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 and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In thousands, except percentages) Total operating revenues $ 365,876 $ 362,769 $ 3,107 0.9 % $ 782,256 $ 763,386 $ 18,870 2.5 % Total operating expenses 361,090 338,830 22,260 6.6 % 726,475 687,855 38,620 5.6 % Net income 578 15,008 (14,430) (96.1) % 36,590 53,632 (17,042) (31.8) % Refer to "Segment Results" below for a summary of financial results of each of our reportable segments. 25 Table of Contents Total operating revenues Our total operating revenues for the three and six months ended June 30, 2023 increased $3.1 million, or 0.9%, and $18.9 million, or 2.5%, respectively, over the prior year comparable periods, driven primarily by higher revenues in our B2B Services segment, partially offset by lower revenues earned in our Consumer Services and Money Movement Services segments. Our consolidated total operating revenues increased year-over-year due to the continued growth of certain BaaS partner programs, which generated an increase in our total gross dollar volume of 42% and 38% for the three and six months ended June 30, 2023, respectively. However, our total operating revenues were negatively impacted by several other factors impacting our deposit account programs, including our strategic decision in the short-term to reduce marketing spend on GO2bank during the first half of the year in response to market trends, 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. These factors impacted the number of consolidated active accounts, purchase volume and number of cash transfers, each of which decreased for the three months ended June 30, 2023 by 20%, 15% and 4%, respectively, over the prior year comparable periods. Similarly, our purchase volume and number of cash transfers decreased for the six months ended June 30, 2023 by 15% and 3%, respectively, from the prior year comparable period. In our Consumer Services segment, revenues decreased during the three and six months ended June 30, 2023 by 14% and 13%, respectively, over the prior year comparable periods. 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 June 30, 2023 by 10%, 15%, 12% and 13%, respectively. Gross dollar volume and purchase volume declined year-over-year by similar levels of 12% and 13%, respectively, for the six months ended June 30, 2023. We believe these decreases are attributable to the factors discussed above, including lower account acquisition from reduced marketing spend on GO2bank during the first half of 2023, observed 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 declines in revenue from our Consumer Services segment were partially offset by the continued adoption of our optional overdraft protection program services available to accountholders across our portfolios. In our B2B Services segment, revenues increased during the three and six months ended June 30, 2023 by 26% and 27%, respectively, over the prior year comparable periods. The increase was driven by strong year-over-year growth in our gross dollar volume, which increased during the three and six months ended June 30, 2023 by 68% and 66%, respectively, despite reductions in purchase volume of 19% and 18%, respectively, and a decline in the number of active accounts. The number of active accounts decreased by 26% from the comparable prior year periods. 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. Our Money Movement Services segment revenues decreased for the three and six months ended June 30, 2023 by 8% and 2%, respectively, over the prior year comparable periods. The decrease in our Money Movement Services segment was primarily attributable to a decrease in the number of cash transfers processed, which decreased for the three and six months ended June 30, 2023 by 4% and 3%, respectively, from the prior year comparable periods. 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. In addition, the number of tax refunds processed during the three and six months ended June 30, 2023 decreased by 14% and 2%, respectively, compared with the prior year periods, which further reduced revenues generated from this segment. The decrease in the number of tax refunds processed during three months ended June 30, 2023 was primarily due to a timing shift between the first and second quarters of the tax season. Net interest income earned by Green Dot Bank, a component of our Corporate and Other segment, decreased by 7% for the three months ended June 30, 2023, and increased by 5% during the six months ended June 30, 2023, in each case from the prior year comparable periods. Changes in net interest income were attributable to fluctuations in the overall size of our cash and investment securities portfolio, and the timing of increases in short-term interest rates by the Federal Reserve. Revenues within our Corporate and Other segment were offset by the portion of interest we share with certain BaaS partners. 26 Table of Contents Total operating expenses Our total operating expenses for the three and six months ended June 30, 2023 increased $22.3 million, or 7%, and $38.6 million, or 6%, respectively, over the prior year comparable periods. The increase in our total operating expenses for the comparable periods was driven primarily 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, and higher stock-based compensation expense, primarily due to reversals recorded in the prior year comparable period for certain performance-based equity incentive awards that were not expected to be achieved. These increases in operating expenses for the three and six months ended June 30, 2023 were partially offset by lower sales and marketing expenses principally due to decreases in sales commissions from lower revenues on products subject to tiered revenue-sharing agreements, as well as reduced marketing spend associated with GO2bank in the first half of the year, and lower other general and administrative expenses. Other general and administrative expenses decreased during the three and six months ended June 30, 2023 primarily due to a $13 million legal settlement and certain impairment charges of internal-use software we recorded in the prior year comparable period that in each case did not recur, as well as reductions in professional services fees, partially offset by higher overall transaction losses, attributable in part to an increase in dispute volume associated with tax refund deposits. Income taxes Our income tax expense for the three and six months ended June 30, 2023 decreased by $3.1 million, or 64%, and $4.9 million, or 29%, respectively, from the prior year comparable periods. The decrease in our income tax expense was primarily due to a decrease in our taxable income, partially offset by a higher effective tax rate. Our effective tax rate for the six months ended June 30, 2023 was 24.8%, compared to 24.0% for the same period in the prior year. The increase in our effective tax rate was primarily due to an increase in state income taxes expense, net of federal benefits, and an increase in tax expense associated with shortfalls from stock-based compensation. These increases were partially offset by the impact of general business credits, tax benefits from bank owned life insurance policies, 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. 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 strategic marketing initiatives in support of our GO2bank product when it is effective to do so 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, 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, have increased and we expect will continue 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 5.25% to 5.50%. 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. 27 Table of Contents 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, the net effect has had and we expect will continue 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, our consolidated operating profit has declined and we expect it will continue to 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. 28 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 June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In millions, except percentages) Gross dollar volume $ 24,724 $ 17,356 $ 7,368 42.5 % $ 48,013 $ 34,792 $ 13,221 38.0 % Number of active accounts* 3.71 4.61 (0.9) (19.5) % n/a n/a n/a n/a Purchase volume $ 5,734 $ 6,760 $ (1,026) (15.2) % $ 11,879 $ 13,952 $ (2,073) (14.9) % Number of cash transfers 8.66 9.00 (0.34) (3.8) % 17.36 17.87 (0.51) (2.9) % Number of tax refunds processed 3.87 4.48 (0.61) (13.6) % 13.78 14.09 (0.31) (2.2) % * Represents the number of active accounts as of June 30, 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. 29 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 30 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. 31 Table of Contents Comparison of Three-Month Periods Ended June 30, 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 June 30, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating revenues: Card revenues and other fees $ 242,107 66.2 % $ 218,574 60.3 % Cash processing revenues 53,846 14.7 57,467 15.8 Interchange revenues 59,967 16.4 76,038 21.0 Interest income, net 9,956 2.7 10,690 2.9 Total operating revenues $ 365,876 100.0 % $ 362,769 100.0 % Card Revenues and Other Fees — Card revenues and other fees totaled $242.1 million for the three months ended June 30, 2023, an increase of $23.5 million, or 10.8%, 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, ATM fees and new card fees for the reasons discussed above in "Overview." Cash Processing Revenues — Cash processing revenues totaled $53.8 million for the three months ended June 30, 2023, a decrease of $3.7 million, or 6%, from the comparable prior year period. The decrease was due to lower tax processing revenues as a result of a 14% decrease in the number of tax refunds processed, and lower cash transfer revenues as a result of a decline of 4% in the number of cash transfers processed due to fewer active accounts within our Consumer Services and B2B Services segments discussed above in "Overview." The decrease in the number of tax refunds processed during three months ended June 30, 2023 was primarily due to a timing shift between the first and second quarters of the tax season. Interchange Revenues — Interchange revenues totaled $60.0 million for the three months ended June 30, 2023, a decrease of $16.0 million, or 21%, from the comparable prior year period. The decrease was primarily due to a decrease in purchase volume of 15% during the three months ended June 30, 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 $10.0 million for the three months ended June 30, 2023, a decrease of $0.7 million, or 7%, from the comparable prior year period. The decrease in net interest income earned was the result of a decrease in the overall size of our cash and investment securities portfolio. The reduction in size of our interest-bearing assets was partially offset by increases in short-term interest rates, as the Federal Reserve has instituted several increases in short-term rates over the course of 2022 and 2023 to manage the effects of inflation. 32 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 June 30, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating expenses: Sales and marketing expenses $ 62,823 17.2 % $ 77,376 21.3 % Compensation and benefits expenses 64,985 17.8 57,611 15.9 Processing expenses 153,126 41.9 112,388 31.0 Other general and administrative expenses 80,156 21.9 91,455 25.2 Total operating expenses $ 361,090 98.8 % $ 338,830 93.4 % Sales and Marketing Expenses — Sales and marketing expenses totaled $62.8 million for the three months ended June 30, 2023, a decrease of $14.6 million, or 19% 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 lower supply chain expenses due to a decline in the number of active accounts over the comparable prior year period and the non-renewal of certain partner programs previously announced. Compensation and Benefits Expenses — Compensation and benefits expenses totaled $65.0 million for the three months ended June 30, 2023, an increase of $7.4 million or 13% 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, and an increase in stock-based compensation expense, primarily due to reversals recorded in the prior year comparable period for certain performance-based equity incentive awards that were not expected to be achieved. Processing Expenses — Processing expenses totaled $153.1 million for the three months ended June 30, 2023, an increase of $40.7 million or 36% 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 $80.2 million for the three months ended June 30, 2023, a decrease of $11.3 million or 12%, from the comparable prior year period. The decrease in other general and administrative expenses was primarily due to a $13 million legal settlement and certain impairment charges of internal-use software in the prior year period that in each case did not recur, as well as reductions in professional services fees. These decreases were partially offset by an increase in overall transaction losses, attributable in part to an increase in dispute volume associated with tax refund deposits. Income Taxes The following table presents a breakdown of our effective tax rate among federal, state, and other: Three Months Ended June 30, 2023 2022 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 15.2 (0.7) General business credits (0.5) (1.8) Stock-based compensation 23.5 2.9 IRC 162(m) limitation 5.0 1.6 Bank owned life insurance 1.6 (0.7) Nondeductible expenses 9.1 0.9 Other 0.2 1.3 Effective tax rate 75.1 % 24.5 % Our income tax expense totaled $1.7 million for the three months ended June 30, 2023, a decrease of $3.1 million or 64% from the prior year comparable period, primarily due to a decrease in our taxable income. The increase in our effective tax rate for the three months ended June 30, 2023 as compared to the three months ended 33 Table of Contents June 30, 2022 was primarily due to an increase in state income taxes, net of federal benefits, an increase in tax expense associated with shortfalls from stock-based compensation, an increase in the amount of compensation expense that was subject to the IRC Section 162(m) limitation on the deductibility of certain executive compensation, and nondeductible expenses. These increases to our effective tax rate were partially offset by the impact of general business credits and tax benefits from bank owned life insurance policies. The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant. Comparison of Six Months Ended June 30, 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: Six Months Ended June 30, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating revenues: Card revenues and other fees 481,973 61.6 % 431,402 56.5 % Cash processing revenues 155,669 19.9 157,495 20.6 Interchange revenues 123,982 15.9 154,894 20.3 Interest income, net 20,632 2.6 19,595 2.6 Total operating revenues $ 782,256 100.0 % $ 763,386 100.0 % Card Revenues and Other Fees — Card revenues and other fees totaled $482.0 million for the six months ended June 30, 2023, an increase of $50.6 million, or 12%, from the comparable prior year period. This increase was driven principally by the same factors discussed above under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Revenues—Card Revenues and Other Fees." Cash Processing Revenues — Cash processing revenues totaled $155.7 million for the six months ended June 30, 2023, a decrease of $1.8 million, or 1%, from the comparable prior year period. Cash processing revenues decreased as a result of a decline in the number of cash transfers processed, which decreased by 3% due to declines in the number of active accounts within our Consumer Services and B2B Services segments over the comparable prior year period, partially offset by an increase in tax refund processing revenues. Despite a decline in the number of tax refunds processed, which decreased by 2% for the comparable periods, our total tax processing revenues increased modestly for the first half of the year due to additional ancillary tax services offered to taxpayers. Interchange Revenues — Interchange revenues totaled $124.0 million for the six months ended June 30, 2023, a decrease of $30.9 million, or 20%, from the comparable prior year period. The decrease was primarily due to a decrease in purchase volume and effective interchange rate earned as discussed under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Revenues—Interchange Revenues." Interest Income, net — Net interest income totaled $20.6 million for the six months ended June 30, 2023, an increase of $1.0 million, or 5%, from the comparable prior year period. This increase was driven by increases in short-term interest rates for the comparable period, as discussed under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Revenues—Interest Income, net." 34 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: Six Months Ended June 30, 2023 2022 Amount % of Total Operating Revenues Amount % of Total Operating Revenues (In thousands, except percentages) Operating expenses: Sales and marketing expenses 138,035 17.6 % 160,902 21.1 % Compensation and benefits expenses 133,766 17.1 123,875 16.2 Processing expenses 298,180 38.1 224,480 29.4 Other general and administrative expenses 156,494 20.0 178,598 23.4 Total operating expenses $ 726,475 92.8 % $ 687,855 90.1 % Sales and Marketing Expenses — Sales and marketing expenses totaled $138.0 million for the six months ended June 30, 2023, a decrease of $22.9 million, or 14% from the comparable prior year period. This decrease was driven primarily by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Expenses—Sales and Marketing Expenses." In addition, sales and marketing expenses decreased further as a result our strategic decision in the short-term to reduce marketing spend on GO2bank during the first half of the year in response to market trends. Compensation and Benefits Expenses — Compensation and benefits expenses totaled $133.8 million for the six months ended June 30, 2023, an increase of $9.9 million, or 8% from the comparable prior year period. The increase was primarily due to an increase in third-party call center support costs associated with the growth of certain programs within our B2B Services segment, as well as higher sales and wages and related expenses, in part due to our growth-oriented investments discussed in our "Overview." Processing Expenses — Processing expenses totaled $298.2 million for the six months ended June 30, 2023, an increase of $73.7 million, or 33% from the comparable prior year period. This increase was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Expenses—Processing Expenses." Other General and Administrative Expenses — Other general and administrative expenses totaled $156.5 million for the six months ended June 30, 2023, a decrease of $22.1 million, or 12%, from the comparable prior year period. This decrease was driven by the same factors as discussed above under “Comparison of Three-Month Periods Ended June 30, 2023 and 2022—Operating Expenses—Other General and Administrative Expenses." Income Taxes The following table presents a breakdown of our effective tax rate among federal, state, and other: Six Months Ended June 30, 2023 2022 U.S. federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefit 1.5 0.8 General business credits (3.3) (1.7) Stock-based compensation 4.7 1.7 IRC 162(m) limitation 1.8 2.3 Bank owned life insurance (1.4) (0.7) Nondeductible expenses 1.0 0.4 Other (0.5) 0.2 Effective tax rate 24.8 % 24.0 % Our income tax expense totaled $12.1 million for the six months ended June 30, 2023, a decrease of $4.9 million or 29% from the prior year comparable period primarily due to a decrease in our taxable income, partially offset by an increase in our effective tax rate. The increase in the effective tax rate for the six months ended June 30, 2023 from the prior year comparable period was primarily due to an increase in state income taxes expense, net of federal benefits, and an increase in tax expense associated with shortfalls from stock-based compensation. These increases were partially offset by the impact of general business credits, tax benefits from bank owned life 35 Table of Contents insurance policies, 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. 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 and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 129,091 $ 150,959 $ (21,868) (14.5) % $ 268,924 $ 309,716 $ (40,792) (13.2) % Segment expenses 84,819 90,583 (5,764) (6.4) % 171,900 195,052 (23,152) (11.9) % Segment profit $ 44,272 $ 60,376 $ (16,104) (26.7) % $ 97,024 $ 114,664 $ (17,640) (15.4) % Key Metrics (In millions, except percentages) Gross dollar volume $ 5,122 $ 5,715 $ (593) (10.4) % $ 10,799 $ 12,336 $ (1,537) (12.5) % Number of active accounts* 2.35 2.78 (0.43) (15.5) % n/a n/a n/a n/a Direct deposit active accounts* 0.59 0.67 (0.08) (11.9) % n/a n/a n/a n/a Purchase volume $ 3,984 $ 4,588 $ (604) (13.2) % $ 8,328 $ 9,605 $ (1,277) (13.3) % * Represents total number of active and direct deposit active accounts as of June 30, 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 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 5,122 $ 5,677 $ 5,426 $ 5,495 $ 5,715 $ 6,621 Number of active accounts 2.35 2.41 2.37 2.51 2.78 3.04 Direct deposit active accounts 0.59 0.60 0.63 0.66 0.67 0.69 Purchase volume $ 3,984 $ 4,344 $ 4,229 $ 4,302 $ 4,588 $ 5,017 Segment revenues within Consumer Services for the three and six months ended June 30, 2023 decreased $21.9 million, or 14%, and $40.8 million, or 13%, respectively, from the prior year comparable periods, while our segment expenses for the three and six months ended June 30, 2023 decreased $5.8 million, or 6% and $23.2 million, or 12%, respectively. Our gross dollar volume, total number of active accounts, direct deposit active accounts and purchase volume decreased during the three months ended June 30, 2023 by 10%, 15%, 12%, and 13% respectively, primarily from each of the several factors discussed in our "Overview," including our strategic decision in the short-term to reduce marketing spend on GO2bank during the first half of the year in response to market trends 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 previously announced. Our gross dollar volume and purchase volume decreased year-over-year by similar levels during the six months ended June 30, 2023. 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 and six months ended June 30, 2023 from the comparable prior year periods due to several factors, including a decrease in sales commissions from lower revenues on products subject to tiered revenue-sharing agreements, and a decrease in marketing spend on 36 Table of Contents GO2bank as discussed above, partially offset by an increase in transactions losses that was attributable in part to an increase in dispute volume associated with tax refund deposits. As a result of these multiple factors, our segment profit decreased for the three and six months ended June 30, 2023 by approximately 27% and 15%, respectively. B2B Services The results of operations and key metrics of our B2B Services segment for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 180,652 $ 143,514 $ 37,138 25.9 % $ 351,944 $ 277,414 $ 74,530 26.9 % Segment expenses 162,946 120,739 42,207 35.0 % 312,019 232,375 79,644 34.3 % Segment profit $ 17,706 $ 22,775 $ (5,069) (22.3) % $ 39,925 $ 45,039 $ (5,114) (11.4) % Key Metrics (In millions, except percentages) Gross dollar volume $ 19,602 $ 11,641 $ 7,961 68.4 % $ 37,214 $ 22,456 $ 14,758 65.7 % Number of active accounts* 1.36 1.83 (0.47) (25.7) % n/a n/a n/a n/a Purchase volume $ 1,750 $ 2,172 $ (422) (19.4) % $ 3,551 $ 4,347 $ (796) (18.3) % * Represents total number of active accounts as of June 30, 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 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Gross dollar volume $ 19,602 $ 17,612 $ 14,584 $ 13,187 $ 11,641 $ 10,815 Number of active accounts* 1.36 1.43 1.78 1.82 1.83 1.89 Purchase volume $ 1,750 $ 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 and six months ended June 30, 2023 increased $37.1 million, or 25.9% and $74.5 million, or 27%, respectively, compared to the prior year periods, while our segment expenses for the three and six months ended June 30, 2023 increased $42.2 million, or 35.0%, and $79.6 million, or 34%, respectively. Our gross dollar volume during the three and six months ended June 30, 2023 increased 68% and 66%, respectively, from the comparable prior year periods, despite the number of active accounts within this segment decreasing by 26% 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, which decreased during the three and six months ended 19% and 18%, respectively, due to the non-renewals of certain BaaS partners as previously disclosed, resulting in a lower amount of interchange revenue earned from the prior year comparable periods. B2B Services expenses increased for the three and six months ended June 30, 2023 from the comparable prior year periods, 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. 37 Table of Contents Money Movement Services The results of operations and key metrics of our Money Movement Services segment for the three and six months ended June 30, 2023 and 2022 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In thousands, except percentages) Financial Results Segment revenues $ 49,974 $ 54,143 $ (4,169) (7.7) % $ 148,215 $ 151,459 $ (3,244) (2.1) % Segment expenses 20,200 23,992 (3,792) (15.8) % 57,415 59,848 (2,433) (4.1) % Segment profit $ 29,774 $ 30,151 $ (377) (1.3) % $ 90,800 $ 91,611 $ (811) (0.9) % Key Metrics (In millions, except percentages) Number of cash transfers 8.66 9.00 (0.34) (3.8) % 17.36 17.87 (0.51) (2.9) % Number of tax refunds processed 3.87 4.48 (0.61) (13.6) % 13.78 14.09 (0.31) (2.2) % As additional supplemental information, our key metrics within our Money Movement Services segment is presented on a quarterly basis as follows: 2023 2022 Q2 Q1 Q4 Q3 Q2 Q1 (In millions) Key Metrics Number of cash transfers 8.66 8.70 9.03 9.16 9.00 8.87 Number of tax refunds processed 3.87 9.91 0.20 0.28 4.48 9.61 Segment revenues within our Money Movement services for the three and six months ended June 30, 2023 decreased $4.2 million, or 8% and $3.2 million, or 2%, respectively, from the comparable prior year periods. Segment expenses for the three and six months ended June 30, 2023 decreased $3.8 million, or 16%, and $2.4 million, or 4%, respectively. The decrease in segment revenues for the three and six months ended June 30, 2023 was driven primarily by a decline in the number of cash transfers processed, which decreased by 4% and 3%, respectively, from the prior year comparable periods. 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 the number of cash transfers was the result of fewer active accounts within our Consumer Services and B2B Services segments discussed above. In addition, our tax processing revenues decreased during the three months ended June 30, 2023 due to a decline in the number of tax refunds processed, which decreased by 14% from the prior year comparable period. The decrease in the number of tax refunds processed during three months ended June 30, 2023 was primarily due to a timing shift between the first and second quarters of the tax season. Despite a decline in the number of tax refunds processed for the six months ended June 30, 2023, which decreased by 2% from the prior year comparable period, our total tax processing revenues increased modestly for the first half of the year due to additional ancillary tax services offered to taxpayers. Money Movement Services expenses decreased during the three and six months ended June 30, 2023, primarily due to a decrease in third-party call center support costs as a result of lower volumes from our tax refund processing services, and decreases 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 and six months ended June 30, 2023 and 2022 were as follows: 38 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2023 2022 Change % 2023 2022 Change % (In thousands, except percentages) Financial Results Unallocated revenue and inter-segment eliminations $ 1,427 $ 6,485 $ (5,058) (78.0) % $ 4,424 $ 11,190 $ (6,766) (60.5) % Unallocated corporate expenses and inter-segment eliminations 54,310 52,239 2,071 4.0 % 110,761 104,630 6,131 5.9 % Total $ (52,883) $ (45,754) $ (7,129) 15.6 % $ (106,337) $ (93,440) $ (12,897) 13.8 % 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 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 decreased by 7% for the three months ended June 30, 2023, and increased by 5% during the six months ended June 30, 2023 from the prior year comparable periods. Changes in net interest income are attributable to fluctuations in the overall size of our cash and investment securities portfolio, and the timing of increases in short-term interest rates by the Federal Reserve. Revenues within our Corporate and Other segment were offset by the portion of interest we share with certain BaaS partners. Unallocated corporate expenses for the three and six months ended June 30, 2023 increased year-over-year by approximately 4% and 6%, respectively, 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." These increases were partially offset by reductions in professional services fees, which did not recur at similar levels to the prior year comparable periods. Liquidity and Capital Resources The following table summarizes our major sources and uses of cash for the periods presented: Six Months Ended June 30, 2023 2022 (In thousands) Total cash provided by (used in) Operating activities $ 127,766 $ 187,454 Investing activities (9,581) (649,499) Financing activities (272,578) (81,117) Decrease in unrestricted cash, cash equivalents and restricted cash $ (154,393) $ (543,162) For the six months ended June 30, 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 June 30, 2023, our primary source of liquidity was unrestricted cash and cash equivalents totaling $661.5 million. We also consider our $2.3 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 39 Table of Contents 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 $127.8 million of net cash provided by operating activities during the six months ended June 30, 2023 was the result of $36.6 million of net income, adjusted for certain non-cash operating items of $85.8 million and increases in net changes in our working capital assets and liabilities of $5.4 million. Our $187.5 million of net cash provided by operating activities during the six months ended June 30, 2022 was the result of $53.6 million of net income, adjusted for certain non-cash operating items of $95.7 million and net changes in our working capital assets and liabilities of $38.1 million. Cash Flows from Investing Activities Our $9.6 million of net cash used in investing activities during the six months ended June 30, 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 $38.1 million and net changes in loans of $17.9 million, partially offset by proceeds from maturities of available-for-sale securities of $82.3 million. Our $649.5 million of net cash used in investing activities during the six months ended June 30, 2022 was primarily due to purchases of available-for-sale investment securities, net of proceeds from sales and maturities, of $525.8 million, the purchase of other bank 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 $36.5 million. Cash Flows from Financing Activities Our $272.6 million of net cash used in financing activities during the six months ended June 30, 2023 was principally the result of a net decrease in customer deposits of $216.3 million and a decrease of $21.7 million in obligations to customers. We also repaid $35.0 million, net of borrowings, on our revolving line of credit during the six months ended June 30, 2023. Our $81.8 million of net cash provided from financing activities during the six months ended June 30, 2022 was principally the result of a decrease of $120.1 million in obligations to customers and share repurchases of our Class A common stock of $44.0 million, partially offset by a net increase in customer deposits of $85.2 million. We also borrowed and repaid $50.0 million on our revolving line of credit during the six months ended June 30, 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 June 30, 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 June 30, 2023, we were in compliance with all such covenants. Material Cash Requirements While the lasting 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. 40 Table of Contents 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. 41 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 June 30, 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 June 30, 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 42 Table of Contents The actual amounts and ratios, and required "well capitalized" minimum capital amounts and ratios at June 30, 2023 and December 31, 2022 were as follows: June 30, 2023 Amount Ratio Regulatory Minimum "Well-capitalized" Minimum (In thousands, except ratios) Green Dot Corporation: Tier 1 leverage $ 732,168 18.6 % 4.0 % n/a Common equity Tier 1 capital $ 732,168 44.4 % 4.5 % n/a Tier 1 capital $ 732,168 44.4 % 6.0 % 6.0 % Total risk-based capital $ 749,835 45.5 % 8.0 % 10.0 % Green Dot Bank: Tier 1 leverage $ 388,909 10.0 % 4.0 % 5.0 % Common equity Tier 1 capital $ 388,909 31.8 % 4.5 % 6.5 % Tier 1 capital $ 388,909 31.8 % 6.0 % 8.0 % Total risk-based capital $ 396,798 32.5 % 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 % 43 Table of Contents