, this effort may require substantial resources.

If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation.

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Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations.

In addition, a data security breach or perceived security vulnerability at one of the third-party banks that issue our cards or at our retail distributors, tax preparation partners, network acceptance members, other business partners, third-party processors or the merchants that accept our cards could result in significant reputational harm to us and cause the use and acceptance of our cards or other products and services to

decline, either of which could have a significant adverse impact on our operating revenues and future growth prospects.

Moreover, it may require substantial financial resources to address and remediate any such breach, including additional costs for replacement cards, manufacturing, distribution, re-stocking fees, fraud monitoring and other added security measures, among others, which could have a significant adverse impact on our operating results.

Moreover, it may require substantial financial resources to address and remediate any such breach, including additional costs for hiring an external party to conduct a forensic investigation, replacement cards, manufacturing, distribution, re-stocking fees, fraud monitoring, and other added security measures, among others, which could have a significant adverse impact on our operating results.

Additionally, we cannot be certain that our insurance coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on reasonable terms, or that any insurer will not deny coverage as to any future claim.

The assertion of large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

Failure to maintain satisfactory compliance with certain privacy and data protection laws and regulations may subject us to substantial negative financial consequences and civil or criminal penalties.

Complex existing and emerging local, state, and federal laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal information.

These privacy laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations.

Complying with these laws and regulations can be costly and can impede the development and offering of new products and services.

In addition, our failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal information, or to protect personal information from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business.

Replacing third-party vendors would be difficult and disruptive to our business.

Some services relating to our business, including fraud management and other customer verification services, transaction processing and settlement, card production, and customer service, are outsourced to third-party vendors.

We also depend on third-party banks to assist with our tax refund processing services.

It would be difficult to replace some of our third-party vendors in a timely manner if they were unwilling or unable to provide us with these services during the term of their agreements with us, and our business and operations could be adversely affected.

In particular, due to the seasonality in our business, any material service interruptions or service delays with key vendors during the tax season could result in losses that have an even greater adverse effect on that business than would be the case with our overall business.

Some services relating to our business, including fraud management and other customer verification services, cash processing, card production, and customer service, are outsourced to third-party vendors.

We also depend on

third-party banks to assist with our tax refund processing services.

It would be difficult to replace some of our third-party vendors in a timely manner if they were unwilling or unable to provide us with these services during the term of their agreements with us or if they elected not to renew their contracts with us, and our business and operations would be adversely affected.

Additionally, replacing third-party vendors with in-house solutions may lead to unanticipated operating costs and potential exposure to increased regulatory scrutiny.

In particular, due to the seasonality in our business, any material service interruptions, service delays or changes in service contracts with key vendors during the tax season would result in losses that have an even greater adverse effect on that business than would be the case with our overall business.

Further, we have in the past and may in the future experience operational issues with the third-party call centers that we rely on to provide customer support.

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While such issues have largely been resolved, these conditions contributed to transaction losses as compared to prior periods.

Any prolonged closure or disruption in the services provided by such call centers could have an adverse effect on our business.

Any prolonged closure or disruption in the services provided by such call centers would have an adverse effect on our business.

Some of our operations, including a significant portion of our software development operations, are located outside of the United States, which subjects us to additional risks.

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A prolonged disruption at our China facility for any reason due to natural- or man-made disasters, outbreaks of disease, such as the COVID-19 pandemic, climate change or other events outside of our control, such as equipment malfunction or large-scale outages or interruptions of service from utilities or telecommunications providers, could potentially delay our ability to launch new products or services, which could materially and adversely affect our business.

For example, as a result of the resurgence of the COVID-19 pandemic's Omicron variant in China during the first quarter of 2022, we closed our offices again in Shanghai, China and shifted to a remote workforce strategy.

Additionally, as a result of our international operations, we face numerous other challenges and risks, including:

• increased complexity and costs of managing international operations;

• regional economic instability;

• geopolitical instability and military conflicts;

• regional economic and geopolitical instability and military conflicts, including between Russia and Ukraine;

• limited protection of our intellectual property and other assets;

• compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws and regulations;

• compliance with and unanticipated changes in local laws and regulations, including tax laws and regulations;

• foreign currency exchange fluctuations relating to our international operating activities;

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If we fail to comply with any of these requirements, we may become subject to formal or informal enforcement actions, proceedings, or investigations, which could result in regulatory orders, restrictions on our business operations or requirements to take corrective actions, which may, individually or in the aggregate, affect our results of operations and restrict our ability to grow.

If we fail to comply with the applicable capital and leverage requirements, or if our subsidiary bank fails to comply with its applicable capital and leverage commitments, the Federal Reserve Board may limit our ability to pay dividends or fund stock repurchases, or if we become less than adequately capitalized, require us to raise additional capital.

As a bank holding company and a financial holding company, we are generally prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies and financial holding companies.

If we fail to comply with the applicable capital and leverage requirements, or if Green Dot Bank fails to comply with its applicable capital and leverage requirements, the Federal Reserve Board may limit our or Green Dot Bank's ability to pay dividends or fund stock repurchases, or if we become less than adequately capitalized, require us to raise additional capital.

As a bank holding company and an FHC, we are generally prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies and FHCs.

In addition, if at any time we or Green Dot Bank fail to be “well capitalized” or “well managed,” we may not commence, or acquire any shares of a company engaged in, any activities only permissible for an FHC, without prior Federal Reserve approval.

The restriction on our ability to commence, or acquire any shares of a company engaged in, any activities only permissible for an FHC, without prior Federal Reserve approval would also generally apply if Green Dot Bank received a CRA rating of less than “Satisfactory.” Any such restriction might limit our ability to pursue future business opportunities which we might otherwise consider, but which might fall outside the scope of permissible activities.

The restriction on our ability to commence, or acquire any shares of a company engaged in, any activities only permissible for an

FHC, without prior Federal Reserve approval would also generally apply if Green Dot Bank received a CRA rating of less than “Satisfactory.” Currently, under the BHC Act, we may not be able to engage in new activities or acquire shares or control of other businesses.

Such restrictions might limit our ability to pursue future business opportunities which we might otherwise consider, but which might fall outside the scope of permissible activities.

bank regulatory agencies from time to time take supervisory actions under certain circumstances that restrict or limit a financial institution's activities, including in connection with examinations, which take place on a continual basis.

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Such restrictions may include not being able to engage in certain categories of new activities or acquire shares or control of other companies.

The failure by Green Dot Bank to maintain its status as a "well-capitalized" institution could have a serious adverse effect on its ability to conduct key portions of its current deposit-taking activity.

A vast majority of Green Dot Bank’s deposits are currently classified as brokered.

If Green Dot Bank ceases to be categorized as “well capitalized” under banking regulations, it could be prohibited from accepting, renewing or rolling over brokered deposits without the consent of the FDIC.

In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could materially adversely affect the financial condition and operations of Green Dot Bank and the Company and could effectively restrict the ability of Green Dot Bank to operate its business lines as presently conducted.

The FDIC issued a final rule relating to the brokered deposits restrictions that apply to less than well capitalized insured depository institutions, which became effective on April 1, 2021, with full compliance with the brokered deposit part of the regulation extended to January 1, 2022.

The final rule establishes a new framework for analyzing certain provisions of the “deposit broker” definition, including “placing deposits,” “facilitating the placement of deposits” and “primary purpose.” The extended compliance date is intended to provide sufficient time for financial institutions to put in place systems to implement the new regulatory regime and to allow the FDIC to develop internal processes and systems to ensure a consistent and robust review process.

We cannot predict how the FDIC will implement the new rule and whether it will result in a change in the way our deposits are classified.

The failure by Green Dot Bank to properly classify its deposits could have an adverse effect on our financial condition.

The FDIC issued a final rule relating to the classification of brokered deposits with full compliance required by January 1, 2022.

The final rule establishes a new framework for analyzing certain provisions of the “deposit broker” definition, including “placing deposits,” “facilitating the placement of deposits” and “primary purpose,” for purposes of the classification of deposits as brokered deposits and exemptions from such a classification.

As a result of the new rule, Green Dot Bank reclassified its deposits as non-brokered.

We cannot predict how the FDIC will interpret the new rule and whether it will result in a change in the way our deposits are classified.

If the FDIC determines that Green Dot Bank’s deposits should actually be classified as brokered, such a finding could have an adverse impact on our financial condition.

Failure by us and our business partners to comply with applicable laws and regulations could have an adverse effect on our business, financial position and results of operations.

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In particular, our products and services are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities.

For example, we are subject to the anti-money laundering reporting and recordkeeping requirements of the Bank Secrecy Act (“BSA”), as amended by the PATRIOT Act.

In addition, legal requirements relating to the collection, storage, handling, use, disclosure, transfer, and security of

personal data continue to increase, along with enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations.

For example, we are subject to the anti-money laundering reporting and recordkeeping requirements of the BSA, as amended by the PATRIOT Act.

From time to time, federal and state legislators and regulatory authorities, including state attorney generals, increase their focus on the banking, consumer financial services and tax preparation industries and may propose and adopt new legislation or guidance that could result in significant adverse changes in the regulatory landscape for financial institutions and financial services companies.

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In addition, adverse rulings relating to the industries in which we participate could cause our products and services to be subject to additional laws and regulations, which could make our products and services less profitable.

Further, with the new incoming administration and accompanying changes in leadership at federal agencies such as the Consumer Financial Protection Bureau, we expect that financial institutions will remain heavily regulated in the near future and that additional laws or regulations may be adopted further regulating specific banking practices.

If additional regulatory requirements were imposed on the sale of our products and services and our bank, the requirements could lead to a loss of retail distributors, tax preparation partners or other business partners, which, in turn, could materially and adversely impact our operations.

Moreover, if our products are adversely impacted by the interpretation or enforcement of these regulations or if we or any of our retail distributors or tax preparation partners were unwilling or unable to make any such operational changes to comply with the interpretation or enforcement thereof, we would no longer be able to sell our products and services through that noncompliant retail distributor or tax preparation partner, which could have a material adverse effect on our business, financial position and results of operations.

Failure by us or those businesses to comply with the laws and regulations to which we are or may become subject could result in fines, penalties or limitations on our ability to conduct our business, or federal or state actions, any of which could significantly harm our reputation with consumers, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.

Further, with the current administration and leadership at federal agencies such as the CFPB, we expect that financial institutions will remain heavily regulated in the near future and that additional laws or regulations may be adopted that further regulate specific banking practices, including with respect to the fees we are permitted to charge to customers.

If additional regulatory requirements were imposed on our bank or the sale of our products and services, the requirements could lead to a loss of retail distributors, tax preparation partners or other business partners, which could materially and adversely impact our operations.

Moreover, if our products are adversely impacted by the interpretation or enforcement of these regulations or if we or any of our retail distributors or tax preparation partners were unwilling or unable to make such operational changes to comply with the interpretation or enforcement thereof, we would no longer be able to sell our products and services through that noncompliant retail distributor or tax preparation partner, which could materially and adversely affect our business, financial position and operating results.

actions, any of which could significantly harm our reputation with consumers, banks that issue our cards and regulators, and could materially and adversely affect our business, operating results and financial condition.

Many of these laws can be unclear and inconsistent across various jurisdictions and ensuring compliance with them could be difficult and costly.

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Furthermore, a substantial portion of our operating revenues is derived from interchange fees.

For the three months ended September 30, 2021, interchange revenues represented 25% of our total operating revenues, and we expect interchange revenues to continue to represent a significant percentage of our total operating revenues.

For the three months ended March 31, 2022, interchange revenues represented 20% of our total operating revenues, and we expect interchange revenues to continue to represent a significant percentage of our total operating revenues.

The amount of interchange revenues that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time.

The enactment of the Dodd-Frank Act required the Federal Reserve Board to implement regulations that have substantially limited interchange fees for many issuers.

While the interchange rates that may be earned by us and our subsidiary bank are exempt from the limitations imposed by the Dodd-Frank Act, there can be no assurance that future regulation or changes by the payment networks will not impact our interchange revenues substantially.

If interchange rates decline, whether due to actions by the payment networks or future regulation, we would likely

need to change our fee structure to offset the loss of interchange revenues.

While the interchange rates that may be earned by us and Green Dot Bank are exempt from the limitations imposed by the Dodd-Frank Act, there can be no assurance that future regulation or changes by the payment networks will not impact our interchange revenues substantially.

If interchange rates decline, whether due to actions by the payment networks or future regulation, we would likely need to change our fee structure to offset the loss of interchange revenues.

However, our ability to make these changes is limited by the terms of our contracts and other commercial factors, such as price competition.

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We are subject to regulatory oversight in the normal course of our business and have been and from time to time may be subject to securities class actions and other litigation or regulatory or judicial proceedings or investigations.

For example, on October 5, 2021, Republic Bank & Trust Company ("Republic Bank") brought a lawsuit against us in the Court of Chancery of the State of Delaware.

The lawsuit claims that we breached the contract in which we agreed, subject to certain conditions, to purchase Republic Bank's Tax Refund Solutions business.

The lawsuit seeks, among other forms of relief, an order of specific performance requiring that we close the transaction or, in the alternative, monetary damages.

For example, on October 5, 2021, Republic Bank & Trust Company ("Republic Bank") filed a lawsuit against us in the Court of Chancery of the State of Delaware.

The lawsuit alleges breach of the purchase agreement related to our proposed acquisition of Republic Bank's Tax Refund Solutions business.

The original complaint sought injunctive relief or, in the alternative, monetary damages.

Republic Bank has indicated that it may seek to amend the pleadings to add additional claims.

The outcome of this litigation, and any other litigation and regulatory or judicial proceedings or investigations is difficult to predict.

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In this regard, such costs could make it more difficult to maintain the capital, leverage and other financial commitments at levels we have agreed to with the Federal Reserve Board and the Utah Department of Financial Institutions.

If regulatory or judicial proceedings or investigations were to be initiated against us by private or governmental entities, adverse publicity that may be associated with these proceedings or investigations could negatively impact our relationships with retail distributors, tax preparation partners, network acceptance members, other business partners and card processors and decrease acceptance and use of, and loyalty to, our products and related services, and could impact the price of our Class A common stock.

and use of, and loyalty to, our products and related services, and could impact the price of our Class A common stock.

In addition, such proceedings or investigations could increase the risk that we will be involved in litigation.

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We also rely on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect the intellectual property rights related to our products and services.

We currently have 13 issued patents and 5 patent applications pending.

We currently have 13 issued patents, 2 published patents and 1 patent application pending.

Although we generally seek patent protection for inventions and improvements that we anticipate will be incorporated into our products and services, there is always a chance that our patents or patent applications could be challenged, invalidated or circumvented, or that an issued patent will not adequately cover the scope of our inventions or improvements incorporated into our products or services.

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These restrictions could limit our ability to take advantage of financing, merger, acquisition or other opportunities, to fund our business operations or to fully implement our current and future operating strategies.

We must also maintain compliance with a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio of 2.50 and 1.25, respectively, at the end of any fiscal quarter.

We must also maintain compliance with

a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio of 2.50 and 1.25, respectively, at the end of any fiscal quarter.

Our ability to meet these financial ratios and tests will be dependent upon our future performance and may be affected by events beyond our control (including factors discussed in this “Risk Factors" section).

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This would adversely affect our ability to implement our operating strategies and would have a material adverse effect on our financial condition.

The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may have an adverse effect on our business.

On March 5, 2021, the ICE Benchmark Administration, the administrator of the London Interbank Offered Rate, or LIBOR, announced that it will stop publishing certain LIBOR rates after December 31, 2021 and all of these widely used reference rates will no longer be available after June 30, 2023.

Consequently, we may need to renegotiate our debt arrangements that extend beyond 2021, such as our credit agreement, which provides for our revolving facility, that utilize LIBOR as a factor in determining the interest rate, which may negatively impact the terms of such indebtedness.

Any alternative reference rate may increase the interest expense associated with our existing or future indebtedness.

Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows.

In addition, the overall financial markets may be disrupted as a result of the phase out or replacement of LIBOR.

Disruption in the financial markets could have an adverse effect on our financial position, results of operations, cash flows, and liquidity.

GENERAL RISKS

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If our quarterly and annual results of operations fall below the expectations of investors or any securities analysts who follow our Class A common stock, the trading price of our Class A common stock could decline substantially.

Fluctuations in our quarterly or annual results of operations might result from a number of factors, many of which are outside of our control, including, but not limited to:

Fluctuations in our quarterly or annual results of operations might result from a number of factors including the occurrence of one or more of the events or circumstances described in these risk factors, many of which are outside of our control, including, but not limited to:

• the timing and volume of purchases and use of our products and services;

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• the timing and success of new product or service introductions by us or our competitors;

• seasonality in the purchase or use of our products and services;

• changes in the level of interchange rates that can be charged;

• fluctuations in customer retention rates;

• changes in the mix of products and services that we sell;

• changes in the mix of retail distributors through which we sell our products and services;

• the timing of commencement, renegotiation or termination of relationships with significant retail distributors and BaaS partners;

• the timing of commencement of new product development and initiatives, the timing of costs of existing product roll-outs and the length of time we must invest in those new products, channels or retail distributors before they generate material operating revenues;

• changes in the mix of products and services that we sell or changes in the mix of our client retail distributors;

• the timing of commencement of new and existing product roll outs, developments and initiatives and the lag before those new products, channels or retail distributors generate material operating revenues;

• our ability to effectively sell our products through direct-to-consumer initiatives;

• changes in our or our competitors’ pricing policies or sales terms;

• costs associated with significant changes in our risk policies and controls;

• the amount and timing of costs related to fraud losses;

• the amount and timing of commencement and termination of major advertising campaigns, including sponsorships;

• the amount and timing of costs related to the acquisition of businesses;

• the amount and timing of costs of any major litigation to which we are a party;

• disruptions in the performance of our products and services, including interruptions in the services we provide to other businesses, and the associated financial impact thereof;

• the amount and timing of capital expenditures and operating costs related to the maintenance and expansion of our business, operations and infrastructure;

• the amount and timing of major advertising campaigns, including sponsorships;

• the amount and timing of capital expenditures and operating costs;

• interest rate volatility;

• changes in our executive leadership team;

• accounting charges related to impairment of goodwill and other intangible assets;

• our ability to control costs, including third-party service provider costs and sales and marketing expenses in an increasingly competitive market;

• volatility in the trading price of our Class A common stock, which may lead to higher or lower stock-based compensation expenses;

• changes in the political or regulatory environment affecting the banking, electronic payments or tax refund processing industries;

• economic recessions or uncertainty in financial markets, and the impact of inflation;

• the impact of the U.S.

presidential administration on, among other things, the regulation of financial institutions and corporate tax rates;

• other factors beyond our control, such as terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic.

• our ability to control costs, including third-party service provider costs and sales and marketing expenses;

• volatility in the trading price of our Class A common stock;

• changes in the political or regulatory environment affecting the industries in which we operate;

• economic recessions or uncertainty in financial markets, and the uncertainty regarding the impact of inflation;

• other factors beyond our control, such as terrorism, war, natural disasters and pandemics, including the COVID-19 pandemic as well as the other items included in these risk factors.

Our actual operating results may differ significantly from our guidance.

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Competition for qualified management, sales, marketing and program and technology development personnel can be intense.

Competitors have in the past and may in the future attempt to recruit our top management and employees.

have in the past and may in the future attempt to recruit our top management and employees.

In order to attract and retain personnel in a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation and the volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees.

Additionally, our U.S.-based employees, including our senior management team, work for us on an at-will basis and there is no assurance that any such employee will remain with us.

Further, in 2021, the labor market in the U.S.

began experiencing a significant increase in workers leaving their positions (often referred to as the “Great Resignation”), which has made the market to replace these individuals increasingly competitive and has resulted in significant wage inflation in response to labor shortages, and may further increase the challenge of employee attraction and retention for companies like ours.

Acquisitions or investments, or the failure to consummate such transactions, could disrupt our business and harm our financial condition.

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Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to identify suitable candidates or successfully complete identified acquisitions.

Failure to complete an acquisition could adversely affect our business as we could be required to pay a termination fee under certain circumstances or be subject to litigation (such as in the case of the recent transaction involving Republic Bank), and our stock price may also suffer as the failure to consummate the acquisition may result in negative perception in the investment community.

Failure to complete an acquisition could adversely affect our business as we could be required to pay a termination fee under certain circumstances or be subject to litigation (such as the recent lawsuit filed by Republic Bank), and our stock price may also suffer as the failure to consummate such an acquisition may result in negative perception in the investment community.

Further, the process of integrating an acquired business, product, service or technology can involve a number of special risks and challenges, including:

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• transition of the acquired company’s users and customers onto our systems;

• integration of the acquired company’s accounting, information management, human resource and other administrative systems and operations generally with ours;

• integration of the acquired company’s systems and operations generally with ours;

• integration of employees from the acquired company into our organization;

• loss or termination of employees, including costs associated with the termination or replacement of those employees;

• loss or termination, including costs associated with the termination or replacement of employees;

• liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes, and tax and other known and unknown liabilities;

• increased litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.

If we are unable to successfully integrate an acquired business or technology or otherwise address these special risks and challenges or other problems encountered in connection with an acquisition, we might not realize the anticipated benefits of that acquisition, we might incur unanticipated liabilities, or we might otherwise suffer harm

to our business generally.

Furthermore, acquisitions and investments are often speculative in nature and the actual benefits we derive from them could be lower or take longer to materialize than we expect.

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Because we have grown in part through acquisitions, our net goodwill and intangible assets represent a significant portion of our consolidated assets.

Our net goodwill and intangible assets were $474.3 million as of September 30, 2021.

Under accounting principles generally accepted in the United States, or U.S.

Our net goodwill and intangible assets were $460.1 million as of March 31, 2022.

Under generally accepted accounting principles in the United States, or ("U.S.

GAAP"), we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist, such as a significant change in the business climate, including a significant sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors.

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These restrictions could affect the willingness or ability of a third party to acquire control of us for so long as we are a bank holding company.

Unregistered Sales of Equity Securities and Use of Proceeds

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What changed 10-Q

Item 1A. Risk Factors