GREEN DOT CORP 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, 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 increasing inflation and interest rates and other macro-economic impacts on our business, results of operations and financial condition and governmental and our responses to such events, including those identified below, under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason. In this Quarterly Report, unless otherwise specified or the context otherwise requires, “Green Dot,” “we,” “us,” and “our” refer to Green Dot Corporation and its consolidated subsidiaries. Overview Green Dot Corporation is a financial technology and registered bank holding company 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. Our Chief Operating Decision Maker (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. Our operations are aggregated amongst three reportable segments: 1) Consumer Services, 2) Business to Business ("B2B") Services, and 3) Money Movement Services. Net interest income, certain other investment income earned by our bank, interest profit sharing arrangements with certain BaaS partners (a reduction of revenue), eliminations of inter-segment revenues and expenses, and unallocated corporate expenses that are not considered when our CODM evaluates the performance of our three reportable segments are recorded in Corporate and Other expenses. Refer to our 2022 Annual Report on Form 10-K "Part 1, Item 1. Business" for more detailed information about our operations and Note 19—Segment Information in the notes to the accompanying unaudited consolidated financial statements. Consolidated Financial Results and Trends Our consolidated results of operations for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Change % (In thousands, except percentages) Total operating revenues $ 416,380 $ 400,617 $ 15,763 3.9 % Total operating expenses 365,385 349,025 16,360 4.7 % Net income 36,012 38,624 (2,612) (6.8) % Refer to "Segment Results" below for a summary of financial results of each of our reportable segments. 24 Table of Contents Total operating revenues Our total operating revenues for the three months ended March 31, 2023 increased $15.8 million, or 3.9%, over the prior year comparable period, driven primarily by higher revenues in our B2B Services segment, partially offset by lower revenues earned in our Consumer Services segment. Our consolidated total operating revenues increased year-over-year due to the continued growth of certain BaaS partner programs, which resulted in an increase in our total gross dollar volume of 34% for the three months ended March 31, 2023. However, our deposit account programs overall were negatively impacted by several other factors, including our strategic decision to reduce marketing spend on GO2bank in the current period due to higher than expected acquisition costs per account, our decision to de-emphasize many of our legacy cardholder programs in support of GO2bank, macro-economic factors leading to economic challenges for consumers and other trends that have impacted acquisition at retail locations, and the non-renewal of certain BaaS partner programs as previously disclosed. Each of these factors impacted our consolidated active accounts, purchase volume and number of cash transfers, which decreased year-over-year by 22%, 15% and 2%, respectively. In our Consumer Services segment, revenues decreased during the three months ended March 31, 2023 by 12%, over the prior year comparable period. Gross dollar volume, the number of active accounts, the number of direct deposit active accounts and purchase volume declined year-over-year for the three months ended March 31, 2023 by 14%, 21%, 13% and 13%, respectively. We believe these decreases are attributable to several factors discussed above, including lower account acquisition from reduced marketing spend on GO2bank, changes in consumer traffic within our retail locations and the non-renewal of one of our retail partner programs. These factors had a corresponding impact on the amount of revenue we earn from accounts, including through monthly maintenance fees, ATM fees and interchange fees. These revenue declines in our Consumer Services segment were partially offset by the continued adoption of our optional overdraft protection program services made available to accountholders across our portfolios. Within our B2B Services segment, revenues increased by 28% during the three months ended March 31, 2023, over the prior year comparable period. The increase was driven by year-over-year growth in our gross dollar volume by 63%, despite reductions in the number of active accounts and purchase volume of 24% and 17%, respectively, over the same period. Growth in gross dollar volume concentrated from certain BaaS programs resulted in a net increase in segment revenue due to higher program management service fees earned from these BaaS partners, partially offset by the non-renewals of other BaaS partners as previously disclosed. Money Movement Services segment revenues increased by 1% for the three months ended March 31, 2023, over the prior year comparable period. The increase in our Money Movement Services was primarily attributable to an increase in the number of tax refunds processed, which increased by 3% compared with the prior year period, partially offset by a decrease in the number of cash transfers processed, which decreased by 2% year-over-year. The decrease in cash transfers was the result of fewer active accounts within our Consumer Services and B2B Services segments discussed above. The Green Dot Network is a service provider to accountholders in our Consumer Services and B2B Services segments, as well as third-party programs. Net interest income earned by Green Dot Bank, a component of our Corporate and Other segment, increased by 20% during the three months ended March 31, 2023. The increase in net interest income was attributable to the increase in the overall size of our investment securities portfolio, as well as an increase in short-term interest rates by the Federal Reserve, which have resulted in an increase in net interest income compared to the prior year. Revenues within our Corporate and Other segment was offset by the interest we share with certain BaaS partners. Total operating expenses Our total operating expenses for the three months ended March 31, 2023 increased by $16.4 million, or 5%, over the prior year comparable period. The increase in our total operating expenses for the comparable periods was primarily driven by an increase in processing expenses within our B2B Services segment associated with the growth of certain BaaS account programs discussed above, and to a lesser extent, an increase in compensation and benefits expenses. Our compensation and benefits expenses increased primarily due to an increase in third-party call center support costs associated with the growth of certain programs also within our B2B Services segment, partially offset by a reduction in stock-based compensation expense, primarily due to forfeited awards associated with certain former executive officers and employees and the timing of awards granted in the current period versus the comparable prior year period. The increase in total operating expenses was partially offset by lower sales and marketing expenses principally due to a decrease in sales commissions from lower revenues on products subject to tiered revenue-sharing agreements, as well as reduced marketing spend associated with GO2bank, and lower other general and 25 Table of Contents administrative expenses. Other general and administrative expenses decreased during the three months ended March 31, 2023 in part due to lower overall transaction losses as a result of lower purchase volume and continued operational efficiencies in managing customer disputes and fraud, as well as reductions in professional services fees and certain impairment charges of internal-use software that did not recur in the current year period. Income taxes Our income tax expense for the three months ended March 31, 2023 decreased $1.8 million, or 15%, on a year-over-year basis. The decrease in our income tax expense was primarily due to a decrease in our taxable income and a decrease in our effective tax rate. Our effective tax rate for the three months ended March 31, 2023 was 22.3%, compared to 23.9% for the prior year period, primarily due to the impact of general business credits, tax benefits from bank owned life insurance policies, a decrease in state income taxes expense net of federal benefits, and a reduction in the amount of compensation expense that was subject to the Internal Revenue Code (the "IRC") Section 162(m) limitation on the deductibility of certain executive compensation. These favorable decreases to our effective tax rate were partially offset by an increase in tax expense associated with shortfalls from stock-based compensation. On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. The IRA contains a number of revisions to the IRC, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. To date, these tax law changes have had no immediate effect and we do not expect that they will have a material impact on our results of operations in future periods. Outlook and Other Trends Affecting Our Business We intend to continue to make growth-oriented investments and incur other expenditures that we believe will benefit our long-term financial results. Our growth-oriented investments are focused on cost-effectively re-engaging in marketing initiatives in support of 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 hosting costs and software licenses, 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 in 2023. We also expect to continue to incur duplicative processing and other costs associated with the implementation of our modern banking platform as we expect to continue to operate redundant platforms until our technology transformation is completed. Once the implementation is completed, we expect a portion of our processing expenses to reduce and have a favorable impact to our margins. In addition, while we expect to continue to invest in and incur additional expenses in connection with our anti-money laundering ("AML") program, including improvements to our compliance controls, policies and procedures throughout 2023, we believe these investments will ultimately help mitigate and reduce our fraud losses over the long term. In response to the economic impact caused by COVID-19, the Federal Reserve announced reductions in short-term interest rates in March 2020, which in recent years has impacted the yields on our cash and investment balances. Since then, the Federal Reserve has announced a number of increases in the federal funds rate, resulting in a current range of 5.00% to 5.25%. It is widely expected that the Federal Reserve will continue to maintain elevated interest rates until the effects of economic inflation are abated. 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. In general, while increases in short-term interest rates benefit the yield we earn on our cash, certain of our BaaS partner arrangements allow for the BaaS partner to share in a significant portion of the interest earned from accountholder deposits (which are recorded as a reduction of revenue in our consolidated financial statements), and yields on our investment portfolio tend to lag interest rate increases as securities mature and proceeds are reinvested. Accordingly, we expect the net effect to have a negative impact on our consolidated financial statements in 2023 compared to 2022. Based on the overall macro-economic environment, expected interest rate impacts, our commitment to making growth-oriented investments and the timing of the related expense savings from our technology transformation, the non-renewals in our Consumer Services and B2B Services segments, and trends occurring within our retail channel in our Consumer Services segment, we believe our consolidated operating profit will decline year-over-year in fiscal year 2023. Further, the duration and magnitude of the continuing effects of macro-economic factors remain uncertain and dependent on various factors. See Part II, Item 1A, "Risk Factors," for an additional discussion of risks related to macro-economic factors. 26 Table of Contents Consolidated Key Metrics We review a number of metrics to help us monitor the performance of, and identify trends affecting, our business. We believe the following measures are the primary indicators of our quarterly and annual revenues: Three Months Ended March 31, 2023 2022 Change % (In millions, except percentages) Gross dollar volume $ 23,289 $ 17,436 $ 5,853 33.6 % Number of active accounts* 3.84 4.93 (1.09) (22.1) % Purchase volume $ 6,145 $ 7,192 $ (1,047) (14.6) % Number of cash transfers 8.70 8.87 (0.17) (1.9) % Number of tax refunds processed 9.91 9.61 0.3 3.1 % * Represents the number of active accounts as of March 31, 2023 and 2022, 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. 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 fees 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. 27 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. 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 28 Table of Contents 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 services 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. As discussed above, while the IRA includes a number of revisions to the IRC, to date, these tax law revisions have had no immediate effect and we do not expect that they will have a material impact on our results of operations going forward. Critical Accounting Estimates Reference is made to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. 29 Table of Contents Comparison of Three-Month Periods Ended March 31, 2023 and 2022 Operating Revenues The following table presents a breakdown of our operating revenues among card revenues and other fees, cash processing revenues, interchange revenues and net interest income: Three Months Ended March 31, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating revenues: Card revenues and other fees $ 239,866 57.5 % $ 212,828 53.1 % Cash processing revenues 101,823 24.5 100,028 25.0 Interchange revenues 64,015 15.4 78,856 19.7 Interest income, net 10,676 2.6 8,905 2.2 Total operating revenues $ 416,380 100.0 % $ 400,617 100.0 % Card Revenues and Other Fees — Card revenues and other fees totaled $239.9 million for the three months ended March 31, 2023, an increase of $27.1 million, or 12.7%, from the comparable prior year period. Card revenues and other fees increased primarily due to growth in gross dollar volume in our B2B Services segment programs, which resulted in higher program management service fees earned from our BaaS partners. In addition, card revenues and other fees also increased due to customer adoption of optional features launched on our card programs, such as our overdraft protection program. These increases were partially offset by decreases in cardholder fees, such as monthly maintenance fees and ATM fees for the reasons discussed above in "Overview." Cash Processing Revenues — Cash processing revenues totaled $101.8 million for the three months ended March 31, 2023, an increase of $1.8 million, or 2%, from the comparable prior year period. The increase is primarily due to higher overall tax processing revenues due to a 3% increase in the number of tax refunds processed, partially offset by a decline in the number of cash transfers processed as a result of fewer active accounts within our Consumer Services and B2B Services segments discussed above in "Overview." Interchange Revenues — Interchange revenues totaled $64.0 million for the three months ended March 31, 2023, a decrease of $14.9 million, or 19%, from the comparable prior year period. The decrease was primarily due to a decrease in purchase volume during the three months ended March 31, 2023, as well as a lower effective interchange rate earned for the comparable periods. Our interchange fees have both fixed and variable components, and as a result, the effective rate we earn may vary based on the size of transactions, among other factors. Interest Income, net — Net interest income totaled $10.7 million for the three months ended March 31, 2023, an increase of $1.8 million, or 20%, from the comparable prior year period. The increase in net interest income earned was the result of an increase in the overall size of our investment securities portfolio, funded primarily from the use of our cardholder deposit account programs. In addition, the Federal Reserve has instituted several increases in short-term interest rates in 2022 and 2023 to manage the effects of inflation, which also increased the amount of interest income we earned on our deposits and recent investments. 30 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: Three Months Ended March 31, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating expenses: Sales and marketing expenses $ 75,212 18.1 % $ 83,526 20.8 % Compensation and benefits expenses 68,781 16.5 66,264 16.5 Processing expenses 145,054 34.8 112,092 28.0 Other general and administrative expenses 76,338 18.3 87,143 21.8 Total operating expenses $ 365,385 87.7 % $ 349,025 87.1 % Sales and Marketing Expenses — Sales and marketing expenses totaled $75.2 million for the three months ended March 31, 2023, a decrease of $8.3 million, or 10% from the comparable prior year period. This decrease was primarily driven by a decrease in sales commissions due to lower revenues generated from certain products that are subject to tiered revenue-sharing agreements and our strategic decision to reduce marketing spend on GO2bank in our Direct channel to manage our acquisition costs per account. Compensation and Benefits Expenses — Compensation and benefits expenses totaled $68.8 million for the three months ended March 31, 2023, an increase of $2.5 million or 4% from the comparable prior year period. The increase was primarily driven by an increase in third-party call center support costs associated with the growth of certain programs within our B2B Services segment. These increases were partially offset by a decrease in stock-based compensation expense principally due to forfeited awards associated with certain former executive officers and employees and the timing of awards granted in the current period versus the comparable prior year period. Processing Expenses — Processing expenses totaled $145.1 million for the three months ended March 31, 2023, an increase of $33.0 million or 29% from the comparable prior year period. This increase was principally due to growth in certain 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 $76.3 million for the three months ended March 31, 2023, a decrease of $10.8 million or 12%, from the comparable prior year period. The decrease in other general and administrative expenses was primarily due to lower overall transaction losses compared to the prior year period due to lower purchase volume and continued operational efficiencies in managing customer disputes and fraud, as well as reductions in professional services fees and certain impairment charges of internal-use software that did not recur in the current year period. Income Taxes The following table presents a breakdown of our effective tax rate among federal, state, and other: Three Months Ended March 31, 2023 2022 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 0.8 1.3 General business credits (3.4) (1.6) Stock-based compensation 3.7 1.2 IRC 162(m) limitation 1.6 2.5 Bank owned life insurance (1.6) (0.7) Nondeductible expenses 0.6 0.3 Other (0.4) (0.1) Effective tax rate 22.3 % 23.9 % Our income tax expense totaled $10.3 million for the three months ended March 31, 2023, a decrease of $1.8 million or 15% from the prior year comparable period, primarily due to a decrease in taxable income and our effective tax rate. The decrease in our effective tax rate for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily due to the impact of general business credits, tax benefits 31 Table of Contents from bank owned life insurance policies, a decrease in state income taxes expense net of federal benefits, and a reduction in the amount of compensation expense that was subject to the IRC Section 162(m) limitation on the deductibility of certain executive compensation. These favorable decreases to our effective tax rate were partially offset by an increase in tax expense associated with shortfalls from stock-based compensation. The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant. Segment Results Consumer Services The results of operations and key metrics of our Consumer Services segment for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 139,833 $ 158,757 $ (18,924) (11.9) % Segment expenses 87,081 104,469 (17,388) (16.6) % Segment profit $ 52,752 $ 54,288 $ (1,536) (2.8) % Key Metrics (In millions, except percentages) Gross dollar volume $ 5,677 $ 6,621 $ (944) (14.3) % Number of active accounts* 2.41 3.04 (0.63) (20.7) % Direct deposit active accounts* 0.60 0.69 (0.09) (13.0) % Purchase volume $ 4,344 $ 5,017 $ (673) (13.4) % * Represents total number of active and direct deposit active accounts as of March 31, 2023 and 2022, respectively. As additional supplemental information, our key metrics within our Consumer Services segment is presented on a quarterly basis as follows: 2023 2022 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 5,677 $ 5,426 $ 5,495 $ 5,715 $ 6,621 Number of active accounts 2.41 2.37 2.51 2.78 3.04 Direct deposit active accounts 0.60 0.63 0.66 0.67 0.69 Purchase volume $ 4,344 $ 4,229 $ 4,302 $ 4,588 $ 5,017 Segment revenues within Consumer Services for the three months ended March 31, 2023 decreased $18.9 million, or 12%, compared to the prior year comparable period, while our segment expenses for the three months ended March 31, 2023 decreased $17.4 million, or 17%. Our gross dollar volume, purchase volume, total number of active accounts and direct deposit active accounts decreased during the three months ended March 31, 2023 by 14%, 13%, 21% and 13%, respectively, primarily from several factors discussed above, including reduced marketing spend on GO2bank and observed changes in consumer traffic within our retail locations, both of which have negatively impacted account acquisition, as well as the non-renewal of one of our partner programs. Our monthly maintenance fees, ATM revenue and interchange revenues decreased as a result of the decreases in each of our key metrics stated above. These decreases were partially offset by continued customer adoption of optional features on our card programs, such as our overdraft protection program. Consumer Services expenses decreased for the three months ended March 31, 2023 from the comparable prior year period due to several factors, including a decrease in sales commissions from lower revenues on products subject to tiered revenue-sharing agreements, a decrease in marketing spend on GO2bank as discussed above, and a decrease in transactions losses due to both lower transaction volumes and improvement in loss rates. 32 Table of Contents As a result of each of these multiple factors, our segment profit decreased for the three months ended March 31, 2023 by approximately 3%. B2B Services The results of operations and key metrics of our B2B Services segment for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 171,292 $ 133,900 $ 37,392 27.9 % Segment expenses 149,073 111,636 37,437 33.5 % Segment profit $ 22,219 $ 22,264 $ (45) (0.2) % Key Metrics (In millions, except percentages) Gross dollar volume $ 17,612 $ 10,815 $ 6,797 62.8 % Number of active accounts* 1.43 1.89 (0.46) (24.3) % Purchase volume $ 1,801 $ 2,175 $ (374) (17.2) % * Represents total number of active accounts as of March 31, 2023 and 2022, respectively. As additional supplemental information, our key metrics within our B2B Services segment is presented on a quarterly basis as follows: 2023 2022 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 17,612 $ 14,584 $ 13,187 $ 11,641 $ 10,815 Number of active accounts* 1.43 1.78 1.82 1.83 1.89 Purchase volume $ 1,801 $ 2,063 $ 2,141 $ 2,172 $ 2,175 * Represents total number of active accounts as of the end of each quarter. Segment revenues within our B2B Services for the three months ended March 31, 2023 increased $37.4 million, or 28%, compared to the prior year period, while our segment expenses for the three months ended March 31, 2023 increased $37.4 million, or 34%. Our gross dollar volume during the three months ended March 31, 2023 increased 63% from the comparable prior year period despite the number of active accounts within this segment decreasing by 24% year-over-year. We have continued to experience organic growth from both new and existing users concentrated in certain BaaS programs that tend to yield higher gross dollar volume per active user. The growth in gross dollar volume from these programs resulted in a net increase in segment revenue due to higher program management service fees earned from these BaaS partners. This increase was partially offset by a decrease in active accounts and the associated purchase volume due to the non-renewals of certain BaaS partners as previously disclosed, resulting in a lower amount of interchange revenue earned from the comparable prior year period . B2B Services expenses increased for the three months ended March 31, 2023 from the comparable prior year period, principally due to higher processing expenses with the growth of certain BaaS account programs and higher third-party call center support costs as a result of the increase in gross dollar 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 revenue growth. 33 Table of Contents Money Movement Services The results of operations and key metrics of our Money Movement Services segment for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 98,241 $ 97,316 $ 925 1.0 % Segment expenses 37,215 35,856 1,359 3.8 % Segment profit $ 61,026 $ 61,460 $ (434) (0.7) % Key Metrics (In millions, except percentages) Number of cash transfers 8.70 8.87 (0.17) (1.9) % Number of tax refunds processed 9.91 9.61 0.3 3.1 % As additional supplemental information, our key metrics within our Money Movement Services segment is presented on a quarterly basis as follows: 2023 2022 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Number of cash transfers 8.70 9.03 9.16 9.00 8.87 Number of tax refunds processed 9.91 0.20 0.28 4.48 9.61 Segment revenues within our Money Movement services for the three months ended March 31, 2023 increased $0.9 million, or 1%, from the comparable prior year period, and segment expenses for the three months ended March 31, 2023 increased $1.4 million, or 4%. The increase in segment revenues for the three months ended March 31, 2023 was driven primarily by our tax processing revenues, which increased as a result of a 3% increase in the number of tax refunds processed compared to the prior year period. This increase was partially offset by a lower number of cash transfers processed, which decreased by 2%, from the prior year comparable period. The Green Dot Network is a service provider to accountholders in our Consumer Services and B2B Services segments, as well as third-party programs. The decrease in cash transfers was the result of lower active accounts within our Consumer Services and B2B Services segments discussed above. Money Movement expenses increased during the three months ended March 31, 2023, primarily due to an increase in third-party costs in support the volume growth of our tax refund processing services, partially offset by a decrease in sales commissions from lower cash transfer revenues. Corporate and Other The results of operations and key metrics of our Corporate and Other segment for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Change % (In thousands, except percentages) Financial Results Unallocated revenue and inter-segment eliminations $ 2,997 $ 4,705 $ (1,708) (36.3) % Unallocated corporate expenses and inter-segment eliminations 56,451 52,391 4,060 7.7 % Total $ (53,454) $ (47,686) $ (5,768) 12.1 % Revenues within Corporate and Other are comprised of net interest income, certain other investment income earned by our bank, interest profit sharing arrangements with certain BaaS partners (a reduction of revenue) and eliminations of inter-segment revenues. Unallocated corporate expenses include our fixed expenses such as salaries, wages and related benefits for our employees, professional services fees, software licenses, telephone 34 Table of Contents and communication costs, rent, utilities, insurance and eliminations of inter-segment expenses. 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 evaluating our overall consolidated financial results are excluded from our unallocated corporate expenses above. Refer to Note 19—Segment Information to the Consolidated Financial Statements included herein for a summary reconciliation. Total net interest income increased year-over-year for the three months ended March 31, 2023 as a result of an increase in the overall size of our investment securities portfolio and recent increases in interest rates by the Federal Reserve. This increase was offset by the interest we share with certain BaaS partners. Unallocated corporate expenses for the three months ended March 31, 2023 increased year-over-year by approximately 8%, as a result of higher software licenses, and to a lesser extent, an increase in salary and wage expenses and related benefits, each in support of our investments to build a modern and scalable core banking and card management platform, as well as other growth initiatives as discussed above in "Overview." Liquidity and Capital Resources The following table summarizes our major sources and uses of cash for the periods presented: Three Months Ended March 31, 2023 2022 (In thousands) Total cash provided by (used in) Operating activities $ 100,532 $ 115,642 Investing activities (32,720) (300,614) Financing activities (161,648) 185,974 (Decrease) increase in unrestricted cash, cash equivalents and restricted cash $ (93,836) $ 1,002 For the three months ended March 31, 2023 and 2022, we financed our operations primarily through our cash flows generated from operations. From time to time, we may also finance short-term working capital activities through our borrowings under our credit facility. As of March 31, 2023, our primary source of liquidity was unrestricted cash and cash equivalents totaling $722.0 million. We also consider our $2.4 billion of available-for-sale investment securities to be highly liquid instruments. We use trend and variance analysis as well as our detailed budgets and forecasts to project future cash needs, making adjustments to the projections when needed. We believe that our current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity under our credit facility will be sufficient to meet our working capital, capital expenditures, equity method investee capital commitments, and any other capital needs for at least the next 12 months. We are currently not aware of any 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 material trends on our business to ensure our liquidity and capital resources remain appropriate throughout this period of uncertainty. Cash Flows from Operating Activities Our $100.5 million of net cash provided by operating activities during the three months ended March 31, 2023 was the result of $36.0 million of net income, adjusted for certain non-cash operating items of $42.5 million and increases in net changes in our working capital assets and liabilities of $22.0 million. Our $115.6 million of net cash provided by operating activities during the three months ended March 31, 2022 was the result of $38.6 million of net income, adjusted for certain non-cash operating items of $53.5 million and net changes in our working capital assets and liabilities of $23.5 million. Cash Flows from Investing Activities Our $32.7 million of net cash used in investing activities during the three months ended March 31, 2023 was primarily due to capital contributions related to our investment in TailFin Labs, LLC of $35.0 million, the acquisition of property and equipment of $19.5 million and net changes in loans of $15.1 million, partially offset by proceeds from maturities of available-for-sale securities of $37.1 million. Our $300.6 million of net cash used in investing activities during the three months ended March 31, 2022 was primarily due to purchases of available-for-sale investment securities, net of proceeds from sales and maturities, of $200.0 million, the purchase of other bank 35 Table of Contents investments of $31.9 million, capital contributions related to our investment in TailFin Labs, LLC of $35.0 million, and the acquisition of property and equipment of $19.0 million and net changes in loans of $15.0 million. Cash Flows from Financing Activities Our $161.6 million of net cash used in financing activities during the three months ended March 31, 2023 was principally the result of a net decrease in customer deposits of $104.4 million and a decrease of $19.9 million in obligations to customers. We also repaid $35.0 million, net of borrowings, on our revolving line of credit during the three months ended March 31, 2023. Our $186.0 million of net cash provided from financing activities during the three months ended March 31, 2022 was principally the result of a net increase in customer deposits of $318.3 million, partially offset by a decrease of $104.7 million in obligations to customers and share repurchases of our Class A common stock of $25.0 million. We also borrowed and repaid $50.0 million on our revolving line of credit during the three months ended March 31, 2022. Other Sources of Liquidity: 2019 Revolving Facility In October 2019, we entered into a secured 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 line of credit (the "2019 Revolving Facility"), maturing in October 2024. In March 2023, we amended the terms of our agreement to replace LIBOR with the Secured Overnight Financing Rate ("SOFR"). At our election, loans made under the credit agreement bear interest at 1) an adjusted SOFR rate (the “SOFR 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) an adjusted SOFR 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 SOFR Rate loans and 0.25% to 1.00% for Base Rate loans. As of March 31, 2023, we had no borrowings outstanding on the 2019 Revolving Facility and had the full amount available for use. We are also subject to certain financial covenants, which include maintaining a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio at the end of each fiscal quarter, as defined in the agreement. At March 31, 2023, we were in compliance with all such covenants. Material Cash Requirements While the effect of COVID-19, increasing inflation and interest rates and other macro-economic factors have created economic uncertainty and impacted how we manage our liquidity and capital resources, we anticipate that we will continue to develop and invest in 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 macro-economic uncertainties. We intend to continue to invest in new products and programs, 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 in 2023 will be at similar levels to our capital expenditures in 2022, 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. Contractual Obligations There have been no material changes in our contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. 36 Table of Contents Capital Requirements for Bank Holding Companies Our subsidiary bank, Green Dot Bank, is a member bank of the Federal Reserve System and our primary regulators are the Federal Reserve Board and the Utah Department of Financial Institutions. We 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. Commencing 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. 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 March 31, 2023 and December 31, 2022, 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 March 31, 2023 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 Includes common stock and retained earnings, adjusted for items primarily related to accumulated OCI, 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 37 Table of Contents The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at March 31, 2023 and December 31, 2022 were as follows: March 31, 2023 Amount Ratio Regulatory Minimum "Well-capitalized" Minimum (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 710,482 17.4 % 4.0 % n/a Common equity Tier 1 capital $ 710,482 43.9 % 4.5 % n/a Tier 1 capital $ 710,482 43.9 % 6.0 % 6.0 % Total risk-based capital $ 728,150 45.0 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 364,861 8.9 % 4.0 % 5.0 % Common equity Tier 1 capital $ 364,861 30.9 % 4.5 % 6.5 % Tier 1 capital $ 364,861 30.9 % 6.0 % 8.0 % Total risk-based capital $ 372,076 31.5 % 8.0 % 10.0 % December 31, 2022 Amount Ratio Regulatory Minimum "Well-capitalized" Minimum (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 661,404 16.6 % 4.0 % n/a Common equity Tier 1 capital $ 661,404 40.1 % 4.5 % n/a Tier 1 capital $ 661,404 40.1 % 6.0 % 6.0 % Total risk-based capital $ 675,043 40.9 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 389,541 9.6 % 4.0 % 5.0 % Common equity Tier 1 capital $ 389,541 31.2 % 4.5 % 6.5 % Tier 1 capital $ 389,541 31.2 % 6.0 % 8.0 % Total risk-based capital $ 397,870 31.8 % 8.0 % 10.0 % 38 Table of Contents