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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-01 · 146 added, 135 removed, 515 unchanged (35% of the section changed)

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In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements.

Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including the continuing impacts of the coronavirus ("COVID-19") pandemic, increasing inflation and interest rates and other macroeconomic impacts on our business, results of operations and financial condition and governmental and our responses to such events, including those identified above, under “Part I, Item 1A.

Readers are cautioned that these forward-looking statements are subject to risks, uncertainties, and assumptions that are difficult to predict, including inflation and interest rate trends and impacts 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 above, under “Part I, Item 1A.

Risk Factors,” and elsewhere herein.

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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 " Part 1, Item 1.

Business " for more detailed information regarding the organization of our business.

Refer to " Part I, Item 1.

Business " for more detailed information about our operations and Note 24—Segment Information to the Consolidated Financial Statements.

Consolidated Financial Results and Trends

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Total operating revenues

Our total operating revenues for the year ended December 31, 2022 increased $16.4 million , or 1% over the prior year comparable period, generating revenue growth from our B2B Services segment and higher net interest income in our Corporate and Other segment, partially offset by lower revenues earned from our Consumer Services and Money Movement Services segments.

Our deposit account programs within our Consumer Services and B2B Services segments have previously benefited from shifts in consumer behavior towards electronic payments throughout the COVID-19 pandemic, which created a higher demand and usage of our products and services.

In part, this was driven by the economic stimulus funds and incremental unemployment benefits provided under federal and state programs to new and existing customers in 2021.

Relief funds from such programs have since expired and the absence of these programs in 2022 has created more challenging year-over-year comparisons.

The timing and magnitude of these programs in 2021, as well as our strategic decision to reduce marketing spend on GO2bank in our Direct channel throughout 2022 due to higher than expected acquisition costs per account, have resulted in an 18% decrease in our consolidated active accounts and a 21% decrease in purchase volume, as compared to the year ended December 31, 2021.

Despite some of these headwinds, gross dollar value increased 4% for the year ended December 31, 2022 driven by growth from certain BaaS partners.

We expect our key performance indicators to moderate on a year-over-year basis as the effect from federal and state governmental actions continues to lessen.

In our Consumer Services segment, revenues decreased during the year ended December 31, 2022 by 16% over the prior year comparable period.

As compared to the year ended December 31, 2021, gross dollar volume and purchase volume each declined 26% and 23%, respectively, while the average number of active accounts and direct deposit accounts declined by 26% and 24%, respectively.

We believe these decreases are attributable to several factors, including the timing of stimulus payments and other federal benefits received by our cardholders in 2021 and lower account acquisition from reduced marketing spend on GO2bank in our Direct channel as discussed above, as well as changes in consumer traffic within the retail locations of our distribution partners.

These factors had a corresponding impact on the amount of revenue we generated from monthly maintenance fees, ATM fees and interchange fees.

These revenue declines in our Consumer Services segment were partially offset by customer adoption of recently-introduced features, such as our optional overdraft protection program services made available to cardholders across our portfolios, and favorable decreases in the amount of cash back rewards on our legacy card programs due to changes in consumer behavioral trends and the estimated redemption amounts.

Within our B2B Services segment, revenues increased by 30% during the year ended December 31, 2022 over the prior year comparable period.

Gross dollar volume grew by 28%, however, purchase volume decreased by 15%, and the average number of active accounts in this segment across the year decreased by 12% for the year ended December 31, 2022.

Overall, many of our BaaS partners within our B2B Services segment were impacted by similar trends seen in our Consumer Services segment, leading to a lower number of active accounts and lower purchase volume.

However, growth in gross dollar volume from certain programs resulted in a net increase in segment revenue due to higher program management service fees earned from our BaaS partners.

Revenues within this segment also increased due to double-digit growth year-over-year in gross dollar volume and purchase volume in our Employer channel.

Money Movement Services segment revenues for the year ended December 31, 2022 decreased by 7% compared with the prior year comparable period.

The decrease in our Money Movement Services was primarily attributable to the number of cash transfers processed, which decreased by 11% compared with the prior year comparable period, partially offset by an increase in our tax processing revenues.

Our total operating revenues for the year ended December 31, 2023 increased $51.8 million , or 4% 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 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 35% for the year ended December 31, 2023.

However, our total operating revenues were negatively impacted by several other factors impacting our deposit account programs, including our strategic decision to reduce marketing spend on GO2bank in the beginning of the fiscal year in response to market trends, our decision to wind-down 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 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 year ended December 31, 2023 by 14%, 16% and 6%, respectively, from the prior year comparable period.

In our Consumer Services segment, revenues decreased during the year ended December 31, 2023 by 15% from the prior year comparable period.

As compared to the year ended December 31, 2022, gross dollar volume and purchase volume each declined 15% and 16%, respectively, and the average number of active accounts and direct deposit accounts for the fiscal year declined by 16% and 17%, respectively.

We believe these decreases are attributable to the factors discussed above, including lower account acquisition from reduced marketing spend on GO2bank in the beginning of fiscal year 2023 in our Direct channel in response to market trends, our decision to wind-down many of our legacy cardholder programs in support of GO2bank, 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, new card 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 by 30% during the year ended December 31, 2023 over the prior year comparable period.

The increase was driven by strong year-over-year growth in our gross dollar volume, which increased during the year ended December 31, 2023 by 58%, despite a year-over-year reduction in purchase volume by 14%, and a year-over-year decline in the average number of active accounts by 20%.

The growth in gross dollar volume was driven primarily by certain BaaS programs that do not generate interchange fees and 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 year ended December 31, 2023 by 6% from the prior year comparable period.

The decrease in our Money Movement Services segment was primarily attributable to the number of cash transfers processed, which decreased by 6% from the prior year comparable period, and to a lesser extent, a 3% decrease in our tax processing revenues.

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 fewer active accounts within our Consumer Services and B2B Services segments discussed above.

Our tax processing revenues increased year-over-year for the year ended December 31, 2022 as a result of a 20% increase in the number of tax refunds processed.

The increase in number of tax refunds processed for the year ended December 31, 2022 was principally attributable to higher volumes from our online consumer tax channels.

Net interest income earned by Green Dot Bank, a component of our Corporate and Other segment, increased for the year ended December 31, 2022 by 124% over the prior year comparable period.

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 the amount of net interest income generated compared to the prior year.

The decrease in cash transfers was the result of lower active accounts within our Consumer Services and B2B Services segments discussed above.

However, we continued to experience an increase in the number of cash transfers processed for third-party programs, which has grown steadily on a year-over-year basis, and represented the majority of our total cash transfers as of December 31, 2023.

Our tax processing revenues decreased for the year ended December 31, 2023 from the prior year comparable period, as a result of a 3% year-over-year decrease in the number of tax refunds processed.

The decrease in number of tax refunds processed was principally attributable to lower volumes from our online consumer tax channels.

Net interest income earned by Green Dot Bank, a component of our Corporate and Other segment, decreased for the year ended December 31, 2023 by 11% from the prior year comparable period.

The decrease in net interest income was the result of an increase in interest shared with certain BaaS partners (a reduction of revenue), partially offset by higher yields on our cash balances, each driven by increases in short-term interest rates by the Federal Reserve.

Total operating expenses

Our total operating expenses for the year ended December 31, 2022 decreased $11.5 million, or 1%, over the prior year comparable period.

This net decrease was the result of several factors, including lower sales and marketing expenses principally due to a decrease in sales commissions from lower revenues on products subject to tiered revenue-sharing agreements and reduced marketing spend associated with GO2bank, and lower compensation and benefits expenses principally due to lower stock-based compensation, accrued bonus compensation and third-party call center support costs within our Consumer Services and B2B Services segments.

These decreases were partially offset by an increase in processing expenses within our B2B Services segment associated with the growth of certain BaaS account programs.

Our third-party call center support costs have decreased in part due to a decline in active accounts, but also as a result of our efforts to improve our customer service over the course of 2021.

In 2021, we increased our third-party call center support costs to meet the increased demand in our customer service center to improve our customers' overall experience.

These investments resulted in reduced third-party call center costs throughout 2022.

We have continued to see meaningful improvements in overall transaction losses (a component within other general and administrative expenses) compared to the prior year period, in part as a result of decreases in gross dollar volume and purchase volume across different segments, but also from improvements in operational efficiencies to more effectively manage customer disputes and fraud.

Other general and administrative expenses also decreased year-over-year due to lower professional services fees, telecommunication expenses and amortization of intangible assets.

Although we have seen reduced costs in these areas, our total other general and administrative expenses remained flat over the prior year comparable period.

These expenses were negatively impacted from a $13 million legal settlement with a prior business acquisition target earlier in 2022, as well as an increase in software licenses associated with our technology roadmap and the implementation of our modern banking platform, and impairment charges for certain internal-use software.

Our income tax expense for the year ended December 31, 2022 increased $3.5 million, or 22% over the prior year comparable period.

The increase in our income tax expense was due primarily to a 32% increase in income before taxes, partially offset by a decrease in our effective tax rate.

Our total operating expenses for the year ended December 31, 2023 increased $123.5 million, or 9%, over the prior year comparable period.

As discussed in more detail below, the increase in our total operating expenses was driven primarily by an increase in processing expenses within our B2B Services segment, and to a lesser extent, a net increase in other general and administrative expenses, partially offset by a decrease in sales and marketing expenses, and lower compensation and benefits expenses.

The increase in our total operating expenses for the year ended December 31, 2023 was driven primarily by an increase in processing expenses associated with the growth of certain BaaS account programs within our B2B Services segment discussed above, partially offset by reductions in processor costs realized from the migration to our in-licensed card management system.

Other general and administrative expenses increased during the year ended December 31, 2023 in part due to an estimated accrual we recorded based on a proposed consent order we and our subsidiary bank received from the Federal Reserve Board, as discussed in more detail below.

Other general and administrative expenses also increased due to an increase in overall transaction losses attributable to an increase in the amount of customer dispute volume across our portfolios and higher professional services fees related to our anti-money laundering program ("AML"), including improvements to our compliance controls, policies and procedures, partially offset by a $13 million legal settlement and certain impairment charges of internal-use software that were recorded in the prior year comparable period, which in each case did not recur in 2023.

These increases 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 as discussed above.

In addition, our marketing expenses decreased as a result of lower supply chain expenses, which consists of debit card plastics and related materials, as a result of a lower number of active accounts for the comparable periods and the non-renewal of certain partner programs as previously disclosed.

Compensation and benefits expenses decreased, primarily due to lower accrued bonus compensation expense, partially offset by an increase in third-party call center support costs associated with the growth of certain programs within our B2B Services segment.

We and our subsidiary bank received a proposed consent order from the Federal Reserve Board relating principally to various aspects of compliance risk management, including consumer compliance and compliance with AML regulations.

The matters addressed in the proposed consent order relate to activities and practices that commenced prior to our CEO transition in 2020.

Included in the proposed consent order are proposals for civil money penalties related to these issues.

While we are still in discussions with the Federal Reserve Board regarding these proposals, we accrued an estimated liability of $20 million related to the proposed consent order during the three months ended December 31, 2023.

We believe the estimate of the aggregate range of reasonably possible losses (meaning the likelihood of losses is more than remote but less than likely), is up to $50 million as of December 31, 2023.

This estimated range of reasonably possible losses is based on currently available information for those proceedings in which we are involved and considers our best estimate of such losses for those matters for which an estimate can be made.

However, there can be no assurance that our accrual is sufficient or that losses from the proposed consent order will not exceed the estimated range.

For further discussion, see the headings "As a bank holding company, we are subject to extensive and potentially changing regulation and are required to serve as a source of strength for Green Dot Bank" and “Litigation or investigations could result in significant settlements, sanctions, fines or penalties” included as part of our risk factor disclosures in "Part I, Item 1A, Risk Factors," of this Annual Report on Form 10-K.

Our income tax expense for the year ended December 31, 2023 decreased $11.8 million, or 60% over the prior year comparable period.

The decrease in our income tax expense was due primarily to an 83% decrease in our income before taxes, partially offset by an increase in our effective tax rate.

Our effective tax rate for the years ended December 31, 2023 and 2022 was 54.1% and 23.5%, respectively.

The decrease in our effective tax rate was primarily attributable to a reduced IRC 162(m) limitation on the deductibility of certain executive compensation and higher tax benefits from general business credits, partially offset by tax shortfalls from stock-based compensation and higher expenses related to state taxes, net of federal benefits.

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.

These tax law changes have no immediate effect and we do not expect that they will have a material impact on our results of operations in future periods.

The increase in our effective tax rate was primarily attributable to the expense associated with tax shortfalls from stock-based compensation, expense related to nondeductible penalties, and higher expenses related to state taxes, net of federal benefits, partially offset by higher tax benefits from general business credits and cash value growth in bank owned life insurance policies.

The Inflation Reduction Act of 2022 (the "IRA") levies a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases.

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.

In December 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules introducing a 15% global minimum tax rate for large multinational corporations ("Pillar Two").

Certain countries in which we operate have enacted legislation consistent with the OECD model rules effective beginning in 2024.

We are monitoring legislative developments and continuing to evaluate the potential impact of Pillar Two on our consolidated financial statements, but we do not expect that it will have a material impact on our results of operations in future periods.

Outlook and Other Trends Affecting Our Business

Based on the overall macro-economic environment, the effect of high inflation and interest rates, our commitment to making growth-oriented investments and the timing of the related expense savings from our ongoing technology transformation, the previously-disclosed non-renewals in our Consumer Services and B2B Services segments, our decision to wind-down many of our legacy cardholder programs in support of GO2bank, trends occurring within our retail channel in our Consumer Services segment, and our investments in our compliance programs, our consolidated operating profit has declined year-over-year in 2023.

However, we do not expect some of these trends or events to recur in 2024.

Based on our anticipated growth initiatives and cost reduction measures we have put in place, we expect our 2024 financial results will moderate on a year-over-year basis.

We expect the previously-disclosed non-renewals in our Consumer Services and B2B Service segments and our decision to wind-down many of our legacy cardholder programs in support of GO2bank will impact our year-over-year growth rates in the first half of 2024.

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 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.

During the second quarter of 2022, we announced contract renewal negotiations, but after extensive negotiations, could not agree upon terms that would best serve the long-term interests of both us and our partners.

These non-renewals only had a modest impact on our key metrics and financial results for the year ended

December 31, 2022.

However, we expect these non-renewals to have a greater negative impact on our key metrics and financial results in our Consumer Services and B2B segments in 2023.

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.

Over the past year, the Federal Reserve has announced several increases in the federal funds rate, resulting in a current range of 4.50% to 4.75%.

It is widely expected that the Federal Reserve will continue to maintain elevated interest rates until the effects of economic inflation are abated.

Our growth-oriented investments are focused on, among other things, cost-effectively re-engaging in strategic marketing initiatives in support of our GO2bank product and other initiatives across our account programs with the objective of returning to active account growth.

During the third quarter of 2023, we completed the final account migrations of our processor conversion.

While we will continuously seek opportunities to enhance and invest in our overall technology platform, we expect the implementation of our card management platform will allow us to begin fully realizing reductions in our processing expenses in 2024.

Additionally, in February 2024, we also initiated a reduction in workforce that impacted approximately 10% of our global employees.

This strategic reduction in force is intended to improve our cost structure, streamline operations, and refocus resources on core strategic priorities.

We expect these cost reduction initiatives to be partially offset by increases in other areas, as we will continue to invest in and incur additional expenses in connection with our AML program, including improvements to our compliance controls, policies and procedures, which we believe will ultimately help us to continue to remediate regulatory matters discussed above and mitigate and reduce our fraud losses over the long term.

During 2022, the Federal Reserve raised interest rates by an aggregate of 425 basis points.

During 2023, the Federal Reserve raised rates by an additional 100 basis points, which further contributed to a market slowdown.

The market consensus is that interest rates will decrease during 2024, but we expect that an elevated interest rate environment may persist for the foreseeable future.

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 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 COVID-19 remain uncertain and dependent on various factors.

See "Part II, Item 1A, Risk Factors," for an additional discussion of risks related to the COVID-19 pandemic.

Accordingly, the net effect has had and may continue to have a negative impact on our consolidated financial statements, and will be dependent upon future interest rate changes enacted by the Federal Reserve.

Further, the duration and magnitude of the continuing effects of macro-economic factors remain uncertain and dependent on various factors.

See "Part I, Item 1A, Risk Factors," for an additional discussion of risks related to macro-economic factors.

Consolidated Key Metrics

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Purchase Volume — Represents the total dollar volume of purchase transactions made by our account holders.

This metric excludes the dollar volume of ATM withdrawals and volume generated by certain BaaS programs where the BaaS partner receives interchange and we earn a platform fee.

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 program management service fee.

We use this metric to analyze interchange revenue, which is a key component of our financial performance.

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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.

Also included in card revenues and other fees are program management service 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.

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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.

Cash Processing Revenues — Cash processing 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.

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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.

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, the merchant category of spend, 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.

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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.

Bank fees generally vary based on the total number of tax refund transfers processed and gateway and network fees vary based on the number 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.

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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 recently enacted IRA includes a number of revisions to the IRC, these tax law revisions have no immediate effect and we do not expect that they will have a material impact on our results of operations going forward.

As discussed above, while the IRA includes a number of revisions to the Internal Revenue Code ("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

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Our estimated cash-back rewards are recorded as a reduction to card revenues and other fees on our consolidated statements of operations and as a component of other accrued liabilities on our consolidated balance sheets.

Cash rewards have decreased by approximately 36% for the year ended December 31, 2022 compared to the prior year period, as our cash-back programs have declined, principally from our decision to shift from our legacy products to our GO2bank product which does not have a cash rewards feature.

Cash rewards have decreased by approximately 13% for the year ended December 31, 2023 compared to the prior year period, as our cash-back programs have declined, principally from our shift from our legacy products to our GO2bank product which does not have a cash rewards feature.

Increases or decreases in our estimate of cash-back rewards is dependent upon cardholder behavioral changes and we periodically evaluate our estimation process and assumptions based on developments in redemption patterns, dollars redeemed and other cardholder behavioral trends.

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However, we are exposed to losses from any unrecovered overdrawn account balances.

The probability of recovering these amounts is primarily related to the

number of days that have elapsed since an account had transaction activity, such as a purchase, ATM transaction or fee assessment.

The probability of recovering these amounts is primarily related to the number of days that have elapsed since an account had transaction activity, such as a purchase, ATM transaction or

fee assessment.

We generally recover approximately 50-60% of overdrawn account balances in accounts that have had transaction activity in the last 30 days and less than 10% when more than 30 days have elapsed.

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We include our provision for uncollectible overdrawn accounts related to purchase transactions in other general and administrative expenses in our consolidated statements of operations.

See Note 5—Accounts Receivable for more information.

See Note 5—Accounts Receivable to the Consolidated Financial Statements included herein for more information.

Allowance for Credit Losses

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We separately establish specific allowances for impaired loans based on the present value of changes in cash flows expected to be collected, or for impaired loans that are considered collateral dependent, the estimated fair value of the collateral less estimated costs to sell, if any.

Overdrawn balances associated with our overdraft protection program are subject to a similar reserve methodology discussed above under "Reserve for Uncollectible Overdrawn Accounts." See Note 6—Loans to Bank Customers for more information.

Goodwill and Intangible Assets

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No impairment charges were recognized related to our intangible assets for the years ended December 31, 2023 and 2022.

See Note 9—Goodwill and Intangible Assets for more information.

See Note 9—Goodwill and Intangible Assets to the Consolidated Financial Statements included herein for more information.

Results of Operations

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Such omitted discussion can be found under "Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023.

Comparison of Consolidated Results for the Years Ended December 31, 2023 and 2022

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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, as well as a favorable decrease in the estimated accrual of cash back rewards, which we record as a reduction to revenue.

Our estimate of cash back rewards varies based on multiple factors including the terms and conditions of the cash back program currently in effect, customer activity and customer redemption rates.

These increases were partially offset by decreases in cardholder fees, such as monthly maintenance fees and ATM fees for the reasons discussed above in our "Overview."

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, new card fees and ATM fees for the reasons discussed above in "Overview."

Cash Processing Revenues — Cash processing revenues totaled $225.4 million for the year ended December 31, 2023, a decrease of $10.0 million, or 4%, from the comparable prior year period.

The decrease is primarily due to a decline in the number of cash transfers processed year-over-year as a result of fewer active accounts within our Consumer Services and B2B Services segments, partially offset by higher overall tax processing revenues due to a 20% increase in the number of tax refunds processed.

The decrease is primarily due to a decline in the number of cash transfers processed year-over-year as a result of lower active accounts within our Consumer Services and B2B Services segments, partially offset by an increase in the number of cash transfers processed for third-party programs as discussed above in "Overview." To a lesser extent, cash processing revenues also decreased due to lower overall tax processing revenues, as a result of a 3% decrease in the number of tax refunds processed.

Interchange Revenues — Interchange revenues totaled $231.0 million for the year ended December 31, 2023, a decrease of $64.6 million, or 22%, from the comparable prior year period.

The decrease was primarily due to a 21% decrease in purchase volume during the year ended December 31, 2022.

Interest Income, net — Net interest income totaled $42.2 million for the year ended December 31, 2022, an increase of $23.4 million, or 124%, from the comparable prior year period.

The increase in net interest income earned was the result of an increase in the size of our investment securities portfolio, funded primarily from the use of our cardholder deposit account programs.

In addition, the Federal Reserve has instituted several increases in interest rates in 2022 to manage the effects of inflation, which also increased the amount of interest income we earn on our deposits and recent investments.

The decrease was primarily due to a 16% decrease in purchase volume during the year ended December 31, 2023, as well as a lower effective interchange rate 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.

In addition, our interchange rate declined due to a mix shift toward categories of consumer purchases with lower effective rates.

Interest Income, net — Net interest income totaled $37.3 million for the year ended December 31, 2023, a decrease of $4.9 million, or 11%, from the comparable prior year period.

Operating Expenses

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Sales and Marketing Expenses — Sales and marketing expenses totaled $245.3 million for the year ended December 31, 2023, a decrease of $52.6 million, or 18% compared to the year ended December 31, 2022.

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, which consists of debit card plastics and related materials, as a result of a lower number of active accounts for the comparable periods.

In addition, our marketing expenses decreased as a result of our strategic decision to reduce marketing spend on GO2bank in our Direct channel to manage our acquisition costs per account.

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 the beginning of the fiscal year in our Direct channel in response to market trends.

In addition, our sales and marketing expenses decreased as a result of lower supply chain expenses, which consists of debit card plastics and related materials, as a result of a lower number of active accounts for the comparable periods and the non-renewal of certain partner programs as previously disclosed.

Compensation and Benefits Expenses — Compensation and benefits expenses totaled $238.5 million for the year ended December 31, 2023, a decrease of $5.4 million, or 2%, compared to the year ended December 31, 2022.

The decrease was primarily due to lower stock-based compensation, principally due to forfeited awards associated with certain former executive employees and fluctuations in the expected achievement of certain performance-based equity awards, as well as a reduction in third-party call center support costs due to a decline in active accounts and our investments to improve customer service over the course of 2021.

The decrease was primarily due to lower accrued bonus compensation expense, partially offset by an increase in third-party call center support costs associated with the growth of certain programs within our B2B Services segment.

Processing Expenses — Processing expenses totaled $639.2 million for the year ended December 31, 2023, an increase of $157.7 million, or 33%, compared to the year ended December 31, 2022.

This increase was principally due to growth in gross dollar volume on certain BaaS account programs within our B2B Services segment and overall volume of transactions processed through our consolidated platform.

This increase was principally due to growth in gross dollar volume on certain BaaS account programs within our B2B Services segment, partially offset by reductions in processor costs realized from the migration to our in-licensed card management system.

Other General and Administrative Expenses — Other general and administrative expenses totaled $355.6 million for the year ended December 31, 2023, an increase of $23.7 million, or 7%, from the comparable prior year period.

Other general and administrative expenses increased primarily due to a $13 million legal settlement associated with a previous business acquisition target in 2022, as well as an increase in software licenses associated with our technology roadmap and the implementation of our modern banking platform, and impairment charges for certain internal-use software, partially offset by decreases in professional services fees, telecommunication expenses and amortization of intangible assets.

The increase in other general and administrative expenses during the year ended December 31, 2023 was in part due to an estimated accrual we recorded based on a proposed consent order we and our subsidiary bank received from the Federal Reserve Board, as discussed above in "Overview." Other general and administrative expenses also increased due to an increase in overall transaction losses attributable to an increase in the amount of customer dispute volume across our portfolios and higher professional services fees related to our AML program, partially offset by a $13 million legal settlement and certain impairment charges of internal-use software that were recorded in the prior year comparable period, which in each case did not recur in 2023.

Income Tax Expense

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State income taxes, net of federal tax benefit 2.0 2.2

Foreign tax rate differential (1.5) (0.3)

General business credits (25.0) (3.2)

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IRC 162(m) limitation 0.4 0.8

Bank owned life insurance (4.2) (0.7)

Nondeductible penalties 29.1 0.1

Global intangible low-taxed income tax 2.0 0.3

Other 1.5 0.1

Effective tax rate 54.1 % 23.5 %

Our income tax expense totaled $19.7 million for the year ended December 31, 2022, representing an increase of $3.5 million from the comparable prior year period.

The increase in income tax expense was primarily driven by the increase in our operating income, partially offset by a decrease in our effective tax rate.

Our effective tax rate for the year ended December 31, 2022 is higher than our statutory federal income tax rate primarily due to higher taxes from non-deductible executive compensation, tax shortfalls from stock-based compensation, and expenses related to state taxes, net of federal benefits.

Our effective tax rate for the year ended December 31, 2021 is higher than our statutory federal income tax rate primarily due to higher taxes from non-deductible executive compensation and expenses related to state taxes, net of federal benefits.

Our income tax expense totaled $7.9 million for the year ended December 31, 2023, representing a decrease of $11.8 million from the comparable prior year period.

The decrease in income tax expense was primarily driven by the decrease in our operating income, partially offset by an increase in our effective tax rate.

Our effective tax rate for the year ended December 31, 2023 is higher than our statutory federal income tax rate primarily due to the expense associated with tax shortfalls from stock-based compensation, the expense related to nondeductible penalties, and higher expenses related to state taxes, net of federal benefits, partially offset by higher tax benefits from general business credits and cash value growth in bank owned life insurance policies.

The increase in nondeductible penalties for the year ended December 31, 2023 is related to the tax effect associated with the estimated accrual for our proposed consent order received from the Federal Reserve Board discussed above in "Overview." Our effective tax rate for the year ended December 31, 2022 is higher than our statutory federal income tax rate primarily due to higher taxes from tax shortfalls from stock-based compensation, and higher expenses related to state taxes, net of federal benefits, partially offset by higher tax benefits from general business credits.

The "Other" category in our effective tax rate consists of a variety of permanent differences, none of which were individually significant.

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Segment revenues within Consumer Services for the year ended December 31, 2023 decreased $88.2 million, or 15%, compared to the prior year comparable period, while our segment expenses for the year ended December 31, 2023 decreased $43.2 million, or 12%.

Our gross dollar volume, the average number of active accounts and the average number of direct deposit active accounts across the year decreased during the year ended December 31, 2022 by 26%, 26% and 24%, respectively, from the comparable prior year period, primarily due to the timing of stimulus payments and other federal benefits received by our cardholders in 2021.

Relief funds from such programs have since expired and no such economic stimulus packages were enacted in 2022.

In addition, we reduced marketing spend on GO2bank to manage our acquisition costs per account and observed changes in consumer traffic within the retail locations of our distribution partners, both of which negatively impacted account acquisition.

In turn, our purchase volume decreased by 23% during the year ended December 31, 2022 from the comparable prior year period.

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 increased customer adoption of

optional features recently launched on our card programs, such as our overdraft protection program, as well as a favorable decrease in the estimated accrual of cash back rewards, which we record as a reduction to revenue.

Despite a sizable decrease in total revenue, our segment profit for the year ended December 31, 2022 decreased by less than 1%.

Consumer Services expenses for the year ended December 31, 2022 decreased 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 third-party call center support costs in part due to a decline in active accounts, but also as a result of our investments to improve our customer service over the course of 2021, a decrease in transactions losses due to lower gross dollar volume and improvement in loss rates, and a decrease in marketing and supply chain expenses in connection with GO2bank.

Our gross dollar volume, purchase volume, the average number of active accounts and the average number of direct deposit active accounts across the year decreased during the year ended December 31, 2023 by 15%, 16%, 16% and 17%, respectively, from the comparable prior year period, primarily from each of the several factors discussed above in "Overview." These factors include our strategic decision to reduce marketing spend on GO2bank in the beginning of the fiscal year in response to market trends and observed changes in consumer traffic within our retail locations, both of which have negatively impacted account acquisition, our decision to wind-down many of our legacy cardholder programs in support of GO2bank, as well as the non-renewal of one of our retail partner programs as previously disclosed.

Our monthly maintenance fee revenues, new card fee revenues, ATM fee revenues and interchange revenues decreased as a result of the decreases in each of our key metrics stated above.

In addition, our interchange rate declined due to a mix shift toward categories of consumer purchases with lower effective rates.

These decreases were partially offset by increased customer adoption of optional features launched on our card programs, such as our overdraft protection program.

Our segment profit for the year ended December 31, 2023 decreased by approximately 20% from the prior year comparable period.

Consumer Services expenses for the year ended December 31, 2023 decreased year-over-year 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, lower supply chain expenses, and lower processing expenses from our processor migration, each as discussed above, partially offset by an increase in transactions losses attributable in part to an increase in customer dispute volume across our portfolios.

Year Ended December 31,

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Segment revenues within our B2B Services for the year ended December 31, 2023 increased $178.5 million, or 30%, compared to the prior year period, while our segment expenses for the year ended December 31, 2023 increased $187.6 million, or 37%.

Our total gross dollar volume during the year ended December 31, 2022 increased by 28% from the comparable prior year period, despite the average number of active accounts across the year decreasing by 12% year-over-year.

We have continued to experience organic growth from both new and existing users in certain BaaS programs that tend to yield higher gross dollar volume per active user, in addition to the general demand that remains prevalent for digital payments.

Purchase volume decreased by approximately 15% for the year ended December 31, 2022.

Overall, many of our BaaS partners within our B2B Services segment were impacted by similar trends seen in our Consumer Services segment, however, growth in gross dollar volume from certain programs resulted in a net increase in segment revenue due to higher program management service fees earned from BaaS partners, despite a lower number of active accounts and lower purchase volume.

This increase was partially offset by a decrease in the amount of interchange revenue earned associated with the decrease in purchase volume.

Revenues within this segment also increased due to double-digit growth year-over-year in gross dollar volume and purchase volume in our Employer channel.

As a result of our revenue growth in this segment for the year ended December 31, 2022, our segment profit increased by approximately 18% over the comparable prior year period.

B2B Services expenses increased for the year ended December 31, 2022 principally due to higher processing expenses with the growth of certain BaaS account programs and higher overall transaction losses as a result of the

increase in gross dollar volume.

Our total gross dollar volume during the year ended December 31, 2023 increased by 58% from the prior year comparable period, despite the average number of active accounts across the year decreasing by 20% year-over-year.

We have continued to experience organic growth from both new and existing users 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 due to the non-renewals of certain other BaaS partners as previously disclosed, resulting in a lower amount of interchange revenue earned year-over-year.

Purchase volume decreased by approximately 14% for the year ended December 31, 2023 from the prior year comparable period.

B2B Services expenses increased for the year ended December 31, 2023 principally due to higher processing expenses and third-party call center support costs, each associated with the growth of certain BaaS account programs, and higher overall transaction losses 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.

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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.

This decrease was partially offset by an increase in our tax processing revenues, driven by a 20% increase in the number of tax refunds processed from the prior year comparable period.

Although segment revenues decreased by 7%, our segment expenses declined for the year ended December 31, 2022 by 16% and segment profit increased by approximately 2% year-over-year.

Segment expenses decreased for the year ended December 31, 2022 primarily due to a decrease in sales commissions from lower cash transfer volumes.

The decrease in cash transfers was the result of lower active accounts within our Consumer Services and B2B Services segments discussed above, partially offset by an increase in the number of cash transfers processed for third-party programs.

To a lesser extent, this decrease was also driven by a decrease in our tax processing revenues, as the number of tax refunds processed decreased by 3% from the prior year comparable period principally due to lower volumes from our online consumer tax channels.

Money Movement Services segment expenses decreased for the year ended December 31, 2023 by 8% and segment profit increased by approximately 4% year-over-year.

Segment expenses decreased for the year ended December 31, 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 tax platform efficiencies, and decreases in sales commissions from lower cash transfer revenues.

Corporate and Other

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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 eliminations of inter-segment expenses and our fixed expenses such as salaries, wages and related benefits for our employees, professional

services fees, software licenses, telephone and communication costs, rent, utilities and insurance.

Unallocated corporate expenses include eliminations of inter-segment expenses and our fixed expenses such as salaries, wages and related benefits for our employees, professional services fees, software licenses, telephone and communication costs, rent, utilities and insurance.

These costs are not considered when our CODM evaluates the performance of our three reportable segments since they are not directly attributable to any reporting segment.

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Refer to Note 24—Segment Information to the Consolidated Financial Statements included herein for a summary reconciliation.

Net interest income increased year-over-year for the year ended December 31, 2022 as a result of an increase in the size of our investment securities portfolio and recent increases in interest rates by the Federal Reserve.

This increase was partially offset by a portion of the interest we share with certain BaaS partners.

Unallocated corporate expenses for the year ended December 31, 2022 increased year-over-year by approximately 9%, as a result of higher salaries and wages and software licenses each in support of our investments to build a modern and scalable core banking and card management platform, as well as other growth initiatives, partially offset by lower professional services fees, accrued bonus compensation and telecommunication expenses.

Revenues within our Corporate and Other segment decreased primarily due to the portion of interest we share with certain BaaS partners (a reduction of revenue).

Net interest income decreased by 11% for the year ended December 31, 2023 from the prior year comparable period.

The increase in interest shared with certain BaaS partners (a reduction of revenue) was partially offset by higher yields on our cash, each driven by increases in short-term interest rates by the Federal Reserve.

Unallocated corporate expenses for the year ended December 31, 2023 decreased year-over-year by approximately 4%, driven primarily by lower salary and wage expenses and related benefits for the comparable periods due to lower accrued bonus compensation, partially offset by higher professional services fees related to our AML program, and higher hosting costs and software licenses as a result of our technology transformation.

Capital Requirements for Bank Holding Companies

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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 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.

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Cash Flows from Operating Activities

Our $277.7 million of net cash provided by operating activities during the year ended December 31, 2022 principally resulted from $64.2 million of net income, adjusted for certain non-cash operating expenses of $168.7 million, and an increase in net working capital assets and liabilities of $44.8 million.

Our $97.5 million of net cash provided by operating activities during the year ended December 31, 2023 principally resulted from $6.7 million of net income, adjusted for certain non-cash operating expenses of $158.9 million, and a decrease in net working capital assets and liabilities of $68.1 million.

The year-over-year decrease in our net cash provided by operating activities during the year ended December 31, 2023 is principally due to a $57.5 million decline in net income and net working capital changes associated with cash paid for taxes, increases in volume of fee advances, and timing impacts associated with the non-renewal of programs discussed above.

Our cash paid for taxes was adversely impacted by the requirement to capitalize and amortize research and development expenses under Section 174 of the IRC.

Although Congress is considering legislation that would reinstate and extend Section 174 expensing for certain research and experimental expenditures, the possibility that this will happen is uncertain.

See Note 14—Income Taxes of the Consolidated Financial Statements included herein for additional information.

Cash Flows from Investing Activities

Our $820.2 million of net cash used in investing activities during the year ended December 31, 2022 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $634.3 million, payments for the development and acquisition of property and equipment of $84.3 million, net changes in loans of $32.1 million, purchases of bank-owned life insurance policies of $31.9 million, and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million.

Our $1.4 billion of net cash used in investing activities during the year ended December 31, 2021 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $1.2 billion, payments for the development and acquisition of property and equipment of $57.4 million, net changes in loans of $28.4 million, purchases of bank-owned life insurance policies of $55.0 million and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million.

Our $33.2 million of net cash provided by investing activities during the year ended December 31, 2023 primarily reflects net proceeds from sales and maturities of our available-for-sale investment securities of $176.9 million, payments for property, equipment and internal-use software of $75.9 million, net changes in loans of $29.0 million, and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million.

The year-over-year increase in our net cash provided by investment activities during the year ended December 31, 2023 is principally associated with maturities of our investment securities and our decision not to reinvest the proceeds into new investment securities.

Our $820.2 million of net cash used in investing activities during the year ended December 31, 2022 primarily reflects purchases of available-for-sale investment securities, net of proceeds from sales and maturities of $634.3 million, payments for property, equipment and internal-use software of $84.3 million, net changes in loans of $32.1 million, purchases of bank-owned life insurance policies of $31.9 million and capital contributions related to our investment in TailFin Labs, LLC of $35.0 million.

Cash Flows from Financing Activities

Our $264.0 million of net cash used in financing activities for the year ended December 31, 2023 was principally the result of a net decrease in customer deposits of $159.4 million and a net decrease in obligations to customers of $132.2 million, partially offset by net borrowings on our revolving credit facility of $26.0 million.

Our $36.7 million of net cash provided by financing activities for the year ended December 31, 2022 was principally the result of a net increase in customer deposits of $157.1 million, and net borrowings on our revolving credit facility of $35.0 million, partially offset by share repurchases of our Class A common stock of $95.5 million and a net decrease in obligations to customers of $54.0 million.

Our $1.0 billion of net cash provided by financing activities for the year ended December 31, 2021 was principally the result of a net increase in customer deposits of $555.1 million, and a net increase in obligations to customers of $488.7 million.

Other Sources of Liquidity:

2019 Revolving Facility

In October 2019, we entered into a revolving credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto.

The credit agreement provides for a $100.0 million five-year revolving facility and matures in October 2024.

At our election, loans made under the credit agreement bear interest at 1) a LIBOR rate (the “LIBOR Rate") or 2) a base rate determined by reference to the highest of (a) the United States federal funds rate plus 0.50%, (b) the Wells Fargo prime rate, and (c) one-month LIBOR rate plus 1.0% (the “Base Rate"), plus in either case an applicable margin.

The applicable margin for borrowings depends on our total leverage ratio and varies from 1.25% to 2.00% for LIBOR Rate loans and 0.25% to 1.00% for Base Rate loans.

In October 2019, we entered into a secured credit agreement with Wells Fargo Bank, National Association, and other lenders party thereto.

The credit facility provides for a $100.0 million five-year revolving line of credit (the "2019 Revolving Facility"), maturing in October 2024.

We use the proceeds of any borrowings under the 2019 Revolving Facility for working capital and other general corporate purposes, subject to the terms and conditions set forth in the credit agreement.

We classify amounts outstanding on our consolidated balance sheets based on the remaining duration of the credit facility, however, we may make voluntary repayments at any time prior to maturity.

As of December 31, 2023, the outstanding balance on the 2019 Revolving Facility was $61.0 million, with $39.0 million available for use.

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.

The interest rate on our outstanding balance as of December 31, 2023 was 7.23%.

The terms of our existing agreement also provide for a method to determine an alternative benchmark interest rate in anticipation of the discontinuation of LIBOR under reference rate reform.

This alternative benchmark rate will be selected between the parties taking into consideration recommendations from regulatory bodies or based on prevailing market conventions at the time the alternative rate is established, and may include the Secured Overnight Financing Rate.

As of December 31, 2022, we had $35.0 million outstanding on the 2019 Revolving Facility, with $65.0 million 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.

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Material Cash Requirements

While the effect of COVID-19, increasing inflation and interest rates and other macro-economic events 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.

While the overall macro-economic environment, the effect of high inflation and interest rates, and other factors described in "Outlook and Other Trends Affecting Our Business" above 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, equipment and internal-use software 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 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 in order to scale and operate effectively to meet our strategic objectives.

We expect our capital expenditures in 2024 to be lower compared to our capital expenditures in 2023, but at similar levels compared to our annual investments in recent years.

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.

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If another economic relief package is signed into law that provides for substantial additional direct payments and unemployment benefits, we may need to increase the size of our cash contributions to Green Dot Bank to maintain its capital, leverage and other financial commitments.

We also have certain contractual payment obligations, in each case, as described in more detail below.

Contractual Obligations

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We hold a 20% ownership interest in the entity, in exchange for annual capital contributions of $35.0 million per year from January 2020 through January 2024.

See Note 7—Equity Method Investment of the Notes to our Consolidated Financial Statements for additional information.

Our final payment under this commitment was paid in January 2024.

See Note 7—Equity Method Investment to the Consolidated Financial Statements included herein for additional information.

Our remaining leases have terms of less than 1 year to approximately 9 years, subject to renewal options of varying terms, and as of December 31, 2023, we had a total lease liability of $6.1 million.

See Note 20—Leases of the Notes to our Consolidated Financial Statements for additional information regarding our lease liabilities as of December 31, 2022.

See Note 20—Leases to the Consolidated Financial Statements included herein for additional information regarding our lease liabilities as of December 31, 2023.

In the normal course of business, we enter into various agreements with our vendors and retail distributors that may subject us to minimum annual requirements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis