10-K 1 gsky-20211231.htm 10-K gsky-20211231
false00017129232021FYhttp://fasb.org/us-gaap/2021-01-31#AccountingStandardsUpdate201602Memberhttp://fasb.org/us-gaap/2021-01-31#AccountingStandardsUpdate201613Memberhttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesP4YP3Yhttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherAssetshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitieshttp://fasb.org/us-gaap/2021-01-31#OtherLiabilities00017129232021-01-012021-12-3100017129232021-06-30iso4217:USD0001712923us-gaap:CommonClassAMember2022-03-07xbrli:shares0001712923us-gaap:CommonClassBMember2022-03-0700017129232021-12-3100017129232020-12-310001712923us-gaap:CommonClassAMember2021-12-31iso4217:USDxbrli:shares0001712923us-gaap:CommonClassAMember2020-12-310001712923us-gaap:CommonClassBMember2021-12-310001712923us-gaap:CommonClassBMember2020-12-310001712923gsky:TransactionFeesMember2021-01-012021-12-310001712923gsky:TransactionFeesMember2020-01-012020-12-310001712923gsky:TransactionFeesMember2019-01-012019-12-310001712923gsky:ServicingMember2021-01-012021-12-310001712923gsky:ServicingMember2020-01-012020-12-310001712923gsky:ServicingMember2019-01-012019-12-3100017129232020-01-012020-12-3100017129232019-01-012019-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2018-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2018-12-310001712923us-gaap:AdditionalPaidInCapitalMember2018-12-310001712923us-gaap:RetainedEarningsMember2018-12-310001712923us-gaap:TreasuryStockMember2018-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001712923us-gaap:NoncontrollingInterestMember2018-12-3100017129232018-12-310001712923us-gaap:RetainedEarningsMember2019-01-012019-12-310001712923us-gaap:NoncontrollingInterestMember2019-01-012019-12-3100017129232018-01-012018-12-310001712923srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2018-12-310001712923us-gaap:NoncontrollingInterestMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001712923srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2019-01-012019-12-310001712923us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001712923us-gaap:CommonClassAMemberus-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310001712923us-gaap:CommonClassAMember2019-01-012019-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2019-01-012019-12-310001712923us-gaap:AdditionalPaidInCapitalMemberus-gaap:CommonClassBMember2019-01-012019-12-310001712923us-gaap:CommonClassBMember2019-01-012019-12-310001712923us-gaap:TreasuryStockMemberus-gaap:CommonClassAMember2019-01-012019-12-310001712923us-gaap:TreasuryStockMember2019-01-012019-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2019-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2019-12-310001712923us-gaap:AdditionalPaidInCapitalMember2019-12-310001712923us-gaap:RetainedEarningsMember2019-12-310001712923us-gaap:TreasuryStockMember2019-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001712923us-gaap:NoncontrollingInterestMember2019-12-3100017129232019-12-310001712923us-gaap:RetainedEarningsMember2020-01-012020-12-310001712923us-gaap:NoncontrollingInterestMember2020-01-012020-12-310001712923srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-12-310001712923us-gaap:NoncontrollingInterestMembersrt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-12-310001712923srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-01-012020-12-310001712923us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001712923us-gaap:CommonClassAMemberus-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001712923us-gaap:CommonClassAMember2020-01-012020-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-01-012020-12-310001712923us-gaap:AdditionalPaidInCapitalMemberus-gaap:CommonClassBMember2020-01-012020-12-310001712923us-gaap:CommonClassBMember2020-01-012020-12-310001712923us-gaap:TreasuryStockMember2020-01-012020-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2020-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2020-12-310001712923us-gaap:AdditionalPaidInCapitalMember2020-12-310001712923us-gaap:RetainedEarningsMember2020-12-310001712923us-gaap:TreasuryStockMember2020-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001712923us-gaap:NoncontrollingInterestMember2020-12-310001712923us-gaap:RetainedEarningsMember2021-01-012021-12-310001712923us-gaap:NoncontrollingInterestMember2021-01-012021-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2021-01-012021-12-310001712923us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001712923us-gaap:CommonClassAMemberus-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001712923us-gaap:CommonClassAMember2021-01-012021-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2021-01-012021-12-310001712923us-gaap:AdditionalPaidInCapitalMemberus-gaap:CommonClassBMember2021-01-012021-12-310001712923us-gaap:CommonClassBMember2021-01-012021-12-310001712923us-gaap:TreasuryStockMember2021-01-012021-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2021-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassBMember2021-12-310001712923us-gaap:AdditionalPaidInCapitalMember2021-12-310001712923us-gaap:RetainedEarningsMember2021-12-310001712923us-gaap:TreasuryStockMember2021-12-310001712923us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001712923us-gaap:NoncontrollingInterestMember2021-12-310001712923gsky:GreenSkyLLCMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2017-08-24xbrli:pure0001712923us-gaap:CommonClassBMember2018-05-230001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMember2018-05-242018-05-240001712923gsky:GreenSkyHoldingsLLCGSHoldingsMember2021-12-310001712923gsky:GreenSkyHoldingsLLCGSHoldingsMember2020-12-310001712923gsky:GreenSkyHoldingsLLCGSHoldingsMember2021-01-012021-12-310001712923gsky:GreenSkyHoldingsLLCGSHoldingsMember2020-01-012020-12-310001712923us-gaap:ComputerEquipmentMember2021-01-012021-12-310001712923us-gaap:FurnitureAndFixturesMember2021-01-012021-12-310001712923gsky:MerchantFeesMember2021-01-012021-12-310001712923gsky:MerchantFeesMember2020-01-012020-12-310001712923gsky:MerchantFeesMember2019-01-012019-12-310001712923gsky:InterchangeFeesMember2021-01-012021-12-310001712923gsky:InterchangeFeesMember2020-01-012020-12-310001712923gsky:InterchangeFeesMember2019-01-012019-12-310001712923gsky:ServicingFeesMember2021-01-012021-12-310001712923gsky:ServicingFeesMember2020-01-012020-12-310001712923gsky:ServicingFeesMember2019-01-012019-12-310001712923gsky:HoldCoUnitsMember2021-01-012021-12-310001712923gsky:HoldCoUnitsMember2020-01-012020-12-310001712923gsky:HoldCoUnitsMember2019-01-012019-12-310001712923us-gaap:CommonClassAMember2021-01-012021-12-310001712923us-gaap:CommonClassAMember2020-01-012020-12-310001712923us-gaap:CommonClassAMember2019-01-012019-12-310001712923gsky:UnvestedClassACommonStockMember2021-01-012021-12-310001712923gsky:UnvestedClassACommonStockMember2020-01-012020-12-310001712923gsky:UnvestedClassACommonStockMember2019-01-012019-12-310001712923gsky:UnvestedHoldCoUnitsMember2021-01-012021-12-310001712923gsky:UnvestedHoldCoUnitsMember2020-01-012020-12-310001712923gsky:UnvestedHoldCoUnitsMember2019-01-012019-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2021-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2021-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2020-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel1Member2020-12-310001712923us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2021-12-310001712923us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2021-12-310001712923us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-310001712923us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2021-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-12-310001712923gsky:FacilityBankPartnerAgreementsMember2020-12-310001712923gsky:FacilityBankPartnerAgreementsMember2019-12-310001712923gsky:FacilityBankPartnerAgreementsMember2018-12-310001712923gsky:FacilityBankPartnerAgreementsMember2021-01-012021-12-310001712923gsky:FacilityBankPartnerAgreementsMember2020-01-012020-12-310001712923gsky:FacilityBankPartnerAgreementsMember2019-01-012019-12-310001712923gsky:FacilityBankPartnerAgreementsMember2021-12-310001712923gsky:ChargedOffReceivablesMember2021-01-012021-12-310001712923gsky:ChargedOffReceivablesMember2020-01-012020-12-310001712923gsky:ChargedOffReceivablesMember2019-01-012019-12-310001712923gsky:ChargedOffReceivablesMember2021-12-310001712923gsky:ChargedOffReceivablesMember2020-12-310001712923gsky:ChargedOffReceivablesMember2019-12-310001712923srt:MinimumMember2021-01-012021-12-310001712923srt:MaximumMember2021-01-012021-12-310001712923srt:WeightedAverageMember2021-01-012021-12-310001712923srt:MinimumMember2020-01-012020-12-310001712923srt:MaximumMember2020-01-012020-12-310001712923srt:WeightedAverageMember2020-01-012020-12-310001712923us-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001712923gsky:ContingentConsiderationReceivablesMember2020-12-310001712923gsky:ContingentConsiderationReceivablesMember2021-01-012021-12-310001712923gsky:ContingentConsiderationReceivablesMember2021-12-310001712923us-gaap:MeasurementInputDiscountRateMember2021-12-310001712923us-gaap:MeasurementInputDiscountRateMembersrt:WeightedAverageMember2021-12-310001712923srt:MinimumMember2021-12-310001712923srt:MaximumMember2021-12-310001712923srt:WeightedAverageMember2021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:InterestRateCapMember2021-01-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2021-01-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2020-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2019-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2018-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2021-01-012021-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2020-01-012020-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2019-01-012019-12-310001712923us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember2021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMember2021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMember2020-12-310001712923srt:MinimumMembergsky:MeasurementInputReversalRateMember2021-12-310001712923srt:MaximumMembergsky:MeasurementInputReversalRateMember2021-12-310001712923srt:WeightedAverageMembergsky:MeasurementInputReversalRateMember2021-12-310001712923srt:MinimumMembergsky:MeasurementInputReversalRateMember2020-12-310001712923srt:MaximumMembergsky:MeasurementInputReversalRateMember2020-12-310001712923srt:WeightedAverageMembergsky:MeasurementInputReversalRateMember2020-12-310001712923us-gaap:MeasurementInputDiscountRateMember2020-12-310001712923us-gaap:MeasurementInputDiscountRateMembersrt:WeightedAverageMember2020-12-310001712923gsky:PartnerOriginatedLoansMember2019-01-012019-12-310001712923gsky:CompanyOriginatedLoansMember2019-01-012019-12-310001712923us-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-06-300001712923us-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-06-012019-06-300001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-01-012021-12-310001712923us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-01-012020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2021-01-012021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-01-012020-12-310001712923gsky:AllOtherLoanReceivablesHeldForSaleMember2021-01-012021-12-310001712923gsky:AllOtherLoanReceivablesHeldForSaleMember2020-01-012020-12-310001712923gsky:MergerAgreementMembergsky:GoldmanSachsBankMember2021-11-012021-11-300001712923gsky:MergerAgreementMembergsky:GoldmanSachsBankMember2021-12-012021-12-310001712923gsky:TransactionFeesMember2021-12-310001712923gsky:ServicingFeesMember2021-12-310001712923gsky:TransactionFeesMember2020-12-310001712923gsky:ServicingFeesMember2020-12-310001712923us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-12-310001712923us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2020-12-310001712923us-gaap:FurnitureAndFixturesMember2021-12-310001712923us-gaap:FurnitureAndFixturesMember2020-12-310001712923us-gaap:LeaseholdImprovementsMember2021-12-310001712923us-gaap:LeaseholdImprovementsMember2020-12-310001712923us-gaap:ComputerEquipmentMember2021-12-310001712923us-gaap:ComputerEquipmentMember2020-12-310001712923gsky:CreditAgreementMember2017-08-310001712923gsky:CreditAgreementOriginalTermLoanMemberus-gaap:MediumTermNotesMember2017-08-310001712923us-gaap:RevolvingCreditFacilityMembergsky:CreditAgreementOriginalRevolvingCreditFacilityMember2017-08-310001712923gsky:CreditAgreementModifiedTermLoanMemberus-gaap:MediumTermNotesMember2018-03-310001712923us-gaap:RevolvingCreditFacilityMembergsky:CreditAgreementOriginalRevolvingCreditFacilityMember2018-03-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMember2018-03-012018-03-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-03-012018-03-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2018-03-012018-03-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2021-12-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-12-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:LetterOfCreditMember2018-03-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:LetterOfCreditMember2021-12-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2021-01-012021-12-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2020-01-012020-12-310001712923gsky:A2018AmendedCreditAgreementMemberus-gaap:RevolvingCreditFacilityMember2019-01-012019-12-310001712923gsky:A2020AmendedCreditAgreementMemberus-gaap:MediumTermNotesMember2020-06-300001712923gsky:A2020AmendedCreditAgreementMemberus-gaap:MediumTermNotesMembergsky:LondonInterbankOfferedRateLIBORFloorMember2020-06-012020-06-300001712923gsky:A2020AmendedCreditAgreementMemberus-gaap:MediumTermNotesMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-06-012020-06-300001712923gsky:A2020AmendedCreditAgreementMemberus-gaap:MediumTermNotesMember2020-06-012020-06-300001712923us-gaap:MediumTermNotesMember2021-12-310001712923us-gaap:MediumTermNotesMember2020-12-310001712923gsky:CreditAgreementOriginalTermLoanMemberus-gaap:MediumTermNotesMember2021-01-012021-12-310001712923gsky:CreditAgreementModifiedTermLoanMemberus-gaap:MediumTermNotesMember2021-12-310001712923us-gaap:MediumTermNotesMember2021-01-012021-12-310001712923us-gaap:MediumTermNotesMember2020-01-012020-12-310001712923gsky:A2018AmendedCreditAgreementAnd2020AmendedCreditAgreementMember2020-06-012020-06-300001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:RevolvingCreditFacilityMember2020-05-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:RevolvingCreditFacilityMember2020-05-012020-05-300001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMembergsky:A3MonthLondonInterbankOfferedRateMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:RevolvingCreditFacilityMember2020-05-012020-05-300001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-05-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityClassACommitmentMemberus-gaap:RevolvingCreditFacilityMember2020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:RevolvingCreditFacilityMembergsky:AmendedWarehouseFacilityClassBCommitmentMember2020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:RevolvingCreditFacilityMember2020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2021-01-012021-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:WarehouseAgreementBorrowingsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:AmendedWarehouseFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-01-012020-12-310001712923gsky:WarehouseSpecialPurposeVehicleMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:InterestRateCapMember2021-12-310001712923us-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2019-06-302019-06-300001712923us-gaap:OtherLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2021-12-310001712923us-gaap:OtherLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:InterestRateSwapMember2020-12-310001712923us-gaap:NondesignatedMemberus-gaap:EmbeddedDerivativeFinancialInstrumentsMembergsky:FinanceChargeReversalLiabilityMember2021-12-310001712923us-gaap:NondesignatedMemberus-gaap:EmbeddedDerivativeFinancialInstrumentsMembergsky:FinanceChargeReversalLiabilityMember2020-12-310001712923us-gaap:OtherLiabilitiesMemberus-gaap:NondesignatedMembergsky:EmbeddedDerivativeFinancialInstrumentsLoanParticipationPurchaseCommitmentsMember2021-12-310001712923us-gaap:OtherLiabilitiesMemberus-gaap:NondesignatedMembergsky:EmbeddedDerivativeFinancialInstrumentsLoanParticipationPurchaseCommitmentsMember2020-12-310001712923us-gaap:NondesignatedMembergsky:ContingentConsiderationReceivablesMemberus-gaap:OtherAssetsMember2021-12-310001712923us-gaap:NondesignatedMembergsky:ContingentConsiderationReceivablesMemberus-gaap:OtherAssetsMember2020-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateCapMemberus-gaap:OtherAssetsMember2021-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateCapMemberus-gaap:OtherAssetsMember2020-12-310001712923us-gaap:NondesignatedMemberus-gaap:EmbeddedDerivativeFinancialInstrumentsMemberus-gaap:CostOfSalesMember2021-01-012021-12-310001712923us-gaap:NondesignatedMemberus-gaap:EmbeddedDerivativeFinancialInstrumentsMemberus-gaap:CostOfSalesMember2020-01-012020-12-310001712923us-gaap:NondesignatedMemberus-gaap:EmbeddedDerivativeFinancialInstrumentsMemberus-gaap:CostOfSalesMember2019-01-012019-12-310001712923us-gaap:NondesignatedMemberus-gaap:CostOfSalesMembergsky:EmbeddedDerivativeFinancialInstrumentsLoanParticipationPurchaseCommitmentsMember2021-01-012021-12-310001712923us-gaap:NondesignatedMemberus-gaap:CostOfSalesMembergsky:EmbeddedDerivativeFinancialInstrumentsLoanParticipationPurchaseCommitmentsMember2020-01-012020-12-310001712923us-gaap:NondesignatedMemberus-gaap:CostOfSalesMembergsky:EmbeddedDerivativeFinancialInstrumentsLoanParticipationPurchaseCommitmentsMember2019-01-012019-12-310001712923us-gaap:NondesignatedMembergsky:ContingentConsiderationReceivablesMemberus-gaap:CostOfSalesMember2021-01-012021-12-310001712923us-gaap:NondesignatedMembergsky:ContingentConsiderationReceivablesMemberus-gaap:CostOfSalesMember2020-01-012020-12-310001712923us-gaap:NondesignatedMembergsky:ContingentConsiderationReceivablesMemberus-gaap:CostOfSalesMember2019-01-012019-12-310001712923us-gaap:InterestExpenseMemberus-gaap:NondesignatedMemberus-gaap:InterestRateSwapMember2021-01-012021-12-310001712923us-gaap:InterestExpenseMemberus-gaap:NondesignatedMemberus-gaap:InterestRateSwapMember2020-01-012020-12-310001712923us-gaap:InterestExpenseMemberus-gaap:NondesignatedMemberus-gaap:InterestRateSwapMember2019-01-012019-12-310001712923us-gaap:NondesignatedMemberus-gaap:OtherNonoperatingIncomeExpenseMemberus-gaap:InterestRateSwapMember2021-01-012021-12-310001712923us-gaap:NondesignatedMemberus-gaap:OtherNonoperatingIncomeExpenseMemberus-gaap:InterestRateSwapMember2020-01-012020-12-310001712923us-gaap:NondesignatedMemberus-gaap:OtherNonoperatingIncomeExpenseMemberus-gaap:InterestRateSwapMember2019-01-012019-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateSwapMembergsky:IncomeTaxExpenseMember2021-01-012021-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateSwapMembergsky:IncomeTaxExpenseMember2020-01-012020-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateSwapMembergsky:IncomeTaxExpenseMember2019-01-012019-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateCapMemberus-gaap:CostOfSalesMember2021-01-012021-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateCapMemberus-gaap:CostOfSalesMember2020-01-012020-12-310001712923us-gaap:NondesignatedMemberus-gaap:InterestRateCapMemberus-gaap:CostOfSalesMember2019-01-012019-12-310001712923us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2021-01-012021-12-310001712923us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember2020-01-012020-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMember2021-01-012021-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMemberus-gaap:CommonClassAMember2021-01-012021-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMembergsky:ClassARestrictedStockMember2021-01-012021-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMember2020-01-012020-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMemberus-gaap:CommonClassAMember2020-01-012020-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMembergsky:ClassARestrictedStockMember2020-01-012020-12-3100017129232018-05-232018-05-230001712923us-gaap:CommonClassAMember2018-05-242020-12-310001712923us-gaap:TreasuryStockCommonMember2018-05-242020-12-310001712923us-gaap:CommonStockMemberus-gaap:CommonClassAMember2018-05-242020-12-310001712923gsky:CreditAgreementDistributionMember2021-01-012021-12-310001712923gsky:CreditAgreementDistributionMember2020-01-012020-12-310001712923gsky:CreditAgreementDistributionMember2019-01-012019-12-310001712923gsky:CreditAgreementDistributionMember2021-12-310001712923srt:AffiliatedEntityMembergsky:CreditAgreementDistributionMember2021-01-012021-12-310001712923srt:AffiliatedEntityMembergsky:CreditAgreementDistributionMember2020-01-012020-12-310001712923srt:AffiliatedEntityMembergsky:CreditAgreementDistributionMember2019-01-012019-12-310001712923srt:AffiliatedEntityMembergsky:CreditAgreementDistributionMember2021-12-310001712923gsky:SpecialOperatingDistributionMember2021-01-012021-12-310001712923gsky:SpecialOperatingDistributionMember2020-01-012020-12-310001712923gsky:SpecialOperatingDistributionMember2019-01-012019-12-310001712923gsky:SpecialOperatingDistributionMember2021-12-310001712923gsky:SpecialOperatingDistributionMembersrt:AffiliatedEntityMember2021-01-012021-12-310001712923gsky:SpecialOperatingDistributionMembersrt:AffiliatedEntityMember2020-01-012020-12-310001712923gsky:SpecialOperatingDistributionMembersrt:AffiliatedEntityMember2019-01-012019-12-310001712923gsky:SpecialOperatingDistributionMembersrt:AffiliatedEntityMember2021-12-310001712923gsky:TaxDistributionsGrossMember2021-01-012021-12-310001712923gsky:TaxDistributionsGrossMember2020-01-012020-12-310001712923gsky:TaxDistributionsGrossMember2019-01-012019-12-310001712923gsky:PreviouslyDeclaredButUnpaidNonTaxDistributionsMember2021-01-012021-12-310001712923gsky:PreviouslyDeclaredButUnpaidNonTaxDistributionsMember2020-01-012020-12-310001712923gsky:PreviouslyDeclaredButUnpaidNonTaxDistributionsMember2019-01-012019-12-310001712923gsky:PreviouslyDeclaredButUnpaidNonTaxDistributionsMember2021-12-310001712923gsky:A2018OmnibusIncentivePlanMemberus-gaap:EmployeeStockOptionMember2018-04-300001712923gsky:A2018OmnibusIncentivePlanMemberus-gaap:EmployeeStockOptionMember2021-12-310001712923gsky:CompensationAndBenefitsMember2021-01-012021-12-310001712923gsky:CompensationAndBenefitsMember2020-01-012020-12-310001712923gsky:CompensationAndBenefitsMember2019-01-012019-12-310001712923us-gaap:CostOfSalesMember2021-01-012021-12-310001712923us-gaap:CostOfSalesMember2020-01-012020-12-310001712923us-gaap:CostOfSalesMember2019-01-012019-12-310001712923us-gaap:EmployeeStockOptionMembersrt:MinimumMember2021-01-012021-12-310001712923srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-12-310001712923us-gaap:EmployeeStockOptionMembergsky:EmployeesMember2021-01-012021-12-310001712923us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMembergsky:EmployeesMember2021-01-012021-12-310001712923us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMembergsky:NonEmployeeMember2021-01-012021-12-310001712923gsky:NonEmployeeMember2020-01-012020-12-310001712923us-gaap:CommonClassAMembergsky:EmployeesMember2020-01-012020-12-310001712923us-gaap:EmployeeStockOptionMembergsky:EmployeesMember2020-01-012020-12-310001712923gsky:EmployeesMember2019-01-012019-12-310001712923us-gaap:CommonClassAMembergsky:EmployeesMember2019-01-012019-12-310001712923gsky:ProfitInterestsMember2020-01-012020-12-310001712923gsky:ProfitInterestsMember2019-01-012019-12-310001712923srt:MinimumMembergsky:ProfitInterestsMember2020-12-310001712923srt:MaximumMembergsky:ProfitInterestsMember2020-12-310001712923srt:MinimumMembergsky:ProfitInterestsMember2019-12-310001712923srt:MaximumMembergsky:ProfitInterestsMember2019-12-310001712923gsky:UnvestedHoldCoUnitsMember2020-12-310001712923gsky:UnvestedHoldCoUnitsMember2019-12-310001712923gsky:UnvestedHoldCoUnitsMember2018-12-310001712923gsky:UnvestedHoldCoUnitsMember2021-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMember2019-01-012019-12-310001712923gsky:ExchangeOfHoldcoUnitsForClassACommonStockPursuantToTheExchangeAgreementMember2021-12-310001712923srt:DirectorMembergsky:UnvestedClassACommonStockMembersrt:MinimumMember2021-01-012021-12-310001712923srt:DirectorMembersrt:MaximumMembergsky:UnvestedClassACommonStockMember2021-01-012021-12-310001712923srt:DirectorMembergsky:UnvestedClassACommonStockMember2021-01-012021-12-310001712923gsky:UnvestedClassACommonStockMember2020-12-310001712923gsky:UnvestedClassACommonStockMember2019-12-310001712923gsky:UnvestedClassACommonStockMember2018-12-310001712923gsky:UnvestedClassACommonStockMember2021-12-310001712923us-gaap:DomesticCountryMember2021-12-310001712923us-gaap:StateAndLocalJurisdictionMember2021-12-3100017129232021-06-232021-12-310001712923gsky:LeaseAmendmentAndExtensionMember2021-06-302021-06-300001712923gsky:LeaseAmendmentAndExtensionMember2021-06-300001712923gsky:ContractualRestrictedCashUnderArrangementMember2021-12-310001712923gsky:ContractualRestrictedCashUnderArrangementMember2020-12-310001712923us-gaap:CollectibilityOfReceivablesMember2021-12-310001712923gsky:ConsumerFinancialProtectionBureauMemberus-gaap:UnfavorableRegulatoryActionMember2021-07-012021-07-310001712923srt:MaximumMembergsky:ConsumerFinancialProtectionBureauMemberus-gaap:UnfavorableRegulatoryActionMember2021-07-012021-07-310001712923gsky:ConsumerFinancialProtectionBureauMembersrt:MinimumMemberus-gaap:UnfavorableRegulatoryActionMember2021-07-012021-07-310001712923us-gaap:FinancialGuaranteeMember2021-12-310001712923us-gaap:FinancialGuaranteeMember2020-12-310001712923us-gaap:FinancialGuaranteeMember2021-01-012021-12-310001712923us-gaap:FinancialGuaranteeMember2020-01-012020-12-310001712923gsky:RentExpenseMembersrt:ManagementMember2019-01-012019-12-310001712923gsky:RentExpenseMembersrt:ManagementMember2021-01-012021-12-310001712923gsky:RentExpenseMembersrt:ManagementMember2020-01-012020-12-310001712923srt:ManagementMember2021-12-310001712923gsky:ChargedOffReceivablesMembersrt:DirectorMember2019-01-012019-12-310001712923us-gaap:LoansReceivableMembergsky:NonExecutiveEmployeesMember2021-12-310001712923us-gaap:LoansReceivableMembergsky:NonExecutiveEmployeesMember2020-12-310001712923srt:AffiliatedEntityMembergsky:ShareBasedCompensationMember2020-01-012020-12-310001712923srt:AffiliatedEntityMembergsky:ShareBasedCompensationMember2019-01-012019-12-310001712923srt:AffiliatedEntityMembergsky:ShareBasedCompensationMember2021-01-012021-12-31gsky:segment0001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2021-01-012021-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2021-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2020-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2020-01-012020-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2019-01-012019-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2019-12-310001712923us-gaap:VariableInterestEntityPrimaryBeneficiaryMembergsky:GreenSkyHoldingsLLCGSHoldingsMember2018-12-3100017129232021-01-012021-03-3100017129232021-04-012021-06-3000017129232021-07-012021-09-3000017129232021-10-012021-12-3100017129232020-01-012020-03-3100017129232020-04-012020-06-3000017129232020-07-012020-09-3000017129232020-10-012020-12-310001712923us-gaap:SubsequentEventMembergsky:GreenSkyHoldingsLLCGSHoldingsMembergsky:TaxDistributionsGrossMember2022-01-012022-03-010001712923us-gaap:AllowanceForNotesReceivableMember2018-12-310001712923us-gaap:AllowanceForNotesReceivableMember2019-01-012019-12-310001712923us-gaap:AllowanceForNotesReceivableMember2019-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2018-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2019-01-012019-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2019-12-310001712923us-gaap:AllowanceForNotesReceivableMember2020-01-012020-12-310001712923us-gaap:AllowanceForNotesReceivableMember2020-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2020-01-012020-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2020-12-310001712923us-gaap:AllowanceForNotesReceivableMember2021-01-012021-12-310001712923us-gaap:AllowanceForNotesReceivableMember2021-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2021-01-012021-12-310001712923us-gaap:AllowanceForLoanAndLeaseLossesMember2021-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-38506
GreenSky, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-2135346
State or other jurisdiction of
incorporation or organization
(I.R.S. Employer
Identification No.)
5565 Glenridge Connector, Suite 700
(678) 264-6105
Atlanta,Georgia30342
(Registrant’s telephone number, including area code)
(Address of principal executive offices)(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Class A common stock, $0.01 par valueGSKYNASDAQ Stock Market
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes  No 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerNon-accelerated filer
Accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
Aggregate market value of the voting and non-voting common equity of the Registrant held by nonaffiliates as of June 30, 2021: $398,228,173
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class of Common Stock
Outstanding as of March 8, 2022
Class A, $0.01 par value (1)
131,139,576
Class B, $0.001 par value (2)
52,941,081
(1) Includes 4,498,028 shares of unvested Class A common stock awards.
(2) Includes 136,442 shares of Class B common stock associated with unvested GreenSky Holdings, LLC units.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement related to the Proposed Merger filed on November 9, 2021 are incorporated by reference in Part III.



GreenSky, Inc.
FORM 10-K
TABLE OF CONTENTS
 
  PAGE
  
Item 6.
  





2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, our senior management makes forward-looking statements to analysts, investors, the media and others. These forward-looking statements reflect our current views with respect to, among other things, the following: the proposed acquisition of GreenSky and the anticipated timing, results and benefits thereof; our operations; our financial performance; growth prospects; the Company’s ability to retain existing, and attract new merchants and Bank Partners or other funding sources, including the risk that one or more Bank Partners do not renew or reduce their funding commitments; our continued sales of loan participations or future sales of asset-backed securities; lifetime cost of funds associated with loan and loan participation sales; our funding capacity; the percentage of financing provided under the Warehouse Facility; cash payments required under the financial guarantee arrangements; the launch and performance of new products; the adaptability of our platform to additional industry verticals and origination channels; the extent and duration of the COVID-19 pandemic and its impact on the Company, its Bank Partners and merchants, GreenSky program borrowers, loan demand (including, in particular, for elective healthcare procedures), legal and regulatory matters, consumers' ability or willingness to pay, information security and consumer privacy, the capital markets, the economy in general and changes in the U.S. economy that could materially impact consumer spending behavior, unemployment and demand for our products; and our ability to mitigate or manage disruptions to our business posed by the pandemic. You generally can identify these statements by the use of words such as “outlook,” “potential,” “continue,” “may,” “seek,” “approximately,” “predict,” “believe,” “expect,” “plan,” “intend,” “estimate” or “anticipate” and similar expressions or the negative versions of these words or comparable words, as well as future or conditional verbs such as “will,” “should,” “would,” “likely” and “could.” These statements may be found under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. These risks and uncertainties include, but are not limited to, those risks described under Part I, Item 1A “Risk Factors” of this Form 10-K. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
3

PART I
ITEM 1. BUSINESS
Pending Merger
On September 14, 2021, GreenSky, Inc. and GreenSky Holdings, LLC ("GS Holdings") entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Goldman Sachs Group, Inc., a Delaware corporation (“Goldman Sachs”), and Goldman Sachs Bank USA, a bank organized under the laws of the State of New York and wholly owned subsidiary of Goldman Sachs (“Goldman Sachs Bank”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (a) Goldman Sachs Bank will establish a new wholly owned subsidiary, which will be a Delaware limited liability company (“Merger Sub 1”), and GreenSky, Inc. will be merged with and into Merger Sub 1 (the “Company Merger”), with Merger Sub 1 surviving the Company Merger as a wholly owned subsidiary of Goldman Sachs Bank (“Surviving LLC 1”), and (b) Goldman Sachs Bank will establish a new wholly owned subsidiary, which will be a Georgia limited liability company (“Merger Sub 2”), and Merger Sub 2 will be merged with and into GS Holdings (the “Holdings Merger” and, together with the Company Merger, the “Mergers”), with GS Holdings surviving the Holdings Merger as a subsidiary of Goldman Sachs Bank and Merger Sub 1 (“Surviving LLC 2”). Consummation of the Mergers is subject to the receipt of required regulatory approvals and satisfaction of other customary closing conditions. As a condition to Goldman Sachs’s entry into the Merger Agreement, the Company and certain beneficiaries party to the Tax Receivable Agreement, dated as of May 23, 2018 (the “TRA”), by and among the Company, GS Holdings, GreenSky, LLC and the blocker corporations and beneficiaries party thereto, were required to enter into an amendment to the TRA (the "TRA Amendment"), which amendment provided that no payments under the TRA will be made following or as a result of the consummation of the Mergers.
Organization
GreenSky, Inc. was formed as a Delaware corporation on July 12, 2017. The Company was formed for the purpose of completing an initial public offering ("IPO") of its Class A common stock and certain Reorganization Transactions, in order to carry on the business of GreenSky, LLC (“GSLLC”), a Georgia limited liability company. GSLLC is an operating entity and wholly-owned subsidiary of GS Holdings. GS Holdings, a holding company with no operating assets or operations other than its equity interest in GSLLC, was organized to serve as a holding company for GSLLC. On August 24, 2017, GS Holdings acquired a 100% interest in GSLLC. The equity of GS Holdings is owned partially by GreenSky, Inc. and partially by certain pre-IPO equity owners of GS Holdings. Common membership interests of GS Holdings are referred to as "Holdco Units." On May 24, 2018, the Company's Class A common stock commenced trading on the Nasdaq Global Select Market in connection with its IPO. See Note 1 to the Consolidated Financial Statements in Part II, Item 8 for a detailed discussion of the Reorganization Transactions, as defined in that footnote, and the IPO.
In 2020, we formed GS Depositor I, LLC (“Depositor”), an indirect subsidiary of the Company, and GS Investment I, LLC (the “Warehouse SPV”), a special purpose vehicle and indirect subsidiary of the Company, to facilitate purchases of participation interests in loans (“Warehouse Loan Participations") originated by Bank Partners through the GreenSky program. These purchases are made by Depositor and then transferred to the Warehouse SPV. Each of the Warehouse SPV and Depositor is a separate legal entity from the Company, and the assets of the Warehouse SPV and Depositor are solely available to satisfy the creditors of the Warehouse SPV or Depositor, respectively.
4

Unless the context requires otherwise, "we," "us," "our," "GreenSky" and "the Company" refer to GreenSky, Inc. and its subsidiaries. "Bank Partners" are the federally insured banks that originate loans under the consumer financing and payments program that we administer for use by merchants on behalf of such banks in connection with which we provide point-of-sale financing and payments technology and related marketing, servicing, collection and other services (the "GreenSky program" or "program").
Company Overview
GreenSky is a leading U.S.-based technology company enabling frictionless promotional financing at the point of sale for a growing ecosystem of merchants, consumers and Bank Partners. Our Company was founded on the idea that payment, credit and commerce could be enhanced using technology delivered via an elegant user experience. We believe payment and credit can be an asset that empowers and enables commerce, not a distraction or impediment. Our mission is to help businesses grow and delight their customers. For specific key developments and results during the year ended December 31, 2021, see "Executive Summary–2021 Developments" and "Executive Summary–2021 Results" in Part II, Item 7.
gsky-20211231_g1.jpg
The way in which we conduct our business is guided by our core values:
gsky-20211231_g2.jpg
Our business model, built upon repeat and growing usage by merchants, allows us to generate recurring revenues with limited customer acquisition and marketing costs, resulting in attractive unit economics and strong margins. We derive most of our revenue and profitability from upfront transaction fees that merchants pay us every time they facilitate a transaction using our platform. Thus, our profitability is strongly correlated with merchant transaction volume. The transaction fee rate depends on the terms of financing underlying the consumer loans. In addition, we receive servicing fees on the loan portfolios we service for our Bank Partners and share, indirectly, in the excess profitability, if any, of the loan portfolios we facilitate for our Bank Partners. Since 2020, we have facilitated sales of participation interests in loans and whole loans originated by our Bank Partners under the GreenSky program. We receive servicing fees on participated loans, where a Bank Partner retains the loan and servicing rights and we service the participated loans for the Bank Partner. Our loan receivables held for sale are loan participations that we purchased, which are primarily expected to be sold to institutional investors, financial institutions and other capital markets investors or to Bank Partners.
5

We developed and have been advancing and refining our proprietary, purpose-built platform to provide significant benefits to our growing ecosystem of merchants, consumers and Bank Partners. Our platform enables each of these constituents to benefit from enhanced access to each other and to our technology, resulting in a virtuous cycle of increasing engagement and value creation. We believe our ecosystem grows stronger with scale.
gsky-20211231_g3.jpg
Merchants. Merchants using our platform presently range from small, owner-operated home improvement contractors and healthcare providers to large national home improvement brands and retailers and healthcare service organizations. With COVID-19 persisting, the partnership we enjoy with our merchants has never been more important. In order for our merchants to better adapt to their customers' financing needs in the current economic environment, we developed a suite of new promotional loan product offerings, primarily additional reduced rate and deferred interest loan products, based on merchant feedback. The value proposition to merchants leveraging our scalable, proprietary technology platform includes:
Increased sales volume. By facilitating reduced rate or deferred interest promotional point-of-sale financing and payments solutions for their customers, merchants enhance their sales volume potential through higher conversion from bid to contract, and increased ticket size.
Seamless integration. Our platform is designed to provide a seamless experience for our merchants with a mobile-native design that is intuitive, easy to use and integrates effortlessly with merchants’ existing payments systems. We settle payments through a national credit card payment network or through the Automated Clearing House (“ACH”) network, meaning merchants that already accept these types of payments require no systems integration to adopt our platform. This frictionless onboarding makes consumer point-of-sale financing available for merchants of all sizes.
Agility. We work creatively and collaboratively to design, configure and manage promotional financing offers that fulfill the evolving and competitive needs of our merchants while continuing to improve our solutions to appeal to their customers.
Consumers. Consumers who transact on our platform typically have super-prime or prime credit scores and find financing with promotional terms to be an attractive alternative to other forms of payment, particularly in the case of larger purchases. We provide a completely paperless, mobile-enabled experience that typically permits a consumer to apply and be approved for financing in less than 60 seconds at the point of sale. The value proposition to consumers includes:
Superior experience. Because we are able to process an application and approve financing at the point of sale with limited burden on the consumer, our platform enables consumers to “apply and buy” in most cases in less than 60 seconds, utilizing an intuitive mobile interface and paperless loan agreement.
Promotional interest rates and terms. The majority of the loans facilitated by our platform carry promotional financing with deferred interest or reduced rate terms, an attractive alternative relative to typical financing rates on credit card accounts.
Facilitation of larger purchases. By allowing merchants to market to their customers by focusing on the monthly cost of their purchases rather than the one-time upfront cash outlays, consumers are able to better budget for purchases that are larger than they might otherwise make in the absence of financing.
6

Preservation of revolving credit availability. Rather than utilizing revolving credit for large purchases, resulting in the reduction of available credit lines, the loans we facilitate preserve credit card availability for everyday purchases.
Bank Partners. Bank Partners in our ecosystem have access to our proprietary technology solution and merchant network, enabling them to build a diversified nationwide portfolio of high-quality consumer loans with attractive risk-adjusted yields. Our platform delivers significant loan volume, while requiring minimal upfront investment by our Bank Partners. Furthermore, our program is designed to adhere to the regulatory and compliance standards of our Bank Partners, building their confidence in us and allowing them to outsource both loan facilitation and servicing functions to us. The value proposition to our Bank Partners includes:
Consumer credit exposure at attractive risk-adjusted yields. We believe loans originated on our platform offer strong net interest margin, credit performance and duration characteristics relative to financing institutions' other unsecured consumer lending opportunities.
Nationally diversified, small-balance loans. While many of our Bank Partners may traditionally focus on lending opportunities within their geographic footprints, our platform enables them to originate loans in all 50 states, with an average loan size of approximately $11,000 during the year ended December 31, 2021, thus creating an efficient mechanism to aggregate a granular, diversified national portfolio.
Access to our proprietary technology and merchant network. We have built and continually refine our technology platform to deliver significant value to merchants and consumers. We also cultivate strong relationships with "Sponsors" and merchants. "Sponsors" refers to manufacturers, their captive and franchised operations, and trade associations with which we partner to source prospective merchants. We believe our Bank Partners would require significant time and investment to build such a technology solution and merchant network themselves.
No customer acquisition cost and limited operating expenses. Our platform alleviates the need for our Bank Partners to bear any direct marketing, software development or technology infrastructure costs to originate loans.
Robust compliance framework. We continuously refine and upgrade our platform, risk management and servicing capabilities to meet the compliance, information security, documentation and vendor management requirements of our Bank Partners and their regulators.
Our Platform
Our platform is powered by a proprietary, patented technology infrastructure that delivers stability, speed, scalability and security. It supports the full transaction lifecycle, including credit application, underwriting, real-time loan allocation to our Bank Partners, document distribution, funding, settlement and servicing, and it can be expanded to additional industry verticals and origination channels as we scale our business.
gsky-20211231_g4.jpg
We believe our technology platform creates meaningful barriers to entry for other providers attempting to reach the same scale with merchants, consumers and funding partners. These attributes include:
Intuitive user interface. We designed our digital platform to be simple and easy to use.
Paperless application and documentation environment. Our platform populates applications using a mobile device’s location data and a scan of the consumer’s driver's license, eliminating unnecessary effort. Once
7

the application is approved, a digital loan agreement is delivered in real time, generally back to the same mobile device. The consumer accepts the terms of the agreement through electronic signature, eliminating the need for a physical signature.
Capacity to support a wide range of promotional financing solutions. Our technology enables merchants of all sizes and their sales associates to select among several promotional financing solutions based on customer preferences.
Significant flexibility and processing capabilities. Our technology stack includes an “Application Tier” (multiple user-facing applications) and a dynamic “Database Tier” (real-time algorithmic underwriting and processing functionality, data archiving, lookup and reporting). Together, this results in a comprehensive technology solution that supports the full transaction lifecycle.
Real-time credit decisions and placement with a Bank Partner. We developed an algorithm that underwrites potential loans against the specified credit criteria of each of our Bank Partners. Once loan applications are underwritten and matched against the Bank Partners’ credit criteria, a proprietary, patented, digital “round-robin” system allocates each unique approved loan to a Bank Partner.
Automated regulatory compliance and customer protection mechanism. During the underwriting process, our systems instantly check applicants against national databases designed to identify and prevent potential fraud, money laundering and other “red flags.” We have also developed technology to provide additional consumer protections through automated verifications.
Integration into payments network. We settle and fund transactions on a national credit card network or via the ACH system, allowing merchants to adopt our digital platform without any capital expenditure or back-end payment systems integration.
System of record and loan servicing. Our technology maintains the system of record for the portfolio of each of our Bank Partners, whereby details of all loans initiated, funded and serviced are maintained in a secure, online, user-accessible environment.
Scalable digital platform. Because each feature of our platform is digitally-enabled, we can efficiently adapt to the changing preferences of our constituents and achieve greater scale.
Enterprise Risk Management
GreenSky operates in a highly regulated industry. In addition, our relationships with our merchants and third-party vendors subject us to a variety of regulatory, financial and reputational risks. The Company developed and implemented a comprehensive compliance management system designed to maintain compliance with statutory and regulatory requirements applicable to the GreenSky program and to adapt to our evolving business strategy and operations. In addition, we have developed a proprietary complaints management system designed to identify, document and remediate customer complaints promptly and efficiently. Key components of our risk management efforts include the following:
Merchant Management. Prior to enrollment for participation in the GreenSky program, prospective merchants undergo a rigorous vetting and underwriting process. Thereafter, merchants are subject to continued review through our merchant risk management, compliance management and complaints management programs, and, depending on the results of that review, may be subject to suspension or termination from the GreenSky program. In addition, merchants are required to complete initial compliance and fair lending training and are provided ongoing training materials. Each of these programs is designed to prevent, detect and mitigate financial and reputational risks brought to the GreenSky program by merchants.
Customer Satisfaction. We deploy multiple communication channels to raise borrower awareness of account activity related to their GreenSky program loan, including welcome emails, account alerts and outbound calls. In addition, we routinely make outbound customer satisfaction calls and send emails to sample populations of borrowers as part of our ongoing merchant reevaluation and review process. This process includes dedicated outbound call campaigns designed to sample borrowers across the program merchant network, with particular focus on certain higher risk groups, such as elderly borrowers. We have a
8

team of GreenSky Customer Advocates who work to resolve borrower dissatisfaction with merchants or the GreenSky program.
Bank Partners. We engage with bank partners that seek attractive risk-adjusted yields and portfolio diversification through exposure to high quality consumer credit. For the GreenSky program, each of our Bank Partners has directed a proprietary credit policy, which is grounded in proven, established credit performance attributes and is designed to incorporate the credit performance of a full economic cycle. Our proprietary technology platform instantly adjudicates on each application using transparent and verifiable credit criteria and allocates each loan based on the credit guidelines of our Bank Partners.
Intellectual Property, Patents and Trademarks
We rely on a combination of patents, trademarks, service marks, copyrights, trade secrets, domain names and agreements with employees and third parties to protect our proprietary rights. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services. We routinely enter into confidentiality agreements with our employees and contractors and other parties with whom we conduct business to control use and access to, and limit disclosure of, our proprietary information. In 2014, we submitted a patent application relating to our mobile application process and credit decisioning model; the related patent was issued in July 2020. In 2020, we submitted additional patent applications related to our mobile application process and credit decisioning model; we received a patent related to one of these applications in November 2020. We also submitted a patent application related to our Universal Credit Application platform, which allows participating merchants to seamlessly make available second-look financing to their customers. We have trademark and service mark registrations and pending applications for additional registrations in the United States. We also own the domain name rights for "greensky.com," as well as other words and phrases important to our business.
For additional information regarding some of the risks relating to our intellectual property, see Part I, Item 1A "Risk Factors."
Competition
The consumer credit and payments market is highly fragmented, rapidly evolving, subject to regulatory scrutiny and oversight and highly competitive. We face competition from a diverse landscape of consumer lenders, including banks, credit unions and credit card issuers, as well as alternative technology-enabled lenders. Many of our credit and payment competitors are (or are affiliated with) financial institutions with the capacity to hold loans on their balance sheets, increasing the potential profitability of individual consumer relationships. Some of these competitors offer a broader suite of products and services than we do, including retail banking solutions, credit and debit cards and loyalty programs.
We compete for merchants based on a number of key product features, including price, simplicity of loan terms, promotional terms, a borrower's ease in applying, merchant fees, user experience and time-to-funding. Our existing core unsecured term loan products face competition primarily from home equity lines of credit and general-purpose revolving credit cards. Consumers can access these alternatives through a range of traditional and technology-enabled sources. We expect competition to continue to increase as many traditional, large-scale consumer lenders are investing in technology to streamline loan application and funding processes. We also expect to face additional competition from current competitors or others who embrace new technologies to significantly change the consumer credit and payment industry. Additionally, traditional banks have acquired technology-enabled platforms to scale their consumer loan origination platforms.
Seasonality
Our business is generally subject to seasonality in consumer spending and payment patterns. While the patterns we have historically observed have been somewhat disrupted by COVID-19, we expect seasonality to continue. Given that our home improvement vertical is the most significant contributor to our overall revenue, our revenue generally is higher during the second and third quarters of the year as the weather improves, the residential real estate market becomes more active and consumers begin home improvement projects. During these periods, we tend to experience increased loan applications and, in turn, transaction volume. Conversely, our revenue generally slows during the first and fourth quarters of the year, as consumer spending on home improvement projects tends to slow leading up to the holiday season and through the winter months. As a result, the volume of loan applications and
9

transactions also tends to slow during these periods. The elective healthcare vertical is susceptible to seasonality during the fourth quarter of the year, as licensed healthcare providers take more vacation time around the holiday season. During this period, the volume of elective healthcare procedures and our resulting revenue tend to slow relative to other periods throughout the year. Our seasonality trends may vary in the future as we introduce our program to new industry verticals and become less concentrated in the home improvement industry.
The origination related and finance charge reversal components of our cost of revenue (further discussed in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 3 to the Consolidated Financial Statements in Part II, Item 8) also are subject to these same seasonal factors, while the servicing related component of cost of revenue, in particular customer service staffing, printing and postage costs, is not as closely correlated to seasonal volume patterns. As transaction volume increases, the transaction volume related personnel costs, as well as costs related to credit and identity verification, among other activities, increase as well. Further, finance charge reversal settlements are positively correlated with transaction volume in the same period of the prior year. As prepayments on deferred interest loans, which trigger finance charge reversals, typically are highest towards the end of the promotional period, and promotional periods are most commonly 12, 18 or 24 months, finance charge reversal settlements typically follow a similar seasonal pattern as transaction volumes over the course of a calendar year.
Lastly, we have observed seasonal patterns in consumer credit, driven to an extent by income tax refunds, which result in lower charge-offs during the second and third quarters of the year. Credit improvement during these periods has a positive impact on the incentive payments we receive from our Bank Partners. Conversely, during the first and fourth quarters of the year, when credit performance is comparably lower, our incentive payment receipts are negatively impacted, which in turn has a negative impact on our cost of revenue.
Significant Customers
Our top ten merchants (including certain groups of affiliated merchants) accounted for an aggregate of 29% of our total revenue during the year ended December 31, 2021. The Home Depot is our most significant single merchant, followed by affiliates of Renewal by Andersen, our largest Sponsor, which affiliates include Andersen Corporation-owned licensed dealers and independently-owned and operated Renewal by Andersen licensed dealers. We expect to have significant concentration in our largest merchant relationships for the foreseeable future. In the event that (i) The Home Depot or one or more of our other significant merchants, or groups of merchants, or (ii) Renewal by Andersen or one or more of our other significant Sponsors, and their dealers, terminate their relationships with us, or elect to utilize an alternative source for financing, the number of loans originated through the GreenSky program likely would decline, which would materially adversely affect our business and, in turn, our revenue.
Human Capital
As of December 31, 2021, GreenSky had 992 full-time employees, with substantially all employees located in metropolitan Atlanta, Georgia, Mooresville, North Carolina or remotely across the country. Our sales force is mainly remote across the country. We also engage temporary employees and consultants as needed to support our operations. None of our employees are represented by a labor union, and we consider our relationships with our employees to be good.
We believe that the success and future growth of our Company depends greatly on our ability to attract, develop and retain top talent while integrating diversity, equity and inclusion principles and practices into our core values. We strive to ensure that GreenSky is a diverse, inclusive and safe environment that fosters creativity and innovation. To succeed in a competitive labor market, we seek to provide our employees with opportunities to grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs.
Health and Safety. The health and safety of our employees and their families is our highest priority and is reflected, most recently, in our response to the COVID-19 pandemic, in response to which we successfully instituted a company‑wide work‑from‑home program in March 2020 to ensure the safety of all of our employees and their families and implemented an emergency paid-time-off policy that employees can use to help cover time out of work in order to care for themselves or their immediate family members. Our Business Continuity Planning (BCP) Team communicates regularly with employees, provides resources for health, wellness and engagement, and establishes safety protocols for employees continuing critical on-site work.
10

Diversity and Inclusion. The Company believes that an inclusive and diverse work environment serves the interests of all of our stakeholders, encourages employee acceptance, development and retention, and helps us to exceed customer expectations and meet our growth objectives. We are committed to building a culture that fosters diversity, values inclusion and promotes individuality. Current key initiatives include employee experience, learning and development, talent acquisition, and external relationships.
Compensation and Benefits. We have demonstrated a history of investing in our workforce by offering a comprehensive compensation and benefits program to our employees. Salaries and wages paid to our employees are competitive based on position, skill and experience level, knowledge, and geographic location. In addition, we maintain an annual bonus plan, an equity award plan and a 401(k) plan for eligible employees. We also provide, among other benefits, healthcare and insurance benefits, health savings and flexible spending accounts, a healthcare advocacy service, employer paid disability leave, employer paid life insurance, paid time off, paid parental leave, employer paid telehealth, employee assistance programs and tuition assistance.
Training and Talent Development. Our ability to grow and succeed in a highly competitive industry depends on the continued engagement, training and development of our employees. The Company’s talent development programs are designed to provide employees with the resources to help them achieve their career goals, build management skills and lead their organizations. We have a strong value proposition that leverages our unique culture, collaborative working environment and shared sense of purpose to attract talent. We provide a wide variety of opportunities for professional growth for all employees with classroom and online training and on‑the‑job experience and counseling.
Available Information
Our internet website is www.greensky.com. We make available on the Investor Relations section of our website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements, and Forms 3, 4 and 5, and amendments to those reports as soon as reasonably practicable after filing such documents with, or furnishing such documents to, the Securities and Exchange Commission ("SEC").
On the Investor Relations section of our website, we webcast any earnings calls and certain events that we participate in or host with members of the investment community. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases. Further corporate governance information, including our board committee charters, code of business conduct and ethics and corporate governance guidelines, is also available on our Investor Relations website under the heading "Corporate Governance."
Our internet website is included herein as an inactive textual reference only. The information contained on our website is not incorporated by reference herein and should not be considered part of this report.

11

ITEM 1A. RISK FACTORS
Our business involves significant risks, some of which are described below. You should carefully review and consider the following risk factors and the other information included in this Annual Report on Form 10-K, including the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Part II, Item 8. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may have a material adverse effect on our business, reputation, revenue, financial condition, results of operations and future prospects, in which event the market price of our Class A common stock could decline, and you could lose part or all of your investment. In addition, our business, reputation, revenue, financial condition, results of operations and future prospects also could be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
Risk Factors Summary
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:

our proposed merger with Goldman Sachs may not be completed on a timely basis, on anticipated terms, or at all, and there are uncertainties and risks to consummating the merger;
current and uncertain future impact from COVID-19 on our business;
the non-exclusive, short term nature of our agreements with our Bank Partners;
our ability to retain existing, and attract new, merchants, Bank Partners and other funding sources;
the concentration of our revenue in our top ten merchants;
the effective promotion and support of the GreenSky program by our Sponsors and merchants;
our potential liability for remediation costs if our merchants fail to fulfill their obligations to consumers;
the results of any federal and state regulatory inquiries regarding our business;
changes in market interest rates;
loan delinquencies and default rates;
the performance of the participations we own in certain loans originated by Bank Partners through the     GreenSky program;
the rate at which deferred interest loans are repaid prior to the end of the promotional period;
the accuracy of information about customers of our merchants and credit decisioning, pricing, loss forecasting and credit decisioning models;
fluctuations in the U.S. home improvement industry, given our concentration in that market;
our ability to operate successfully in the elective healthcare vertical and to comply with additional regulation of this market;
our ability to comply with the evolving regulation of the consumer finance industry;
cyber attacks, security breaches or other disruptions in the operation of our computer systems and third-party data centers; and
the control of us by the owners of Class B common stock.

12

Risks Related to Proposed Merger
On September 14, 2021, GreenSky, Inc. and GS Holdings entered into the Merger Agreement with Goldman Sachs and Goldman Sachs Bank. The Merger Agreement provides that the Company will become an indirect wholly-owned subsidiary of Goldman Sachs. For more information regarding the Mergers, GreenSky stockholders are encouraged to read the proxy statement / prospectus filed on Schedule 14A by GreenSky, Inc on November 9, 2021 (the "Proxy Statement / Prospectus").
Because the exchange ratio pursuant to the Merger Agreement is fixed and the market price of Goldman Sachs common stock has fluctuated and will continue to fluctuate, GreenSky stockholders cannot be sure of the value of the consideration they will receive upon completion of the Mergers or the value of the GreenSky Common Stock they will give up.
Upon completion of the Mergers, (i) each share of Class A common stock, par value $0.01 per share, of the Company outstanding immediately prior to the Mergers (the “Class A Common Stock”) (except for shares of Class A Common Stock held by GreenSky as treasury stock or by Goldman Sachs, Goldman Sachs Bank, Merger Sub 1 or Merger Sub 2, which will be cancelled without consideration) will automatically be converted into the right to receive 0.03 shares of common stock, par value $0.01 per share, of Goldman Sachs (the “Merger Consideration”); (ii) each share of Class B common stock, $0.001 per share, of the Company (the “Class B Common Stock” and, together with the Class A Common Stock, the “GreenSky Common Stock”) will be automatically deemed transferred to the Company and cancelled for no consideration; and (iii) each Holdco Unit will be converted into the right to receive the Merger Consideration (other than Holdco Units that are owned by the Company, which will be converted into an equal number of limited liability company interests in Merger Sub 2). Because the exchange ratio is fixed, the value of the Merger Consideration will depend on the market price of Goldman Sachs common stock at the time the Mergers are completed.
The value of the Merger Consideration has fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate from the date of this filing to the date on which the Mergers are completed and thereafter. Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Goldman Sachs’s and GreenSky’s respective businesses, operations and prospects, market assessments of the likelihood that the Mergers will be completed, the timing of the Mergers and regulatory considerations. Many of these factors are beyond Goldman Sachs’s and GreenSky’s control.
The market price of Goldman Sachs common stock after the Mergers may be affected by factors different from those affecting the market price of GreenSky Class A Common Stock.
Upon completion of the Mergers, holders of shares of GreenSky Common Stock will become holders of shares of Goldman Sachs common stock. The business of Goldman Sachs differs from that of GreenSky in important respects; accordingly, the results of operations of Goldman Sachs after the Mergers, as well as the market price of Goldman Sachs common stock, may be affected by factors different from those currently affecting the results of operations of GreenSky. For further information on the business of Goldman Sachs, see the documents incorporated by reference into the Proxy Statement / Prospectus and referred to in the “Where You Can Find More Information” section of the same document as well as the Goldman Sachs Form 10-K filed on February 24, 2022. Additionally, the market price of Goldman Sachs common stock may fluctuate significantly following completion of the Mergers, and holders of GreenSky Common Stock could lose the value of their investment in Goldman Sachs common stock. The issuance of shares of Goldman Sachs common stock in the Mergers could on its own have a negative impact on the market price for Goldman Sachs common stock. In addition, many GreenSky stockholders may decide not to hold the shares of Goldman Sachs common stock they receive as a result of the Mergers. Other GreenSky stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of Goldman Sachs common stock they receive as a result of the Mergers. Any such sales of Goldman Sachs common stock could have a negative impact on the market price for Goldman Sachs common stock. Moreover, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, the Goldman Sachs common stock, regardless of Goldman Sachs’s actual operating performance.
13

After completion of the Mergers, Goldman Sachs may fail to realize the anticipated benefits of the Mergers, which could adversely affect the value of Goldman Sachs common stock.
The success of the Mergers will depend, in significant part, on Goldman Sachs’s ability to realize the anticipated benefits from combining the businesses of Goldman Sachs and GreenSky. The ability of Goldman Sachs to realize these anticipated benefits is subject to certain risks, including, among others:
Goldman Sachs’s ability to successfully combine the businesses of Goldman Sachs and GreenSky;
whether the combined business will perform as expected;
the possibility that Goldman Sachs paid more for GreenSky than the value Goldman Sachs will derive from the acquisition; and
the assumption of known and unknown liabilities of GreenSky.
If Goldman Sachs is not able to successfully combine the businesses of Goldman Sachs and GreenSky within the anticipated time frame, or at all, the anticipated cost savings and other benefits of the Mergers may not be realized fully, or at all, or may take longer to realize than expected, the combined business may not perform as expected and the value of the Goldman Sachs common stock (including the Merger Consideration) may be adversely affected.
Goldman Sachs and GreenSky have operated and, until completion of the Mergers, will continue to operate, independently, and there is no assurance that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Goldman Sachs or GreenSky employees, the loss of merchants and/or customers, the disruption of either company’s or both companies’ ongoing businesses or in unexpected integration issues, higher than expected integration costs and an overall integration process after the Mergers that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating the operations of Goldman Sachs and GreenSky in order to realize the anticipated benefits of the Mergers so the combined business performs as expected:
combining certain of the companies’ operations, financial, reporting and corporate functions;
integrating the companies’ technologies;
integrating and unifying product offerings and services;
identifying and eliminating redundant and underperforming functions and assets;
harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;
maintaining existing agreements with commercial counterparties and avoiding delays in entering into new agreements with prospective commercial counterparties;
addressing possible differences in business backgrounds, corporate cultures and management philosophies;
consolidating the companies’ administrative and information technology infrastructure;
coordinating sales, distribution and marketing efforts; and
coordinating geographically dispersed organizations.
In addition, at times, the attention of certain members of either company’s or both companies’ management and resources may be focused on completion of the Mergers and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and the business of the combined company.
GreenSky may have difficulty attracting, motivating and retaining executives and other employees in light of the Mergers.
Uncertainty about the effect of the Mergers on GreenSky employees may impair GreenSky’s ability to attract, retain and motivate personnel prior to and following the Mergers. Employee retention may be particularly challenging
14

during the pendency of the Mergers, as employees of GreenSky may experience uncertainty about their future roles with the combined business. If employees of GreenSky depart, the integration of the companies may be more difficult and the combined business following the Mergers may be harmed, and the anticipated benefits of the Mergers may be adversely affected.
Completion of the Mergers is subject to many conditions and if these conditions are not satisfied or waived, the Mergers will not be completed.
The obligation of each party to the Merger Agreement to complete the Mergers is subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of a number of conditions, including, among others: (i) certain governmental approvals having been obtained or received (without the imposition of a Materially Burdensome Regulatory Condition (as defined in the Merger Agreement)) and (ii) the absence of any judgment or law issued by any governmental entity enjoining or otherwise prohibiting the consummation of the Mergers. There is no assurance that the conditions to the closing of the Mergers will be satisfied or waived or that the Mergers will be completed. See “Risk Factors—Failure to complete the Mergers could negatively impact the stock price and the future business and financial results of GreenSky.”
In order to complete the Mergers, Goldman Sachs and GreenSky must obtain certain governmental authorizations, and if such authorizations are not granted or are granted with conditions to the parties, the closing of the Mergers may be jeopardized or the anticipated benefits of the Mergers could be reduced.
The closing of the Mergers is conditioned upon obtaining certain required governmental authorizations, including the approval of the New York Department of Financial Services. Although Goldman Sachs and GreenSky have agreed in the Merger Agreement to use their reasonable best efforts, subject to certain limitations, to obtain the required governmental authorizations, there is no assurance that the relevant authorizations will be obtained. In addition, the governmental authorities from which these authorizations must be obtained have broad discretion in administering the governing regulations. Adverse developments in Goldman Sachs’s or GreenSky’s regulatory standing or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; or changes in legislation or the political environment generally could affect whether and when required governmental authorizations are granted. As a condition to authorization of the Mergers, governmental authorities may impose requirements, limitations or costs or place restrictions on the conduct of Goldman Sachs’s business after completion of the Mergers. There is no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying the closing of the Mergers or imposing additional material costs on or materially limiting the revenues of the combined company following the Mergers or otherwise adversely affecting Goldman Sachs’s business and results of operations after completion of the Mergers. In addition, there is no assurance that these terms, obligations or restrictions will not result in the delay or abandonment of the Mergers.
GreenSky’s business relationships may be subject to disruption due to uncertainty associated with the Mergers.
Parties with which GreenSky does business may experience uncertainty associated with the Mergers, including with respect to current or future business relationships with GreenSky or the combined business resulting from the Mergers. GreenSky’s business relationships may be subject to disruption as parties with which GreenSky does business may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than GreenSky or the combined business. These disruptions could have an adverse effect on the financial condition, results of operations or prospects of the combined business, including an adverse effect on the ability to realize the anticipated benefits of the Mergers. The risk, and adverse effect, of such disruptions could be exacerbated by a delay in completion of the Mergers or termination of the Merger Agreement.
The Merger Agreement limits GreenSky’s ability to pursue alternatives to the Mergers and may discourage other companies from trying to acquire GreenSky for greater consideration than what Goldman Sachs has agreed to pay pursuant to the Merger Agreement.
The Merger Agreement contains provisions that make it more difficult for GreenSky to sell its business to a party other than Goldman Sachs. These provisions include a general prohibition on GreenSky soliciting any acquisition proposal or offer for a competing transaction. Further, subject to certain exceptions, the GreenSky board of directors will not withdraw or modify in a manner adverse to Goldman Sachs the recommendation of the GreenSky board of directors in favor of the approval and adoption of the Merger Agreement, and Goldman Sachs generally has a right
15

to match any competing acquisition proposals that may be made. In certain circumstances, upon termination of the Merger Agreement, GreenSky will be required to pay a termination fee of $75 million to Goldman Sachs. To the extent that such fee is not promptly paid by GreenSky when due, it will also be required to pay any reasonable and documented costs and expenses (including reasonable legal fees and expenses) incurred by Goldman Sachs in connection with legal action taken to enforce the Merger Agreement that results in a judgment for such amount against GreenSky, together with interest on the unpaid fee.
While both GreenSky and Goldman Sachs believe these provisions and agreements are reasonable and customary and are not preclusive of other offers, the restrictions, including the added expense of the $75 million termination fee that may become payable by GreenSky to Goldman Sachs in certain circumstances, might discourage a third party that has an interest in acquiring all or a significant part of GreenSky from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per share value than the consideration payable in the Mergers pursuant to the Merger Agreement.
Failure to complete the Mergers could negatively impact the stock price and the future business and financial results of GreenSky.
Without realizing any of the benefits it would have realized had it completed the Mergers, GreenSky would be subject to a number of risks, including the following, if the Mergers are not completed:
GreenSky may experience negative reactions from the financial markets, including in regard to its stock price;
GreenSky may experience negative reactions from its Bank Partners and other funding sources, customers, merchants, regulators and employees;
GreenSky will be required to pay certain costs relating to the Mergers, whether or not the Mergers are completed;
the Merger Agreement places certain restrictions on the conduct of GreenSky’s business prior to completion of the Mergers, and such restrictions, the waiver of which is subject to the written consent of Goldman Sachs (in certain cases not to be unreasonably withheld, conditioned or delayed), and subject to certain exceptions and qualifications, may prevent GreenSky from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Mergers that GreenSky would have made, taken or pursued if these restrictions were not in place; and
matters relating to the Mergers (including integration planning) require substantial commitments of time and resources by GreenSky management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to GreenSky as an independent company.
There is no assurance that the risks described above will not materialize. If any of such risks materializes, it may materially and adversely affect GreenSky’s business, financial condition, financial results, ratings and stock price. In addition, GreenSky could be subject to litigation related to any failure to complete the Mergers or related to any enforcement proceeding commenced against GreenSky to perform its obligations under the Merger Agreement. If the Mergers are not completed, these risks may materialize and may adversely affect GreenSky’s businesses, financial condition, financial results, ratings and stock price.
The shares of Goldman Sachs common stock to be received by GreenSky stockholders upon completion of the Mergers will have different rights from shares of GreenSky Common Stock.
Upon completion of the Mergers, GreenSky stockholders will no longer be stockholders of GreenSky but will instead become stockholders of Goldman Sachs. GreenSky stockholders’ rights as stockholders will continue to be governed by Delaware law but the terms of the Goldman Sachs certificate of incorporation and the Goldman Sachs bylaws are in some respects materially different than the terms of the GreenSky certificate of incorporation and the GreenSky bylaws, which currently govern the rights of GreenSky stockholders. For further information, see "Comparison of Equityholder Rights" in the Proxy Statement / Prospectus.
16

After the Mergers, GreenSky stockholders will have a significantly lower ownership and voting interest in Goldman Sachs than they currently have in GreenSky and will exercise less influence over management.
Immediately following completion of the Mergers, GreenSky stockholders will have a significantly lower ownership and voting interest in Goldman Sachs than they currently have in GreenSky. Consequently, GreenSky stockholders who become stockholders of Goldman Sachs following the completion of the Mergers will have less influence over the management and policies of Goldman Sachs than they currently have over the management and policies of GreenSky.
Stockholder litigation could prevent or delay the completion of the Mergers or otherwise negatively impact the business and operations of Goldman Sachs and GreenSky.
Transactions like the Mergers are frequently the subject of litigation or other legal proceedings, including actions alleging that either party’s board of directors breached its respective duties to its company's stockholders by entering into a merger agreement, by failing to obtain a greater value in a transaction for its company's stockholders or any other claims (contractual or otherwise) arising out of a merger or the transactions related thereto. Stockholders of Goldman Sachs and/or GreenSky may file lawsuits against GreenSky, Goldman Sachs and/or the directors and officers of either company in connection with the Mergers. One of the conditions to the closing is that no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Mergers or any of the other transactions contemplated by the Merger Agreement be in effect. If any plaintiff were successful in obtaining an injunction prohibiting Goldman Sachs or GreenSky from consummating the Mergers or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Mergers and could result in significant costs to Goldman Sachs and/or GreenSky, including any cost associated with the indemnification of directors and officers of each company. Goldman Sachs and GreenSky may incur costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the Mergers. Such litigation and related costs could have an adverse effect on Goldman Sachs’s or GreenSky’s ability to consummate the Mergers or on their respective financial condition, results of operations and growth prospects, including through the possible diversion of either company’s resources or distraction of key personnel.
Goldman Sachs and GreenSky will incur significant costs in connection with the Mergers.
Goldman Sachs and GreenSky have incurred and expect to incur a number of non-recurring costs associated with the Mergers and combining the operations of the two companies. The significant, non-recurring costs associated with the Mergers include, among others, fees and expenses of financial advisors and other advisors and representatives, certain employment-related costs relating to employees of GreenSky, filing fees due in connection with filings required under the HSR Act and filing fees and printing and mailing costs for the Proxy Statement / Prospectus. Certain of these costs have already been incurred or may be incurred regardless of whether the Mergers are completed, including a portion of the fees and expenses of financial advisors and other advisors and representatives and filing fees. Goldman Sachs also have incurred and will incur transaction fees and costs related to formulating and implementing integration plans with respect to the two companies. Goldman Sachs continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Mergers and the integration of the two companies’ businesses.
The Mergers may not be accretive, and may be dilutive, to Goldman Sachs’s earnings per share, which may negatively affect the market price of Goldman Sachs common stock following completion of the Mergers.
In connection with the completion of the Mergers, Goldman Sachs expects to issue additional Goldman Sachs common stock. The issuance of new Goldman Sachs common shares could have a negative impact on the market price of Goldman Sachs common stock. Any dilution of Goldman Sachs’s earnings per share could cause the price of shares of Goldman Sachs common stock to decline or grow at a reduced rate.
The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following completion of the Mergers.
Following completion of the Mergers, the size of the combined company’s business will be larger than the current size of either Goldman Sachs’s business or GreenSky’s business. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to implement an effective
17

integration of the two companies and its ability to manage a combined business with larger size and scope with the associated increased costs and complexity. There is no assurance that the management of the combined company will be successful or that the combined company will realize the expected benefits currently anticipated from the Mergers.
Business and Industry Risks
The global outbreak of the novel coronavirus, or COVID-19, initially caused severe disruptions in the U.S. economy and our business, and may further impact our performance and results of operations.
On March 11, 2020, the World Health Organization designated the novel coronavirus disease (referred to as "COVID-19") as a global pandemic. In response, many U.S. state and local governments instituted restrictions on travel, public gatherings, and non-essential business operations. While state and local governments have removed or relaxed certain restrictions, some remain and additional restrictions may be imposed or reimposed. These restrictions significantly impacted the macroeconomic environment, including consumer confidence, unemployment and other economic indicators that contribute to consumer spending behavior and demand for credit. Furthermore, our results of operations are impacted by the relative strength of the overall economy. As general economic conditions improve or deteriorate, the amount of consumer disposable income tends to fluctuate, which, in turn, impacts consumer spending levels and the willingness of consumers to take out loans to finance purchases. In addition, trends within the industry verticals in which we operate affect consumer spending on the products and services our merchants offer in those industry verticals.
The extent to which COVID-19 will impact our business, results of operations and financial condition is dependent on many factors, which are highly uncertain, including, but not limited to, the duration and severity of the outbreak, the actions to contain the virus or mitigate its impact, and how quickly and to what extent normal economic and operating conditions will resume. If we experience a prolonged decline in transaction volume or increases in delinquencies, our results of operations and financial condition could be materially adversely affected.
We may experience higher instances of default, which will adversely affect our business, including, but not limited to, the credit profile of our servicing portfolio, the incentive payments we receive from our Bank Partners and the required escrow payments under our financial guarantee arrangements with our Bank Partners. Additionally, the COVID-19 pandemic could adversely affect our liquidity position and could limit our ability to grow our business or fully execute on our business strategy, including entering into alternative funding arrangements. Furthermore, the COVID-19 pandemic could negatively impact our ability to retain existing, and attract new, Bank Partners and other funding sources for the GreenSky program.
The COVID-19 pandemic also resulted in us modifying certain business practices, such as restricting employee travel and executing on a company-wide work-from-home program. We may take further actions as required by government authorities or as we determine to be in the best interests of our associates, Bank Partners, merchants and GreenSky program borrowers. We may experience future financial losses or disruptions due to a number of operational factors, including, but not limited to:
increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity;
challenges to the security, availability and reliability of our platform due to changes to normal operations, including the possibility of one or more clusters of COVID-19 cases affecting our employees or affecting the systems or employees of our partners; and
an increased volume of customer and regulatory requests for information and support, or new regulatory requirements, which could require additional resources and costs to address, including, for example, government initiatives to reduce or eliminate payments costs.
Even after the COVID-19 pandemic significantly subsides, our business may continue to be unfavorably impacted by the economic turmoil caused by the pandemic. Because a widespread pandemic such as COVID-19 has not occurred in many years, it is unlikely that historical loss experience will accurately predict loan performance over the near future. There are no recent comparable events that could serve to indicate the ultimate effect the COVID-19
18

pandemic may have and, as such, we do not at this time know what the extent of the impact of the COVID-19 pandemic will be on our business. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also heighten other risks described in this Part I, Item 1A.
For additional discussion of the impact of COVID-19 on our business, see additional risk factors included in this Part I, Item 1A, as well as Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations–Executive Summary."
Our agreements with our Bank Partners are non-exclusive, short term in duration and subject to termination by our Bank Partners upon the occurrence of certain events, including our failure to comply with applicable regulatory requirements. If such agreements expire or are terminated, and we are unable to replace the commitments of the expiring or terminating Bank Partners, our business would be adversely affected.
We rely on our Bank Partners to originate all of the loans made through the GreenSky program. We have entered into separate loan origination agreements and servicing agreements with each of our Bank Partners, each generally containing customary termination provisions and, in certain instances, entitling the Bank Partner to terminate its agreements for convenience. Bank Partners could decide to terminate or not to renew their agreements for any number of reasons, including, for example, perceived or actual erosion in the credit quality or performance of loans, the geographic or other (such as home improvement loans) concentration of loans, the type of loan products offered (such as deferred payment loans), strategic decisions to make fewer consumer loans or loans originated through channels such as ours, alternative investment opportunities that are expected to be more favorable, increases in required loan loss reserves and required margins, dissatisfaction with our performance as administrator of our program or as servicer, reduced availability of funds for originating new loans, regulatory concerns regarding any of the foregoing factors or others, or general economic conditions, including those that are expected to impact consumer spending, consumer credit or default rates. From time to time, certain of our Bank Partners have requested adjustments to the volume or type of loans that they originate, including, on occasion, temporary increases, decreases or suspensions of originations. We have generally honored these requests in the ordinary course of our relationships with our Bank Partners and, to date, they have not had a significant impact on the GreenSky program. If any of our largest Bank Partners were to terminate its relationship with us, it could have a material adverse effect on our business. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations–Factors Affecting our Performance–Bank Partner Relationships; Other Funding" for more information regarding our Bank Partner relationships.
Our agreements with our Bank Partners generally have automatically renewable one-year terms. These agreements are non-exclusive and do not prohibit our Bank Partners from working with our competitors or from offering competing products, except that certain Bank Partners have agreed not to provide customer financing outside of the GreenSky program to our merchants and Sponsors during the term of their agreements with us and generally for one year after termination or expiration of such agreements. As a result of the foregoing, any of our Bank Partners could with minimal notice decide that working with us is not in its interest, could offer us less favorable or unfavorable economic or other terms or could decide to enter into exclusive or more favorable relationships with one of our competitors. We also could have future disagreements or disputes with our Bank Partners, which could negatively affect or threaten our relationships with them.
Our Bank Partners also may terminate their agreements with us if we fail to comply with regulatory requirements applicable to them. We are a service provider to our Bank Partners, and, as a result, we are subject to audit by our Bank Partners in accordance with customary practice and applicable regulatory guidance related to management by banks of third-party vendors. We also are subject to the examination and enforcement authority of the federal banking agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, as a bank service company, and are subject to the examination and enforcement authority of the Consumer Financial Protection Bureau (“CFPB”) as a service provider to a covered person under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). It is imperative that our Bank Partners continue to have confidence in our compliance efforts. Any substantial failure, or alleged or perceived failure, by us to comply with applicable regulatory requirements could cause our Bank Partners to be unwilling to originate loans through our program or could cause them to terminate their agreements with us. See “–Risks Related to Our Regulatory Environment.”
19

If we are unsuccessful in maintaining our relationships with our Bank Partners for any of the foregoing or other reasons, or if we are unable to develop relationships with new Bank Partners or other funding sources, it could have a material adverse effect on our business and our ability to grow.
Our results of operations and continued growth depend on our ability to retain existing, and attract new, merchants, Bank Partners, and other funding sources.
A substantial majority of our total revenue is generated from the transaction fees that we receive from our merchants and, to a lesser extent, servicing and other fees that we receive from our Bank Partners and other funding sources in connection with loans made by our Bank Partners to the customers of our merchants. Approximately 73% of our total revenue for the year ended December 31, 2021 was generated from transaction fees paid to us by our merchants. To attract and retain merchants, we market our program to them on the basis of a number of factors, including financing terms, the flexibility of promotional offerings, loan approval rates, speed and simplicity of loan origination, service levels, products and services, technological capabilities and integration, customer service, brand and reputation.
There is significant competition for our existing merchants. If we fail to retain any of our larger merchants or a substantial number of our smaller merchants, and we do not acquire new merchants of similar size and profitability, it would have a material adverse effect on our business and future growth. We have experienced some turnover in our merchants, as well as varying activation rates and volatility in usage of the GreenSky program by our merchants, and this may continue or even increase in the future. Program agreements generally are terminable by merchants at any time. Also, we generally do not have exclusive arrangements with our merchants, and they are free to use our competitors’ programs at any time and without notice to us. If a significant number of our existing merchants were to use other competing programs, thereby reducing their use of our program, it would have a material adverse effect on our business and results of operations.
Competition for new merchants also is significant and our continued success and growth depend on our ability to attract new merchants. Our failure to do so could limit our growth and our ability to continue generating revenue at current levels.
Our failure to retain existing, and attract and retain new, Bank Partners or other funding sources also could materially adversely affect our business and our ability to grow. We market our program to banks and other funding sources on the basis of the risk-adjusted yields available to them and geographic diversity of the loans originated through the GreenSky program, as well as the absence of significant upfront and ongoing costs and the general creditworthiness of the consumers that use the GreenSky program. Bank Partners and other investors have alternative sources for loans, including, for Bank Partners, internal loan generation, and they could elect to originate or invest in loans through those alternatives rather than through the GreenSky program.
If any of our larger, or a substantial number of our smaller, Bank Partners were to suspend, limit or otherwise terminate their relationships with us, it could have a material adverse effect on our business. If we need to enter into arrangements with a different bank to replace one of our Bank Partners, we may not be able to negotiate a comparable alternative arrangement. See Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations–Factors Affecting our Performance–Bank Partner Relationships; Other Funding" for more information regarding our Bank Partner relationships.
A large percentage of our revenue is concentrated with our top ten merchants, and the loss of a significant merchant could have a negative impact on our operating results.
Our top ten merchants (including certain groups of affiliated merchants) accounted for an aggregate of 29% of our total revenue during the year ended December 31, 2021. The Home Depot is our most significant single merchant followed by, affiliates of Renewal by Andersen, our largest Sponsor, which affiliates include Andersen Corporation-owned licensed dealers and independent owned and operated Renewal by Andersen licensed dealers. Our agreement with Renewal by Andersen provides that Renewal by Andersen will promote the GreenSky program through notifying its dealers of the availability of the GreenSky program and providing them ancillary materials. Both parties have the right to terminate the agreement generally upon 90 days' notice. If Renewal by Andersen terminates the agreement, Renewal by Andersen dealers would not be obligated to terminate their participation in the
20

GreenSky program, although they could choose to do so. We expect to have significant concentration in our largest merchant relationships for the foreseeable future. In the event that (i) The Home Depot or one or more of our other significant merchants, or groups of merchants, or (ii) Renewal by Andersen or one or more of our other significant Sponsors, and their dealers, terminate their relationships with us, or elect to utilize an alternative source for financing, the number of loans originated through the GreenSky program could decline, which would materially adversely affect our business and, in turn, our revenue.
Our results depend, to a significant extent, on the active and effective promotion and support of the GreenSky program by our Sponsors and merchants.
Our success depends on the active and effective promotion of the GreenSky program by our Sponsors to their network of merchants and by our merchants to their customers. We rely on our Sponsors, including large franchisors within different home improvement industry sub-verticals, to promote the GreenSky program within their networks of merchants. A majority of our active merchants are affiliated with Sponsors. Although our Sponsors generally are under no obligation to promote the GreenSky program, many do so through direct mail, email campaigns and trade shows. The failure by our Sponsors to effectively promote and support the GreenSky program would have a material adverse effect on the rate at which we acquire new merchants and the cost thereof.
We also depend on our merchants, which generally accept most major credit cards and other forms of payment, to promote the GreenSky program, to integrate our platform and the GreenSky program into their business, and to educate their sales associates about the benefits of the GreenSky program so that their sales associates encourage customers to apply for and use our services. Our relationship with our merchants, however, generally is non-exclusive, and we do not have, or utilize, any recourse against merchants when they do not promote the GreenSky program. The failure by our merchants to effectively promote and support the GreenSky program would have a material adverse effect on our business.
If our merchants fail to fulfill their obligations to consumers or comply with applicable law, we may incur remediation costs.
Although our merchants are obligated to fulfill their contractual commitments to consumers and to comply with applicable law, from time to time they might not, or a consumer might allege that they did not. This, in turn, can result in claims against our Bank Partners and us or in loans being uncollectible. In those cases, we may decide that it is beneficial to remediate the situation, either through assisting the consumers to get a refund, working with our Bank Partners to modify the terms of the loan or reducing the amount due, making a payment to the consumer or otherwise. Historically, the cost of remediation has not been material to our business, but it could be in the future. In addition, for loan receivables held for sale, including SPV Participations, we may be subject to similar risks during the ownership period for such participations.
We have been in the past and may in the future be subject to federal and state regulatory inquiries regarding our business.
We have, from time to time in the normal course of our business, received, and may in the future receive or be subject to, inquiries or investigations by state and federal regulatory agencies and bodies such as the CFPB, state attorneys general, state financial regulatory agencies, and other state or federal agencies or bodies regarding GreenSky and its business, including with respect to the origination and servicing of consumer loans, practices by merchants and other third parties, and licensing and registration requirements. Regulatory actions, among other things, can result in injunctive relief, restitution, disgorgement, civil monetary penalties, customer remediation and other corrective action, and can also lead to claims by third parties.
In addition, we have entered into regulatory agreements with state agencies regarding issues including merchant conduct and oversight and loan pricing and may enter into similar agreements in the future. We also have received inquiries from state regulatory agencies regarding requirements to obtain licenses from or register with those states, including in states where we have determined that we are not required to obtain such a license or be registered with the state, and we expect to continue to receive such inquiries. Any such inquiries or investigations could involve substantial time and expense to analyze and respond to, could divert management’s attention and other resources from running our business, and could lead to public enforcement actions or lawsuits and fines, penalties, injunctive relief, and the need to obtain additional licenses that we do not currently possess. Our involvement in any such
21

matters, whether tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our reputation, raise concerns with our Bank Partners and merchants, lead to additional investigations and enforcement actions from other agencies or litigants, and further divert management attention and resources from the operation of our business. As a result, the outcome of legal and regulatory actions arising out of any state or federal inquiries we receive could be material to our business, results of operations, financial condition and cash flows and could have a material adverse effect on our business, financial condition or results of operations.
Prior to the COVID-19 pandemic, we experienced rapid growth, which if again experienced may be difficult to sustain and may place significant demands on our operational, administrative and financial resources.
Prior to the COVID-19 pandemic, we experienced rapid growth which caused significant demands on our operational, marketing, compliance and accounting infrastructure, and resulted in increased expenses. We expect to again experience rapid growth after the COVID-19 pandemic. In addition, we need to continuously develop and adapt our systems and infrastructure in response to the increasing sophistication of the consumer finance market and regulatory developments relating to our existing and projected business activities and those of our Bank Partners. Our future growth will depend, among other things, on our ability to maintain an operating platform and management system sufficient to address our growth and will require us to incur significant additional expenses and to commit additional senior management and operation resources.
As a result of our growth, we face significant challenges in:
securing commitments from our existing and new Bank Partners and other funding sources to provide loans to customers of our merchants;
maintaining existing and developing new relationships with merchants and Sponsors;
maintaining adequate financial, business and risk controls;
implementing new or updated information and financial and risk controls and procedures;
training, managing and appropriately sizing our workforce and other components of our business on a timely and cost-effective basis;
navigating complex and evolving regulatory and competitive environments;
securing funding (including credit facilities and/or equity capital) to maintain our operations and future growth;
increasing the number of borrowers in, and the volume of loans facilitated through, the GreenSky program;
expanding within existing markets;
entering into new markets and introducing new solutions;
continuing to revise our proprietary credit decisioning and scoring models;
continuing to develop, maintain and scale our platform;
effectively using limited personnel and technology resources;
maintaining the security of our platform and the confidentiality of the information (including personally identifiable information) provided and utilized across our platform; and
attracting, integrating and retaining an appropriate number of qualified employees.
We may not be able to manage our expanding operations effectively, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.
If we experience negative publicity, we may lose the confidence of our Bank Partners, other funding sources, merchants and consumers who use the GreenSky program and our business may suffer.
Reputational risk, or the risk to us from negative publicity or public opinion, is inherent to our business. Recently, consumer financial services companies have been experiencing increased reputational harm as consumers and regulators take issue with certain of their practices and judgments, including, for example, fair lending, credit reporting accuracy, lending to members of the military, state licensing (for lenders, servicers and money transmitters) and debt collection. Maintaining a positive reputation is critical to our ability to attract and retain Bank
22

Partners, other funding sources, merchants, consumers, investors and employees. Negative public opinion can arise from many sources, including actual or alleged misconduct, errors or improper business practices by employees, Bank Partners, merchants, outsourced service providers or other counterparties; litigation or regulatory actions; failure by us, our Bank Partners, or merchants to meet minimum standards of service and quality; inadequate protection of consumer information; failure of merchants to adhere to the terms of their GreenSky program agreements or other contractual arrangements or standards; compliance failures; and media coverage, whether accurate or not. Negative public opinion could diminish the value of our brand and adversely affect our ability to attract and retain Bank Partners, other funding sources, merchants and consumers, as a result of which our results of operations may be materially harmed and we could be exposed to litigation and regulatory action.
We may be unable to successfully develop and commercialize new or enhanced products and services.
The consumer financial services industry is subject to rapid and significant changes in technologies, products and services. Our business is dependent upon technological advancement, such as our ability to process applications instantly, accept electronic signatures and provide other conveniences expected by borrowers and counterparties. We must ensure that our technology facilitates a consumer experience that is quick and easy and equals or exceeds the consumer experience provided by our competitors. Therefore, a key part of our financial success depends on our ability to develop and commercialize new products and services and enhancements to existing products and services, including with respect to mobile and point-of-sale technologies.
Realizing the benefit of such products and services is uncertain, and we may not assign the appropriate level of resources, priority or expertise to the development and commercialization of these new products, services or enhancements. Our ability to develop, acquire and commercialize competitive technologies, products and services on acceptable terms, or at all, may be limited by intellectual property rights that third parties, including competitors and potential competitors, may assert. In addition, our success is dependent on factors such as merchant and customer acceptance, adoption and usage, competition, the effectiveness of marketing programs, the availability of appropriate technologies and business processes and regulatory approvals. Success of a new product, service or enhancement also may depend upon our ability to deliver it on a large scale, which may require a significant investment.
We also could utilize and invest in technologies, products and services that ultimately do not achieve widespread adoption and, therefore, are not as attractive or useful to our merchants and their customers as we anticipate. Our merchants also may not recognize the value of new products and services or believe they justify any potential costs or disruptions in the loan origination process associated with implementing them. Because our solution is typically marketed through our merchants, if our merchants are unwilling or unable to effectively implement or market new technologies, products, services or enhancements, we may be unable to grow our business. Competitors also may develop or adopt technologies or introduce innovations that change the markets they operate in and make our solution less competitive and attractive to our merchants and their customers. Moreover, we may not realize the benefit of new technologies, products, services or enhancements for many years, and competitors may introduce more compelling products, services or enhancements in the meantime.
Changes in market interest rates could have an adverse effect on our business.
The fixed interest rates charged on the loans that our Bank Partners originate are calculated based upon a margin above a market benchmark at the time of origination. Increases in the market benchmark would result in increases in the interest rates on new loans. Increased interest rates may adversely impact the spending levels of consumers and their ability and willingness to borrow money. Higher interest rates often lead to higher payment obligations, which may reduce the ability of customers to remain current on their obligations to our Bank Partners and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreasing recoveries, all of which could have an adverse effect on our business. See Part I, Item 3 "Quantitative and Qualitative Disclosures about Market Risk."
23

Increases in loan delinquencies and default rates in the GreenSky program could cause us to lose amounts we place in escrow and may require us to deploy resources to enhance our collections and default servicing capabilities, which could adversely affect our ability to maintain loan volumes, and could affect our ability to pursue or close alternative funding structures.
Loans funded by our Bank Partners generally are not secured by collateral, are not guaranteed or insured by any third party and are not backed by any governmental authority in any way, which limits the ability of our Bank Partners to collect on loans if a borrower is unwilling or unable to repay. A borrower’s ability to repay can be negatively impacted by increases in the borrower’s payment obligations to other lenders under home, credit card and other loans; loss of employment or other sources of income; adverse health conditions; or for other reasons. Changes in a borrower’s ability to repay loans made by our Bank Partners also could result from increases in base lending rates or structured increases in payment obligations. While consumers using our platform to date have had high average credit scores, we may enter into new industry verticals in which consumers have lower average credit scores or open our existing verticals to consumers with lower average credit scores, leading to potentially higher rates of delinquencies and defaults.
Should delinquencies and default rates increase, we will need to expand our collections and default servicing capabilities, which will require additional resources that we may not have. This will result in higher costs due to the time and effort required to collect payments from delinquent borrowers.
While we are not generally responsible to our Bank Partners for defaults by customers, we have agreed with each of our Bank Partners to fund an escrow in order to provide the Bank Partners limited protection against credit losses. If credit losses increase, we could lose a portion, or all, of these escrowed funds, which would have an adverse effect on our business.
Because the agreements we have with our Bank Partners are of short duration and because our Bank Partners generally may terminate their agreements or reduce their commitments to provide loans if credit losses increase, funding for the GreenSky program could decrease in the event of higher default rates. In addition, in certain limited circumstances, our Bank Partners may terminate the agreements under which we service their loan portfolios, in which case we will suffer a decrease in our revenues from loan servicing.
In addition, an increase in delinquencies and default rates may have an adverse effect on our ability to pursue, or negotiate the terms of, alternative funding structures with institutional investors, financial institutions and other funding sources, if reduced returns would be expected as a result of such increase.
We own participations in certain loans originated through the GreenSky program, and the non-performance, or even significant underperformance, of those participations would adversely affect our business.
We hold participations in certain loans originated by our Bank Partners in order to facilitate alternative funding structures. In May 2020, the Warehouse SPV established an asset-backed revolving credit facility with JPMorgan Chase Bank, N.A. to finance purchases by the Warehouse SPV of participation interests in loans originated through the GreenSky program (the "Warehouse Facility"). The Warehouse SPV has conducted periodic sales of the Warehouse Loan Participations to third parties and may conduct additional periodic sales of the Warehouse Loan Participations or issue asset-backed securities to third parties, which sales and issuances will allow additional purchases of participations to be financed through the Warehouse Facility. We have formed another special purpose vehicle to facilitate sales of loan participations and whole loans, and in the future we may form other special purpose vehicles for similar purposes. The Warehouse SPV and any such other special purpose vehicles may not be able to conduct such sales or issuances in a timely manner or at expected prices, if at all. In addition, the Company issues commitments to purchase loan participations from time to time to a Bank Partner as part of the Company's facilitation of loan participation sales to third parties.
If we are not able to sell to third-party purchasers the loan participations that we own or have a commitment to purchase, then we will bear the credit risk of such loan participations while we own them. Furthermore, in this event, our ability to finance additional purchases of participations through the Warehouse Facility would be limited. This could have a material adverse effect on our business, financial position, results of operations and cash flows.
24

We also hold participations in certain research and development loans, which we refer to as “R&D Participations.” Generally, we hold R&D Participations that we purchase from an originating Bank Partner with the intent to hold the R&D Participations only for a short period of time before we can transfer the R&D Participations to a Bank Partner following its determination to purchase the R&D Participations, which a Bank Partner might do in connection with an expansion of its credit policy. Our objective is to hold these R&D Participations only until we have enough experience with the particular products or industry verticals for our Bank Partners to purchase the R&D Participations. Our Bank Partners may not purchase the R&D Participations.
Both the Warehouse Loan Participations and the R&D Participations are designated as loan receivables held for sale on our Consolidated Balance Sheets. As of December 31, 2021, we had $5.3 million in loan receivables held for sale, net. During the period that we own such receivables, we bear the credit risk in the event that the borrowers default.
In addition, we are obligated to purchase from our Bank Partners the receivables underlying any loans that were approved in error or otherwise involved customer or merchant fraud.
Our ownership of receivables also requires us to commit or obtain corresponding funding. In addition, non-performance, or even significant underperformance, of the loan receivables held for sale could have a materially adverse effect on our business, including with respect to the Warehouse Loan Participations, an inability to repay obligations owed by the Warehouse SPV under the Warehouse Facility.
The replacement of London Interbank Offered Rate ("LIBOR") and replacement or reform of other interest rate benchmarks could adversely affect our results of operations and financial condition.
LIBOR and certain other interest rate benchmarks are the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms may cause such benchmarks to perform differently than in the past or have other consequences which cannot be predicted. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that U.S. dollar LIBOR will no longer be quoted as of June 30, 2023, and new U.S. dollar LIBOR contracts will not be permitted beginning in 2022. LIBOR is currently used as a reference rate for certain of our contractual arrangements, including our term loan under the Amended Credit Agreements (discussed in Part II, Item 8 - Note 7. Borrowings), which is set to mature after the expected phase out of LIBOR. Our Warehouse Facility and the related interest rate cap agreement also include certain rates which are impacted by LIBOR, however, the agreement includes LIBOR transition provisions.
The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on the Company’s business, financial condition and results of operations. In particular, any such transition could:
adversely affect the interest rates received or paid in our contractual arrangements;
prompt inquiries or other actions from regulators in respect of the Company’s preparation and readiness for the replacement of LIBOR with an alternative reference rate;
result in disputes, litigation or other actions with borrowers or counterparties about the interpretation and enforceability of certain fallback language in LIBOR-based contracts and securities; and
cause us to incur additional costs in relation to any of the above factors.
We will work with our lenders and counterparties to accommodate any suitable replacement rate where it is not already provided under the terms of the financial instruments. If an agreement cannot be reached on an appropriate benchmark rate, the availability of borrowings under these agreements could be adversely impacted.
We are subject to certain additional risks in connection with promotional financing offered through the GreenSky program.
Many of the loans originated by our Bank Partners provide promotional financing in the form of low or deferred interest. When a deferred interest loan is paid in full prior to the end of the promotional period (typically six to 24 months), any interest that has been billed on the loan by our Bank Partner to the consumer is reversed, which triggers an obligation on our part to make a payment to the Bank Partner that made the loan in order to fully offset the reversal (each event, a finance charge reversal or "FCR"). We record a FCR liability on our balance sheet for
25

interest previously billed during the promotional period that is expected to be reversed prior to the end of such period. As of December 31, 2021, this liability was $143.5 million. See Note 3 to the Consolidated Financial Statements in Part II, Item 8 for further information. If the rate at which deferred interest loans are paid in full prior to the end of the promotional period materially increases over and above expected amounts, resulting in increased payments by us to our Bank Partners, it would adversely affect our business.
Further, deferred interest loans are subject to enhanced regulatory scrutiny as a result of abusive marketing practices by some lenders, and the CFPB has initiated enforcement actions against both lenders and servicers alleging that they have engaged in unfair, deceptive or abusive acts or practices because of lack of clarity in disclosures with respect to such loans. Such scrutiny could reduce the attractiveness to consumers of deferred interest loans or result in a general unwillingness on the part of our Bank Partners to make deferred interest loans or institutional investors to purchase participations in such loans. A reduction in the dollar volume of deferred interest loans offered through the GreenSky program would adversely affect our business.
Fraudulent activity could negatively impact our business and could cause our Bank Partners to be less willing to originate loans as part of the GreenSky program.
Fraud is prevalent in the financial services industry and is likely to increase as perpetrators become more sophisticated. We are subject to the risk of fraudulent activity associated with our merchants, their customers and third parties handling customer information. Our resources, technologies and fraud prevention tools may be insufficient to accurately detect and prevent fraud. The level of our fraud charge-offs could increase and our results of operations could be materially adversely affected if fraudulent activity were to significantly increase. High profile fraudulent activity also could negatively impact our brand and reputation, which could negatively impact the use of our services and products. In addition, significant increases in fraudulent activity could lead to regulatory intervention, which could increase our costs and also negatively impact our business.
Misconduct and errors by our employees and third-party service providers could harm our business and reputation.
We are exposed to many types of operational risks, including the risk of misconduct and errors by our employees and other third-party service providers. Our business depends on our employees and third-party service providers to facilitate the operation of our business, and if any of our employees or third-party service providers provide unsatisfactory service or take, convert or misuse funds, documents or data or fail to follow protocol when interacting with Bank Partners, Sponsors and merchants, the number of loans originated through the GreenSky program could decline, we could be liable for damages and we could be subject to complaints, regulatory actions and penalties.
While we have internal procedures and oversight functions to protect us against this risk, we also could be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow protocol, and therefore be subject to civil or criminal liability.
Any of these occurrences could result in our diminished ability to operate our business, potential liability, inability to attract future Bank Partners, other funding sources, Sponsors, merchants and consumers, reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition and results of operations.
If the credit decisioning, pricing, loss forecasting and credit scoring models we use contain errors, do not adequately assess risk or are otherwise ineffective, our reputation and relationships with our Bank Partners, other funding sources, our merchants and consumers could be harmed.
Our ability to attract consumers to the GreenSky program, and to build trust in the consumer loan products offered through the GreenSky program, is significantly dependent on our ability to effectively evaluate a consumer’s credit profile and likelihood of default in accordance with our Bank Partners’ underwriting policies. To conduct this evaluation, we use proprietary credit decisioning, pricing, loss forecasting and credit scoring models. If any of the credit decisioning, pricing, loss forecasting and credit scoring models we use contains programming or other errors, is ineffective or the data provided by consumers or third parties is incorrect or stale, or if we are unable to obtain accurate data from consumers or third parties (such as credit reporting agencies), our loan pricing and approval
26

process could be negatively affected, resulting in mispriced or misclassified loans or incorrect approvals or denials of loans and possibly our having to repurchase the loan. This could damage our reputation and relationships with consumers, our Bank Partners, other funding sources and our merchants, which could have a material adverse effect on our business.
We depend on the accuracy and completeness of information about customers of our merchants, and any misrepresented information could adversely affect our business.
In evaluating loan applicants, we rely on information furnished to us by or on behalf of customers of our merchants, including credit, identification, employment and other relevant information. Some of the information regarding customers provided to us is used in our proprietary credit decisioning and scoring models, which we use to determine whether an application meets the applicable underwriting criteria. We rely on the accuracy and completeness of that information.
Not all customer information is independently verified. As a result, we rely on the accuracy and completeness of the information we are provided. If any of the information that is considered in the loan review process is inaccurate, whether intentional or not, and such inaccuracy is not detected prior to loan funding, the loan may have a greater risk of default than expected. Additionally, there is a risk that, following the date of the credit report that we obtain and review, a customer may have defaulted on, or become delinquent in the payment of, a pre-existing debt obligation, taken on additional debt, lost his or her job or other sources of income, or experienced other adverse financial events. Where an inaccuracy constitutes fraud or otherwise causes us to incorrectly conclude that a loan meets the applicable underwriting criteria, we generally bear the risk of loss associated with the inaccuracy. Any significant increase in inaccuracies or resulting increases in losses would adversely affect our business.
The consumer finance and payments industry is highly competitive and is likely to become more competitive, and our inability to compete successfully or maintain or improve our market share and margins could adversely affect our business.
Our success depends on our ability to generate usage of the GreenSky program. The consumer financial services industry is highly competitive and increasingly dynamic as emerging technologies continue to enter the marketplace. Technological advances and heightened e-commerce activities have increased consumers’ accessibility to products and services, which has intensified the desirability of offering loans to consumers through digital-based solutions. In addition, because many of our competitors are large financial institutions that own the loans that they originate, they have certain revenue opportunities not currently available to us. We face competition in areas such as compliance capabilities, financing terms, promotional offerings, fees, loan approval rates, speed and simplicity of loan origination, ease-of-use, marketing expertise, service levels, products and services, technological capabilities and integration, customer service, brand and reputation. Many of our competitors are substantially larger than we are, which may give those competitors advantages we do not have, such as a more diversified product and customer base, the ability to reach more customers and potential customers, operational efficiencies, more versatile technology platforms, broad-based local distribution capabilities, and lower-cost funding. Commercial banks and savings institutions also may have significantly greater access to consumers given their deposit-taking and other services.
Our existing and potential competitors may decide to modify their pricing and business models to compete more directly with our model. Any reduction in usage of the GreenSky program, or a reduction in the lifetime profitability of loans under the GreenSky program in an effort to attract or retain business, could reduce our revenues and earnings. If we are unable to compete effectively for merchant and customer usage, our business could be materially adversely affected.
Our revenue is impacted, to a significant extent, by the general economy and the financial performance of our merchants.
Our business, the consumer financial services industry and our merchants’ businesses are sensitive to macroeconomic conditions. Economic factors such as interest rates, changes in monetary and related policies, market volatility, consumer confidence and unemployment rates are among the most significant factors that impact consumer spending behavior. Weak economic conditions or a significant deterioration in economic conditions
27

reduce the amount of disposable income consumers have, which in turn reduces consumer spending and the willingness of qualified borrowers to take out loans. Such conditions are also likely to affect the ability and willingness of borrowers to pay amounts owed to our Bank Partners, each of which would have a material adverse effect on our business.
The generation of new loans through the GreenSky program, and the transaction fees and other fee income to us associated with such loans, is dependent upon sales of products and services by our merchants. Our merchants’ sales may decrease or fail to increase as a result of factors outside of their control, such as the macroeconomic conditions referenced above, or business conditions affecting a particular merchant, industry vertical or region. Weak economic conditions also could extend the length of our merchants’ sales cycle and cause customers to delay making (or not make) purchases of our merchants’ products and services. The decline of sales by our merchants for any reason will generally result in lower credit sales and, therefore, lower loan volume and associated fee income for us. This risk is particularly acute with respect to our largest merchants that account for a significant amount of our platform revenue.
In addition, if a merchant closes some or all of its locations or becomes subject to a voluntary or involuntary bankruptcy proceeding (or if there is a perception that it may become subject to a bankruptcy proceeding), GreenSky program borrowers may have less incentive to pay their outstanding balances to our Bank Partners, which could result in higher charge-off rates than anticipated. Moreover, if the financial condition of a merchant deteriorates significantly or a merchant becomes subject to a bankruptcy proceeding, we may not be able to recover amounts due to us from the merchant.
Because our business is heavily concentrated on consumer lending and payments in the U.S. home improvement industry, our results are more susceptible to fluctuations in that market than the results of a more diversified company would be.
Our business currently is heavily concentrated on consumer lending in the home improvement industry. As a result, we are more susceptible to fluctuations and risks particular to U.S. consumer credit, real estate and home improvements than a more diversified company would be as well as to factors that may drive the demand for home improvements, such as sales levels of existing homes and the aging of housing stock. We also are more susceptible to the risks of increased regulations and legal and other regulatory actions that are targeted at consumer credit, the specific consumer credit products that our Bank Partners offer (including promotional financing), real estate and home improvements. Our business concentration could have an adverse effect on our business.
As part of our elective healthcare vertical we face some factors that differ from our home improvement vertical, and the unique considerations of this industry vertical, and our failure to comply with applicable regulations, or accurately forecast demand or growth could have an adverse effect on our business.
Our elective healthcare industry vertical involves consumer financing for elective medical procedures and products. Elective healthcare providers include doctors’ and dentists’ offices, licensed providers of general dentistry, orthodontics, implant dentistry, vision correction, non-invasive cosmetic services, hair replacement, reproductive medicine, veterinary medicine and regenerative medicine. We may not achieve similar levels of success, if any, in this industry vertical, and we may face unanticipated challenges in our ability to offer our program in this industry vertical. In addition, the elective healthcare industry vertical is highly regulated, and we, our merchants and our Bank Partners are subject to significant additional regulatory requirements, including various healthcare and privacy laws. We have limited experience in managing these risks and the compliance requirements attendant to these additional regulatory requirements. See “–Risks Related to Our Regulatory Environment–The increased scrutiny of third-party medical financing by governmental agencies may lead to increased regulatory burdens and adversely affect our consolidated revenue or results of operations.” The costs of compliance and any failure by us, our merchants or our Bank Partners, as applicable, to comply with such regulatory requirements could have a material adverse effect on our business.
28

We may in the future expand into new industry verticals, and our failure to mitigate specific regulatory, credit, and other risks associated with a new industry vertical could have an adverse effect on our business.
We may in the future further expand into other industry verticals. We may not be able to successfully develop consumer financing products and services for these new industries. Our investment of resources to develop consumer financing products and services for the new industries we enter may either be insufficient or result in expenses that are excessive relative to the number of loans actually originated by our Bank Partners in those industries. Additionally, industry participants, including our merchants, their customers and our Bank Partners, may not be receptive to our solution in these new industries. The borrower profile of consumers in new verticals may not be as attractive, in terms of average FICO scores or other attributes, as in our current verticals, which may lead to higher levels of delinquencies or defaults than we have historically experienced. Industries change rapidly, and we may not be able to accurately forecast demand (or the lack thereof) for our solution or those industries may not grow. Failure to forecast demand or growth accurately in new industries could have a material adverse impact on our business.
The Amended Credit Agreement that governs our term loan and revolving loan facility contains various covenants that could limit our ability to engage in activities that may be in our best long-term interests.
We have a term loan and revolving loan facility that we may draw on to finance our operations and for other corporate purposes. The Amended Credit Agreement contains operating covenants, including customary limitations on the incurrence of certain indebtedness and liens, restrictions on certain intercompany transactions and limitations on dividends and stock repurchases. Our ability to comply with these covenants may be affected by events beyond our control, and breaches of these covenants could result in a default under the Amended Credit Agreement and any future financial agreements into which we may enter. If we default on our credit obligations, our lenders may require repayment of any outstanding debt and terminate the Amended Credit Agreement.
If any of these events occurs, our ability to fund our operations could be seriously harmed. If not waived, defaults could cause any outstanding indebtedness under our Amended Credit Agreement and any future financing agreements that we may enter into to become immediately due and payable.
For more information on our term loan and revolving loan facility, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Borrowings” and Note 7 to the Consolidated Financial Statements included in Part II, Item 8.
The Warehouse Facility contains various covenants that could limit our ability to engage in activities that may be in our best long-term interests.
Our ability to comply with the terms of the Warehouse Facility may be affected by events beyond our control. In addition, the assets of the Warehouse SPV are owned by the Warehouse SPV and are solely available to satisfy creditors of the Warehouse SPV. As such, the Warehouse SPV assets are not available to satisfy obligations of GreenSky, Inc., GS Holdings, GreenSky LLC or other subsidiaries of the Company.
For more information on the Warehouse Facility, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources–Borrowings” and Note 7 to the Consolidated Financial Statements included in Part II, Item 8.
We may incur losses on interest rate swap and hedging arrangements.
We may periodically enter into agreements to reduce the risks associated with increases in interest rates, such as our June 2019 interest rate swap agreement. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline. Also, nonperformance by the other party to the arrangement may subject us to increased credit risks. For additional information regarding our June 2019 interest rate swap agreement, see Note 3 and Note 8 to the Consolidated Financial Statements included in Part II, Item 8.
29

To the extent that we seek to grow through future acquisitions, or other strategic investments or alliances, we may not be able to do so effectively.
We may in the future seek to grow our business by exploring potential acquisitions or other strategic investments or alliances. We may not be successful in identifying businesses or opportunities that meet our acquisition or expansion criteria. In addition, even if a potential acquisition target or other strategic investment is identified, we may not be successful in completing such acquisition or integrating such new business or other investment. We may face significant competition for acquisition and other strategic investment opportunities from other well-capitalized companies, many of which have greater financial resources and greater access to debt and equity capital to secure and complete acquisitions or other strategic investments, than we do. As a result of such competition, we may be unable to acquire certain assets or businesses, or take advantage of other strategic investment opportunities that we deem attractive; the purchase price for a given strategic opportunity may be significantly elevated; or certain other terms or circumstances may be substantially more onerous. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate any such acquisition, or other strategic investment, opportunity could impede our growth.
We may not be able to manage our expanding operations effectively or continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses. Furthermore, we may be responsible for any legacy liabilities of businesses we acquire or be subject to additional liability in connection with other strategic investments. The existence or amount of these liabilities may not be known at the time of acquisition, or other strategic investment, and may have a material adverse effect on our business.
Legal and Regulatory Risks
We are subject to federal and state consumer protection laws.
In connection with our administration of the GreenSky program, we must comply with various regulatory regimes, including those applicable to consumer credit transactions, various aspects of which are untested as applied to our business model. The laws to which we are or may be subject include:
state laws and regulations that impose requirements related to loan disclosures and terms, credit discrimination, credit reporting, money transmission, debt servicing and collection and unfair or deceptive business practices;
the Truth-in-Lending Act and Regulation Z promulgated thereunder, and similar state laws, which require certain disclosures to borrowers regarding the terms and conditions of their loans and credit transactions;
Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts or practices (“UDAAP”) in connection with any consumer financial product or service;
the ECOA and Regulation B promulgated thereunder, which prohibit creditors from discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives from any public assistance program or the fact that the applicant has in good faith exercised any right under the Federal Consumer Credit Protection Act or any applicable state law;
the Fair Credit Reporting Act (the “FCRA”), as amended by the Fair and Accurate Credit Transactions Act, which promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies;
the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, as well as state debt collection laws, all of which provide guidelines and limitations concerning the conduct of third-party debt collectors in connection with the collection of consumer debts;
the Gramm-Leach-Bliley Act (the “GLBA”), which includes limitations on disclosure of nonpublic personal information by financial institutions about a consumer to nonaffiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by nonaffiliated third parties to whom they disclose such information and requires financial
30

institutions to disclose certain privacy policies and practices with respect to information sharing with affiliated and nonaffiliated entities as well as to safeguard personal customer information, and other privacy laws and regulations;
the Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection;
the Servicemembers Civil Relief Act (the “SCRA”), which allows active duty military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties;
the Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide disclosure requirements, guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts;
the Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures; and
the Bank Secrecy Act, which relates to compliance with anti-money laundering, customer due diligence and record-keeping policies and procedures.
While we have developed policies and procedures designed to assist in compliance with these laws and regulations, our compliance policies and procedures may not be effective. Failure to comply with these laws and with regulatory requirements applicable to our business could subject us to damages, revocation of licenses, class action lawsuits, administrative enforcement actions, and civil and criminal liability, which may harm our business.
Our industry is highly regulated and is undergoing regulatory transformation, which has created inherent uncertainty. Changing federal, state and local laws, as well as changing regulatory enforcement policies and priorities, may negatively impact our business.
In connection with our administration of the GreenSky program, we are subject to extensive regulation, supervision and examination under United States federal and state laws and regulations. We are required to comply with numerous federal, state and local laws and regulations that regulate, among other things, the manner in which we administer the GreenSky program, the terms of the loans that our Bank Partners originate and the fees that we may charge. A material or continued failure to comply with any of these laws or regulations could subject us to lawsuits or governmental actions and/or damage our reputation, which could materially adversely affect our business. Regulators, including the CFPB, have broad discretion with respect to the interpretation, implementation and enforcement of these laws and regulations, including through enforcement actions that could subject us to civil money penalties, customer remediations, increased compliance costs, and limits or prohibitions on our ability to offer certain products and services or to engage in certain activities. In addition, to the extent that we undertake actions requiring regulatory approval or non-objection, regulators may make their approval or non-objection subject to conditions or restrictions that could have a material adverse effect on our business. Moreover, some of our competitors are subject to different, and in some cases less restrictive, legislative and regulatory regimes, which may have the effect of providing them with a competitive advantage over us.
Additionally, federal, state and local governments and regulatory agencies have proposed or enacted numerous new laws, regulations and rules related to personal loans. Federal and state regulators also are enforcing existing laws, regulations and rules more aggressively and enhancing their supervisory expectations regarding the management of legal and regulatory compliance risks. Consumer finance regulation is constantly changing, and new laws or regulations, or new interpretations of existing laws or regulations, could have a materially adverse impact on our ability to operate as we currently intend.
These regulatory changes and uncertainties make our business planning more difficult and could result in changes to our business model and potentially adversely impact our results of operations. New laws or regulations also require us to incur significant expenses to ensure compliance. As compared to our competitors, we could be subject to more stringent state or local regulations or could incur marginally greater compliance costs as a result of regulatory changes. In addition, our failure to comply (or to ensure that our agents and third-party service providers comply) with these laws or regulations may result in costly litigation or enforcement actions, the penalties for which could
31

include: revocation of licenses; fines and other monetary penalties; civil and criminal liability; substantially reduced payments by borrowers; modification of the original terms of loans, permanent forgiveness of debt, or inability to, directly or indirectly, collect all or a part of the principal of or interest on loans; and increased purchases of receivables underlying loans originated by our Bank Partners and indemnification claims.
Proposals to change the statutes affecting financial services companies are frequently introduced in Congress and state legislatures that, if enacted, may affect our operating environment in substantial and unpredictable ways. In addition, numerous federal and state regulators have the authority to promulgate or change regulations that could have a similar effect on our operating environment. We cannot determine whether any such legislative or regulatory proposals will be enacted and, if enacted, the ultimate impact that any such potential legislation or implementing regulations, or any such potential regulatory actions by federal or state regulators, would have upon our business.
With respect to state regulation, although we seek to comply with applicable state loan, loan broker, loan originator, servicing, debt collection, money transmitter and similar statutes in all U.S. jurisdictions, and with licensing and other requirements that we believe may be applicable to us, if we are found to not have complied with applicable laws, we could lose one or more of our licenses or authorizations or face other sanctions or penalties or be required to obtain a license in one or more such jurisdictions, which may have an adverse effect on our ability to make the GreenSky program available to borrowers in particular states and, thus, adversely impact our business.
We also are subject to potential enforcement and other actions that may be brought by state attorneys general or other state enforcement authorities and other governmental agencies. Any such actions could subject us to civil money penalties and fines, customer remediations and increased compliance costs, as well as damage our reputation and brand and limit or prohibit our ability to offer certain products and services or engage in certain business practices.
New laws, regulations, policy or changes in enforcement of existing laws or regulations applicable to our business, or our reexamination of our current practices, could adversely impact our profitability, limit our ability to continue existing or pursue new business activities, require us to change certain of our business practices or alter our relationships with GreenSky program customers, affect retention of our key personnel, or expose us to additional costs (including increased compliance costs and/or customer remediation). These changes also may require us to invest significant resources, and devote significant management attention, to make any necessary changes and could adversely affect our business.
The highly regulated environment in which our Bank Partners operate could have an adverse effect on our business.
Our Bank Partners are subject to federal and state supervision and regulation. Federal regulation of the banking industry, along with tax and accounting laws, regulations, rules and standards, may limit their operations significantly and control the methods by which they conduct business. In addition, compliance with laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance requirements. For example, the Dodd-Frank Act imposes significant regulatory and compliance changes on financial institutions. Regulatory requirements affect our Bank Partners’ lending practices and investment practices, among other aspects of their businesses, and restrict transactions between us and our Bank Partners. These requirements may constrain the operations of our Bank Partners, and the adoption of new laws and changes to, or repeal of, existing laws may have a further impact on our business.
In choosing whether and how to conduct business with us, current and prospective Bank Partners can be expected to take into account the legal, regulatory and supervisory regime that applies to them, including potential changes in the application or interpretation of regulatory standards, licensing requirements or supervisory expectations. Regulators may elect to alter standards or the interpretation of the standards used to measure regulatory compliance or to determine the adequacy of liquidity, certain risk management or other operational practices for financial services companies in a manner that impacts our Bank Partners. Furthermore, the regulatory agencies have extremely broad discretion in their interpretation of the regulations and laws and their interpretation of the quality of our Bank Partners’ loan portfolios and other assets. If any regulatory agency’s assessment of the quality of our Bank Partners’ assets, operations, lending practices, investment practices or other aspects of their business changes, it
32

may materially reduce our Bank Partners’ earnings, capital ratios and share price in such a way that affects our business.
Bank holding companies and financial institutions are extensively regulated and currently face an uncertain regulatory environment. Applicable state and federal laws, regulations, interpretations, including licensing laws and regulations, enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to significant future changes. We do not know the substance or effect of pending or future legislation or regulation or the application of laws and regulations to our Bank Partners. Future changes may have a material adverse effect on our Bank Partners and, therefore, on us.
We are subject to regulatory examinations and investigations and may incur fines, penalties and increased costs that could negatively impact our business.
Federal and state agencies have broad enforcement powers over us, including powers to investigate our business practices and broad discretion to deem particular practices unfair, deceptive, abusive or otherwise not in accordance with the law. The continued focus of regulators on the consumer financial services industry has resulted, and could continue to result, in new enforcement actions that could, directly or indirectly, affect the manner in which we conduct our business and increase the costs of defending and settling any such matters, which could negatively impact our business. In some cases, regardless of fault, it may be less time-consuming or costly to settle these matters, which may require us to implement certain changes to our business practices, provide remediation to certain individuals or make a settlement payment to a given party or regulatory body. We have in the past chosen to settle certain matters in order to avoid the time and expense of contesting them. Future settlements could have a material adverse effect on our business.
In addition, the laws and regulations applicable to us are subject to administrative or judicial interpretation. Some of these laws and regulations have been enacted only recently and may not yet have been interpreted or may be interpreted infrequently. As a result of infrequent or sparse interpretations, ambiguities in these laws and regulations may create uncertainty with respect to what type of conduct is permitted or restricted under such laws and regulations. Any ambiguity under a law or regulation to which we are subject may lead to regulatory investigations, governmental enforcement actions and private causes of action, such as class action lawsuits, with respect to our compliance with such laws or regulations.
The CFPB is a relatively new agency, and there continues to be uncertainty as to how its actions will impact our business; the agency’s actions have had, and may continue to have, an adverse impact on our business.
The CFPB has broad authority over the businesses in which we engage. The CFPB is authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority and to remediate violations of numerous consumer protection laws in a variety of ways, including collecting civil money penalties and fines and providing for customer restitution. The CFPB is charged, in part, with enforcing certain federal laws involving consumer financial products and services and is empowered with examination, enforcement and rule-making authority. The CFPB has taken an active role in regulating lending markets. For example, the CFPB sends examiners to banks and other financial institutions that service and/or originate consumer loans to determine compliance with applicable federal consumer financial laws and to assess whether consumers’ interests are protected. In addition, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including those included in the GreenSky program.
There continues to be uncertainty as to how the CFPB’s strategies and priorities will impact our business and our results of operations going forward. Actions by the CFPB could result in requirements to alter or cease offering affected products and services, making them less attractive or restricting our ability to offer them. Although we have committed significant resources to enhancing our compliance programs, changes by the CFPB in regulatory expectations, interpretations or practices could increase the risk of additional enforcement actions, fines and penalties.
In March 2015, the CFPB issued a report scrutinizing pre-dispute arbitration clauses and, in May 2016, it published a proposed rule that would substantially curtail our ability to enter into voluntary pre-dispute arbitration clauses with consumers. In July 2017, the CFPB issued a final rule banning bars on class action arbitration (but not arbitration
33

generally). Pre-dispute arbitration clauses currently are contained in all of the loan agreements processed through the GreenSky program. The new rule was subsequently challenged in Congress and, on November 1, 2017, President Trump approved a resolution repealing the rule. In the future, if a similar rule were to become effective, we expect that our exposure to class action arbitration would increase significantly, which could have a material adverse effect on our business.
On October 5, 2017, the CFPB released its “Payday, Vehicle Title, and Certain High-Cost Lending Rule,” commonly referred to as the “Payday Loan Rule.” On July 7, 2020, the CFPB released a new final rule that revoked the underwriting provisions of the Payday Loan Rule but retained and ratified the payment provisions. The Community Financial Services Association of America sued the CFPB in April 2018 over the Payday Loan Rule. The compliance date of the Payday Loan Rule has been stayed in connection with this litigation. Most recently, the U.S. Court of Appeals for the Fifth Circuit stayed the compliance date in October 2021. While the Payday Loan Rule does not appear to be targeted at businesses like ours, some of its provisions are broad and potentially could be triggered by the promotional loans that our Bank Partners extend that require increases in payments at specified points in time. We are continuing to monitor developments associated with the Payday Loan Rule and are working toward compliance with the Payday Loan Rule requirements ahead of the ultimate compliance date.
Future actions by the CFPB (or other regulators) against us or our competitors that discourage the use of our or their services could result in reputational harm and adversely affect our business. If the CFPB changes regulations that were adopted in the past by other regulators and transferred to the CFPB by the Dodd-Frank Act, or modifies through supervision or enforcement past regulatory guidance or interprets existing regulations in a different or stricter manner than they have been interpreted in the past by us, the industry or other regulators, our compliance costs and litigation exposure could increase materially. If future regulatory or legislative restrictions or prohibitions are imposed that affect our ability to offer promotional financing for certain of our products or that require us to make significant changes to our business practices, and if we are unable to develop compliant alternatives with acceptable returns, these restrictions or prohibitions could have a material adverse effect on our business.
The Dodd-Frank Act generally permits state officials to enforce regulations issued by the CFPB and to enforce its general prohibition against unfair, deceptive or abusive practices. This could make it more difficult than in the past for federal financial regulators to declare state laws that differ from federal standards to be preempted. To the extent that states enact requirements that differ from federal standards or state officials and courts adopt interpretations of federal consumer laws that differ from those adopted by the CFPB, we may be required to alter or cease offering products or services in some jurisdictions, which would increase compliance costs and reduce our ability to offer the same products and services to consumers nationwide, and we may be subject to a higher risk of state enforcement actions.
The contours of the Dodd-Frank UDAAP standard are still uncertain and there is a risk that certain features of the GreenSky program loans could be deemed to violate the UDAAP standard.
The Dodd-Frank Act prohibits unfair, deceptive or abusive acts or practices and authorizes the CFPB to enforce that prohibition. The CFPB has filed a large number of UDAAP enforcement actions against consumer lenders for practices that do not appear to violate other consumer finance statutes. There is a risk that the CFPB could determine that certain features of the GreenSky program loans are unfair, deceptive or abusive. The CFPB has filed actions alleging that deferred interest programs can be unfair, deceptive or abusive if lenders do not adequately disclose the terms of the deferred interest loans.
Our vendor relationships subject us to a variety of risks, and the failure of third parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business.
We have significant vendors that, among other things, provide us with financial, technology and other services to support our loan servicing and other activities, including, for example, credit ratings and reporting, cloud-based data storage and other IT solutions, and payment processing. The CFPB has issued guidance stating that institutions under its supervision may be held responsible for the actions of the companies with which they contract. Accordingly, we could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered.
34

In some cases, third-party vendors are the sole source, or one of a limited number of sources, of the services they provide to us. Most of our vendor agreements are terminable on little or no notice, and if our current vendors were to stop providing services to us on acceptable terms, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms (or at all). If any third-party vendor fails to provide the services we require, fails to meet contractual requirements (including compliance with applicable laws and regulations), fails to maintain adequate data privacy and electronic security systems, or suffers a cyber-attack or other security breach, we could be subject to CFPB, FTC and other regulatory enforcement actions and suffer economic and reputational harm that could have a material adverse effect on our business. Further, we may incur significant costs to resolve any such disruptions in service, which could adversely affect our business.
Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses.
Our business is subject to increased risks of litigation and regulatory actions as a result of a number of factors and from various sources, including as a result of the highly regulated nature of the financial services industry and the focus of state and federal enforcement agencies on the financial services industry.
In the ordinary course of business, we have been named as a defendant in various legal actions, including arbitrations, class actions and other litigation. Generally, this litigation arises from the dissatisfaction of a consumer with the products or services of a merchant; some of this litigation, however, has arisen from other matters, including claims of discrimination, credit reporting and collection practices. Certain of those actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. From time to time, we also are involved in, or the subject of, reviews, requests for information, investigations and proceedings (both formal and informal) by state and federal governmental agencies, including banking regulators and the CFPB, regarding our business activities and our qualifications to conduct our business in certain jurisdictions, which could subject us to significant fines, penalties, obligations to change our business practices and other requirements resulting in increased expenses and diminished earnings. Our involvement in any such matter also could cause significant harm to our reputation and divert management attention from the operation of our business, even if the matters are ultimately determined in our favor. We have in the past chosen to settle (and may in the future choose to settle) certain matters in order to avoid the time and expense of contesting them. Although none of the settlements has been material to our business, in the future, such settlements could have a material adverse effect on our business. Moreover, any settlement, or any consent order or adverse judgment in connection with any formal or informal proceeding or investigation by a government agency, may prompt litigation or additional investigations or proceedings as other litigants or other government agencies begin independent reviews of the same activities.
In addition, a number of participants in the consumer finance industry have been the subject of putative class action lawsuits; state attorney general actions and other state regulatory actions; federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive or abusive acts or practices; violations of state licensing and lending laws, including state usury laws; actions alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases; and allegations of noncompliance with various state and federal laws and regulations relating to originating and servicing consumer finance loans. The current regulatory environment, increased regulatory compliance efforts and enhanced regulatory enforcement have resulted in significant operational and compliance costs and may prevent us from providing certain products and services. These regulatory matters or other factors could, in the future, affect how we conduct our business and, in turn, have a material adverse effect on our business. In particular, legal proceedings brought under state consumer protection statutes or under several of the various federal consumer financial services statutes subject to the jurisdiction of the CFPB may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities.
We contest our liability and the amount of damages, as appropriate, in each pending matter. The outcome of pending and future matters could be material to our results of operations, financial condition and cash flows, and could materially adversely affect our business.
In addition, from time to time, through our operational and compliance controls, we identify compliance issues that require us to make operational changes and, depending on the nature of the issue, result in financial remediation to
35

impacted customers. These self-identified issues and voluntary remediation payments could be significant, depending on the issue and the number of customers impacted, and also could generate litigation or regulatory investigations that subject us to additional risk. See “–Risks Related to Our Regulatory Environment.”
Regulatory agencies and consumer advocacy groups are becoming more aggressive in asserting “disparate impact” claims.
Antidiscrimination statutes, such as the Equal Credit Opportunity Act (the “ECOA”), prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin. Various federal regulatory agencies and departments, including the U.S. Department of Justice (“DOJ”) and CFPB, take the position that these laws prohibit not only intentional discrimination, but also neutral practices that have a “disparate impact” on a group and that are not justified by a business necessity.
These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate impact” claims. To the extent that the “disparate impact” theory continues to apply, we may face significant administrative burdens in attempting to identify and eliminate neutral practices that do have “disparate impact.” The ability to identify and eliminate neutral practices that have “disparate impact” is complicated by the fact that often it is our merchants, over which we have limited control, that implement our practices. In addition, we face the risk that one or more of the variables included in the GreenSky program’s loan decisioning model may be invalidated under the disparate impact test, which would require us to revise the loan decisioning model in a manner that might generate lower approval rates or higher credit losses.
In addition to reputational harm, violations of the ECOA can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.
Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention.
We regularly use third-party vendors and subcontractors as part of our business. We also depend on our substantial ongoing business relationships with our Bank Partners, merchants and other third parties. These types of third-party relationships, particularly with our Bank Partners and other funding sources, are subject to increasingly demanding regulatory requirements and oversight by federal bank regulators (such as the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation) and the CFPB. The CFPB has enforcement authority with respect to the conduct of third parties that provide services to financial institutions. The CFPB has made it clear that it expects non-bank entities to maintain an effective process for managing risks associated with third-party vendor relationships, including compliance-related risks. In connection with this vendor risk management process, we are expected to perform due diligence reviews of potential vendors, review their policies and procedures and internal training materials to confirm compliance-related focus, include enforceable consequences in contracts with vendors regarding failure to comply with consumer protection requirements, and take prompt action, including terminating the relationship, in the event that vendors fail to meet our expectations.
In certain cases, we may be required to renegotiate our agreements with our vendors and/or our subcontractors to meet these enhanced requirements, which could increase the costs of operating our business. It is expected that regulators will hold us responsible for deficiencies in our oversight and control of third-party relationships and in the performance of the parties with which we have these relationships. As a result, if our regulators conclude that we have not exercised adequate oversight and control over third-party vendors and subcontractors or other ongoing third-party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines, as well as requirements for customer remediation.
We are subject to numerous laws and regulations related to privacy, data protection and information security. Our actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities, marketing, market research or advertising practices.
Subject to compliance with federal and state laws governing such collections, one of our subsidiary entities collects personally identifiable information and other data about consumers and prospective consumers who are also
36

applying to participate in the GreenSky program. That subsidiary uses this information to provide services to the consumers; to support, expand and improve our business; and, subject to each consumer’s or prospective consumer’s right to decline or opt out, to market products and services to them. That subsidiary also may share consumers’ personally identifiable information with certain third parties as authorized by the consumers or as described in that subsidiary's privacy policy.
The U.S. federal and various state governments have adopted or proposed law, guidelines or rules for the collection, distribution and storage of information collected from or about consumers. The FTC and various U.S. state and local governments and agencies regularly use their authority under laws prohibiting unfair or deceptive marketing and trade practices to investigate and penalize companies for practices related to the collection, use, handling, disclosure, dissemination and security of personal data of consumers. Such laws and regulations apply broadly to the collection, use, storage, export, disclosure and security of personal information that identifies or may be used to identify an individual, such as names, contact information and, in some jurisdictions, certain unique identifiers. Furthermore, such laws and regulations are subject to frequent revisions and differing interpretations and generally have become more stringent over time.
In connection with our administration of the GreenSky program, we are subject to the GLBA and implementing regulations and guidance. Among other things, the GLBA (i) imposes certain limitations on financial institutions' ability to share their consumers’ nonpublic personal information with nonaffiliated third parties and (ii) requires certain disclosures to consumers about the institutions' information collection, sharing and security practices and the consumers' right to “opt out” of the institution’s disclosure of personal financial information to nonaffiliated third parties (with certain exceptions).
The California Consumer Privacy Act (the “CCPA”) became effective on January 1, 2020. The CCPA requires, among other things, covered companies to provide new disclosures to California consumers and afford such consumers with expanded protections and control over the collection, maintenance, use and sharing of personal information. The CCPA continues to be subject to new regulations and legislative amendments. Although we have implemented a compliance program designed to address obligations under the CCPA, it remains unclear what future modifications will be made or how the CCPA will be interpreted in the future. The CCPA provides for civil penalties for violations and a private right of action for data breaches.
In addition, the California Privacy Rights Act of 2020 (the "CPRA") ballot initiative was approved by California voters on November 3, 2020. The CPRA established the California Privacy Protection Agency to implement and enforce the CCPA and CPRA. We anticipate that the CPRA and certain regulations promulgated by the California Privacy Protection Agency will apply to our business and we will work to ensure our compliance with such laws and regulations by their effective dates.
These laws and regulations could have a significant impact on our current and planned privacy, data protection and information security-related practices; our current and planned collection, use, sharing, retention and safeguarding of consumer and/or employee information; and some of our current or planned business activities. Compliance with current or future privacy, data protection and information security laws (including those regarding security breach notification) affecting consumer and/or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services (such as products or services that involve us sharing information with third parties or storing sensitive credit card information), which could materially and adversely affect our profitability. Privacy requirements, including notice and opt out requirements, under the GLBA and FCRA are enforced by the FTC and by the CFPB through UDAAP and are a standard component of CFPB examinations.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory investigations and government actions; litigation; fines or sanctions; consumer, Bank Partner or merchant actions and damage to our reputation and brand; all of which could have a material adverse effect on our business. If any third parties with whom we work, such as marketing partners and vendors, violate applicable laws or our policies, such violations may put our consumers’ information at risk and could harm our business.
37

Future non-compliance with Payment Card Industry Data Security Standards (“PCI DSS”) may subject us to fines, penalties and civil liability and may result in the loss of our ability to settle on credit card networks.
We settle and fund transactions on a national credit card network and, thus, are subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, including PCI DSS, a security standard applicable to companies that collect, store or transmit certain data regarding credit and debit cards, holders and transactions.
Although we are currently in compliance with PCI DSS, we may not remain in compliance with such standards in the future. Any failure to comply fully or materially with PCI DSS at any point in the future (i) may violate payment card association operating rules, federal and state laws and regulations, and the terms of certain of our contracts with third parties, (ii) may subject us to fines, penalties, damages and civil liability, and (iii) may result in the loss of our ability to accept credit card payments. Even if we remain in compliance with PCI DSS, we still may not be able to prevent security breaches involving customer transaction data. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the processes that we use to protect customer data. If any such compromise or breach were to occur, it could have a material adverse effect on our business.
The increased scrutiny of third-party medical financing by governmental agencies may lead to increased regulatory burdens and may adversely affect our business.
We operate in the elective healthcare industry vertical, which includes consumer financing for elective medical procedures. Recently, regulators have increased scrutiny of third-party providers of financing for medical procedures that are generally not covered by health insurance. In addition, the CFPB and attorneys general in New York and Minnesota have conducted investigations of alleged abusive lending practices or exploitation regarding third-party medical financing services.
If, in the future, any of our practices in this space were found to be deficient, it could result in fines, penalties or increased regulatory burdens. Additionally, any regulatory inquiry could damage our reputation and limit our ability to conduct operations, which could adversely affect our business. Moreover, the adoption of any law, rule or regulation affecting the industry may also increase our administrative costs, require us to modify our practices to comply with applicable regulations or reduce our ability to participate competitively, which could have a material adverse effect on our business.
In recent years, federal regulators and the United States DOJ have increased their focus on enforcing the SCRA against servicers. Similarly, state legislatures have taken steps to strengthen their own state-specific versions of the SCRA.
The DOJ and federal regulators have entered into significant settlements with a number of loan servicers alleging violations of the SCRA. Some of the settlements have alleged that the servicers did not correctly apply the SCRA’s 6% interest rate cap, while other settlements have alleged, without limitation, that servicers did not comply with the SCRA’s default judgment protections when seeking to collect payment of a debt. Recent settlements indicate that the DOJ and federal regulators broadly interpret the scope of the substantive protections under the SCRA and are moving aggressively to identify instances in which loan servicers have not complied with the SCRA. Recent SCRA-related settlements continue to make this a significant area of scrutiny for both regulatory examinations and public enforcement actions.
In addition, most state legislatures have their own versions of the SCRA. In most instances, these laws extend some or all of the substantive benefits of the federal SCRA to members of the state National Guard who are in state service, but certain states also provide greater substantive protections to National Guard members or individuals who are in federal military service. In recent years, certain states have revised their laws to increase the potential benefits to individuals, and these changes pose additional compliance burdens on our Bank Partners and us as we seek to comply with both the federal and relevant state versions of the SCRA.
Our efforts and those of our Bank Partners to comply with the SCRA may not be effective, and our failure to comply could subject us to liability, damages and reputational harm, all of which could have an adverse effect on our business.
38

Anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.
We maintain an enterprise-wide program designed to enable us to comply with all applicable anti-money laundering and anti-terrorism financing laws and regulations, including the Bank Secrecy Act and the Patriot Act. This program includes policies, procedures, processes and other internal controls designed to identify, monitor, manage and mitigate the risk of money laundering and terrorist financing. These controls include procedures and processes to detect and report suspicious transactions, perform customer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. Our programs and controls may not be effective to ensure compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations, and our failure to comply with these laws and regulations could subject us to significant sanctions, fines, penalties and reputational harm, all of which could have a material adverse effect on our business.
We may be unable to sufficiently protect our proprietary rights and may encounter disputes from time to time relating to our use of the intellectual property of third parties.
We rely on a combination of trademarks, service marks, copyrights, trade secrets, domain names and agreements with employees and third parties to protect our proprietary rights. On July 28, 2020, the United States Patent and Trademark Office issued the Company’s first U.S. patent. Originally filed in 2014, the patent relates to our mobile application process and credit decisioning model. In 2020, we submitted additional patent applications related to our mobile application process and credit decisioning model, one of which was issued in November 2020, and we submitted a patent application related to our Universal Credit Application platform that allows participating merchants to seamlessly make available second look financing to their customers. We also have trademark and service mark registrations and pending applications for additional registrations in the United States. Further, we own the domain name rights for greensky.com, as well as other words and phrases important to our business. Nonetheless, third parties may challenge, invalidate or circumvent our intellectual property, and our intellectual property may not be sufficient to provide us with a competitive advantage.
Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our technology and processes. Our competitors and other third parties independently may design around or develop similar technology or otherwise duplicate our services or products such that we could not assert our intellectual property rights against them. In addition, our contractual arrangements may not effectively prevent disclosure of our intellectual property and confidential and proprietary information or provide an adequate remedy in the event of an unauthorized disclosure. Measures in place may not prevent misappropriation or infringement of our intellectual property or proprietary information and the resulting loss of competitive advantage, and we may be required to litigate to protect our intellectual property and proprietary information from misappropriation or infringement by others, which is expensive, could cause a diversion of resources and may not be successful.
We also may encounter disputes from time to time concerning intellectual property rights of others, and we may not prevail in these disputes. Third parties may raise claims against us alleging that we, or consultants or other third parties retained or indemnified by us, infringe on their intellectual property rights. Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid all alleged violations of such intellectual property rights. Given the complex, rapidly changing and competitive technological and business environment in which we operate, and the potential risks and uncertainties of intellectual property-related litigation, an assertion of an infringement claim against us may cause us to spend significant amounts to defend the claim, even if we ultimately prevail, pay significant money damages, lose significant revenues, be prohibited from using the relevant systems, processes, technologies or other intellectual property (temporarily or permanently), cease offering certain products or services, or incur significant license, royalty or technology development expenses.
Moreover, it has become common in recent years for individuals and groups to purchase intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies such as ours. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion
39

of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations. In other cases, our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant.
If we were found to be operating without having obtained necessary state or local licenses, it could adversely affect our business.
Certain states have adopted laws regulating and requiring licensing by parties that engage in certain activity regarding consumer finance transactions, including facilitating and assisting such transactions in certain circumstances. Furthermore, certain states and localities have also adopted laws requiring licensing for consumer debt collection or servicing. While we believe we have obtained all necessary licenses, the application of some consumer finance licensing laws to the GreenSky program is unclear. If we were found to be in violation of applicable state licensing requirements by a court or a state, federal, or local enforcement agency, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), criminal penalties and other penalties or consequences, and the loans originated through the GreenSky program could be rendered void or unenforceable in whole or in part, any of which could have a material adverse effect on our business.
If loans originated through the GreenSky program are found to violate applicable state usury laws or other lending laws, it could adversely affect our business.
Because the loans originated through the GreenSky program are originated and held by our Bank Partners, under principles of federal preemption the terms and conditions of the loans are subject only to the usury limitation in the state where the Bank Partner is based and are not subject to most other state consumer finance laws, including state licensing requirements. If a court, or a state or federal enforcement agency, were to deem GreenSky - rather than our Bank Partners - the “true lender” for any of the loans, and if for this reason (or any other reason) those loans were deemed subject to and in violation of state consumer finance laws, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), and other penalties or consequences, and the loans could be rendered void or unenforceable in whole or in part, any of which could have a material adverse effect on our business.
In addition, certain litigation has challenged the ability of loan assignees to rely on the preemption that applied to the original lender. In some instances, we facilitate the sale of loan participations issued by a Bank Partner to institutional investors, financial institutions and other funding sources. In a participation structure, the Bank Partner retains title to the loans and the loans are not assigned to a third party. However, if a court, or a state or federal enforcement agency, were to successfully challenge the participation structure and recharacterize us or the purchaser of a participation as the “true lender” or as a loan assignee, and if for this reason (or any other reason) the loans were deemed subject to and in violation of certain consumer finance laws, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), and other penalties or consequences, the loans could be rendered void or unenforceable in whole or in part, and we could be subject to claims for damages or other remedies related to breaches of certain representation and warranties we make to purchasers of participations or to obligations to repurchase loan participations previously sold to purchasers, any of which could have a material adverse effect on our business.
FDIC receivership or conservatorship of the Bank Partner that issues loan participations could adversely affect our business.
Loan participations that we purchase or sell are issued by one of our Bank Partners, all of which are subject to regulation and supervision by the Federal Deposit Insurance Corporation (the “FDIC”). If that Bank Partner becomes insolvent, is in an unsound condition or engages in violations of certain laws or regulations applicable to it, the FDIC could be appointed as conservator or receiver for the Bank Partner. Under the Federal Deposit Insurance Act, the FDIC, as conservator or receiver of the Bank Partner, is authorized to repudiate any “contract” of the Bank Partner if the FDIC determines that the performance of the contract is burdensome and the repudiation would promote the orderly administration of the Bank Partner’s affairs. Upon such repudiation, the FDIC would be required to pay actual direct compensatory damages. The loan participations we purchase or sell are structured with
40

the intent that they are entitled to the participation safe harbor set forth in the FDIC rule regarding “Treatment by the Federal Deposit Insurance Corporation as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation” (the “FDIC Safe Harbor”). Consequently, the loan participations we purchase or sell should not be subject to the rights and powers of the FDIC. However, if the loan participations were found not to satisfy the FDIC Safe Harbor, the FDIC would be permitted to repudiate the transfer of the applicable loan participations. If the FDIC successfully repudiated any loan participation transfers, we could be subject to claims for damages or other remedies related to breaches of certain representations and warranties we make to purchasers of participations or obligations to repurchase loan participations previously sold to purchasers, any of which could have a material adverse effect on our business.
Information Technology and Security Risks
Cyber-attacks and other security breaches could have an adverse effect on our business.
In the normal course of our business, we collect, process and retain sensitive and confidential information regarding our Bank Partners, our merchants and consumers. We also have arrangements in place with certain of our third-party service providers that require us to share consumer information. Although we devote significant resources and management focus to ensuring the integrity of our systems through information security and business continuity programs, our facilities and systems, and those of our Bank Partners, merchants and third-party service providers, are vulnerable to external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, and other similar events. We, our Bank Partners, our merchants and our third-party service providers have experienced all of these events in the past and expect to continue to experience them in the future. We also face security threats from malicious third parties that could obtain unauthorized access to our systems and networks, which threats we anticipate will continue to grow in scope and complexity over time. These events could interrupt our business or operations, result in significant legal and financial exposure, supervisory liability, damage to our reputation and a loss of confidence in the security of our systems, products and services. Although the impact to date from these events has not had a material adverse effect on us, this may not be the case in the future.
Information security risks in the financial services industry have increased recently, in part because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized criminals, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks and other security breaches involving the theft of sensitive and confidential information, hackers recently have engaged in attacks that are designed to disrupt key business services, such as consumer-facing websites. We may not be able to anticipate or implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. We employ detection and response mechanisms designed to contain and mitigate security incidents. Nonetheless, early detection efforts may be thwarted by sophisticated attacks and malware designed to avoid detection. We also may fail to detect the existence of a security breach related to the information of our Bank Partners, merchants and consumers that we retain as part of our business and may be unable to prevent unauthorized access to that information.
We also face risks related to cyber-attacks and other security breaches that typically involve the transmission of sensitive information regarding borrowers through various third parties, including our Bank Partners, our merchants and data processors. Some of these parties have in the past been the target of security breaches and cyber-attacks. Because we do not control these third parties or oversee the security of their systems, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. While we regularly conduct security assessments of significant third-party service providers, our third-party information security protocols may not be sufficient to withstand a cyber-attack or other security breach.
The access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding GreenSky program customers or our own proprietary information, software, methodologies and business secrets could interrupt our business or operations, result in significant legal and financial exposure, supervisory liability, damage to our reputation or a loss of confidence in the security of our systems, products and services, all of which
41

could have a material adverse impact on our business. In addition, there recently have been a number of well-publicized attacks or breaches affecting companies in the financial services industry that have heightened concern by consumers, which could also intensify regulatory focus, cause users to lose trust in the security of the industry in general and result in reduced use of our services and increased costs, all of which could also have a material adverse effect on our business.
Furthermore, in light of the COVID-19 pandemic, many of our personnel continue to work remotely. This working environment could increase our cyber-security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. We continue to implement physical and cyber-security measures to ensure that our systems remain functional in order to serve our operational needs and prevent disruptions to our business.
Disruptions in the operation of our computer systems and third-party data centers could have an adverse effect on our business.
Our ability to deliver products and services to our Bank Partners, other funding sources and merchants, service loans originated by our Bank Partners and otherwise operate our business and comply with applicable laws depends on the efficient and uninterrupted operation of our computer systems and third-party data centers, as well as those of our Bank Partners, merchants and third-party service providers.
These computer systems and third-party data centers may encounter service interruptions at any time due to system or software failure, natural disasters, severe weather conditions, health pandemics, terrorist attacks, cyber-attacks or other events. Any of such catastrophes could have a negative effect on our business and technology infrastructure (including our computer network systems), on our Bank Partners, other funding sources and merchants and on consumers. Catastrophic events also could prevent or make it more difficult for customers to travel to our merchants’ locations to shop, thereby negatively impacting consumer spending in the affected regions (or in severe cases, nationally), and could interrupt or disable local or national communications networks, including the payment systems network, which could prevent customers from making purchases or payments (temporarily or over an extended period). These events also could impair the ability of third parties to provide critical services to us. All of these adverse effects of catastrophic events could result in a decrease in the use of our solution and payments to us, which could have a material adverse effect on our business.
In addition, the implementation of technology changes and upgrades to maintain current and integrate new systems may cause service interruptions, transaction processing errors or system conversion delays and may cause us to fail to comply with applicable laws, all of which could have a material adverse effect on our business. We expect that new technologies and business processes applicable to the consumer financial services industry will continue to emerge and that these new technologies and business processes may be better than those we currently use. We may not be able to successfully adopt new technology as critical systems and applications become obsolete and better ones become available. A failure to maintain and/or improve current technology and business processes could cause disruptions in our operations or cause our solution to be less competitive, all of which could have a material adverse effect on our business.
Some aspects of our platform include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Aspects of our platform include software covered by open source licenses. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our platform. If portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and loan products. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business.
42

Legal Organization and Capital Structure Risks
We are a holding company with no operations of our own and, as such, depend on our subsidiaries for cash to fund all of our operations and expenses, including future dividend payments, if any.
We are a holding company and have no material assets other than our deferred tax assets and our equity interest in GS Holdings, which has the sole equity interest in GSLLC. We have no independent means of generating revenue or cash flow. We determined that GS Holdings is a variable interest entity ("VIE") and that we are the primary beneficiary of GS Holdings. Accordingly, pursuant to the VIE accounting model, we began consolidating GS Holdings in our consolidated financial statements following the IPO closing. In the event of a change in accounting guidance or amendments to the operating agreement of GS Holdings resulting in us no longer having a controlling interest in GS Holdings, we may not be able to continue consolidating its results of operations with our own, which would have a material adverse effect on our results of operations.
GS Holdings is treated as a partnership for United States federal income tax purposes, and GSLLC is treated as an entity disregarded as separate from GS Holdings for United States federal income tax purposes. As a result, neither GS Holdings nor GSLLC is subject to United States federal income tax. Instead, taxable income is allocated to the members of GS Holdings, including us. Accordingly, we incur income taxes on our proportionate share of any net taxable income of consolidated GS Holdings. We intend to cause GSLLC to make distributions to GS Holdings and to cause GS Holdings to make distributions to its unit holders in an amount sufficient to cover all applicable taxes payable by such unit holders determined according to assumed rates, payments owing under the tax receivable agreement ("TRA") and dividends, if any, declared by us. The ability of GSLLC to make distributions to GS Holdings, and of GS Holdings to make distributions to us, is limited by their obligations to satisfy their own obligations to their creditors. Further, future and current financing arrangements of GSLLC and GS Holdings contain, and future obligations could contain, negative covenants limiting such distributions. Additionally, our right to receive assets upon the liquidation or reorganization of GS Holdings, or indirectly from GSLLC, will be effectively subordinated to the claims of each entity’s creditors. To the extent that we are recognized as a creditor of GS Holdings or GSLLC, our claims may still be subordinate to any security interest in, or other lien on, its assets and to any of its debt or other obligations that are senior to our claims.
To the extent that we need funds and GSLLC or GS Holdings are restricted from making such distributions under applicable law or regulation, or are otherwise unable to provide such funds, it could materially and adversely affect our liquidity and financial condition. In addition, because tax distributions are based on an assumed tax rate, GS Holdings may be required to make tax distributions that, in the aggregate, may exceed the amount of taxes that GS Holdings would have paid if it were itself taxed on its net income (loss) at the assumed rate.
Funds used by GS Holdings to satisfy its tax distribution obligations will not be available for reinvestment in our business. Moreover, the tax distributions that GS Holdings will be required to make may be substantial and may exceed (as a percentage of GS Holdings’ income) the overall effective tax rate applicable to a similarly situated corporate taxpayer.
We may be required to pay additional taxes as a result of an IRS audit of GS Holdings.
For tax years beginning on or after January 1, 2018, GS Holdings is subject to U.S. federal income tax partnership audit rules enacted as part of the Bipartisan Budget Act of 2015 (the “Partnership Audit Regime”). Under the Partnership Audit Regime, subject to certain exceptions, audit adjustments to items of income, gain, loss, deduction, or credit of an entity (and any member’s share thereof) are determined, and taxes, interest, and penalties attributable thereto, are assessed and collected, at the entity level. It is possible that the Partnership Audit Regime could result in GS Holdings being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a member of GS Holdings, could be required to indirectly bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional corporate-level taxes as a result of the related audit adjustment.
43

The owners of the Class B common stock, who also are the Continuing LLC Members, control us and their interests may conflict with yours in the future.
The owners of the Class B common stock, who also are the Continuing LLC Members, control us. Each share of our Class B common stock currently entitles its holders to ten votes on all matters presented to our stockholders generally. Once the collective holdings of those owners in the aggregate are less than 15% of the combined economic interest in us, each share of Class B common stock will entitle its holder to one vote per share on all matters to be voted upon by our stockholders.
The owners of the Class B common stock owned the vast majority of the combined voting power of our Class A and Class B common stock as of December 31, 2021. Accordingly, those owners, if voting in the same manner, will be able to control the election and removal of our directors and thereby determine our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our certificate of incorporation and bylaws and other significant corporate transactions for so long as they retain significant ownership of us. This concentration of ownership may delay or deter possible changes in control of our Company, which may reduce the value of an investment in our Class A common stock. So long as they continue to own a significant amount of our combined voting power, even if such amount is less than 50%, they will continue to be able to strongly influence or effectively control our decisions.
In addition, the owners of the Class B common stock, as Continuing LLC Members, had ownership of Holdco Units of approximately 57% for the year ended December 31, 2021. Because they hold the majority of their economic ownership interest in our business through GS Holdings, rather than GreenSky, Inc., these existing unit holders may have conflicting interests with holders of our Class A common stock. For example, the Continuing LLC Members may have different tax positions from us, which could influence their decisions regarding whether and when to dispose of assets and whether and when to incur new or refinance existing indebtedness, especially in light of the existence of the TRA. In addition, the structuring of future transactions may take into account the tax considerations of the Continuing LLC Members even where no similar benefit would accrue to us. It is through their ownership of Class B common stock that they may be able to influence, if not control, decisions such as these.
We will be required to pay for certain tax benefits we may claim arising in connection with the merger of the Former Corporate Investors, our purchase of Holdco Units and future exchanges of Holdco Units under the Exchange Agreement, which payments could be substantial.
On the date of our IPO, we were treated for United States federal income tax purposes as having directly purchased Holdco Units from the Exchanging Members. In the future, the Continuing LLC Members will be able to exchange their Holdco Units (with automatic cancellation of an equal number of shares of Class B common stock) for shares of Class A common stock on a one-for-one basis, subject to adjustments for certain subdivisions (stock splits), combinations, or purchases of Class A common stock or Holdco Units, or for cash (based on the market price of the shares of Class A common stock), at our option (such determination to be made by the disinterested members of our board of directors). As a result of these transactions, and our acquisition of the equity of certain of the Former Corporate Investors, we are and will become entitled to certain tax basis adjustments with respect to GS Holdings’ tax basis in its assets. As a result, the amount of income tax that we would otherwise be required to pay in the future may be reduced by the increase (for income tax purposes) in depreciation and amortization deductions attributable to our interests in GS Holdings. An increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain assets to the extent tax basis is allocated to those assets. The IRS, however, may challenge all or part of that tax basis adjustment, and a court could sustain such a challenge.
We entered into the TRA with the TRA Parties that will provide for the payment by us of 85% of the amount of cash savings, if any, in United States federal, state and local income tax that we realize or are deemed to realize, as a result of (i) the tax basis adjustments referred to above, (ii) any incremental tax basis adjustments attributable to payments made pursuant to the TRA, and (iii) any deemed interest deductions arising from payments made by us pursuant to the TRA. While the actual amount of the adjusted tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the basis of our proportionate share of GS Holdings’ assets on the dates of exchanges, the timing of exchanges, the price of shares of our Class A common stock at the time of each exchange, the extent to which such exchanges are taxable, the deductions and
44

other adjustments to taxable income to which GS Holdings is entitled, and the amount and timing of our income, we expect that during the anticipated term of the TRA, the payments that we may make could be substantial. Payments under the TRA may give rise to additional tax benefits and, therefore, to additional potential payments under the TRA. In addition, the TRA provides for interest accrued from the due date (without extensions) of the corresponding tax return for the taxable year with respect to which the payment obligation arises to the date of payment under the TRA.
Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that the tax savings associated with the purchase of Holdco Units in connection with the IPO and future exchanges of Holdco Units (assuming such future exchanges occurred at December 31, 2021 and assuming automatic cancellation of an equal number of shares of Class B common stock) would aggregate to approximately $728.5 million based on the closing price on December 31, 2021 of $11.43 per share of our Class A common stock. Under such scenario, assuming future payments are made on the date each relevant tax return is due, without extensions, we would be required to pay approximately 84% of such amount, or $614.5 million.
There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject to the TRA and/or (ii) distributions to us by GS Holdings are not sufficient to permit us to make payments under the TRA after paying our other obligations. For example, were the IRS to challenge a tax basis adjustment or other deductions or adjustments to taxable income of GS Holdings, we will not be reimbursed for any payments that may previously have been made under the TRA, except that excess payments will be netted against payments otherwise to be made, if any, after our determination of such excess. As a result, in certain circumstances we could make payments under the TRA in excess of our ultimate cash tax savings. In addition, the payments under the TRA are not conditioned upon any recipient’s continued ownership of interests in us or GS Holdings, and the right to receive payments can be assigned.
For additional information regarding the TRA, see Note 13 to the Consolidated Financial Statements included in Part II, Item 8.
In certain circumstances, including certain changes of control of our Company, payments by us under the TRA may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRA.
The TRA provides that (i) in the event that we materially breach any of our material obligations under the TRA, whether as a result of failure to make any payment, failure to honor any other material obligation required thereunder or by operation of law as a result of the rejection of the TRA in a bankruptcy or otherwise, (ii) if, at any time, we elect an early termination of the TRA, or (iii) upon certain changes of control of our Company, our (or our successor’s) obligations under the TRA (with respect to all Holdco Units, whether or not such units have been exchanged or acquired before or after such transaction) would accelerate and become payable in a lump sum amount equal to the present value of the anticipated future tax benefits calculated based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions, tax basis and other benefits subject to the TRA.
As a result of the foregoing, if we breach a material obligation under the TRA, if we elect to terminate the TRA early or if we undergo a change of control, we would be required to make an immediate lump-sum payment equal to the present value of the anticipated future tax savings, which payment may be required to be made significantly in advance of the actual realization of such future tax savings, and the actual cash tax savings ultimately realized may be significantly less than the corresponding TRA payments. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity. We may not be able to fund or finance our obligations under the TRA. Additionally, the obligation to make a lump sum payment on a change of control may deter potential acquirers, which could negatively affect our stockholders’ potential returns. If we had elected to terminate the TRA as of December 31, 2021, based on the closing price on December 31, 2021 of $11.43 per share of our Class A common stock, and a discount rate equal to 4.89% per annum, compounded annually, we estimate that we would have been required to pay $426.4 million in the aggregate under the TRA.
45

For additional information regarding the TRA, see Note 13 to the Consolidated Financial Statements included in Part II, Item 8.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), as a result of our ownership of GS Holdings and GSLLC, applicable restrictions could make it impractical for us to continue our business as currently contemplated and could have an adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.
Because GreenSky, Inc. is the managing member of GS Holdings, and GS Holdings is the managing member of GSLLC, we indirectly operate and control all of the business and affairs of GS Holdings and its subsidiaries, including GSLLC. On that basis, we believe that our interest in GS Holdings and GSLLC is not an “investment security,” as that term is used in the 1940 Act. However, if we were to cease participation in the management of GS Holdings and GSLLC, our interest in such entities could be deemed an “investment security” for purposes of the 1940 Act.
We, GS Holdings and GSLLC intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
Our certificate of incorporation provides, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to bring a claim in a judicial forum that they find more favorable for disputes with us or our directors, officers, employees or stockholders.
Pursuant to our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. The forum selection clause in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors and officers and may limit our stockholders’ ability to bring a claim in a judicial forum that they find more favorable for disputes with us or any of our directors, officers, other employees or stockholders. The exclusive forum provision does not apply to any actions under United States federal securities laws.
By purchasing shares of our Class A common stock, you will have agreed and consented to the provisions set forth in our certificate of incorporation related to choice of forum. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
46

Class A Common Stock Risks
An active trading market for our Class A common stock may not be sustained, which may make it difficult to sell shares of Class A common stock.
Our Class A common stock is listed on the Nasdaq Global Select Market under the symbol “GSKY.” An active trading market for our Class A common stock may not be sustained, which would make it difficult for you to sell your shares of Class A common stock at an attractive price (or at all).
The market price of our Class A common stock has been and will likely continue to be volatile.
Our stock price has declined significantly since our May 2018 IPO and has exhibited substantial volatility. Our stock price may continue to fluctuate in response to a number of events and factors, including our proposed merger with Goldman Sachs, the COVID-19 pandemic mitigation efforts in response thereto, variations in our quarterly or annual results of operations, additions or departures of key management personnel, the loss of key Bank Partners, other funding sources, merchants or Sponsors, changes in our earnings estimates (if provided) or failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or the investment community with respect to us or our industry, adverse announcements by us or others and developments affecting us, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, actions by institutional stockholders, and increases in market interest rates that may lead investors in our shares to demand a higher yield, and in response the market price of shares of our Class A common stock could decrease significantly. You may be unable to resell your shares of Class A common stock at or above the price you paid for them (or at all).
Failure to comply with the requirements to design, implement and maintain effective internal controls could have an adverse effect on our business and stock price.
As a public company, we are subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environment and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
If we are unable to establish and maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our operating results.
We concluded that our internal controls were effective as of December 31, 2021. See Part II, Item 9A "Management's Report on Internal Control over Financial Reporting." We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the SEC rules or our independent registered public accounting firm may not issue an unqualified opinion. If, in a future period, either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could cause the price of our Class A common stock to decline and could subject us to investigation or sanctions by the SEC.
Current owners of Class A common stock may be diluted by the future issuance of additional Class A common stock in connection with our incentive plans, acquisitions or otherwise.
Our certificate of incorporation authorizes us to issue authorized but unissued shares of Class A common stock and rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved 24,000,000 shares for issuance under our 2018 Omnibus Incentive Compensation Plan, subject to adjustment in certain events. Any Class A common stock that we issue, including under our 2018 Omnibus Incentive
47

Compensation Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by existing investors.
Because we have no current plans to pay cash dividends on our Class A common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.
We have no current plans to pay cash dividends on our Class A common stock. The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash, current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, implications on the payment of dividends by us to our stockholders or by GS Holdings to us and such other factors as our board of directors may deem relevant. In addition, the terms of our existing financing arrangements restrict or limit our ability to pay cash dividends. Accordingly, we may not pay any dividends on our Class A common stock in the foreseeable future.
Future offerings of debt or equity securities by us may adversely affect the market price of our Class A common stock.
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our Class A common stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. Future acquisitions could require substantial additional capital in excess of cash from operations. We would expect to obtain the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness and/or cash from operations.
Issuing additional shares of our Class A common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our Class A common stock or both. Upon liquidation, holders of such debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our Class A common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our Class A common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing and nature of our future offerings.
Future sales, or the expectation of future sales, of shares of our Class A common stock, including sales by Continuing LLC Members, could cause the market price of our Class A common stock to decline.
The sale of a substantial number of shares of our Class A common stock in the public market, or the perception that such sales could occur, including sales by the Continuing LLC Members, could adversely affect the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price we deem appropriate. In addition, subject to certain limitations and exceptions, pursuant to certain provisions of the Exchange Agreement, the Continuing LLC Members may exchange Holdco Units (with automatic cancellation of an equal number of shares of Class B common stock) for shares of our Class A common stock on a one-for-one basis, subject to customary adjustments for certain subdivisions (stock splits), combinations, or purchases of Class A common stock or Holdco Units, or for cash (based on the market price of the shares of Class A common stock), at our option (such determination to be made by the disinterested members of our board of directors). All of the Holdco Units and shares of Class B common stock are exchangeable for shares of our Class A common stock or cash, at our option (such determination to be made by the disinterested members of our board of directors), subject to the terms of the Exchange Agreement.
Our certificate of incorporation authorizes us to issue additional shares of Class A common stock and rights relating to Class A common stock for the consideration and on the terms and conditions established by our board of
48

directors in its sole discretion. In accordance with the DGCL and the provisions of our certificate of incorporation, we also may issue preferred stock that has designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to shares of Class A common stock. Similarly, GS Holdings Agreement permits GS Holdings to issue an unlimited number of additional limited liability company interests of GS Holdings with designations, preferences, rights, powers and duties that are different from, and may be senior to, those applicable to the Holdco Units, and which may be exchangeable for shares of our Class A common stock.
Assuming the Continuing LLC Members exchanged all of their Holdco Units for shares of our Class A common stock on December 31, 2021, up to an additional 69,494,728 shares of Class A common stock would have been eligible for sale in the public market, the majority of which is held by our executive officers, directors and their affiliated entities, and is subject to volume limitations under Rule 144 and various vesting agreements. Additionally, certain of our executive officers and directors own options exercisable for shares of Class A common stock.
As unvested Class A common stock awards issued pursuant to our 2018 Omnibus Incentive Compensation Plan vest, the market price of our shares of Class A common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them.
These factors also could make it more difficult for us to raise additional funds through future offerings of our shares of Class A common stock or other securities.
Our capital structure may have a negative impact on our stock price.
Many widely-followed stock indices do not consider companies with multiple share classes, such as ours, eligible for inclusion in certain of their indices. As a result, our Class A common stock is not eligible for these stock indices. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common stock. Other stock indices may take a similar approach to the S&P Dow Jones in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.
Certain provisions of our certificate of incorporation and bylaws could hinder, delay or prevent a change in control of us, which could adversely affect the price of our Class A common stock.
Certain provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions:
authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock;
prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of our stockholders;
provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and
establish a classified board of directors, as a result of which our board of directors is divided into three classes, with each class serving for staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting.
In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management or our board of directors. Stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is favorable to them. These anti-takeover provisions could substantially impede your ability to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our Class A common stock and your ability to realize any potential change of control premium.
49

If securities and industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities and industry analysts publish about us and our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
General Risks
The loss of the services of our senior management could adversely affect our business.
The experience of our senior management, including, in particular, David Zalik, our Chief Executive Officer, is a valuable asset to us. Our management team has significant experience in the consumer loan business and would be difficult to replace. Competition for senior executives in our industry is intense, and we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management team or other key personnel. Failure to retain talented senior leadership could have a material adverse effect on our business. We do not maintain key life insurance policies relating to our senior management.
Our business would suffer if we fail to attract and retain highly-skilled employees.
Our future success will depend on our ability to identify, hire, develop, motivate and retain highly-qualified personnel for all areas of our organization, particularly information technology and sales. Trained and experienced personnel are in high demand and may be in short supply. Many of the companies with which we compete for experienced employees have greater resources than we do and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training our employees, which increases their value to competitors that may seek to recruit them. We may not be able to attract, develop and maintain the skilled workforce necessary to operate our business, and labor expenses may increase as a result of a shortage in the supply of qualified personnel.
Our risk management processes and procedures may not be effective.
Our risk management processes and procedures seek to appropriately balance risk and return and mitigate our risks. We have established processes and procedures intended to identify, measure, monitor and control the types of risk to which we and our Bank Partners are subject, including credit risk, market risk, liquidity risk, strategic risk and operational risk. Credit risk is the risk of loss that arises when an obligor fails to meet the terms of an obligation. While our exposure to the direct economic cost of consumer credit risk is somewhat limited because, with the exceptions of Warehouse Loan Participations, R&D Participations and other loans for which we purchase the receivables, we do not hold the loans or the receivables underlying the loans that our Bank Partners originate, we are exposed to consumer credit risk in the form of both our FCR liability and our limited escrow requirement, as well as our ability to maintain relationships with our existing Bank Partners and recruit new bank partners. Market risk is the risk of loss due to changes in external market factors such as interest rates. Liquidity risk is the risk that financial condition or overall safety and soundness are adversely affected by an inability, or perceived inability, to meet obligations and support business growth. Strategic risk is the risk from changes in the business environment, improper implementation of decisions or inadequate responsiveness to changes in the business environment. Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (e.g., natural disasters), compliance, reputational or legal matters and includes those risks as they relate directly to us as well as to third parties with whom we contract or otherwise do business.
Management of our risks depends, in part, upon the use of analytical and forecasting models. If these models are ineffective at predicting future losses or are otherwise inadequate, we may incur unexpected losses or otherwise be adversely affected. In addition, the information we use in managing our credit and other risks may be inaccurate or incomplete as a result of error or fraud, both of which may be difficult to detect and avoid. There also may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, including when processes are changed or new products and services are introduced. If our risk management framework does
50

not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, which could have a material adverse effect on our business.
If assumptions or estimates we use in preparing our financial statements are incorrect or are required to change, our reported results of operations and financial condition may be adversely affected.
We are required to make various assumptions and estimates in preparing our financial statements under United States generally accepted accounting principles (“GAAP”), and in determining certain disclosures required under GAAP, including for purposes of determining share-based compensation; asset impairment; reserves related to litigation and other legal matters and contingencies and other regulatory exposures; the amounts recorded for certain contractual payments to be paid to, or received from, our merchants and others under contractual arrangements; fair value measurements of derivative instruments, servicing assets and liabilities and loans receivable held for sale; and measurement of financial guarantees. If the assumptions or estimates underlying our financial statements are incorrect, the actual amounts realized on transactions and balances subject to those estimates will be different, which could have a material adverse effect on our business.
Future changes in financial accounting standards may significantly change our reported results of operations.
GAAP is subject to standard setting or interpretation by the FASB, the Public Company Accounting Oversight Board (the "PCAOB"), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
Additionally, our assumptions, estimates and judgments related to complex accounting matters could significantly affect our financial results. GAAP and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including revenue recognition, FCRs, loan participation sales, and share-based compensation are highly complex and involve subjective assumptions, estimates and judgments by us. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by us (i) could require us to make changes to our accounting systems that could increase our operating costs and (ii) could significantly change our reported or expected financial performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table sets forth selected information concerning our principal facilities as of December 31, 2021.
LocationOwned/LeasedApproximate Square Footage
Corporate Headquarters:
Atlanta, GeorgiaLeased51,500
Primary Call Centers:
Atlanta, Georgia(1)
Leased82,400
Additional Facilities:
Alpharetta, GeorgiaLeased14,400
(1)The Atlanta, Georgia call center is leased from a related party under common management control. See Note 15 to the Consolidated Financial Statements included in Part II, Item 8 for more information on related party transactions.
We believe our current facilities are adequate and that we will be able to find suitable space to accommodate any potential future expansion.
51

ITEM 3. LEGAL PROCEEDINGS
We are party to legal proceedings incidental to our business. See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 for information regarding legal proceedings. No assurance is given regarding the outcome of any of these proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
52


PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Record
On May 24, 2018, our Class A common stock began trading on the NASDAQ Stock Market under the symbol "GSKY." Prior to that time, there was no public market for our stock. As of March 8, 2022, there was one holder of record of our Class A common stock, which does not include persons whose stock is held in nominee or “street name” accounts through brokers, banks and intermediaries. Our Class B common stock is neither listed nor traded on any stock exchange, nor is there an established public trading market for this class of common stock. As of December 31, 2021, there were 29 Class B common stock holders of record.
Securities Authorized for Issuance under Equity Compensation Plans
Refer to Part III, Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" as well as Note 12 to the Consolidated Financial Statements included in Part II, Item 8 for information on our equity compensation plans.
Purchases of Equity Securities by the Issuer
The following table presents information with respect to our purchases of our Class A common stock during the fourth quarter in the year ended December 31, 2021. See Note 11 to the Consolidated Financial Statements included in Part II, Item 8 for additional discussion of our Class A common stock repurchases.
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share(1)
Total Number of Shares Purchased as Part of Publicly Announced ProgramsMaximum Dollar Value of Shares That May Yet Be Purchased Under the Programs
October 1, 2021 through October 31, 202123,085 $12.12 — $— 
November 1, 2021 through November 30, 20214,500 $12.03 — $— 
December 1, 2021 through December 31, 20214,312 $11.34 — $— 
Total31,897 — 
(1)For the periods presented, represents shares surrendered to us to satisfy tax withholding obligations in connection with the vesting of equity awards.
53

Performance Graph
The following graph matches GreenSky, Inc.'s cumulative 43-month total stockholder return on its Class A common stock with the cumulative total returns of the NASDAQ Composite Index and the RDG SmallCap Technology Index. The graph tracks the performance of a $100 investment in our Class A common stock and in each index (with the reinvestment of all dividends) from May 24, 2018 (the date our Class A common stock commenced trading on the NASDAQ Stock Market) to December 31, 2021.
gsky-20211231_g5.jpg
*$100 invested on 5/24/18 in GreenSky, Inc. Class A common stock and on 4/30/18 in the indices, including reinvestment of dividends.
 4/30/18 or 5/24/18*12/31/1812/31/1912/31/2012/31/21
GreenSky, Inc.$100.00 $40.97 $38.10 $19.82 $48.63 
NASDAQ Composite100.00 94.64 129.36 187.47 229.04 
RDG SmallCap Technology100.00 88.40 87.91 178.78 84.58 
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Dividends
We have never declared nor paid cash dividends on our Class A common stock. We currently do not intend to pay cash dividends in the foreseeable future.
ITEM 6. [RESERVED]
54

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (United States Dollars in thousands, except per share data and unless otherwise indicated)
You should read the following discussion and analysis of our financial condition and results of operations together with our Consolidated Financial Statements and related notes included in Part II, Item 8 of this Form 10-K. This discussion and analysis contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth under Part I, Item 1A“Risk Factors” in this Form 10-K.
Unless the context requires otherwise, "we," "us," "our," "GreenSky" and "the Company" refer to GreenSky, Inc. and its subsidiaries.
Organization
GreenSky, Inc. was formed as a Delaware corporation on July 12, 2017. The Company was formed for the purpose of completing an IPO of its Class A common stock and certain Reorganization Transactions in order to carry on the business of GSLLC, a Georgia limited liability company, which is an operating entity. GS Holdings, a holding company with no operating assets or operations, was organized as a wholly-owned subsidiary of GreenSky, Inc. in August 2017. On August 24, 2017, GS Holdings acquired a 100% interest in GSLLC. Common membership interests of GS Holdings are referred to as "Holdco Units." See Note 1 to the Consolidated Financial Statements in Part II, Item 8 for a detailed discussion of the Reorganization Transactions (as defined in that note) and the IPO.
Executive Summary
For a Company overview, see Part I, Item 1 "Business."
Merger Agreement
In September 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with The Goldman Sachs Group, Inc. ("Goldman Sachs"), and Goldman Sachs Bank USA ("Goldman Sachs Bank"), a wholly owned subsidiary of Goldman Sachs. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, (a) Goldman Sachs Bank will establish a new wholly‑owned subsidiary (“Merger Sub 1”) into which GreenSky, Inc. will be merged (the “Company Merger”), with Merger Sub 1 surviving the Company Merger as a wholly‑owned subsidiary of Goldman Sachs Bank; and (b) Goldman Sachs Bank will establish a new wholly‑owned subsidiary (“Merger Sub 2”) that will be merged into GS Holdings (the “Holdings Merger” and, together with the Company Merger, the “Mergers”). Consummation of the transaction is subject to the receipt of required regulatory approvals and satisfaction of other customary closing conditions. See Note 1 to the Consolidated Financial Statements included in Part II, Item 8 for additional information.
Covid-19 Pandemic
On March 11, 2020, the World Health Organization designated the novel coronavirus disease (referred to as "COVID-19") as a global pandemic.
The following are key impacts of COVID-19 on our business:
Transaction Volume. Our transaction volume began to be impacted significantly by COVID-19 in mid-March 2020, and certain of our transaction volumes continue to be impacted. For the year ended December 31, 2021, our transaction volume increased 6% compared to the prior year. Our transaction volume growth was impacted by escalating supply chain constraints in the U.S. that we expect to shift transactions to future periods.
Portfolio Credit Losses. We entered the COVID-19 pandemic with historically strong credit performance and we believe our home improvement sector program borrowers, particularly in concert with our focus on promotional credit, are financially resilient. To maintain our strong credit position in this uncertain economic environment, we continue to emphasize our super-prime promotional loan programs with our merchants.
55

As the impact of COVID-19 continues to persist and evolve, GreenSky remains committed to serving GreenSky program borrowers and our Bank Partners and merchants, while caring for the safety of our associates and their families. The potential impact that COVID-19 could have on our financial condition and results of operations remains highly uncertain. For more information, refer to Part I, Item 1A "Risk Factors" and, in particular, "– The global outbreak of the novel coronavirus, or COVID-19, initially caused severe disruptions in the U.S. economy and our business, and may further impact our performance and results of operations."
2021 Results
The following are key business metrics and financial measures for the year ended December 31, 2021:
Business Metrics
Transaction volume (as defined below) was $5.9 billion during the year ended December 31, 2021 compared to $5.5 billion during the year ended December 31, 2020 (increase of 6%) and $6.0 billion during the year ended December 31, 2019 (decrease of 7%);
Total revenue of $518.1 million during the year ended December 31, 2021 decreased by 1% from $525.6 million during the year ended December 31, 2020, which in turn decreased by 1% from $532.6 million during the year ended December 31, 2019;
The outstanding balance of loans serviced by our platform totaled $9.63 billion as of December 31, 2021 compared to $9.55 billion as of December 31, 2020 (increase of 1%) and $8.98 billion as of December 31, 2019 (increase of 6%);
We maintained a strong consumer profile. For all loans originated on our platform during 2021, the credit-line weighted average consumer credit score was 780. Furthermore, consumers with credit scores over 780 comprised 42% of the loan servicing portfolio as of December 31, 2021, and over 90.9% of the loan servicing portfolio as of December 31, 2021 consisted of consumers with credit scores over 700.
The 30-day delinquencies as of December 31, 2021 were 0.84%, an improvement of 15 basis points over December 31, 2020. The delinquency rate includes accounts that received COVID-19 assistance that are no longer in payment deferral. Less than 0.1% of the total loans serviced by our platform as of December 31, 2021 were in deferral status, compared to approximately 0.8% as of December 31, 2020 and approximately 4% at the peak in the second quarter of 2020.
Financial Measures
Net income of $117.8 million during the year ended December 31, 2021 increased from $28.7 million during the year ended December 31, 2020. The increase in net income for the year ended December 31, 2021 relates primarily to a reduction in cost of revenue largely driven by a decrease in change in fair value of our FCR liability, which was primarily a function of higher performance fees attributable to lower charge-offs and due to a lower balance of deferred interest loans subject to FCR as a result of our funding diversification that began in mid-2020. The increase in net income was also impacted by a financial guarantee benefit of $15.2 million compared to financial guarantee expense of $5.0 million during the year ended December 31, 2020. Adjusted EBITDA (as defined below) of $208.8 million during the year ended December 31, 2021 increased 97% compared to $105.9 million during the year ended December 31, 2020.
Net income of $28.7 million for the year ended December 31, 2020 decreased from $96.0 million during the year ended December 31, 2019. The decrease in net income for the year ended December 31, 2020 relates primarily to cost of revenue acceleration associated with the transition to a diversified funding model in 2020. During the last four months of 2020, the Company facilitated sales of over $1.0 billion in whole loans or loan participations. Adjusted EBITDA (as defined below) of $105.9 million during the year ended December 31, 2020 was largely consistent with the $105.0 million during the year ended December 31, 2019.
Information regarding our use of Adjusted EBITDA, a non-GAAP measure, and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP (as defined below) measure, is included in "Non-GAAP Financial Measures."
56

Non-GAAP Financial Measures
In addition to financial measures presented in accordance with United States generally accepted accounting principles (“GAAP”), we monitor Adjusted EBITDA to manage our business, make planning decisions, evaluate our performance and allocate resources. We define “Adjusted EBITDA” as net income before interest expense, taxes, depreciation and amortization, adjusted to eliminate equity-based compensation and payments and certain non-cash and non-recurring expenses.
We believe that Adjusted EBITDA is one of the key financial indicators of our business performance over the long term and provides useful information regarding whether cash provided by operating activities is sufficient to maintain and grow our business. We believe that this methodology for determining Adjusted EBITDA can provide useful supplemental information to help investors better understand the economics of our business.
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income. Some of the limitations of Adjusted EBITDA include:
It does not reflect our current contractual commitments that will have an impact on future cash flows;
It does not reflect the impact of working capital requirements or capital expenditures; and
It is not a universally consistent calculation, which limits its usefulness as a comparative measure.
Management compensates for the inherent limitations associated with using the measure of Adjusted EBITDA through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, net income, as presented below.
Year Ended December 31,
202120202019
Net income$117,814 $28,662 $95,973 
Interest expense(1)
26,269 25,024 23,860 
Tax expense (benefit)13,880 1,597 (7,125)
Depreciation and amortization14,045 11,330 7,304 
Share-based compensation expense(2)
15,660 14,923 13,769 
Change in financial guarantee liability - Non-renewal of Bank Partner(3)
— — 16,215 
Financial guarantee liability - Escrow(4)
— — (241)
Servicing asset and liability changes(5)
(13,773)(2,157)(29,679)
Mark-to-market on sales facilitation obligations(6)
2,604 10,655 — 
Discontinued charged-off receivables program(7)
— — (29,190)
Merger-related costs(8)
11,735 — — 
Transaction and non-recurring expenses(9)
13,788 15,818 14,149 
Adjusted EBITDA$202,022 $105,852 $105,035 
(1)Interest expense on the Warehouse Facility and interest income on the loan receivables held for sale are not included in the adjustment above as amounts are components of cost of revenue and revenue, respectively.
(2)See Note 12 to the Consolidated Financial Statements included in Part II, Item 8 for additional discussion of share-based compensation.
(3)Includes losses recorded in the fourth quarter of 2019 associated with the financial guarantee arrangement for a Bank Partner that did not renew its loan origination agreement when it expired in November 2019. See Note 14 to the Consolidated Financial Statements included in Part II, Item 8 for additional discussion of financial guarantee arrangements.
(4)Includes non-cash charges related to our financial guarantee arrangements with our ongoing Bank Partners, which are primarily a function of new loans facilitated on our platform during the period increasing the contractual escrow balance and the associated financial guarantee liability. In the fourth quarter of 2020, due to expectations that some of these financial guarantees may require cash settlement, the Company discontinued adjusting EBITDA for financial guarantees.
57

(5)Includes the non-cash changes in the fair value of servicing assets and liabilities related to our servicing arrangements with Bank Partners and other contractual arrangements. See Note 3 to the Consolidated Financial Statements included in Part II, Item 8 for additional discussion of servicing assets and liabilities.
(6)Mark-to-market on sales facilitation obligations reflects changes in the fair value in the embedded derivative for sales facilitation obligations. The changes in fair value are recognized as a mark-to-market expense in cost of revenue for the period. See Note 3 to the Consolidated Financial Statements included in Part II, Item 8 for additional discussion.
(7)Includes the amounts related to the now discontinued program of transferring our rights to charged-off receivables to third parties.
(8)Includes professional services fees related to the pending merger with Goldman Sachs.
(9)For the year ended December 31, 2021, primarily includes legal fees associated with IPO litigation and regulatory matter. For the year ended December 31, 2020, primarily includes legal fees associated with IPO litigation and regulatory matter, increased costs resulting from the COVID-19 pandemic, professional fees associated with our strategic alternatives review process, and loss on remeasurement of our tax receivable agreement liability. For the year ended December 31, 2019, primarily includes legal fees associated with IPO litigation.
Business Metrics
We review a number of operating and financial metrics to evaluate our business, measure our performance, identify trends, formulate plans and make strategic decisions, including the following.
 Year Ended December 31,
202120202019
Transaction Volume  
Dollars (in millions)5,866 5,515 5,954 
Percentage increase (decrease)%(7)%
Loan Servicing Portfolio  
Dollars (in millions, at end of period)9,631 9,549 8,984 
Percentage increase%%
Cumulative Consumer Accounts
Number (in millions, at end of period)4.4 3.7 3.0 
Percentage increase18 %23 %
Transaction Volume. We define transaction volume as the dollar value of loans facilitated on our platform during a given period. Transaction volume is an indicator of revenue and overall platform profitability.
Loan Servicing Portfolio. We define our loan servicing portfolio as the aggregate outstanding consumer loan balance (principal plus accrued interest and fees) serviced by our platform at the date of measurement. Our loan servicing portfolio is an indicator of our servicing activities. The average loan servicing portfolio for the years ended December 31, 2021, 2020 and 2019 was $9.5 billion, $9.4 billion and $8.2 billion, respectively.
Cumulative Consumer Accounts. We define cumulative consumer accounts as the aggregate number of consumer accounts approved on our platform since our inception, including accounts with both outstanding and zero balances. Although not directly correlated to revenue, cumulative consumer accounts is a measure of our brand awareness among consumers, as well as the value of the data we have been collecting from such consumers since our inception. We may use this data to support future growth by cross-marketing products and delivering potential additional customers to merchants that may not have been able to source those customers themselves.
Factors Affecting our Performance
Robust Network of Merchants and Transaction Volume. We derive transaction volumes from our robust network of merchants. Our revenues and financial results are heavily dependent on our transaction volume, which represents the dollar amount of loans funded on our platform and, therefore, influences the fees that we earn and the per-unit cost of the services that we provide. Our transaction volume depends on our ability to retain our existing platform participants, add new participants and expand to new industry verticals.
Bank Partner Relationships; Other Funding. "Bank Partners" are the federally insured banks that originate loans under the consumer financing and payments program that we administer for use by merchants on behalf of such
58

banks in connection with which we provide point-of-sale financing and payments technology and related marketing, servicing, collection and other services (the "GreenSky program" or "program"). Our ability to generate and increase transaction volume and expand our loan servicing portfolio is, in part, dependent on (a) retaining our existing Bank Partners and having them renew and expand their commitments, (b) adding new Bank Partners and/or (c) adding complementary funding arrangements to increase funding capacity. Our failure to do so could materially and adversely affect our business and our ability to grow. A Bank Partner’s funding commitment typically has an initial multi-year term, after which the commitment is either renewed (typically on an annual basis) or expires. No assurance is given that any of the current funding commitments of our Bank Partners will be renewed.
As of December 31, 2021, we had aggregate funding commitments from our ongoing Bank Partners of approximately $7.9 billion, a substantial majority of which are "revolving" commitments that replenish as outstanding loans are paid down. Of the funding commitments available at December 31, 2021 for use in the next 12 months, approximately $2.3 billion was unused and we anticipate approximately $1.8 billion of additional funding capacity will become available as loans pay down under revolving commitments during this period. As we add new Bank Partners, their full commitments are typically subject to a mutually agreed upon onboarding schedule. From time to time, certain of our Bank Partners have requested adjustments to the volume or type of loans that they originate, including, on occasion, temporary increases, decreases or suspensions of originations. We have generally honored these requests in the ordinary course of our relationships with our Bank Partners and, to date, they have not had a significant impact on the GreenSky program.
In addition to customary expansion of commitments from existing Bank Partners and the periodic addition of new Bank Partners to our funding group, we have diversified the funding for loans originated by our Bank Partners to include alternative structures with institutional investors, financial institutions and other funding sources. In the first half of 2021, the Company executed an arrangement with a leading insurance company that included an initial sale of loan participations totaling approximately $135 million and a forward flow commitment for the sale of up to $1.5 billion in additional loan participations over a one-year period.
On September 14, 2021, concurrently with the execution of the Merger Agreement and as a condition to the Company’s entry into the Merger Agreement, certain of the Company’s subsidiaries entered into a commitment letter for a backstop participation purchase facility with Goldman Sachs Bank. On November 17, 2021, such subsidiaries and Goldman Sachs Bank entered into the definitive agreements for such purchase facility, pursuant to which Goldman Sachs Bank provided such subsidiaries with (a) a commitment of up to $0.8 billion to purchase participations in loans originated by the Company’s Bank Partners under the GreenSky program during the period from the execution of definitive agreements for such purchase facility through the earlier of (i) the consummation of the Mergers pursuant to the Merger Agreement and (ii) the termination of the Merger Agreement in accordance with its terms, and (b) in the event that the Merger Agreement is terminated in accordance with its terms prior to the consummation of the Mergers, a commitment of up to $1.0 billion to purchase participations in loans originated by the Company’s Bank Partners under the GreenSky program during the period from the Merger Agreement termination date through August 31, 2022.
During the year ended December 31, 2021, GreenSky executed approximately $2.0 billion of sales of loan participations and whole loans (inclusive of the arrangements referenced above). A portion of these transactions included the sale of participations previously purchased by the Warehouse SPV, and the related proceeds from such sales were used to pay down amounts previously borrowed under the Warehouse Facility.
If the Mergers are not consummated, we anticipate whole loan or loan participation sales to continue to be important to our funding capacity. If we do not timely consummate our anticipated whole loan or loan participation sales, or if these sales combined with funding commitments from our Bank Partners are not sufficient to support expected loan originations, it could limit our ability to facilitate GreenSky program loans and our ability to generate revenue at or above current levels.
Performance of the Loans in our Bank Partners' Portfolios. While our Bank Partners bear substantially all of the credit risk on their loan portfolios, Bank Partner credit losses and prepayments impact our profitability in the following ways:
59

Our contracts with our Bank Partners entitle us to incentive payments when the finance charges billed to borrowers exceed the sum of (i) an agreed-upon portfolio yield, (ii) a fixed servicing fee and (iii) realized credit losses. This incentive payment varies from month to month, primarily due to the amount of realized credit losses.
With respect to deferred interest loans, the GreenSky program borrowers are billed for interest throughout the deferred interest promotional period, but they are not obligated to pay any interest if the loans are repaid in full before the end of the promotional period. We are obligated to remit this accumulated billed interest to our Bank Partners to the extent the loan principal balances are paid off within the promotional period (each event, a finance charge reversal or "FCR") even though the interest billed to the GreenSky program borrowers is reversed. Our maximum FCR liability is limited to the gross amount of finance charges billed during the promotional period, offset by (i) the collection of incentive payments from our Bank Partners during such period, (ii) proceeds received from transfers of charged-off receivables, and (iii) recoveries on unsold charged-off receivables. Our profitability is impacted by the difference between the cash collected from these items and the cash to be remitted on a future date to settle our FCR liability. Our FCR liability quantifies our expected future obligation to remit previously billed interest with respect to deferred interest loans.
Under our Bank Partner agreements, if credit losses exceed an agreed-upon threshold, we make limited payments to our Bank Partners from the escrow accounts we establish for them. Our related maximum financial exposure is contractually limited to those escrow amounts, which represented a weighted average target rate of 2.8% of the total outstanding loan balance as of December 31, 2021. Cash set aside to meet this requirement is classified as restricted cash in our Consolidated Balance Sheets. As of December 31, 2021, the financial guarantee liability associated with our escrow arrangements was approximately $102 million, which represents approximately 60% of the contractual escrow that we have established with each Bank Partner.
Performance of Loan Participations. We bear substantially all of the credit risk of loan receivables held for sale; however, our intent is that our holding period for such loan receivables is relatively brief.
For further discussion of our sensitivity to the credit risk exposure of our Bank Partners, see Part II, Item 7A “Quantitative and Qualitative Disclosure About Market Risk—Credit risk.”
General Economic Conditions and Industry Trends. Our results of operations are impacted by the relative strength of the overall economy and its effect on unemployment, consumer spending behavior and consumer demand for our merchants’ products and services. In addition, trends within the industry verticals in which we operate affect consumer spending on the products and services our merchants offer in those industry verticals. For example, the strength of the national and regional real estate markets and trends in new and existing home sales impact demand for home improvement goods and services and, as a result, the volume of loans originated to finance these purchases. In addition, trends in healthcare costs, advances in medical technology and increasing life expectancy are likely to impact demand for elective medical procedures and services. Refer to "Executive Summary" above for a discussion of the recent impact on our business from the COVID-19 pandemic.
Seasonality. See Part I, Item 1 "Business", for a seasonality discussion.
60

Results of Operations Summary
Years Ended December 31, 2021 and 2020
In the following results of operations discussion, unless otherwise indicated, references to 2021 and 2020 mean the years ended December 31, 2021 and December 31, 2020, respectively.
Total Revenue
We generate a substantial majority of our total revenue from transaction fees paid by merchants each time a consumer utilizes our platform to finance a purchase and, to a lesser extent, from fixed servicing fees on our loan servicing portfolio and interest income from loan receivables held for sale.
Transaction fees
We earn a specified transaction fee in connection with each purchase made by a consumer based on a loan’s terms and promotional features. Transaction fees are billed to, and collected directly from, the merchant and are considered to be earned at the time of the merchant’s transaction with the consumer. We also may earn a specified interchange fee in connection with purchases in which payments are processed through a credit card payment network.
Transaction fees revenue decreased 3% during 2021 compared to 2020 due to a decrease in transaction fee rate (transaction fees earned as a percentage of transaction volume), partially offset by an increase in transaction volume of 6% year over year.
The transaction fee rate was 6.47% during 2021 compared to 7.13% during 2020. The year over year transaction fee rate decrease is primarily related to the mix of promotional terms of loans originated on our platform. Loans with lower interest rates, longer stated maturities and longer promotional periods generally carry relatively higher transaction fee rates. Conversely, loans with higher interest rates, shorter stated terms and shorter promotional periods generally carry relatively lower transaction fee rates. In addition, the mix of loans offered by merchants generally varies by merchant category, and is dependent on merchant and consumer preference. Therefore, shifts in merchant mix have a direct impact on our transaction fee rates. With the onset of the COVID-19 pandemic in 2020, our merchants offered a larger proportion of promotional loans, which resulted in the upward shift in the transaction fee rate in 2020 compared to 2019. In 2021, we have experienced a reversion to pre-pandemic levels as it relates to the mix of loans. In addition, the mix of loans offered by merchants generally varies by merchant category, and is dependent on merchant and consumer preference.
Servicing
We earn a specified servicing fee for providing professional services to manage loan portfolios on behalf of our Bank Partners, including servicing of participated loans for a Bank Partner that retains the loan and servicing rights. Servicing fees are paid monthly and are typically based upon an annual fixed percentage of the average outstanding loan portfolio balance. Servicing revenue is also impacted by the fair value change in our servicing assets and liabilities associated with the servicing arrangements with our Bank Partners. See Note 3 to the Consolidated Financial Statements included in Part II, Item 8 for additional information on our servicing assets and liabilities.
The following table presents servicing revenue earned from servicing fees and the fair value change in servicing assets included in our servicing revenue.
Year Ended December 31,
20212020
Servicing fee$111,781 $115,110 
Fair value change in servicing assets and liabilities
12,452 345 
Total servicing revenue$124,233 $115,455 
During 2021, servicing revenue increased $8.8 million, or 8%, compared to 2020, which was primarily attributable to the net increase in the fair value of servicing assets and liabilities related to our Bank Partner servicing
61

arrangements in 2021 of $12.5 million in 2021, as compared to $0.3 million in 2020. The fair value increase reflects changes in balances of Bank partner portfolios and the respective applicable fees during the year as well as significant improvements in credit forecasts since 2020. The servicing fee decrease reflects a 2021 average servicing fee rate of 1.18% compared to 1.26% in 2020, primarily attributable to the diversification of our funding strategy toward capital markets transactions with servicing fees, on average, marginally lower than under our Bank Partner servicing arrangements. 
Interest and other
We earn interest income from loan receivables held for sale, including loan participations purchased by the Warehouse SPV. The amount of interest for each period depends on the average level of loan participations and the mix of loans owned for each period. During 2021, interest and other revenue decreased $3.0 million compared to 2020, primarily due to the significant reduction in loan receivables held for sale on our Consolidated Balance Sheets as of December 31, 2021.
Cost of Revenue (exclusive of depreciation and amortization expense)
Year Ended December 31,
20212020
Origination related$21,354 $26,044 
Servicing related49,939 53,208 
Fair value change in FCR liability72,443 147,018 
Loan and loan participation sales costs52,565 72,357 
Mark-to-market on sales facilitation obligations2,603 10,655 
Total cost of revenue (exclusive of depreciation and amortization expense)
$198,904 $309,282 
Origination related
Origination related expenses typically include costs associated with our customer service staff that supports Bank Partner loan originations, credit and identity verification, loan document delivery, transaction processing by our third-party transaction processor and customer protection expenses when we indemnify a Bank Partner if a merchant does not fulfill its obligation to the end consumer.
During 2021, origination related expenses decreased 18% compared to 2020, largely driven by a decrease in customer protection expenses, which were $3.6 million lower compared to 2020. In addition, we experienced operational efficiencies in loan processing, with origination related expenses as a percent of transaction volume decreasing to 0.36% in 2021 from 0.47% in 2020.
Servicing related
Servicing related expenses are primarily reflective of the cost of our personnel (including dedicated call center personnel) and printing and postage related to consumer statement production.
During 2021, servicing related expenses decreased 6% compared to 2020 due to lower delinquency rates, which reduce collection costs. Servicing related expenses as a percent of our average loan servicing portfolio were 0.53% and 0.57% for the years ended December 31, 2021 and 2020, respectively.
Fair value change in FCR liability
Under our contracts with Bank Partners, we receive incentive payments from Bank Partners based on the surplus of finance charges billed to borrowers over an agreed-upon portfolio yield, a fixed servicing fee and realized net credit losses. We reduce these incentive payments based on estimated future reversals of previously billed interest on deferred interest loan products that we will be obligated to remit to Bank Partners in future periods. These estimated future reversals are recorded as a liability on our Consolidated Balance Sheets.
See Note 3 to the Consolidated Financial Statements included in Part II, Item 8 for additional information on our finance charge reversal liability, including a qualitative discussion of the impact to the fair value of our liability
62

resulting from changes in the finance charge reversal rate and discount rate. See Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk—Credit risk”
The following table reconciles the beginning and ending measurements of our FCR liability and highlights the activity that drove the fair value change in FCR liability included in our cost of revenue. With the implementation of our whole loan and loan participation sales program in mid-2020, we experienced a decline in deferred interest loans in Bank Partner portfolios, primarily attributable to the diversification of our funding strategy and purchases of participations in deferred interest loans by the Warehouse SPV.
 Year Ended December 31,
20212020
Beginning balance$185,134 $206,035 
Receipts(1)
223,650 215,049 
Settlements(2)
(337,698)(382,968)
Fair value change in FCR liability(3)
72,443 147,018 
Ending balance$143,529 $185,134 
(1)Includes: (i) incentive payments from Bank Partners, which is the surplus of finance charges billed to borrowers over an agreed-upon portfolio yield, a fixed servicing fee and realized net credit losses and (ii) cash received from recoveries on previously charged-off Bank Partner loans. We consider all monthly incentive payments from Bank Partners during the period to be related to billed finance charges on deferred interest products until monthly incentive payments exceed total billed finance charges on deferred products, which did not occur during the periods presented.
(2)Represents the reversal of previously billed finance charges associated with deferred payment loan principal balances that were repaid within the promotional period and includes billed finance charges not yet collected on loan participations purchased by the Warehouse SPV of $20.1 million and $28.8 million, respectively, during the years ended December 31, 2021 and 2020, which were not yet collected and subject to a potential future finance charge reversal at the time of purchase. These amounts were paid to the Bank Partner in full as of the participation purchase dates.
(3)A fair value adjustment is made based on the expected reversal percentage of billed finance charges (expected settlements), which is estimated at each reporting date. The fair value adjustment is recognized in cost of revenue in the Consolidated Statements of Operations.
Further detail regarding our receipts is provided below for the years indicated:
Year Ended December 31,
20212020
Incentive payments$191,858 $198,570 
Recoveries on unsold charged-off receivables(1)
31,792 16,479 
Total receipts
$223,650 $215,049 
(1)Represents recoveries on previously charged-off Bank Partner loans. We collected recoveries on previously charged-off and transferred Bank Partner loans on behalf of our charged-off receivables investors of $20.1 million and $22.7 million during the years ended December 31, 2021 and 2020, respectively. These collected recoveries are excluded from receipts, as they do not impact our fair value change in FCR liability.
The decrease of $74.6 million, or 51%, in the fair value change in FCR liability recognized in cost of revenue during 2021 compared to 2020 was primarily a function of a lower balance of deferred interest loans subject to FCR as a result of loan prepayments and our funding diversification that began in mid-2020.
Loan and loan participation sales costs
Loan and loan participation sales costs primarily include interest expense on the Warehouse Facility, realized gains and losses on sold participations, changes in lower of cost or fair value adjustments on currently owned Warehouse Loan Participations, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining the Warehouse Facility.
During the years ended December 31, 2021 and 2020, loan and loan participation sales costs were $52.6 million and $72.4 million, respectively, inclusive of realized losses of $40.0 million and $57.0 million, respectively, on Warehouse Loan Participations sold. The lower cost in 2021 reflects an increase in the price for loan products, the mix of loans, and the level of Warehouse Loan Participations held for sale by the Company.
63

Mark-to-market on sales facilitation obligations
The mark-to-market on sales facilitation obligations reflects the changes in the fair value in the embedded derivative for loan participation commitments and are recognized as a mark-to-market in cost of revenue for the period.
While our Bank Partner funding costs are recognized over the life of the loan, the fair value adjustments on Warehouse Loan Participations and sales facilitation obligations are recognized in the period of the purchase of the loan participations by the Warehouse SPV or entering into the loan participation commitment. Thus, the fair value adjustments will create a benefit in the form of reducing Bank Partner funding costs over the life of the loan.
During the years ended December 31, 2021 and 2020, the mark-to-market on sales facilitation obligations were $2.6 million and $10.7 million, respectively. See Note 3 to the Consolidated Financial Statements in Part II, Item 8 for further information.
Compensation and benefits
Compensation and benefits expenses primarily consist of salaries, benefits and share-based compensation for all cost centers not already included in cost of revenue, such as information technology, sales and marketing, product management and all overhead related activities.
During 2021, compensation and benefits expense increased $3.4 million, or 4%, compared to 2020 as a result of higher salary expense of $2.3 million, a $0.7 million decrease in capitalized IT costs during the period, and an increase in share-based compensation expense of $0.6 million.
Property, office and technology
Property, office and technology expenses primarily relate to technology, telecommunications and third party rent expense. These costs also include maintenance and security expenses associated with our facilities.
During 2021, property, office and technology expense increased $1.4 million compared to 2020, primarily due to an increase in software, hardware and hosting costs.
Depreciation and amortization
Depreciation and amortization expense is related to capitalizable computer hardware, furniture and leasehold improvements, as well as software, which is primarily internally developed. Computer hardware is depreciated over three years, software is amortized over three years, furniture is depreciated over five years and leasehold improvements are depreciated over the shorter of the expected life of the asset or the remaining lease term.
During 2021, depreciation and amortization expense increased $2.7 million, or 24%, compared to 2020 primarily driven by increases over time in capitalized internally-developed software.
Sales, general and administrative
Sales, general and administrative expenses primarily consist of legal, accounting, consulting and other professional services, recruiting, non-sales and marketing travel costs and promotional activities. The majority of our sales and marketing spend is “business-to-business” related, as we primarily attract new merchants to our program through trade shows, on-site visits with prospective merchants and other means.
During 2021, sales, general and administrative expense decreased $5.0 million, or 12%, compared to 2020 predominantly due to a decrease of $8.0 million in provision for losses related to loan receivables held for sale. The lower provision was directly related to the $566.1 million decrease in loan receivables held for sale. The decrease was partially offset by an increase in legal and regulatory costs of $3.0 million.
Financial guarantee expense (benefit)
Financial guarantee expense (benefit) primarily consists of changes in our non-cash charges and actual cash escrow used by Bank Partners. Upon our adoption of the provisions of ASU 2016-13 on January 1, 2020, our financial guarantee liability associated with our escrow arrangements with our Bank Partners was recognized in accordance
64

with ASC 326, Financial Instruments – Credit Losses ("CECL"). Changes in the financial guarantee liability each period as measured under CECL are recorded as non-cash charges in the Consolidated Statements of Operations.
During 2021, the Company recognized a financial guarantee benefit of $15.2 million, compared to financial guarantee expense of $5.0 million in 2020. The financial guarantee benefit recognized in 2021 is primarily due to an improved forecast for future charge-offs and to accelerated prepayments on loans within our Bank Partner portfolios, as well as our funding diversification which resulted in a larger portion of our transaction volumes in 2021 being sold as loan participations into alternative structures that are not subject to the financial guarantees of our Bank Partner portfolios. In 2020, financial guarantee expense was impacted by the onset of the COVID-19 pandemic and the related increased expectations of Bank Partner loan portfolios. See Note 1 and Note 14 to the Consolidated Financial Statements included in Part II, Item 8 for additional information regarding the measurement of our financial guarantees under the new standard.
Merger-related costs
Merger-related costs include legal and other professional services expenses related to the pending merger with Goldman Sachs, and totaled $11.7 million during 2021. For more information on the pending merger, see Note 1 to the Consolidated Financial Statements included in Part II, Item 8.
Related party
Related party expenses, on a recurring basis, primarily consist of rent expense, as we lease office space from a related party. During 2021, related party expenses increased $36 thousand, or 2%, compared to 2020.
Other income (expense), net
The $7.2 million, or 32%, increase in other expense, net during 2021 compared to 2020 was primarily due to the following:
Interest and dividend income decreased $0.6 million during 2021, while interest expense increased $1.2 million, or 5%, during 2021, primarily due to a higher average balance of our term loan in 2021, as it was amended and upsized in June 2020 (the 2020 Amended Credit Agreement). See Note 7 to the Consolidated Financial Statements included in Part II, Item 8 for additional information regarding our borrowings.
Other losses were $3.8 million during 2021, primarily related to a net loss related to our interest rate swap of $6.8 million, partially offset by the change in fair value of our servicing liabilities of $1.3 million and other gains of $1.5 million. During 2020, other gains were $1.6 million and primarily related to the fair value change in servicing liabilities of $1.8 million and other gains of $1.5 million, partially offset by the remeasurement of our tax receivable agreement liability of $1.4 million.
Income tax expense (benefit)

Income tax expense recorded during 2021 reflected actual and expected income tax expense of $13.9 million on the net earnings for the entire year related to GreenSky, Inc.'s economic interest in GS Holdings. Expected income tax expense during 2020 was $3.1 million and was offset by a net tax benefit of $1.5 million. The increase in the expected income tax expense was primarily related to the increase in net earnings attributable to GreenSky, Inc.'s economic interest in GS Holdings, for which earnings are subject to U.S. federal and state corporate taxation.

Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests during 2021 reflects income attributable to the Continuing LLC Members for the period based on their weighted average ownership interest in GS Holdings, which was 56.9% in 2021.
65

Financial Condition Summary
Changes in the composition and balance of our assets and liabilities as of December 31, 2021 compared to December 31, 2020 were principally attributable to the following:     
a $84.8 million increase in cash and cash equivalents and restricted cash. See "Liquidity and Capital Resources" in this Item 7 for further discussion of our cash flow activity;
a $566.1 million decrease in loan receivables held for sale, net, primarily due to the sale of Warehouse Loan Participations previously purchased by the Warehouse SPV during the year ended December 31, 2021;
a $100.4 million increase in deferred tax assets, net, as a result of exchanges of Holdco Units by Continuing LLC Members;
a $41.6 million decrease in the FCR liability primarily due to a decline in deferred interest loans in Bank Partner portfolios attributable to the diversification of our funding strategy and sales of loan participations. This activity is analyzed in further detail throughout this Item 7;
a $27.8 million decrease in our financial guarantee liability primarily driven by (i) the credit performance of the Bank Partner portfolios in 2021 and (ii) the improvement in the forecasted credit performance of those portfolios relative to 2020. The decrease in the liability also reflects approximately $6.5 million in escrow payments funded during the period related to a Bank Partner that is no longer originating loans under the GreenSky program. There was no utilization of escrow by any Bank Partner that was originating loans under the GreenSky program during 2021;
a $14.2 million decrease in the interest rate swap liability due to the settlement of the interest rate swap. See Note 8 to the Consolidated Financial Statements in Part II, Item 8 for additional information;
a $502.8 million decrease in notes payable resulting from repayments of the Warehouse Facility;
an increase in total equity of $147.3 million primarily due to: (i) net income of $117.8 million, (ii) share-based compensation of $15.7 million, (iii) other comprehensive income, net of tax of $12.8 million associated with our interest rate swap, partially offset by distributions of $15.6 million, which were primarily tax distributions.

Liquidity and Capital Resources
We are a holding company with no operations and depend on our subsidiaries for cash to fund all of our consolidated operations, including future dividend payments, if any. We depend on the payment of distributions by our current subsidiaries, including GS Holdings and GSLLC, which distributions may be restricted as a result of regulatory restrictions, state law regarding distributions by a limited liability company to its members, or contractual agreements, including agreements governing their indebtedness. For a discussion of those restrictions, refer to Part I, Item 1A "Risk Factors–Risks Related to Our Organizational Structure."
In particular, the Credit Facility (as defined below) contains certain negative covenants prohibiting GS Holdings and GSLLC from making cash dividends or distributions unless certain financial tests are met. In addition, while there are exceptions to these prohibitions, such as an exception that permits GS Holdings to pay our operating expenses, these exceptions apply only when there is no default under the Credit Facility. We currently anticipate that such restrictions will not impact our ability to meet our cash obligations.
Our principal source of liquidity is cash generated from operations. Our transaction fees are the most substantial source of our cash flows and follow a relatively predictable, short cash collection cycle. Our short-term liquidity needs primarily include setting aside restricted cash for Bank Partner escrow balances and interest payments on GS Holdings' Credit Facility, which consists of the term loan and revolving loan facility, funding the portion of the Warehouse Loan Participations that is not financed by the Warehouse Facility, interest payments and unused fees on the Warehouse Facility, as defined and discussed in "Term loan and revolving loan facility" and "Warehouse Facility" within this Item 7, and sales facilitation obligations as discussed within this Item 7 and Note 3 to the
66

Consolidated Financial Statements in Part II, Item 8. Further, in the near term, we expect our capital expenditures to be small relative to our unrestricted cash and cash equivalents balance. We currently generate sufficient cash from our operations to meet these short-term needs. In addition, we expect to use cash for: (i) FCR liability settlements, which are not fully funded by the incentive payments we receive from our Bank Partners, but for which $53.3 million is held for certain Bank Partners in restricted cash as of December 31, 2021, and for payments under our financial guarantees (see Note 14 to the Consolidated Financial Statements in Part II, Item 8 for further discussion), and (ii) sales facilitation obligations (see Note 3 to the Consolidated Financial Statements in Part II, Item 8 for further discussion of our sales facilitation obligations). Our $100 million revolving loan facility is also available to supplement our cash flows from operating activities to satisfy our short-term liquidity needs.
The Warehouse Facility finances purchases by the Warehouse SPV of participations in loans originated through the GreenSky program. The Warehouse Facility provides committed financing of $555.0 million and provides financing for a significant portion of the principal balance of such participations and the Company funds the remainder. Although the portion financed by the Warehouse Facility varies based on the composition of the pool of participations being purchased, we expect such portion to be approximately 84% on average. From time to time, the Company purchases participations in loans that have future funding obligations. Such future funding obligations will be funded by the Bank Partner that owns the loan; however, the Company is required to purchase a participation in the future funding amount, which the Company would intend to finance through the Warehouse Facility at similar rates. As of December 31, 2021, the Warehouse SPV held $4.9 million of loan participations and the Warehouse Facility did not have an outstanding loan balance. In addition, the Warehouse SPV may conduct periodic sales of the loan participations or issue asset-backed securities to third parties, which sales or issuances would allow additional purchases to be financed at similar rates.
Our most significant long-term liquidity need involves the repayment of our term loan upon maturity in March 2025, which assuming no prepayments, will have an expected remaining unpaid principal balance of $444.6 million at that time, as well as the repayment of our revolving Warehouse Facility upon maturity in December 2023. Assuming no extended impact of the COVID-19 pandemic, we anticipate that our significant cash generated from operations will allow us to service these debt obligations. Should operating cash flows be insufficient for this purpose, we will pursue other financing options. We have not made any material commitments for capital expenditures other than those disclosed in the "Contractual Obligations" table later in this Item 7.
Significant Changes in Capital Structure
There were no significant changes in the Company's capital structure during the year ended December 31, 2021. See Part II, Item 7A for a discussion of our exposure to market risk, including changes to interest rates, and credit risk.
Cash flows
We prepare our Consolidated Statements of Cash Flows using the indirect method, under which we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income, but may not result in actual cash receipts or payments during the period. The following table provides a summary of our operating, investing and financing cash flows for the periods indicated.
 Year Ended December 31,
202120202019
Net cash provided by/(used in) operating activities$630,901 $(468,101)$153,327 
Net cash used in investing activities$(15,602)$(14,567)$(15,381)
Net cash provided by/(used in) financing activities$(530,513)$504,481 $(150,604)
Cash and cash equivalents and restricted cash totaled $552.4 million as of December 31, 2021, an increase of $84.8 million from December 31, 2020. Restricted cash, which had a balance of $256.0 million as of December 31, 2021 compared to a balance of $319.9 million as of December 31, 2020, is not available to us to fund operations or for general corporate purposes.
Our restricted cash balances as of December 31, 2021 and 2020 were comprised of four components: (i) $164.2 million and $173.2 million, respectively, which represented the amounts that we have escrowed with Bank Partners
67

as limited protection to the Bank Partners in the event of certain Bank Partner portfolio credit losses or in the event that the finance charges billed to borrowers do not exceed the sum of an agreed-upon portfolio yield, a fixed servicing fee and realized credit losses; (ii) $53.3 million and $84.6 million, respectively, which represented an additional restricted cash balance that we maintained for certain Bank Partners related to our FCR liability; (iii) $33.3 million and $27.7 million, respectively, which represented certain custodial in-transit loan funding and consumer borrower payments that we were restricted from using for our operations; and (iv) $5.2 million and $34.4 million, respectively, which represented temporarily restricted cash related to collections in connection with Warehouse Loan Participations (which is released from restrictions in accordance with the terms of the Warehouse Facility). The restricted cash balances related to our FCR liability and our custodial balances are not included in our evaluation of restricted cash usage, as these balances are not held as part of a financial guarantee arrangement. See Note 14 to the Consolidated Financial Statements in Part II, Item 8 for additional information on our restricted cash held as escrow with Bank Partners.
Cash provided by/(used in) operating activities
Year Ended December 31, 2021. Cash flows used in operating activities were $630.9 million during 2021. Primary sources of operating cash during 2021 were: (i) earnings and other working capital benefits; and (ii) a decrease in loan receivables held for sale as a result of completed sales during the period. These sources of cash were partially offset by uses of cash from: (i) previously billed finance charges that reversed in the period; and (ii) financial guarantee liabilities.
Cash used in investing activities
Detail of the cash used in investing activities is included below for each year.
 Year Ended December 31,
202120202019
Software$14,286 $13,607 $12,684 
Computer hardware665 726 1,184 
Leasehold improvements651 91 911 
Furniture— 143 602 
Purchases of property, equipment and software$15,602 $14,567 $15,381 
Cash provided by/(used in) financing activities
Our financing activities in the periods presented consisted of equity and debt related transactions and distributions. GS Holdings makes tax distributions based on the estimated tax payments that its members are expected to have to make during any given period (based upon various tax rate assumptions), which are typically paid in January, April, June and September of each year.
We had net cash used in financing activities of $530.5 million during 2021. In 2021, our primary use of cash was net repayments on the Warehouse Facility of $507.5 million as a result of sales of loan participations.
Borrowings
See Note 7 to the Consolidated Financial Statements in Part II, Item 8 for further information about our borrowings, including the use of term loan proceeds, as well as our interest rate swap.
Term loan and revolving facility
On March 29, 2018, GS Holdings amended its August 25, 2017 Credit Agreement ("2018 Amended Credit Agreement”) to provide for a $400.0 million term loan, the proceeds of which were used, in large part, to settle the outstanding principal balance on the $350.0 million term loan previously executed under the Credit Agreement in August 2017, and includes a $100.0 million revolving loan facility. The revolving loan facility also includes a $10.0 million letter of credit. The Credit Facility is guaranteed by GS Holdings’ significant subsidiaries, including GSLLC, and is secured by liens on substantially all of the assets of GS Holdings and the guarantors. Interest on the loans can be based either on a “Eurodollar rate” or a “base rate” and fluctuates depending upon a “first lien net
68

leverage ratio.” The 2018 Amended Credit Agreement contains a variety of covenants, certain of which are designed in certain circumstances to limit the ability of GS Holdings to make distributions on, or redeem, its equity interests. In addition, during any period when 25% or more of our revolving facility is utilized, GS Holdings is required to maintain a “first lien net leverage ratio” no greater than 3.50 to 1.00. There are various exceptions to these restrictions, including, for example, exceptions that enable us to pay our operating expenses and to make certain GS Holdings tax distributions. The $400.0 million term loan matures on March 29, 2025, and the revolving loan facility matures on March 29, 2023.
On June 10, 2020, we entered into a Second Amendment to our Credit Agreement ("2020 Amended Credit Agreement"), which provided for an additional $75.0 million term loan ("incremental term loan"). The term loan and revolving loan facility under the 2018 Amended Credit Agreement and incremental term loan under the 2020 Amended Credit Agreement are collectively referred to as the "Credit Facility." The modified term loan and the incremental term loan are collectively referred to as the "term loan." The incremental term loan, incurs interest, due monthly in arrears, at an adjusted LIBOR, which represents the one-month LIBOR multiplied by the statutory reserve rate, as defined in the 2020 Amended Credit Agreement, with a 1% LIBOR floor, plus 450 basis points. The incremental term loan has the same security, maturity, principal amortization, prepayment, and covenant terms as the 2018 Amended Credit Agreement, maturing on March 29, 2025.
There was no amount outstanding under our revolving loan facility as of December 31, 2021, which is available to fund future needs of GS Holdings’ business. We also did not draw on our available letter of credit as of December 31, 2021.
Warehouse Facility
On May 11, 2020, the Warehouse SPV entered into the Warehouse Facility to finance purchases by the Warehouse SPV of 100% participation interests in loans originated through the GreenSky program. The Warehouse Facility initially provided a revolving committed financing of $300 million, and an uncommitted $200 million accordion that was subsequently accessed in July 2020.
On December 18, 2020, the Warehouse Facility was amended ("Amended Warehouse Facility") to increase the amount of the Warehouse Facility’s revolving commitment from $300 million to $555 million, including $500 million under the Class A commitment and $55 million under the Class B commitment. With the addition of the Class B commitment, the advance rate under the Warehouse Facility has generally been approximately 84% (on average) of the principal balance of the purchased participations.
As of December 31, 2021, there was no outstanding loan balance on the Warehouse Facility. The Warehouse Facility is secured by the loan participations held by the Warehouse SPV, and Warehouse Facility Lenders do not have direct recourse to the Company for any loans made under the Warehouse Facility.
Expected Replacement of LIBOR
The use of the London Interbank Offered Rate (“LIBOR”) will be phased out by mid-2023. LIBOR is currently used as a reference rate for certain of our financial instruments, including our $475.0 million term loan under the 2020 Amended Credit Agreement, which is set to mature after the expected phase out of LIBOR. Our Warehouse Facility and the related interest rate cap also include certain rates that are impacted by LIBOR; however, the agreement includes LIBOR transition provisions. We will work with our lenders and counterparties to accommodate any suitable replacement rate where it is not already provided under the terms of the financial instruments and, going forward, we will use suitable alternative reference rates for our financial instruments, such as the Secured Overnight Financing Rate ("SOFR"). We will continue to assess and plan for how the phase out of LIBOR will affect the Company; however, while the LIBOR transition could adversely affect the Company, we do not currently perceive any material risks and do not expect the impact to be material to the Company.
Tax Receivable Agreement
Our purchase of Holdco Units from the Exchanging Members using a portion of the net proceeds from the IPO, our acquisition of the equity of certain of the Former Corporate Investors, and any future exchanges of Holdco Units for our Class A common stock pursuant to the Exchange Agreement (as such terms are defined in Note 1 to the
69

Consolidated Financial Statements in Part II, Item 8) are expected to result in increases in our allocable tax basis in the assets of GS Holdings. These increases in tax basis are expected to increase (for tax purposes) depreciation and amortization deductions allocable to us and, therefore, reduce the amount of tax that we otherwise would be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain assets to the extent tax basis is allocated to those assets.
We and GS Holdings entered into a Tax Receivable Agreement ("TRA") with the "TRA Parties" (the equity holders of the Former Corporate Investors, the Exchanging Members, the Continuing LLC Members and any other parties receiving benefits under the TRA, as those parties are defined in Note 1 to the Consolidated Financial Statements included in Part II, Item 8), whereby we agreed to pay to those parties 85% of the amount of cash tax savings, if any, in United States federal, state and local taxes that we realize or are deemed to realize as a result of these increases in tax basis, increases in basis from such payments, and deemed interest deductions arising from such payments.
As a condition to the Merger Agreement, the Company and certain beneficiaries party to the TRA were required to enter into an amendment to the TRA (the “TRA Amendment”), which TRA Amendment provided that no payments under the TRA will be made following or as a result of the consummation of the Mergers.
Contractual Obligations
Our principal commitments consisted of obligations under our outstanding term loan and operating leases for office facilities. The following table summarizes our commitments to settle contractual obligations in cash as of December 31, 2021.
TotalLess than
1 year
1-3
years
3-5
years
More than
5 years
Term loan(1)
$458,875 $4,750 $9,500 $444,625 $— 
Interest payments on term loan(2)
74,437 23,223 45,722 5,492 — 
Revolving loan facility fees(3)
620 500 120 — — 
Interest payments and fees on Warehouse Facility(4)
12,600 6,300 6,300 — — 
Operating leases(5)
18,554 3,813 4,670 4,188 5,883 
Total contractual obligations$565,086 $38,586 $66,312 $454,305 $5,883 
(1)The principal balance of the term loan is repaid on a quarterly basis at an amortization rate of 0.25% per quarter, with the balance due at maturity.
(2)Variable interest payments on our term loan are calculated based on the interest rate as of December 31, 2021 and the scheduled maturity of the underlying term loan.
(3)Amounts presented reflect a quarterly commitment fee rate of 0.50% per annum, and assume that the entire $100 million revolving loan facility is unused (the conditions that existed as of period end) for the duration of the agreement, which matures on March 29, 2023.
(4)Variable interest payments on our Warehouse Facility are calculated based on the applicable Class A and Class B interest rates as of December 31, 2021, and assume that the outstanding balance on the Warehouse Facility as of December 31, 2021 remains outstanding for the duration of the agreement. Warehouse Facility fees are calculated based on a daily unused commitment rate of 0.50% per annum, and assume that the unused commitment balance as of December 31, 2021 remains unused for the duration of the agreement. The Warehouse Facility matures on December 17, 2023.
(5)Our operating leases are for office space. Certain of these leases contain provisions for rent escalations and/or lease concessions. Rental payments, as well as any step rent provisions specified in the lease agreements, are aggregated and charged evenly to expense over the lease term. However, amounts included herein do not reflect this accounting treatment, as they represent the future contractual lease cash obligations.
The payments that we may be required to make under the TRA to the TRA Parties may be significant and are not reflected in the contractual obligations table set forth above. Refer to Part I, Item 1A "Risk Factors–Risks Related to Our Organizational Structure" and to Note 13 to the Consolidated Financial Statements in Part II, Item 8 for additional detail.
70

Contingencies
From time to time, we may become a party to civil claims and lawsuits in the ordinary course of business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated, which requires management judgment. Should any of our estimates or assumptions change or prove to be incorrect, it could have a material adverse impact on our consolidated financial condition, results of operations or cash flows. See Note 14 to the Consolidated Financial Statements in Part II, Item 8 for discussion of certain legal proceedings and other contingent matters.
Recently Adopted or Issued Accounting Standards
See "Recently Adopted Accounting Standards" and "Accounting Standards Issued, But Not Yet Adopted" in Note 1 to the Consolidated Financial Statements in Part II, Item 8 for additional information.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements were prepared in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements around our FCR liability and servicing assets and liabilities, the measurement of our financial guarantees, and income taxes. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes. On an ongoing basis, we evaluate our judgments and estimates that are based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances.
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements in Part II, Item 8. The following is a summary of our most critical accounting estimates, which represent those that involve a higher degree of uncertainty, judgment or complexity. Accordingly, these are the policies we believe to be most critical in fully understanding and evaluating our financial condition, results of operations and cash flows.
Finance charge reversals
Our Bank Partners offer certain loan products that have a feature whereby the account holder is provided a promotional period to repay the loan principal balance in full without incurring a finance charge. For these loan products, we bill interest each month throughout the promotional period and, under the terms of the contracts with our Bank Partners, are obligated to remit this billed interest to the Bank Partners if an account holder pays off the loan balance in full within the promotional period. This obligation is partially offset by the receipt of monthly incentive payments, which vary from month to month, from Bank Partners during the promotional period. Therefore, the monthly process of billing interest on deferred loan products triggers a potential future FCR liability for us. The FCR component of our Bank Partner contracts qualifies as an embedded derivative accounted for under Accounting Standards Codification ("ASC") 815, Derivatives and Hedging.
The FCR liability is carried at fair value on a recurring basis in our Consolidated Balance Sheets and is estimated based on historical experience and management’s expectation of future FCR. The FCR liability is classified within Level 3 of the fair value hierarchy, as the primary component of the price is obtained from unobservable inputs based on our data, reasonably adjusted for assumptions that would be used by market participants. The FCR liability is not designated as a hedge for accounting purposes and, as such, changes in its fair value are recorded within cost of revenue in the Consolidated Statements of Operations.
See Part II, Item 7A for a discussion of our exposure to interest rate risk and credit risk as it relates to our FCR. Our discussion in Item 7A provides a useful sensitivity analysis to help facilitate a further understanding of the impact of our FCR liability on our net income.
71

Servicing assets and liabilities
The Company assumes a right, obligation, or neither a right nor obligation to service consumer loans each time a loan is originated by a Bank Partner. Additionally, the Company services charged-off receivables to which we transferred our rights to third parties and Bank Partners, but for which we do not charge a servicing fee. The Company identified Bank Partner loans as one class of servicing rights and charged-off receivables as a separate class of servicing rights. In accordance with ASC 860, Transfers and Servicing, when we determine that the compensation we receive to service loans is more or less than adequate, we assess the fair value of a servicing asset or liability, respectively, using a discounted cash flow model.
We previously elected the fair value method to measure each class of servicing rights subsequent to initial recognition, as we believe that fair value is a more meaningful measure of our expected right or obligation with respect to these classes of servicing assets or liabilities, respectively. This election is irrevocable for these classes of servicing assets or liabilities. The fair value of our servicing assets associated with Bank Partner loans was $54.9 million and $30.8 million as of December 31, 2021 and 2020, respectively, which is recorded within other assets in the Consolidated Balance Sheets. The fair value of our servicing liabilities associated with Bank Partner loans and charged-off receivables was $12.3 million and $2.0 million as of December 31, 2021 and 2020, respectively, which is recorded within other liabilities in the Consolidated Balance Sheets. Changes in the fair value of our servicing assets and liabilities related to our bank partner arrangements are recorded within servicing revenue and changes in the fair value of our servicing liabilities related to charged-off receivables are recorded within other gains (losses), net in the Consolidated Statements of Operations.
The determination of the fair values of our servicing assets and liabilities requires management judgment due to the number of assumptions that underlie the valuation, including: market cost of servicing, discount rate, weighted average remaining life and recovery period. See Note 3 to the Consolidated Financial Statements in Part II, Item 8 for a qualitative discussion of how changes in each of these assumptions are generally expected to affect our fair value measures. Our servicing assets and liabilities are classified within Level 3 of the fair value hierarchy, as the primary components of the fair values are obtained from unobservable inputs based on peer market data, reasonably adjusted for assumptions that would be used by market participants to service our Bank Partner loans and transferred charged-off receivables portfolios, for which market data is not available.
During the year ended December 31, 2019, we renegotiated certain Bank Partner agreements pursuant to which we agreed to post additional escrow and increase the agreed-upon Bank Partner portfolio yield. In exchange for these considerations, we received an increase in our loan servicing fees from the Bank Partners. We determined that the increase in servicing fees resulted in an increase to the fair value of our servicing assets for these Bank Partners. We also anticipate that, all other factors remaining constant, these increased servicing fees will contribute to lower incentive payments received in future periods from the Bank Partners. Further, the fair value of our servicing assets is determined based on the serviced loan portfolios at the date of measurement and does not take into account potential future loan sales between Bank Partners within our network or between GreenSky and our Bank Partners, institutional investors, or financial institutions. When such transactions occur, they could materially impact the fair value measure of our servicing assets if the contractually specified fixed servicing fees vary between the seller and purchaser.
Financial Guarantees
Under the terms of the contracts with our Bank Partners, we provide limited protection to the Bank Partners in the event of certain Bank Partner portfolio credit losses or in the event that certain finance charges billed to borrowers do not exceed the sum of an agreed-upon portfolio yield, a fixed servicing fee and realized credit losses, by holding cash in restricted, interest-bearing escrow accounts in an amount equal to a contractual percentage of the Bank Partners’ monthly originations and month-end outstanding portfolio balance, which represented a weighted average target rate of 2.8% of the total outstanding balance of the relevant Bank Partner portfolio loans as of December 31, 2021. The Company’s maximum exposure under these financial guarantees is contractually limited to the escrow that we establish with each Bank Partner. Cash set aside to meet this requirement is classified as restricted cash in our Consolidated Balance Sheets and totaled $164.2 million as of December 31, 2021.
72

Our contracts with our Bank Partners entitle us to incentive payments when the finance charges billed to borrowers exceed the sum of an agreed-upon portfolio yield, a fixed servicing fee and realized credit losses. This incentive payment varies from month to month, primarily due to the amount of realized credit losses. If credit losses exceed an agreed-upon threshold, we are obligated to make limited payments to our Bank Partners. This obligation represents a financial guarantee in accordance with ASC 460, Guarantees. Under ASC 460, the guarantor undertakes a noncontingent obligation to stand ready to perform over the term of the guarantee and a contingent obligation to make future payments if the triggering events or conditions under the guarantee arrangements occur.
Effective January 1, 2020, we adopted the provisions of ASU 2016-13, which apply only to the contingent aspect of the guarantee arrangement. Under the new standard, we are required to estimate the expected credit losses over the contractual period in which we are exposed to credit risk via a present contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the issuer. As applied to our financial guarantee arrangements, we are required to estimate expected credit losses, and the impact of those estimates on our potential escrow payments, for loans within our Bank Partner portfolios that are either funded or approved for funding at the measurement date, but are precluded from including future loan originations by our Bank Partners. Consistent with the modeling of loan losses for any consumer loan portfolio assumed to go into "run-off," our recognized financial guarantee liability under this model represents a significant portion of the contractual escrow established with each Bank Partner. Typically, additional financial guarantee liabilities are recorded as new Bank Partner loans are facilitated, along with a corresponding non-cash charge recorded as financial guarantee expense in the Consolidated Statements of Operations. Historically, our actual cash payments required under the financial guarantee arrangements have been immaterial for our ongoing Bank Partners.
As the terms of our guarantee arrangements are determined contractually with each Bank Partner, we measure our contingent obligation separately for each Bank Partner using a discounted cash flow method based on estimates of the outstanding loan attributes of the Bank Partner's loan servicing portfolio and our expectations of forecasted information, including macroeconomic conditions, over the period that our financial guarantee is expected to be used in a "run-off" scenario. We use our historical experience as a basis for estimating escrow usage and adjust for current conditions or forecasts of future conditions if they are determined to vary from our historical experience. Refer to Note 14 for additional information on our financial guarantees.
For periods prior to January 1, 2020, the contingent aspect of the financial guarantee continues to be presented and disclosed in accordance with legacy guidance in ASC 450, Contingencies. Under this guidance, the contingent aspect of the financial guarantee represented the amount of payments to Bank Partners from the escrow accounts that we expected to be probable of occurring based on Bank Partner portfolio composition and our near-term expectation of credit losses. In estimating the obligation, we considered a variety of factors, including historical experience, management’s expectations of current customer delinquencies converting into Bank Partner portfolio credit losses and recent events and circumstances. The estimated contingent value of the financial guarantee was $131.9 million as of December 31, 2020.
As of December 31, 2021, the estimated value of the escrow financial guarantee was $104.1 million relative to our $164.2 million contractual escrow that was included in our restricted cash balance as of December 31, 2021. Refer to Note 1 to the Consolidated Financial Statements in Part II, Item 8 for additional discussion of our accounting for financial guarantees.
Income taxes
Our income tax expense, deferred tax assets and tax receivable agreement liability reflect management’s best assessment of estimated current and future taxes. Significant judgments and estimates are required in determining the consolidated income tax expense, deferred tax assets and tax receivable agreement liability. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including projected future taxable income and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future state and federal pre-tax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment
73

and are consistent with the plans and estimates we are using to manage our business. Refer to Note 13 to the Consolidated Financial Statements in Part II, Item 8 for additional discussion of our accounting for income taxes.
Loan Receivables Held for Sale
Loan receivables held for sale represent a 100% participation interest in certain loans originated by our Bank Partners under the GreenSky program that the Company subsequently purchases with the intent to sell to a third party at carrying value. Loan receivables held for sale are recorded at fair value in the Consolidated Balance Sheets at the time a loan receivable is purchased and are subsequently measured at the lower of cost or fair value on an aggregate homogeneous portfolio basis. We apply the market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities, to value our loan receivables held for sale. Changes in the fair value of our loan receivables held for sale are recorded within cost of revenue in the Consolidated Statements of Operations.
Our loan receivables held for sale are primarily loan participations owned by the Warehouse SPV, which are expected to be sold around or below par to institutional investors, financial institutions and other capital markets investors. Fair value of our loan receivables held for sale is determined based on the anticipated sale price of such participations to third parties. Loan receivables held for sale are classified within Level 2 of the fair value hierarchy, as the primary component of the price is obtained from observable values of loan receivables with similar terms and characteristics.
In May 2020, as part of implementing GreenSky's program to accomplish alternative funding structures, the Company entered into a series of agreements (collectively, the “Facility Bank Partner Agreements”) with an existing Bank Partner, to provide a framework for the programmatic sale of loan participations and whole loans by that Bank Partner to third parties. Under the Facility Bank Partner Agreements, it is contemplated that potential purchasers issue purchase commitments to the Bank Partner. The Company has certain sales facilitation obligations related thereto that qualify as embedded derivatives and are not designated as hedges for accounting purposes. As such, these sales facilitation obligations are recorded at fair value and changes in their respective fair value are recorded within cost of revenue in the Consolidated Statements of Operations.
The fair value of sales facilitation obligations is based on the difference between par and the anticipated sale prices of such participations to third parties. As such, the fair value is classified within Level 2 of the fair value hierarchy, as the primary component of the price is obtained from observable values of loan receivables with similar terms and characteristics.
See Part II, Item 7A for a discussion of our exposure to interest rate risk and credit risk as it relates to our loan receivables held for sale. Our discussion in Item 7A provides a useful sensitivity analysis to help facilitate a further understanding of the impact of our loan receivables held for sale on our net income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including changes to interest rates, and credit risk. However, regarding interest rate risk, we do not expect changes in interest rates to have a material impact on our ability to finance our cost of capital, given our relatively capital-light operating model.
We have established processes and procedures intended to identify, measure, monitor and control the types of risk to which we are subject. The Audit Committee of our Board of Directors is responsible for overseeing the Company’s major financial risk exposures and reviewing the steps management has taken to monitor and control such exposures.
Interest rate risk
Loans in our Bank Partners' Portfolios. The agreed upon Bank Partner portfolio yield on the loans in our Bank Partners' portfolios is calculated based upon a margin above a market benchmark at the time of origination. An increase in the market benchmark could result in an increase in the agreed upon Bank Partner portfolio yield, which impacts future incentive payments and, therefore, could negatively impact the future fair value change in our FCR liability. We are able to manage some of the interest rate risk impact on our FCR liability through the types of loan
74

products that we design and make available through our program (e.g., higher interest rate products, all else equal, result in higher incentive payments). However, increased interest rates may adversely impact the spending levels of our merchants’ customers and their ability and willingness to borrow money. Higher interest rates often lead to higher payment obligations, which may reduce the ability of customers to remain current on their obligations to our Bank Partners and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreasing recoveries, all of which could have a material adverse effect on our business and also negatively impact the fair value change in FCR liability, which is recorded within cost of revenue in the Consolidated Statements of Operations. Further, even though we generally intend to increase our transaction fee rates or annual percentage rates on loan products in response to rising interest rates, we might not be able to do so rapidly enough (or at all).
Loan receivables held for sale. Changes in United States interest rates affect the interest earned on our cash and cash equivalents and could impact the market value of loan receivables held for sale. A hypothetical 100 basis points increase in interest rates may have resulted in a decrease of $0.1 million and $5.9 million in the carrying value of our loan receivables as of December 31, 2021 and December 31, 2020, respectively. Alternatively, a 100 basis points decrease in interest rates would not have impacted the reported value of our loan receivables held for sale, as they are carried at the lower of cost or fair value.
Term loan. Interest rate fluctuations expose our variable-rate term loan, which consisted of our $400.0 million term loan under the 2018 Amended Credit Agreement and our $75.0 million term loan under the 2020 Amended Credit Agreement, to changes in interest expense and cash flows. The term loan has a maturity date of March 29, 2025. Based on an outstanding principal balance of $458.9 million as of December 31, 2021, and accounting for our scheduled quarterly principal balance repayments, a hypothetical 100 basis point increase in the one-month benchmark rate would result in an increase in annualized interest expense of $4.6 million.
Warehouse Facility. Our variable-rate Warehouse Facility, which provides a revolving committed financing of $555.0 million including $500.0 million under the Class A commitment and $55.0 million under the Class B commitment, is exposed to the risk of interest rate fluctuations. The revolving funding period of the Warehouse Facility expires on March 31, 2022 and the maturity date is March 31, 2023. Based on the outstanding principal balance of $0.0 million as of December 31, 2021, a hypothetical 100 basis point increase in the commercial paper conduit funding rate would result in no increase in annualized interest expense. The Warehouse SPV entered into a $555.0 million notional amortizing interest rate cap to protect against changes in cash flows attributable to interest rate risk on the variable-rate Warehouse Facility to the extent three-month LIBOR exceeds 2.5%. The interest rate cap applicable to the Warehouse Facility has a maturity date of December 18, 2023.
Credit risk
Credit risk management is a critical component of our management and growth strategy. Credit risk refers to the risk of loss arising from consumer default when GreenSky program borrowers are unable or unwilling to meet their financial obligations. While COVID-19 continues to impact the overall macroeconomic environment and may negatively impact our credit loss rate over at least the next 12 months, we expect our long-term credit loss rate to stay relatively constant over time; however, our portfolio may change as we look for additional opportunities to generate attractive risk-adjusted returns for our Bank Partners. Additionally, we manage our exposure to counterparty credit risk through requirement of minimum credit standards, diversification of counterparties and procedures to monitor concentrations of credit risk.
Loans in our Bank Partners' Portfolios. Our Bank Partners own and bear substantially all of the credit risk on their wholly-owned loan portfolios. On behalf of our Bank Partners as part of our obligation as the loan servicer, we try to mitigate portfolio credit losses through our collection efforts on past due amounts. For loans wholly owned by our Bank Partners, our credit risk exposure impacts the amount of incentive payments and, therefore, the amount of fair value change in FCR liability, as well as any potential financial guarantee payments. Restricted cash was set aside in escrow with our Bank Partners at a weighted average target rate of 2.8% of the total outstanding loan balance as of December 31, 2021. As of December 31, 2021, the financial guarantee liability associated with our escrow arrangements recognized in accordance with ASU 2016-13 represents over 60% of the contractual escrow that we have established with each Bank Partner.
75

Based on our incentive payments received during the years ended December 31, 2021 and 2020, and holding all other inputs constant (namely, the size of our loan servicing portfolio and settlement activity), a hypothetical 100 basis point increase in loan servicing portfolio credit losses would result in increases of $56.9 million and $72.5 million, respectively, in the fair value of our FCR liability. Further, such an increase in credit losses would cause us to incur additional financial guarantee expense of $16.2 million and $13.1 million during the years ended December 31, 2021 and 2020, respectively.
Loan receivables held for sale. We bear all of the credit risk associated with the loan receivables that we hold for sale, which decreased significantly as of December 31, 2021 to 1,197 loans. As of December 31, 2020, this portfolio was highly diversified across 61,142 consumer loan receivables without significant individual exposures. Based on our $5.3 million and $571.4 million loan receivables held for sale balance as of December 31, 2021 and 2020, respectively, a hypothetical 100 basis point increase in portfolio credit losses would result in lower annualized earnings of $0.1 million and $5.7 million, respectively.
Contingent consideration receivables. In exchange for selling loan participations to institutional investors, financial institutions and other funding sources, the Company in some cases receives a beneficial interest in the form of additional contingent consideration. The amount of the additional contingent consideration the Company may receive at a later date is based on certain potential outcomes (typically based on the credit performance of the assets sold or the underlying loans), which are significantly impacted by credit risk. Increases in credit losses related to loan participations subject to such additional contingent consideration will reduce the fair value of the contingent consideration receivables but such fair value can never be less than $0.
76

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

77

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of GreenSky, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of GreenSky Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of changes in equity (deficit) and of cash flows, for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
78

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Fair Value of Finance Charge Reversal Liability

As described in Note 3 to the consolidated financial statements, the Company has recorded a finance charge reversal liability of $144 million as of December 31, 2021. The Company’s Bank Partners offer certain loan products that have a feature whereby the account holder is provided a promotional period to repay the loan principal balance in full without incurring a finance charge. For these loan products, the Company bills interest each month throughout the promotional period and, under the terms of the contracts with Bank Partners, is obligated to pay this billed interest to the Bank Partners if an account holder pays off the loan balance in full within the promotional period. The finance charge reversal liability is carried at fair value on a recurring basis in the Consolidated Balance Sheets and is estimated based on historical experience and management’s expectation of future finance charge reversals. The discount rate and estimated reversal rates for billed interest on deferred loan products are the significant unobservable inputs used to value the finance charge reversal liability. The finance charge reversal liability is classified within Level 3 of the fair value hierarchy, as the primary component of the fair value is obtained from unobservable inputs based on the Company’s data, reasonably adjusted for assumptions that would be used by market participants.

The principal considerations for our determination that performing procedures relating to the fair value of the finance charge reversal liability is a critical audit matter are the significant judgment applied by management when developing the estimated reversal rates for billed interest on deferred loan products, which is used to estimate the finance charge reversal liability. This in turn led to a high degree of auditor judgment and effort in performing procedures to evaluate the reversal rates used to estimate the finance charge reversal liability and the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s process for determining the estimate of future finance charge reversals, including controls over determining the estimated reversal rates. These procedures also included, among others, evaluating and testing management’s process for determining the fair value of the finance charge reversal liability by (i) evaluating the appropriateness of management’s method for estimating future finance charge reversals; (ii) testing the completeness, accuracy and relevance of actual historical reversal rates for billed interest on deferred loan products used by management; (iii) evaluating the reasonableness of the estimated reversal rates used; and (iv) for a sample of loans, confirming that each loan was either paid off or not paid off in the promotional period consistent with the company's analysis. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s estimated reversal rates.

Fair Value of Servicing Assets and Liabilities

As described in Notes 1 and 3 to the consolidated financial statements, the Company has recorded a servicing asset of $55 million and a servicing liability of $12 million as of December 31, 2021. The Company assumes a right, obligation, or neither a right nor obligation to service consumer loans each time a loan is originated by a Bank
79

Partner. When the Company determines that the compensation it receives to service loans is more or less than adequate, the Company assesses the fair value of a servicing asset or liability, respectively, using a discounted cash flow model and subsequently measures the servicing asset or liability at fair value. The cost of servicing, discount rate, and weighted average remaining life are the significant unobservable inputs used to value the servicing assets and liabilities. Servicing assets and liabilities are classified within Level 3 of the fair value hierarchy, as the primary components of the fair values are obtained from unobservable inputs based on peer market data, reasonably adjusted for assumptions that would be used by market participants to service the Company’s Bank Partner loans for which market data is not available.

The principal considerations for our determination that performing procedures relating to the fair value of servicing assets and liabilities is a critical audit matter are the significant judgment by management in determining the fair value of the servicing assets and liabilities. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating the audit evidence obtained related to the cost of servicing, discount rate, and weighted average remaining life assumptions used to estimate the fair value of the servicing asset and liability. Professionals with specialized skill and knowledge were used to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s process for determining the fair value of the servicing assets and liabilities, including controls over the Company’s model, assumptions, and data. These procedures also included, among others, testing the completeness, accuracy and relevance of historical data used by management and the involvement of professionals with specialized skill and knowledge to assist in testing management’s process by evaluating the appropriateness of management’s valuation model and the reasonableness of the significant assumptions related to the cost of servicing, discount rate, and weighted average remaining life.


/s/ PricewaterhouseCoopers LLP

Atlanta, GA
March 11, 2022

We have served as the Company’s auditor since 2014.

80

GreenSky, Inc.
CONSOLIDATED BALANCE SHEETS
(United States Dollars in thousands, except share data)
December 31,
 20212020
Assets 
Cash and cash equivalents$296,406 $147,775 
Restricted cash256,034 319,879 
Loan receivables held for sale, net5,320 571,415 
Accounts receivable, net of allowance of $150 and $313, respectively
19,105 21,958 
Property, equipment and software, net23,387 21,452 
Deferred tax assets, net488,386 387,951 
Other assets100,122 52,643 
Total assets