GreenSky, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			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)


Delaware		82-2135346
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5565 Glenridge Connector, Suite 700, Atlanta, Georgia		30342
(Address of principal executive offices)		(Zip Code)
	(678) 264-6105
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of class	Trading Symbol	Name of exchange on which registered
Class A common stock, $0.01 par value	GSKY	Nasdaq Global Select Market

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 filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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 October 31, 2021
Class A, $0.01 par value(1)						92,135,967
Class B, $0.001 par value(2)						92,097,189

(1) Includes 4,934,112 shares of unvested Class A common stock awards.

(2) Includes 302,060 shares of Class B common stock associated with unvested GreenSky Holdings, LLC units.

GreenSky, Inc.

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020 (Unaudited)	4

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	6

	Condensed Consolidated Statements of Changes in Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)	7

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)	9

	Notes to Unaudited Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63

Item 4.	Controls and Procedures	65

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	66

Item 1A.	Risk Factors	66

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

Item 3.	Defaults Upon Senior Securities	72

Item 4.	Mine Safety Disclosures	72

Item 5.	Other Information	72

Item 6.	Exhibits	73

Signatures		74

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly 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 by Goldman Sachs 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 I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report 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 “Risk Factors” and elsewhere in this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2020, and in Goldman Sachs's Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021, June 30, 2021 and September 30, 2021. 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.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GreenSky, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(United States Dollars in thousands, except share data)


	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	241,970	$	147,775
Restricted cash	264,387		319,879
Loan receivables held for sale, net	327,045		571,415
Accounts receivable, net of allowance of $168 and $313, respectively	17,629		21,958
Property, equipment and software, net	22,630		21,452
Deferred tax assets, net	407,239		387,951
Other assets	124,120		52,643
Total assets	$	1,405,020	$	1,523,073
Liabilities and Equity (Deficit)
Liabilities
Accounts payable	$	10,797	$	15,418
Accrued compensation and benefits	16,624		13,666
Other accrued expenses	15,880		5,207
Finance charge reversal liability	139,307		185,134
Term loan	451,190		452,806
Warehouse facility	278,278		502,830
Tax receivable agreement liability	332,299		310,425
Financial guarantee liability	114,472		131,894
Other liabilities	120,695		81,169
Total liabilities	1,479,542		1,698,549
Commitments, Contingencies and Guarantees (Note 14)
Equity (Deficit)
Class A common stock, $0.01 par value and 105,659,661 shares issued and 90,015,687 shares outstanding at September 30, 2021 and 91,317,225 shares issued and 76,734,106 shares outstanding at December 31, 2020	1,056		912
Class B common stock, $0.001 par value and 94,279,039 shares issued and outstanding at September 30, 2021 and 106,165,105 shares issued and outstanding at December 31, 2020	95		107
Additional paid-in capital	115,234		110,938
Retained earnings	68,192		33,751
Treasury stock	(150,104)		(147,360)
Accumulated other comprehensive income (loss)	(3,457)		(4,340)
Noncontrolling interests	(105,538)		(169,484)
Total equity (deficit)	(74,522)		(175,476)
Total liabilities and equity (deficit)	$	1,405,020	$	1,523,073

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(United States Dollars in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Transaction fees	$	98,597	$	107,538	$	286,694	$	299,199
Servicing	26,116		27,446		92,158		87,210
Interest and other	3,436		7,039		10,987		10,433
Total revenue	128,149		142,023		389,839		396,842
Costs and expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)	33,867		92,728		141,799		230,410
Compensation and benefits	22,858		21,301		67,249		65,190
Property, office and technology	4,289		4,143		13,277		12,242
Depreciation and amortization	3,548		2,973		10,343		8,180
Sales, general and administrative	6,689		11,614		32,212		30,068
Financial guarantee expense (benefit)	2,033		(302)		(7,730)		28,354
Merger-related costs	5,036		—		5,036		—
Related party	435		350		1,339		1,304
Total costs and expenses	78,755		132,807		263,525		375,748
Operating profit	49,394		9,216		126,314		21,094
Other income (expense), net
Interest and dividend income	146		157		423		1,025
Interest expense	(6,801)		(6,775)		(20,136)		(18,289)
Other gains, net	1,406		410		2,834		2,216
Total other income (expense), net	(5,249)		(6,208)		(16,879)		(15,048)
Income before income tax expense	44,145		3,008		109,435		6,046
Income tax expense	4,368		197		10,822		799
Net income	$	39,777	$	2,811	$	98,613	$	5,247
Less: Net income attributable to noncontrolling interests	25,388		1,850		64,096		3,487
Net income attributable to GreenSky, Inc.	$	14,389	$	961	$	34,517	$	1,760

Earnings per share of Class A common stock:
Basic	$	0.19	$	0.01	$	0.47	$	0.03
Diluted	$	0.19	$	0.01	$	0.46	$	0.02

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(United States Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	39,777	$	2,811	$	98,613	$	5,247
Other comprehensive income (loss), net of tax
Net unrealized gains (losses) on interest rate swap	(878)		(493)		(458)		(14,037)
Reclassification of interest rate swap settlements into interest expense during the period	1,370		1,318		4,050		2,453
Other comprehensive income (loss), net of tax	492		825		3,592		(11,584)
Comprehensive income (loss)	40,269		3,636		102,205		(6,337)
Less: Comprehensive income (loss) attributable to noncontrolling interests	26,002		2,624		66,805		(4,148)
Comprehensive income (loss) attributable to GreenSky, Inc.	$	14,267	$	1,012	$	35,400	$	(2,189)

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (Unaudited)

(United States Dollars in thousands, except share data)


	GreenSky, Inc. Stockholders Equity
	Class A Shares	Class B Shares	Class A Amount		Class B Amount		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
Balance at June 30, 2021	78,792,505	105,451,261	$	942	$	106	$	115,309	$	53,827	$	(149,490)	$	(3,335)	$	(135,825)	$	(118,466)
Net income	—	—	—		—		—		14,389		—		—		25,388		39,777

Issuance of unvested Class A common stock awards	61,932	—	1		—		(1)		—		—		—		—		—
Class A common stock option exercises	174,346	—	1		—		784		—		—		—		—		785
Class B common stock exchanges	11,172,222	(11,172,222)	112		(11)		(101)		—		—		—		—		—

Forfeited share-based compensation awards	(107,240)	—	—		—		—		—		—		—		—		—

Shares withheld related to net share settlement and other	(78,078)	—	—		—		—		—		(614)		—		—		(614)
Distributions	—	—	—		—		—		(24)		—		—		(4,803)		(4,827)
Share-based compensation	—	—	—		—		4,033		—		—		—		—		4,033

Tax adjustments	—	—	—		—		4,298		—		—		—		—		4,298
Impact of noncontrolling interest on change in ownership during period	—	—	—		—		(9,088)		—		—		—		9,088		—
Other comprehensive income, net of tax	—	—	—		—		—		—		—		(122)		614		492
Balance at September 30, 2021	90,015,687	94,279,039	$	1,056	$	95	$	115,234	$	68,192	$	(150,104)	$	(3,457)	$	(105,538)	$	(74,522)


	GreenSky, Inc. Stockholders Equity
	Class A Shares	Class B Shares	Class A Amount		Class B Amount		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
Balance at December 31, 2020	76,734,106	106,165,105	$	912	$	107	$	110,938	$	33,751	$	(147,360)	$	(4,340)	$	(169,484)	$	(175,476)
Net income	—	—	—		—		—		34,517		—		—		64,096		98,613

Issuance of unvested Class A common stock awards	2,263,300	—	23		—		(23)		—		—		—		—		—
Class A common stock option exercises	193,070	—	2		—		769		—		—		—		—		771
Class B common stock exchanges	11,886,066	(11,886,066)	119		(12)		(107)		—		—		—		—		—

Forfeited share-based compensation awards	(620,038)	—	—		—		—		—		—		—		—		—

Shares withheld related to net share settlement and other	(440,817)	—	—		—		—		—		(2,744)		—		—		(2,744)
Distributions	—	—	—		—		—		(76)		—		—		(15,506)		(15,582)
Share-based compensation	—	—	—		—		11,769		—		—		—		—		11,769
Equity-based payments to non-employees	—	—	—		—		7		—		—		—		—		7
Tax adjustments	—	—	—		—		4,528		—		—		—		—		4,528
Impact of noncontrolling interest on change in ownership during period	—	—	—		—		(12,647)		—		—		—		12,647		—
Other comprehensive income, net of tax	—	—	—		—		—		—		—		883		2,709		3,592
Balance at September 30, 2021	90,015,687	94,279,039	$	1,056	$	95	$	115,234	$	68,192	$	(150,104)	$	(3,457)	$	(105,538)	$	(74,522)

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (Continued) (Unaudited)

(United States Dollars in thousands, except share data)


	GreenSky, Inc. Stockholders Equity
	Class A Shares	Class B Shares	Class A Amount		Class B Amount		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
Balance at June 30, 2020	73,350,234	108,994,392	$	873	$	110	$	112,700	$	24,512	$	(147,005)	$	(4,756)	$	(183,302)	$	(196,868)
Net income	—	—	—		—		—		961		—		—		1,850		2,811

Issuance of unvested Class A common stock awards	319,224	—	3		—		(3)		—		—		—		—		—

Class B common stock exchanges	1,776,886	(1,776,887)	18		(2)		(16)		—		—		—		—		—

Forfeited share-based compensation awards	(65,079)	—	—		—		—		—		—		—		—		—

Shares withheld related to net share settlement and other	(73,764)	—	—		—		—		—		(322)		—		—		(322)
Distributions	—	—	—		—		—		23		—		—		(17,074)		(17,051)
Share-based compensation	—	—	—		—		4,334		—		—		—		—		4,334
Equity-based payments to non-employees	—	—	—		—		4		—		—		—		—		4
Tax adjustments	—	—	—		—		389		—		—		—		—		389
Impact of noncontrolling interest on change in ownership during period	—	—	—		—		(7,627)		—		—		—		7,627		—
Other comprehensive income, net of tax	—	—	—		—		—		—		—		51		774		825
Balance at September 30, 2020	75,307,501	107,217,505	$	894	$	108	$	109,781	$	25,496	$	(147,327)	$	(4,705)	$	(190,125)	$	(205,878)


	GreenSky, Inc. Stockholders Equity
	Class A Shares	Class B Shares	Class A Amount		Class B Amount		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest		Total
Balance at December 31, 2019	66,424,838	113,517,198	$	800	$	114	$	115,782	$	56,109	$	(146,234)	$	(756)	$	(80,758)	$	(54,943)
Net income	—	—	—		—		—		1,760		—		—		3,487		5,247
Cumulative effect of accounting change(1)	—	—	—		—		—		(32,212)		—		—		(75,447)		(107,659)
Issuance of unvested Class A common stock awards	3,140,959	—	31		—		(31)		—		—		—		—		—
Class A common stock option exercises	15,051	—	—		—		(73)		—		—		—		—		(73)
Class B common stock exchanges	6,299,693	(6,299,693)	63		(6)		(57)		—		—		—		—		—

Forfeited share-based compensation awards	(360,230)	—	—		—		—		—		—		—		—		—

Shares withheld related to net share settlement and other	(212,810)	—	—		—		—		—		(1,093)		—		—		(1,093)
Distributions	—	—	—		—		—		(161)		—		—		(48,405)		(48,566)
Share-based compensation	—	—	—		—		11,306		—		—		—		—		11,306
Equity-based payments to non-employees	—	—	—		—		12		—		—		—		—		12
Tax adjustments	—	—	—		—		1,475		—		—		—		—		1,475
Impact on noncontrolling interest of change in ownership during period	—	—	—		—		(18,633)		—		—		—		18,633		—
Other comprehensive loss, net of tax	—	—	—		—		—		—		—		(3,949)		(7,635)		(11,584)
Balance at September 30, 2020	75,307,501	107,217,505	$	894	$	108	$	109,781	$	25,496	$	(147,327)	$	(4,705)	$	(190,125)	$	(205,878)

(1)Represents the cumulative effect resulting from our adoption of the Financial Accounting Standards Board Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments. See Note 1 to the Unaudited Condensed Consolidated Financial Statements for additional information on our implementation.

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(United States Dollars in thousands)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	98,613	$	5,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,343		8,180
Share-based compensation expense	11,769		11,306

Fair value change in servicing assets and liabilities	(9,995)		(1,370)
Operating lease liability payments	105		(342)
Financial guarantee expense (benefit)	(20,286)		26,274
Amortization of debt related costs	2,535		1,748
Original issuance discount on term loan payment	(54)		(18)
Income tax expense	10,820		799


Mark to market on loan receivables held for sale	3,863		17,332
Other	7		200
Changes in assets and liabilities:
(Increase) decrease in loan receivables held for sale	240,506		(508,722)
(Increase) decrease in accounts receivable	4,329		(1,442)
(Increase) decrease in other assets	(54,082)		(3,354)
Increase (decrease) in accounts payable	(4,621)		3,184
Increase (decrease) in finance charge reversal liability	(45,827)		(18,523)
Increase (decrease) in guarantee liability	(25,151)		(64)
Increase (decrease) in other liabilities	77,980		29,073
Net cash provided by (used in) operating activities	300,854		(430,492)
Cash flows from investing activities
Purchases of property, equipment and software	(11,311)		(12,120)
Net cash used in investing activities	(11,311)		(12,120)
Cash flows from financing activities
Proceeds from term loan	—		70,494
Repayments of term loan	(3,509)		(3,170)
Proceeds from Warehouse facility	328,781		570,000
Repayments of Warehouse facility	(553,333)		(137,160)
Member distributions	(16,746)		(50,965)
Payments under tax receivable agreement	(4,098)		(12,755)
Proceeds from option exercises	817		—
Tax withholding payments on equity compensation	(2,752)		(1,166)

Net cash provided by (used in) financing activities	(250,840)		435,278
Net increase (decrease) in cash and cash equivalents and restricted cash	38,703		(7,334)
Cash and cash equivalents and restricted cash at beginning of period	467,654		445,841
Cash and cash equivalents and restricted cash at end of period	$	506,357	$	438,507

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited)

(United States Dollars in thousands)


	Nine Months Ended September 30,
	2021		2020
Supplemental non-cash investing and financing activities
Distributions accrued but not paid	$	1,570	$	3,470
Capitalized software costs accrued but not paid	605		435
Tax withholding on equity awards accrued but not paid	38		21
Beneficial interest in contingent consideration	19,350		—

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 1. Organization, Summary of Significant Accounting Policies and New Accounting Standards

Organization

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").

We are a leading technology company Powering Commerce at the Point of Sale®. Our platform is powered by a proprietary, patented technology infrastructure that facilitates merchant sales, while reducing the friction and improving the economics associated with a consumer making a purchase and a lender or financial institution extending financing for that purchase. It supports the full transaction lifecycle, including credit application, underwriting, real-time loan allocation to our Bank Partners, document distribution, funding, settlement and servicing. Merchants using our platform, which presently range from small, owner-operated home improvement contractors and healthcare providers to large national home improvement brands and retailers and healthcare service organizations, rely on us to facilitate low or deferred interest promotional point-of-sale financing and payments solutions that enable higher sales volume than they could otherwise achieve on their own. Consumers on our platform, who to date primarily have super-prime or prime credit scores, find financing with promotional terms to be an attractive alternative to other forms of payment. Our Bank Partners' access to our proprietary technology solution and merchant network enables them to build a diversified portfolio of high-quality consumer loans with attractive risk-adjusted yields with minimal upfront investment.

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, as further described in the GreenSky, Inc. Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 10, 2021 (the "2020 Form 10-K"), 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, LLC ("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.

The IPO and Reorganization Transactions resulted in the Company becoming the sole managing member of GS Holdings. As the sole managing member of GS Holdings, we operate and control all of GS Holdings’ operations and, through GS Holdings and its subsidiaries, conduct GS Holdings’ business. The Company consolidates the financial results of GS Holdings and reports a noncontrolling interest in its Unaudited Condensed Consolidated Financial Statements representing the GS Holdings interests held by the Continuing LLC Members, as such term is defined in the 2020 Form 10-K. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to the Company and the noncontrolling interest.

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.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Pending Merger

On September 14, 2021, GreenSky, Inc. and 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 approval of the Company’s stockholders, 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.

Summary of Significant Accounting Policies

Basis of Presentation

The Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the rules and regulations of the SEC for interim financial statements. We condensed or omitted certain notes and other information from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these interim statements should be read in conjunction with the 2020 Form 10-K. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of our financial condition and results of operations for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2020, was derived from the audited annual consolidated financial statements, but does not contain all of the footnote disclosures from the annual consolidated financial statements required by United States generally accepted accounting principles ("GAAP"). All intercompany balances and transactions are eliminated upon consolidation. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results expected for the full year.

Certain reclassifications have been made to the prior year presentation to conform to the current year presentation in the Unaudited Condensed Consolidated Statements of Operations. These reclassifications were not material to the financial statements.

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, financial guarantees, share-based compensation and income taxes. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Cash and Cash Equivalents and Restricted Cash

Cash and Cash Equivalents

Cash includes non-interest and interest-bearing demand deposit accounts with various financial institutions. We consider all highly liquid investments that mature three months or less from the date of purchase to be cash equivalents. Cash equivalents include money market mutual fund accounts, which are invested in government securities that are either guaranteed by the Federal Deposit Insurance Corporation of the U.S. government ("FDIC") or are secured by U.S. government-issued collateral for which the risk of loss from nonpayment is presumed to be zero. As such, we do not establish an allowance for credit losses on our cash equivalents. Further, the carrying amounts of our cash equivalents approximate their fair values due to their short maturities and highly liquid nature. Refer to Note 3 for additional information on our fair value measurement.

Restricted Cash

Restricted cash includes cash held in interest-bearing escrow accounts to provide limited protection to our 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. Restricted cash also includes cash maintained for certain Bank Partners related to our finance charge reversal ("FCR") liability, certain custodial in-transit loan funding and consumer borrower payments that were restricted from use for our operations, and cash related to collections in connection with Warehouse Loan Participations. Refer to Note 14 for additional information.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Unaudited Condensed Consolidated Balance Sheets to the total included within the Unaudited Condensed Consolidated Statements of Cash Flows as of the dates indicated.


	September 30,
	2021		2020
Cash and cash equivalents	$	241,970	$	113,573
Restricted cash	264,387		324,934
Cash and cash equivalents and restricted cash in Unaudited Condensed Consolidated Statements of Cash Flows	$	506,357	$	438,507

Accounts Receivable

Accounts receivable are recorded at their original invoice amounts, which are reduced by any allowance for uncollectible amounts. We use the aging method to establish an allowance for expected credit losses on accounts receivable balances and consider whether current conditions or reasonable and supportable forecasts about future conditions warrant an adjustment to our historical loss experience. In applying such adjustments, we primarily consider changes in counterparty credit risk and changes in the underlying macroeconomic environment. Accounts receivable are written off once delinquency exceeds 90 days. Recoveries of previously written off accounts receivable are recognized on a collected basis as a reduction to the provision for credit losses, which is included within sales, general and administrative expense in the Unaudited Condensed Consolidated Statements of Operations. Refer to Note 5 for additional information on our accounts receivable.

Fair Value of Assets and Liabilities

We have financial assets and liabilities subject to fair value measurement or disclosure on either a recurring or nonrecurring basis. Such measurements or disclosures relate to our cash and cash equivalents, loan receivables held for sale, derivative instruments, servicing assets and liabilities, contingent consideration receivables, and term loan.

ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In valuing this asset or liability, we utilize market data or reasonable assumptions that market participants would use, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The guidance provides a

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

three-level valuation hierarchy for disclosure of fair value measurements based on the transparency of inputs to the valuation of an asset or a liability as of the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

An asset’s or a liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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 cash and cash equivalents and loan receivables held for sale. We apply the income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount, to value our FCR liability, contingent consideration receivables, and servicing assets and liabilities. We determine the fair values of our interest rate swap, interest rate cap, and term loan by applying a discounted cash flow model based on observable market factors and credit factors specific to us.

Refer to Note 3 for additional fair value disclosures.

Derivative Instruments

We are exposed to interest rate risk on our variable-rate term loan, which we manage through an interest rate swap that is determined to be a derivative in accordance with ASC 815, Derivatives and Hedging. Derivatives are recorded on the balance sheet at fair value and are marked-to-market on a quarterly basis. The accounting for the change in fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate the derivative as a hedge and apply hedge accounting, and whether the hedging relationship continues to satisfy the criteria required to apply hedge accounting.

Derivatives designated and qualifying as a hedge of the exposure to variability in cash flows of a recognized asset or liability that is attributable to a particular risk are considered cash flow hedges. The primary purpose of cash flow hedge accounting is to link the income statement recognition of a hedging instrument and a hedged item whose changes in cash flows are expected to offset each other. The change in the fair value of the derivative instrument designated as a cash flow hedge is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into earnings in the same period when the hedged item affects earnings. The reclassification into earnings is reported in the same income statement line item in which the hedged item is reported.

The FCR component of our Bank Partner contracts, which arrangements are detailed in Note 3, qualifies as an embedded derivative. 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 Unaudited Condensed Consolidated Statements of Operations.

We have other embedded derivative instruments that are not designated as hedges. Refer to Note 3 and Note 8 for additional fair value and derivative disclosures.

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 the finance charges billed to borrowers do not exceed the sum of (i) an agreed-upon portfolio yield, (ii) a fixed servicing fee and (iii) realized credit losses, by holding cash in restricted, interest-bearing escrow accounts in an amount equal to a contractual percentage of the

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Bank Partners’ monthly originations and month-end outstanding portfolio balance. Our 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 Unaudited Condensed Consolidated Balance Sheets.

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. If credit losses exceed an agreed-upon threshold, we are obligated to make limited payments to our Bank Partners, which 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.

Under ASU 2016-13, 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 loans for our Bank Partners are facilitated on our platform, along with a corresponding non-cash charge recorded as financial guarantee expense in the Unaudited Condensed Consolidated Statements of Operations.

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 which 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.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Revenue Recognition

Disaggregated revenue

Revenue disaggregated by type of service was as follows for the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Merchant fees	$	94,632	$	100,036	$	273,786	$	275,158
Interchange fees	3,965		7,502		12,908		24,041
Transaction fees	98,597		107,538		286,694		299,199
Servicing(1)	26,116		27,446		92,158		87,210
Interest income(2)	3,436		7,037		10,986		10,426
Other(3)	—		2		1		7
Interest and other	3,436		7,039		10,987		10,433
Total revenue	$	128,149	$	142,023	$	389,839	$	396,842

(1)For the three and nine months ended September 30, 2021, includes changes in fair value of our servicing assets and liabilities related to Bank Partner arrangements of $(1.8) million and $9.0 million, respectively, compared to $(0.8) million and $(0.1) million, respectively, for the three and nine months ended September 30, 2020. Refer to Note 3 for additional information.

(2)Includes interest income received on loan receivables held for sale.

(3)Other revenue includes miscellaneous revenue items that are individually immaterial. Other revenue is presented separately herein in order to clearly present merchant, interchange fees, servicing fees, and interest income which are more integral to our primary operations and better enable financial statement users to calculate metrics such as servicing and merchant fee yields.

We have no remaining performance obligations as of September 30, 2021. No assets were recognized from the costs to obtain or fulfill a contract with a customer as of September 30, 2021 and December 31, 2020. Because we recognize revenue as invoiced, no contract assets or contract liabilities were recorded as of September 30, 2021 and December 31, 2020. Volume-based price concessions as well as amortization of incentive assets to merchants and Sponsors that were both netted against the gross transaction price, totaling $5.3 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively, and $16.1 million and $11.5 million for the nine months ended September 30, 2021 and 2020, respectively. "Sponsors" refers to manufacturers, their captive and franchised showroom operations, and trade associations with which we partner to attract merchants to the GreenSky platform.

Consolidation

In the normal course of our business, we may enter into an agreement for management, servicing, or related services or hold ownership interests in special purpose entities. We evaluate our interests and/or involvement in these entities to determine whether they meet the definition of a variable interest entity ("VIE"), pursuant to ASC 810, Consolidation, and whether we are required to consolidate these entities.

Recently Adopted Accounting Standards

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, which modifies ASC 740, Income Taxes, to simplify the accounting for income taxes by removing certain exceptions, including intraperiod tax allocations and the calculation of income taxes in an interim period when in a loss position. The provisions of the standard applicable to us must be applied on a prospective basis. Our adoption of this standard on January 1, 2021 did not have a material effect on our Unaudited Condensed Consolidated Financial Statements.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Accounting Standards Issued, But Not Yet Adopted

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU 2020-04, which was subsequently amended in January 2021 by ASU 2021-01, related to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The standard provides optional expedients and exceptions for applying GAAP if certain criteria are met. The standard applies to contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. Further, the standard provides exceptions to certain guidance in ASC 815, Derivatives and Hedging, related to changes to the critical terms of a hedging relationship due to reference rate reform and provides optional expedients for fair value, cash flow and net investment hedging relationships for which the component excluded from the assessment of hedge effectiveness is affected by reference rate reform. This standard is effective as of March 12, 2020, and an entity may elect to adopt it through December 31, 2022 based on applying as of the beginning of an interim period up to the date that the financial statements are available to be issued. Once elected, the provisions of the standard must be applied prospectively for all similar eligible contract modifications. We have not yet elected an adoption date, are currently identifying arrangements referenced to rates, such as US dollar LIBOR, that are expected to be discontinued, and are evaluating our options for modifying such arrangements in accordance with the standard. We will continue to assess and plan for how the phase out of LIBOR will affect the Company. While the LIBOR transition could adversely affect the Company, we do not expect the impact to be material to the Company.

Note 2. Earnings per Share

Basic earnings per share of Class A common stock is computed by dividing net income attributable to GreenSky, Inc. by the weighted average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to GreenSky, Inc., adjusted for the assumed exchange of all potentially dilutive Holdco Units for Class A common stock, by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive elements.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Income before income tax expense	$	44,145	$	3,008	$	109,435	$	6,046
Less: Net income attributable to noncontrolling interests	25,388		1,850		64,096		3,487
Less: Income tax expense	4,368		197		10,822		799
Net income attributable to GreenSky, Inc. – basic	$	14,389	$	961	$	34,517	$	1,760
Add: Reallocation of net income attributable to noncontrolling interests from the assumed exchange of Holdco Units for Class A common stock	25,388		1,850		64,096		3,487
Less: Income tax expense on reallocation of net income attributable to noncontrolling interests(1)	6,079		624		15,456		1,201
Net income attributable to GreenSky, Inc. – diluted	$	33,698	$	2,187	$	83,157	$	4,046
Denominator:
Weighted average shares of Class A common stock outstanding – basic	75,670,931		69,960,268		73,372,935		66,267,288
Add: Dilutive effects, as shown separately below
Holdco Units exchangeable for Class A common stock	103,045,444		106,832,298		104,833,195		110,327,688
Class A common stock options	360,224		352,798		216,343		387,516
Unvested Class A common stock	1,850,033		912,318		1,687,149		554,374
Weighted average shares of Class A common stock outstanding – diluted	180,926,632		178,057,682		180,109,622		177,536,866

Earnings per share of Class A common stock outstanding – basic	$	0.19	$	0.01	$	0.47	$	0.03
Earnings per share of Class A common stock outstanding – diluted	$	0.19	$	0.01	$	0.46	$	0.02

Excluded from diluted earnings per share, as their inclusion would have been anti-dilutive(2)
Holdco Units	187,600		529,729		187,600		529,729
Class A common stock options	1,703,509		4,230,566		1,703,509		4,230,566
Class A common stock awards	548,374		1,951,439		548,374		1,951,439

(1)We assumed effective tax rates of 23.7% and 27.3% for the three months ended September 30, 2021 and 2020, respectively, and 24.0% and 33.1% for the nine months ended September 30, 2021 and 2020, respectively, which represents the effective tax rates on the consolidated GreenSky, Inc. entity inclusive of the income taxes on the portion of GS Holdings' earnings that are attributable to noncontrolling interests.

(2)These amounts represent the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce these amounts if they had a dilutive effect and were included in the computation of diluted earnings per share.

Shares of the Company’s Class B common stock do not participate in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been included.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 3. Fair Value of Assets and Liabilities

The following table summarizes, by level within the fair value hierarchy, the carrying amounts and estimated fair values of our assets and liabilities measured at fair value on a recurring or nonrecurring basis or disclosed, but not carried, at fair value in the Unaudited Condensed Consolidated Balance Sheets as of the dates presented. There were no transfers into, out of, or between levels within the fair value hierarchy during any of the periods presented. Refer to Note 4, Note 7, Note 8 and Note 9 for additional information on these assets and liabilities.


	Level	September 30, 2021				December 31, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Cash and cash equivalents(1)	1	$	241,970	$	241,970	$	147,775	$	147,775
Loan receivables held for sale, net(2)	2	327,045		328,706		571,415		575,279
Servicing assets(3)	3	50,897		50,897		30,804		30,804
Contingent consideration receivables(3)	3	10,594		10,594		—		—
Interest rate cap(3)	2	153		153		—		—
Liabilities:
Finance charge reversal liability(3)	3	$	139,307	$	139,307	$	185,134	$	185,134
Term loan(1)	2	451,190		459,280		452,806		452,408
Interest rate swap(3)	2	9,452		9,452		14,182		14,182
Servicing liabilities(3)	3	12,082		12,082		1,984		1,984
Sales facilitation obligations(3)	2	4,481		4,481		10,655		10,655

(1)Disclosed, but not carried, at fair value.

(2)Measured at fair value on a nonrecurring basis.

(3)Measured and carried at fair value on a recurring basis.

Cash and cash equivalents

Cash and cash equivalents are classified within Level 1 of the fair value hierarchy, as the primary component of the price is obtained from quoted market prices in an active market. The carrying amounts of our cash and cash equivalents approximate their fair values due to the short maturities and highly liquid nature of these accounts.

Loan receivables held for sale, net

Loan receivables held for sale are recorded in the Unaudited Condensed Consolidated Balance Sheets at the lower of cost or fair value and, therefore, are measured at fair value on a nonrecurring basis. Our loan receivables held for sale are primarily loan participations owned by the Warehouse SPV. 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.

Servicing assets and liabilities

We previously elected the fair value method to account for our servicing assets and liabilities to more appropriately reflect the value of the servicing rights in our Unaudited Condensed Consolidated Financial Statements. As a result of this election, our servicing assets and liabilities are carried at fair value on a recurring basis within other assets and other liabilities, respectively, in the Unaudited Condensed Consolidated Balance Sheets and are estimated using a discounted cash flow model. Servicing assets and liabilities are classified within Level 3 of the fair value hierarchy, as the primary components of the fair value 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. Changes in the fair

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

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 Unaudited Condensed Consolidated Statements of Operations.

Contractually specified servicing fees recorded within servicing revenue in the Unaudited Condensed Consolidated Statements of Operations totaled $27.9 million and $28.2 million for the three months ended September 30, 2021 and 2020, respectively, and $83.2 million and $87.3 million for the nine months ended September 30, 2021 and 2020, respectively. The cash flow impacts of our assets and liabilities that are measured at fair value on a recurring basis are included within net cash provided by operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

The following table reconciles the beginning and ending fair value measurements of our servicing assets associated with Bank Partner loans during the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	41,585	$	31,200	$	30,804	$	30,459
Additions, net(1)	11,433		407		34,700		2,391
Changes in fair value	(2,121)		(1,199)		(14,607)		(2,442)
Ending balance	$	50,897	$	30,408	$	50,897	$	30,408

(1)Includes additions through assumptions of servicing obligations each time a loan is originated on our platform by a Bank Partner, as well as through transfers of loan receivables between Bank Partners or of loan receivables between GreenSky and Bank Partners and is net of the impact of loan principal pay downs in the Bank Partner portfolios. Additions are recognized in servicing revenue in the Unaudited Condensed Consolidated Statements of Operations.

The following table reconciles the beginning and ending fair value measurements of our servicing liabilities associated with Bank Partner loans and transferring our rights to charged-off receivables during the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	1,271	$	2,799	$	1,984	$	3,796
Additions, net(1)	(449)		—		(449)		—
Changes in fair value(2)	11,260		(424)		10,547		(1,421)
Ending balance(3)	$	12,082	$	2,375	$	12,082	$	2,375

(2)Includes reduction of our servicing liabilities associated with transferring our rights to charged-off receivables of $296 thousand and $424 thousand for the three months ended September 30, 2021 and 2020, respectively, and $1.0 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively, due to the passage of time and collection of loan payments, which is recognized in other gains (losses), net in the Unaudited Condensed Consolidated Statements of Operations.

(3)Includes servicing liabilities associated with transferring our rights to charged-off receivables of $1.0 million and $2.4 million as of September 30, 2021 and 2020, respectively.

Significant assumptions used in valuing our servicing assets and liabilities include the following:

Cost of servicing: The cost of servicing represents the servicing rate a willing market participant would require to service loans with similar characteristics as the Bank Partner loans or charged-off receivables. The cost of servicing is weighted based on the outstanding balance of the loans.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Discount rate: The discount rate reflects the time value of money adjusted for a risk premium and is within an observable range based on peer market data.

Weighted average remaining life: For Bank Partner loans, the weighted average remaining life is determined using the aggregate curves for each loan product type based on expected cumulative annualized rates of prepayments and defaults.

Recovery period: For charged-off receivables, our recovery period is determined based on a reasonable recovery period for loans of these sizes and characteristics based on historical experience. We assume that collection efforts for these loans will cease after five years, and the run-off of the portfolio will follow a straight-line methodology, adjusted for actual cash recoveries over time.

The following table presents quantitative information about the significant unobservable inputs used to value the Level 3 servicing assets and liabilities as of the dates presented.


Input	September 30, 2021			December 31, 2020
	Range		Weighted Average	Range		Weighted Average
Cost of servicing (basis points)	62.5 – 90.2		79.4	57.5 – 108.0		95.0
Discount rate	18.0	%	18.0%	18.0	%	18.0%
Weighted average remaining life (years)	2.7 – 7.3		6.5	2.3 – 5.8		2.3
Recovery period (years)	1.0 - 3.2		2.4	1.6 – 3.9		3.1

A significant increase or decrease in the market cost of servicing could result in significantly lower or higher, respectively, servicing assets and higher or lower, respectively, servicing liabilities as of the measurement date.

A significant increase or decrease in the discount rate could result in lower or higher, respectively, servicing assets and liabilities as of the measurement date. However, as the weighted average remaining life of loans is relatively short, we would not expect significant changes in the discount rate to materially impact the fair value measure.

The average remaining life is weighted by the unpaid balance of the Bank Partner loans as of the measurement date. A significant increase or decrease in the expected weighted average remaining life could result in significantly higher or lower servicing assets as of the measurement date.

The recovery period is weighted by the unpaid balance of previously transferred charged-off receivables as of the measurement date. A significant increase or decrease in the expected recovery period could result in higher or lower, respectively, servicing liabilities.

Contingent consideration receivables

In exchange for selling loan participations to institutional investors, financial institutions and other funding sources, the Company receives cash, and, in some cases, beneficial interest in the form of additional contingent consideration, which may be received at a later date based on certain potential outcomes (typically based on the performance of the assets sold or the underlying loans).

The contingent consideration receivables serve as a host contract containing an embedded derivative as the credit and prepayment performance of the loan participations are tied to the underlying debtor, rather than the third party purchaser of the loan participations, which results in the economic characteristics and risks being not clearly and closely related to the host contract. In accordance with ASC 825, GreenSky irrevocably elected to initially and subsequently measure the contingent consideration receivables as a whole, inclusive of the embedded credit derivative, at fair value. This election is made on an instrument by instrument basis, and our election only affects the contingent consideration receivables and does not apply to, nor implicate, other receivables.

The contingent consideration receivables are 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. Changes in the fair value of the contingent consideration

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

receivables are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. Significant assumptions used in valuing our contingent consideration receivables include a discount rate and settlement period.

At September 30, 2021, the Company had contingent consideration receivables for which the fair value of the asset was $10.6 million related to underlying beneficial interest in that consideration of $19.4 million.

The following table reconciles the beginning and ending fair value measurements of our contingent consideration receivables during the periods presented. There were no loan participations subject to contingent consideration receivables prior to 2021.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021			2021
Beginning balance	$	6,653		$	—
Additions(1)	3,000			9,852
Receipts(2)	—			—
Other fair value changes(3)	941			742
Ending balance	$	10,594		$	10,594

(1)Includes each initial receivable that GreenSky is entitled to each time an applicable pool of loan participations is sold to institutional investors, financial institutions and other funding sources.

(2)Represents cash receipt of contingent consideration.

(3)Represents changes to the fair value of the contingent consideration receivables due to the passage of time, changes in the portfolio delinquency rate or prepayment rate.

Significant assumptions used in valuing our contingent consideration receivables include the following:

Discount rate: The discount rate reflects the time value of money adjusted for a risk premium and is within an observable range based on peer market data.

Settlement period: Our settlement period represents the number of years before the contingent consideration receivables can be released and is determined based on a reasonable settlement period for loan participations based on contractual terms.

The following table presents quantitative information about the significant unobservable inputs used to value the Level 3 contingent consideration receivables as of the date presented. There were no loan participations subject to contingent consideration receivables as of September 30, 2020.


Input	September 30, 2021
	Range		Weighted Average
Discount rate	15	%	15	%
Settlement period (years)	1.8 - 6.0		4.9

A significant increase or decrease in the discount rate could result in lower or higher, respectively, contingent consideration receivables as of the measurement date. However, as the weighted average settlement period of the contingent consideration receivables is relatively short, we would not expect significant changes in the discount rate to materially impact the fair value measure.

The settlement term is weighted by the outstanding contingent consideration receivables balance as of the measurement date. A significant increase or decrease in the settlement period could result in lower or higher, respectively, contingent consideration receivables as of the measurement date.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Interest rate cap

In January 2021, the Warehouse SPV entered into a $555.0 million notional amortizing interest rate cap with a strike rate of 2.5%. This cap is intended to protect against exposure to changes in cash flows attributable to interest rate risk on $555.0 million of our variable-rate Warehouse Facility to the extent three-month LIBOR exceeds 2.5%. The interest rate cap is carried at fair value on a recurring basis in the Unaudited Condensed Consolidated Balance Sheets and is classified within Level 2 of the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. The fair value of the interest rate cap was determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Changes in the fair value of our interest rate cap are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations.

Finance charge reversal liability

Our Bank Partners offer certain loan products that have a feature whereby the borrower is provided a promotional period to repay the loan principal balance in full without incurring a finance charge. For certain of these loan products, our Bank Partners bill interest each month throughout the promotional period and such amounts are included in the incentive payments paid by our Bank Partners to us. However, under the terms of the contracts with our Bank Partners, we are obligated to pay an amount equal to this billed interest to the Bank Partners if a borrower repays the loan balance in full within the promotional period and such interest is reversed. Therefore, the monthly process of billing interest on deferred loan products triggers a potential future FCR liability for the Company. The FCR component of our Bank Partner contracts qualifies as an embedded derivative. 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 Unaudited Condensed Consolidated Statements of Operations.

The FCR liability is carried at fair value on a recurring basis in the Unaudited Condensed 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 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 following table reconciles the beginning and ending fair value measurements of our FCR liability during the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	141,605	$	198,755	$	185,134	$	206,035
Receipts(1)	65,604		62,631		170,038		166,939
Settlements(2)	(79,707)		(95,706)		(273,348)		(295,848)
Fair value changes recognized in cost of revenue(3)	11,805		21,832		57,483		110,386
Ending balance	$	139,307	$	187,512	$	139,307	$	187,512

(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. The three and nine months ended September 30, 2021 also include $7.4 million and $20.1 million, respectively, of billed finance charges related to loan participations held by the Warehouse SPV that were not yet collected and subject to a potential future finance charge reversal at the time of purchase, which 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 Unaudited Condensed Consolidated Statements of Operations.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Significant assumptions used in valuing our FCR liability include the following:

Reversal rate: The reversal rate represents our estimate of the percentage of previously billed interest on deferred loan products that we expect we will be obligated to remit to the Bank Partners due to the borrower paying off the loan balance in full within the promotional period. The historical period over which we evaluate reversal rates may also vary among the categories of deferred loan products based on the length and relevance of our historical experience with such products at the measurement date.

Discount rate: The discount rate reflects the time value of money adjusted for a risk premium.

The following table presents quantitative information about the significant unobservable inputs used to value the Level 3 FCR liability as of the dates presented.


	September 30, 2021				December 31, 2020
	Range		Weighted Average		Range		Weighted Average
Reversal rate	59.0 - 100.0%		89.3	%	64.8 – 100.0%		89.2	%
Discount rate	3.4	%	3.4	%	3.5	%	3.5	%

A significant increase or decrease in the estimated reversal rates could result in a significantly higher or lower, respectively, calculation of our expected future payments to our Bank Partners, resulting in a higher or lower, respectively, fair value measurement of our FCR liability.

A significant increase or decrease in the discount rate could result in a lower or higher, respectively, fair value measurement of our FCR liability.

Term loan

The carrying value of our term loan is net of unamortized debt discount and debt issuance costs. The fair value of our term loan is classified within Level 2 of the fair value hierarchy, as the primary component of the price is obtained from quoted market prices for similar liabilities in an active market.

Interest rate swap

In June 2019, we entered into a $350.0 million notional, four-year interest rate swap agreement to hedge changes in our cash flows attributable to interest rate risk on $350.0 million of our variable-rate term loan to a fixed-rate basis, thus reducing the impact of interest rate changes on future interest expense. This swap involves the receipt of variable-rate amounts in exchange for fixed interest rate payments over the life of the agreement without an exchange of the underlying notional amount and was designated for accounting purposes as a cash flow hedge. The interest rate swap is carried at fair value on a recurring basis in the Unaudited Condensed Consolidated Balance Sheets and is classified within Level 2 of the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. The fair value was determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. The change in the fair value of the derivative instrument designated as a cash flow hedge is initially reported as a component of other comprehensive income (loss) and later reclassified into earnings in the same period when the hedged item affects earnings. The reclassification into earnings is reported within interest expense in the Unaudited Condensed Consolidated Statements of Operations.

Sales facilitation obligations

In May 2020, the Company entered into a series of agreements (collectively, the “Facility Bank Partner Agreements”) with an existing Bank Partner to provide for the programmatic sale of loan participations and whole loans by that Bank Partner to third parties. Under the Facility Bank Partner Agreements, 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 Unaudited Condensed Consolidated Statements of Operations.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

First, the Company agreed under the Facility Bank Partner Agreements to facilitate sales by the Bank Partner of loan participations and whole loans to third parties (including sales to the Company or its affiliates, including the Warehouse SPV) by funding into an escrow account, established by the Company for the Bank Partner, the shortfall (if any) in purchase price commitment below par (“purchase price discount”) at the time a purchase commitment is made. The Bank Partner agreed that it will fund into the escrow account any purchase price in excess of par (“purchase price premium”) received in connection with a sale. Any purchase price discount will net settle with any contemporaneous purchase price premiums upon sale of the loan participations or whole loans, with a net discount being settled by a release of escrow funds to the Bank Partner at sale and a net premium being settled by a release of excess escrow funds (above minimum escrow requirements), if any, to the Company shortly following any such sale.

Second, the Company may, from time to time, directly issue to the Bank Partner commitments to purchase loan participations at par under the Facility Bank Partner Agreements. The fair value of the resulting sales facilitation obligations is based on the difference between par and the anticipated sale prices of such participations to third parties, including institutional investors, financial institutions and other funding sources. 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.

At September 30, 2021 and December 31, 2020, the Company had sales facilitation obligations for which the fair value of the liability was $4.5 million and $10.7 million, respectively, related to underlying Bank Partner loans of $363.1 million and $476.6 million, respectively. The change in fair value for the three and nine months ended September 30, 2021 was $7.0 million and $6.2 million, respectively, and is reflected in cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. As these sales facilitation obligations were initially entered into in the third quarter of 2020, the change in fair value for the three and nine months ended September 30, 2020 was $18.3 million.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 4. Loan Receivables Held for Sale

The following table summarizes the activity in the balance of loan receivables held for sale, net at lower of cost or fair value during the periods indicated.


	Nine Months Ended September 30,
	2021		2020
Beginning balance	$	571,415	$	51,926
Additions(1)	1,441,838		906,850
Proceeds from sales and borrower payments(2)	(1,653,256)		(370,142)
Loss on sale(3)	(29,520)		(19,685)
Decrease (increase) in valuation allowance(4)	730		(19,441)
Transfers(5)	2,354		(161)
Write-offs and other(6)	(6,516)		(6,031)
Ending balance	$	327,045	$	543,316

(1)Includes purchases of $1.4 billion and $755 million participations in loans through the Warehouse SPV for the nine months ended September 30, 2021 and 2020, respectively.

(2)We retain servicing arrangements on sold loan receivables with comparable terms and conditions as loans that are not participated by our Bank Partners. Amounts also include accrued interest and fees and recoveries of previously charged-off loan receivables held for sale. Income from loan receivables held for sale activities is recorded within interest and other revenue in the Unaudited Condensed Consolidated Statements of Operations.

(3)Recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations.

(4)During the nine months ended September 30, 2021, the valuation allowance increased by $1.5 million, due to the change in the lower of cost or fair value adjustment on our Warehouse Loan Participations, which was offset by a decrease in our provision for credit losses of $1.7 million. During the nine months ended September 30, 2020, the valuation allowance increased by $17.3 million, due to the change in the lower of cost or fair value adjustment on our Warehouse Loan Participations and an increase in our provision for credit losses of $2.1 million.

(5)We temporarily hold certain loan receivables, which are originated by a Bank Partner, while non-originating Bank Partner eligibility is being determined. Once we determine that a loan receivable meets the investment requirements of an eligible Bank Partner, we transfer the loan receivable to the Bank Partner at cost plus any accrued interest. The reported amount also includes loan receivables that have been placed on non-accrual and non-payment status while we investigate consumer inquiries.

(6)We received recovery payments of $303 thousand and $265 thousand during the nine months ended September 30, 2021 and 2020, respectively. Recoveries of principal and finance charges and fees on previously written off loan receivables held for sale are recognized on a collected basis and the cash proceeds received are recorded within sales, general and administrative expense in the Unaudited Condensed Consolidated Statements of Operations.

Note 5. Accounts Receivable

As of September 30, 2021, our allowance for losses on accounts receivable was measured under ASC 326. Historically, the majority of our pools of accounts receivable did not have write-offs. For the pool of accounts receivable for which we had historical write-offs, we used an aging method and the average 12-month historical loss rate as a basis for estimating credit losses on the current accounts receivable balance. In the absence of relevant historical loss experience for the other pools of accounts receivables, we also used this average 12-month loss rate to inform our estimate of credit losses on those balances. Given (i) our methods of collecting funds on merchant and servicing receivables, (ii) we have not observed meaningful changes in our counterparties' abilities to pay, and (iii) we establish an allowance for all delinquent accounts receivable (typically deemed to be 31 days or more past due), providing for a maximum 30-day term of our accounts receivable balances, we determined that our historical loss rates remain most indicative of our lifetime expected losses.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Accounts receivable consisted of the following as of the dates indicated.


	Accounts Receivable, Gross		Allowance for Uncollectible Amounts		Accounts Receivable, Net
September 30, 2021
Transaction related	$	6,887	$	(168)	$	6,719
Servicing related	10,910		—		10,910
Total	$	17,797	$	(168)	$	17,629
December 31, 2020
Transaction related	$	10,533	$	(313)	$	10,220
Servicing related	11,738		—		11,738
Total	$	22,271	$	(313)	$	21,958

The following table summarizes the activity in the balance of allowance for uncollectible amounts during the period from January 1, 2021 through September 30, 2021.


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Beginning balance	$	(196)	$	(313)
Provision for expected losses	26		10
Write-offs	3		138
Recoveries	(1)		(3)
Ending balance	$	(168)	$	(168)

Note 6. Property, Equipment and Software

Property, equipment and software were as follows as of the dates indicated.


	September 30, 2021		December 31, 2020
Furniture	$	1,476	$	2,680
Leasehold improvements	3,509		4,399
Computer hardware	2,510		2,690
Software	37,637		30,641
Total property, equipment and software, at cost	45,132		40,410
Less: accumulated depreciation	(5,191)		(6,580)
Less: accumulated amortization	(17,311)		(12,378)
Total property, equipment and software, net	$	22,630	$	21,452

Note 7. Borrowings

Credit Agreement

In August 2017, we entered into a $450.0 million credit agreement ("Credit Agreement"), which provided for a $350.0 million term loan ("original term loan") maturing on August 25, 2024 and a $100.0 million revolving loan facility maturing on August 25, 2022.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

2018 Amended Credit Agreement

In March 2018, we amended certain terms of our Credit Agreement ("2018 Amended Credit Agreement"). The 2018 Amended Credit Agreement replaced the original term loan with a $400.0 million term loan (“modified term loan”) and extended the maturity date to March 29, 2025.

Revolving loan facility. Under the 2018 Amended Credit Agreement, the maturity date of the $100.0 million revolving loan facility was extended to March 29, 2023. Further, the interest margin applied to revolving loans that incur interest at a base rate was modified to 2.00% per annum and the margin applied to revolving loans that incur interest at an adjusted LIBOR rate was modified to 3.00% per annum. However, if our first lien net leverage ratio is equal to or above 1.50 to 1.00, these interest margins are raised to 2.25% and 3.25%, respectively. As of September 30, 2021 and December 31, 2020, we had no borrowings under the revolving loan facility. Lastly, the 2018 Amended Credit Agreement provided for a $10.0 million letter of credit, which, to the extent drawn upon, would reduce the amount of availability under the revolving loan facility by the same amount. No amounts were drawn under our available letter of credit as of September 30, 2021.

2020 Amended Credit Agreement

In June 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," and the 2018 Amended Credit Agreement and the 2020 Amended Credit Agreement are collectively referred to as the "Amended Credit Agreement." 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 rate, which represents the one-month LIBOR rate 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.

An original issuance discount of $3.0 million was reported as a direct deduction from the face amount of the incremental term loan. Fees paid to the lender of $1.5 million were deferred over the remaining life of the term loan on the modification date. Therefore, the initial gross proceeds of the incremental term loan were $70.5 million. The proceeds from the incremental term loan were used to pay third party costs, including legal fees, which were immediately expensed on the modification date. The remaining proceeds were used for general corporate purposes and to enhance the Company's overall liquidity position.

Key details of the term loan are as follows:


	September 30, 2021		December 31, 2020
Term loan, face value(1)	$	460,062	$	463,625
Unamortized debt discount(2)	(4,226)		(5,153)
Unamortized debt issuance costs(2)	(4,646)		(5,666)
Term loan	$	451,190	$	452,806

(1)The principal balance of the term loan is scheduled to be repaid on a quarterly basis at an amortization rate of 0.25% per quarter through December 31, 2024, with the balance due at maturity.

(2)For the three months ended September 30, 2021 and 2020, debt discount of $308 thousand and $311 thousand, respectively, and debt issuance costs of $339 thousand and $342 thousand, respectively, were amortized into interest expense in the Unaudited Condensed Consolidated Statements of Operations. For the nine months ended September 30, 2021 and 2020, debt discount of $927 thousand and $651 thousand, respectively, and debt issuance costs of $1,020 thousand and $887 thousand, respectively, were amortized into interest expense in the Unaudited Condensed Consolidated Statements of Operations.

Covenants. The Amended Credit Agreement contains certain financial and non-financial covenants with which we must comply. The financial covenant requires a first lien net leverage ratio equal to or below 3.50 to 1.00 for any

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

measurement date at which the principal amounts of outstanding revolving loans and letters of credit exceed 25% of the aggregate principal amount of the revolving loan facility.

The non-financial covenants include, among other things, restrictions on indebtedness, liens and fundamental changes to the business (such as acquisitions, mergers, liquidations or changes in the nature of the business, asset dispositions, restricted payments, transactions with affiliates and other customary matters). The Amended Credit Agreement also includes various negative covenants, including one that restricts GS Holdings from making non-tax distributions unless certain financial tests are met. We were in compliance with all such covenants, both financial and non-financial, as of September 30, 2021 and December 31, 2020.

Any borrowings under the Amended Credit Agreement are unconditionally guaranteed by certain of our subsidiaries. Further, the lenders have a security interest in certain assets of GS Holdings and the other guarantors thereunder.

We are subject to a quarterly commitment fee based on the daily unused amount of the revolving loan facility, inclusive of the aggregate amount available to be drawn under letters of credit, of which $10.0 million was available, but unused, as of September 30, 2021. The quarterly commitment fee rate is 0.50% per annum when our first lien net leverage ratio is above 1.50 to 1.00, but is reduced to 0.375% per annum for any quarterly period in which our first lien net leverage ratio is equal to or below 1.50 to 1.00. For the three months ended September 30, 2021 and 2020, we recognized $128 thousand and $2 thousand, respectively, of commitment fees within interest expense in the Unaudited Condensed Consolidated Statements of Operations. Commitment fees were $378 thousand and $285 thousand for the nine months ended September 30, 2021 and 2020, respectively.

Interest Rate Swap

In June 2019, we entered into an interest rate swap agreement to hedge changes in cash flows attributable to interest rate risk on $350.0 million of our variable-rate term loan. This interest rate swap was initially designated for accounting purposes as a cash flow hedge, but that designation has been discontinued as of September 14, 2021. See Note 8 for more information about the interest rate swap and additional derivative disclosures.

Warehouse Facility

In May 2020, the Warehouse SPV entered into a warehouse credit agreement with JPMorgan Chase Bank, N.A. ("JPMorgan"), as administrative agent, and the lenders party thereto from time to time ("Warehouse Facility Lenders") to establish an asset-backed revolving credit facility to finance purchases by the Warehouse SPV of participation interests in loans originated through the GreenSky program (the "Warehouse Facility"). The Warehouse Facility initially provided a revolving committed financing of $300.0 million, with an additional $200.0 million uncommitted accordion that was accessed in July 2020. The revolving funding period is one year and the initial maturity date was May 10, 2022. The interest rate on the Class A loans under the Warehouse Facility is a fixed spread over the applicable commercial paper conduit funding rate (or, if the Warehouse Facility Lenders do not fund their advances under the Warehouse Facility through commercial paper markets, 3-month LIBOR plus 0.50%). The Warehouse SPV paid various other legal and banking fees associated with obtaining the financing in conjunction with the closing of the Warehouse Facility in May 2020, including upfront fees of approximately $0.5 million which are deferred over the life of the Warehouse Facility.

Amended Warehouse Facility

In December 2020, the Warehouse Facility was amended (the "Amended Warehouse Facility") to increase the amount of the Warehouse Facility’s revolving commitment from $300.0 million to $555.0 million, including $500.0 million under the Class A commitment and $55.0 million under the Class B commitment. The Amended Warehouse Facility established terms for the Class B commitment (including the advance rate for the Class B loans and an interest rate on the Class B loans under the Warehouse Facility equal to a fixed spread over one-month LIBOR), and extended the commitment termination date to December 17, 2021 and the maturity date to December 17, 2023. The Amended Warehouse Facility also established the fee for unused Class B commitments. The Warehouse SPV paid various other legal and banking fees in December 2020 associated with the Amended Warehouse Facility, including

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

upfront fees, of approximately $1.6 million which were deferred over the remaining life of the Amended Warehouse Facility. The Warehouse Facility and the Amended Warehouse Facility are collectively referred to as the "Warehouse Facility."

As of September 30, 2021, the outstanding balance on the Warehouse Facility was $278.3 million. 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. During the three and nine months ended September 30, 2021, we amortized $196 thousand and $589 thousand of related legal, banking and upfront fees into cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2020, we amortized $126 thousand and $209 thousand of these fees into cost of revenue in the Unaudited Condensed Consolidated Statements of Operations.

The Company is subject to a fee based on a percentage of the total financing commitment that remains unused. For the three and nine months ended September 30, 2021, we recognized $447 thousand and $1.2 million, respectively, of unused commitment fees within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. We did not recognize any unused commitment fees during the three and nine months ended September 30, 2020.

The Warehouse SPV's ability to utilize the Warehouse Facility is subject to the Warehouse SPV's compliance with various covenants and other requirements of the warehouse credit agreement. As of September 30, 2021, the Warehouse SPV was in compliance with each of these covenants.

Note 8. Derivative Instruments

The Company does not hold or use derivative instruments for trading purposes.

Derivative Instruments Designated as Hedges

Interest rate fluctuations expose our variable-rate term loan to changes in interest expense and cash flows. As part of our risk management strategy, we may use interest rate derivatives, such as interest rate swaps, to manage our exposure to interest rate movements.

In June 2019, we entered into a $350.0 million notional, four-year interest rate swap agreement to hedge changes in cash flows attributable to interest rate risk on $350.0 million of our variable-rate term loan, which matures on March 29, 2025. This agreement involves the receipt of variable-rate amounts in exchange for fixed interest rate payments at 1.80% over the life of the agreement, which terminates on June 30, 2023, without an exchange of the underlying notional amount.

Historically, this interest rate swap was designated for accounting purposes as a cash flow hedge. As such, changes in the interest rate swap’s fair value are deferred in accumulated other comprehensive income (loss) in the Unaudited Condensed Consolidated Balance Sheets and are subsequently reclassified into interest expense in each period that a hedged interest payment is made on our variable-rate term loan. As a result of the entering into the Merger Agreement described in Note 1 on September 14, 2021, the Company determined that it no longer met the criteria for cash flow hedge designation. Because hedge accounting is discontinued on a prospective basis, changes in the interest rate swap's fair value subsequent to that date are recognized in earnings. Amounts previously reported in accumulated other comprehensive income (loss) will be reclassified to earnings as the previously hedged interest payments are made or when the interest payments later become probable of not occurring.

Derivative Instruments Not Designated as Hedges

The FCR component of our Bank Partner contracts qualifies as an embedded derivative. 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 Unaudited Condensed Consolidated Statements of Operations. See Note 3 for additional information on finance charge reversals.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

As part of the Facility Bank Partner Agreements, the Company has certain sales facilitation obligations that qualify as embedded derivatives and are not designated as hedges for accounting purposes. As such, changes in their fair value are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. See Note 3 for additional information on sales facilitation obligations.

The contingent consideration receivables resulting from certain sales of loan participations to institutional investors, financial institutions and other funding sources serve as a host contract containing an embedded derivative. In accordance with ASC 825, the Company irrevocably elected to initially and subsequently measure the contingent consideration receivables as a whole, inclusive of the embedded derivative, at fair value. The fair value of the contingent consideration receivables will vary depending on the amount of cash the Company expects to ultimately receive, but can never be less than $0 and at no point will the Company be required to make a payment to settle this derivative. Changes in the fair value of the contingent consideration receivables are recorded within cost of revenue in the Unaudited Condensed Consolidated Statements of Operations. See Note 3 for additional information on contingent consideration receivables.

In January 2021, as required under the Warehouse Facility, the Warehouse SPV entered into a $555.0 million notional amortizing interest rate cap agreement 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 has a maturity date of December 18, 2023. The interest rate cap 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 Unaudited Condensed Consolidated Statements of Operations. See Note 3 for additional information on the interest rate cap.

On September 14, 2021, as a result of the entering into of the Merger Agreement described in Note 1, the Company determined that it no longer met the criteria for cash flow hedge designation for an interest rate swap agreement. As such, as of September 30, 2021, this interest rate swap agreement is no longer designated as a hedge. Please see "Derivative Instruments Designated as Hedges" in this Note 8 for additional information related to the terms of this interest rate swap agreement.

Derivative Instruments on our Unaudited Condensed Consolidated Financial Statements

The following table presents the fair values and Unaudited Condensed Consolidated Balance Sheets locations of our derivative instruments as of the dates indicated.


	Balance Sheet Location	September 30, 2021		December 31, 2020
Designated as cash flow hedges
Interest rate swap	Other liabilities	$	—	$	14,182
Not designated as hedges
FCR liability	Finance charge reversal liability	$	139,307	$	185,134
Sales facilitation obligations	Other liabilities	4,481		10,655
Contingent consideration receivables	Other assets	10,594		—
Interest rate swap	Other liabilities	9,452		—
Interest rate cap	Other assets	153		—

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

The following table presents the impacts of our derivative instruments on our Unaudited Condensed Consolidated Statements of Operations for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Not designated as hedges
FCR liability - change in fair value recorded in cost of revenue	$	11,805	$	21,832	$	57,483	$	110,386
Sales facilitation obligations - change in fair value recorded in cost of revenue	(6,955)		18,262		(6,174)		18,262
Contingent consideration receivables - change in fair value recorded in cost of revenue	3,941		—		10,594		—
Interest rate swap - gain (loss) reclassified into interest expense	$	(1,528)	$	(1,459)	$	(4,503)	$	(2,706)
Interest rate swap - gain (loss) reclassified into income tax expense	158		141		453		253
Interest rate swap - change in fair value recorded in other gains, net	751		—		751		—
Interest rate cap - change in fair value recorded in cost of revenue	(59)		—		153		—

Our derivative instrument activities are included within operating cash flows in our Unaudited Condensed Consolidated Statements of Cash Flows.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the components of accumulated other comprehensive income (loss) associated with our cash flow hedge, which exclude amounts pertaining to noncontrolling interests, for the periods presented.


	Three Months Ended September 30,				Nine Months Ended September 30,
Cash Flow Hedge	2021		2020		2021		2020
Accumulated other comprehensive income (loss), beginning balance	$	(3,335)	$	(4,756)	$	(4,340)	$	(756)
Other comprehensive income (loss) before reclassifications and tax	(704)		(511)		(586)		(6,251)
Tax (expense) benefit	92		125		66		1,515
Other comprehensive income (loss) before reclassifications, net of tax	(612)		(386)		(520)		(4,736)
Reclassifications out of accumulated other comprehensive income (loss), net of tax(1)	490		437		1,403		787
Net (increase) decrease in other comprehensive loss	(122)		51		883		(3,949)
Accumulated other comprehensive income (loss), ending balance	$	(3,457)	$	(4,705)	$	(3,457)	$	(4,705)

(1)Net of tax benefit of $158 thousand and $453 thousand during the three and nine months ended September 30, 2021, respectively. Net of tax benefit of $141 thousand and $253 thousand during the three and nine months ended September 30, 2020.

Based on the current interest rate environment, the Company estimates that approximately $5.9 million of net unrealized gains (losses) reported in accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 9. Other Assets and Liabilities

The following table details the components of other assets in the Unaudited Condensed Consolidated Balance Sheets as of the dates indicated.


	September 30, 2021		December 31, 2020
Servicing assets(1)	$	50,897	$	30,804
Right-of-use assets(2)	13,039		8,265
Prepaid expenses(3)	8,843		8,860
Related party receivables	53		88
Insurance recoveries(4)	26,900		—
Contingent Consideration Receivables	10,594		—
Other receivables and assets(5)	13,794		4,626
Other assets	$	124,120	$	52,643

(1)We elected the fair value method to account for our servicing assets. Refer to Note 3 for additional information.

(2)Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term. Our ROU assets increased as a result of lease amendments in the period. Refer to Note 14 for additional information.

(3)Includes $1.0 million of implementation costs related to a new cloud computing arrangement which is categorized as a hosting arrangement that is a service contract under ASU 2018-15. Amortization for the nine months ended September 30, 2021 is $151 thousand and accumulated amortization as of September 30, 2021 is $159 thousand.

(4)Insurance recoveries related to IPO litigation. Refer to Note 14 for additional information.

(5)Includes $4.9 million of merchant and sponsor incentive assets that are attributed as a contra-revenue adjustment to transaction revenue as the promised goods or services are transferred to the customers over the contract terms. Amortization for the three and nine months ended September 30, 2021 is $243 thousand.

The following table details the components of other liabilities in the Unaudited Condensed Consolidated Balance Sheets as of the dates indicated.


	September 30, 2021		December 31, 2020
Transaction processing liabilities	$	37,539	$	30,169
Servicing liabilities(1)	12,082		1,984
Distributions payable	1,570		3,136
Interest rate swap(2)	9,452		14,182
Tax related liabilities(3)	271		691
Operating lease liabilities	17,155		10,107
Legal settlement accrual(4)	27,500		—
Accruals and other liabilities	10,645		10,245
Sales facilitation obligations(5)	4,481		10,655
Other liabilities	$	120,695	$	81,169

(1)We elected the fair value method to account for our servicing liabilities. Refer to Note 3 for additional information.

(2)Refer to Note 3 and Note 8 for additional information on our interest rate swap, which was in a liability position as of September 30, 2021 and December 31, 2020.

(3)Tax related liabilities primarily include certain taxes payable related to the Reorganization Transactions.

(4)Refer to Note 14 for additional information on our legal proceedings.

(5)Changes in the fair value of the embedded derivative for loan participation commitments are recognized as a mark-to-market in cost of revenue for the period.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 10. Noncontrolling Interests

GreenSky, Inc. is the sole managing member of GS Holdings and consolidates the financial results of GS Holdings. Therefore, the Company reports a noncontrolling interest based on the common units of GS Holdings, held by the Continuing LLC Members. Changes in GreenSky, Inc.’s ownership interest in GS Holdings, while GreenSky, Inc. retains its controlling interest in GS Holdings, are accounted for as equity transactions. As such, future redemptions or direct exchanges of Holdco Units by the Continuing LLC Members (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 will result in a change in ownership and reduce or increase the amount recorded as noncontrolling interest and increase or decrease additional paid-in capital. The Company consolidates the financial results of GS Holdings and reports a noncontrolling interest in its Unaudited Condensed Consolidated Financial Statements representing the GS Holdings interests held by Continuing LLC Members. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to the Company and the noncontrolling interests. During the three months ended September 30, 2021 and 2020, GreenSky, Inc. had a weighted average ownership interest in GS Holdings of 42.4% and 39.6%, respectively. During the nine months ended September 30, 2021 and 2020, GreenSky, Inc. had a weighted average ownership interest in GS Holdings of 41.2% and 37.6%, respectively.

During the nine months ended September 30, 2021, an aggregate of 11.9 million Holdco Units were exchanged by the Continuing LLC Members (with automatic cancellation of Class B common stock) for 11.9 million newly-issued shares of Class A common stock, and 2.3 million shares of Class A restricted stock were issued, which increased our total ownership interest in GS Holdings to 48.8% as of September 30, 2021 from 42.0% as of December 31, 2020.

Note 11. Stockholders Equity (Deficit)

Treasury Stock

As of September 30, 2021, there were 15,643,974 shares of Class A common stock held in treasury, including: (i) purchases of 13,425,688 shares at a cost of $146.1 million, (ii) 1,540,016 shares associated with forfeited restricted stock awards, and (iii) 678,270 shares associated with tax withholdings upon vesting of restricted stock awards. There were no reissuances of treasury shares during the nine months ended September 30, 2021 and 2020.

Distributions

The following table summarizes activity associated with our non-tax and tax distributions during the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,				Remaining Reserved Payment(1)
(in thousands)	2021		2020		2021		2020
Non-tax distributions previously declared and paid upon vesting
Credit Agreement Distributions(2)
Distributions	$	—	$	416	$	1,059	$	1,709	$	1,005
Special Operating Distributions(3)
Distributions	—		187		507		799		565
Tax distributions	4,792		16,943		15,180		48,457		—
Total	$	4,792	$	17,546	$	16,746	$	50,965	$	1,570

(1)As of September 30, 2021, all remaining portions of the non-tax distributions were recorded within other liabilities in the Unaudited Condensed Consolidated Balance Sheets.

(2)See Note 7 for discussion of distributions using the proceeds from our borrowings.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

(3)In May 2018, we declared a special operating distribution of $26.2 million and, in December 2017, we declared a $160.0 million special cash distribution to Holdco Unit holders and holders of profits interests.

Note 12. Share-Based Compensation

The Company has the following types of share-based compensation awards outstanding as of September 30, 2021: Class A common stock options, unvested Holdco Units and unvested Class A common stock awards. Consummation of the Mergers described in Note 1 would impact the vesting and settlement of the share-based compensation awards described below.

The following table summarizes share-based compensation expense we recorded within compensation and benefits expense and cost of revenue in the Unaudited Condensed Consolidated Statements of Operations.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Included within
Compensation and benefits	$	3,628	$	3,953	$	10,651	$	10,338
Cost of revenue	405		381		1,119		968

Class A Common Stock Options

Class A common stock option ("Options") activity was as follows during the periods indicated:


	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020

	Number of Options	Weighted Average Exercise Price		Number of Options
Outstanding at beginning of period	3,862,926	$	9.70	4,181,909
Granted(1)	—	—		1,134,644
Exercised(2)(3)	(353,403)	5.49		(105,000)
Forfeited	(483,198)	9.05		(406,615)
Expired(4)	(230,787)	14.57		(117,704)
Outstanding at end of period(5)	2,795,538	$	9.95	4,687,234
Exercisable at end of period(5)(6)	1,481,379	$	10.69	1,848,493

(1)No Options were granted during the nine months ended September 30, 2021. Weighted average grant date fair value of Options granted during the nine months ended September 30, 2020 was $1.73 per share.

(2)The total intrinsic value of Options exercised, which is defined as the amount by which the market value of the stock on the date of exercise exceeds the exercise price, during the nine months ended September 30, 2021 and 2020 was $778 thousand and $205 thousand, respectively.

(3)During the nine months ended September 30, 2021, employees paid $817 thousand to the Company to exercise Options, which resulted in the issuance of 156,227 shares of Class A common stock. In addition, during this period, Options exercisable for 197,176 shares of Class A common stock were exercised by means of a cashless net exercise procedure, which resulted in the issuance of 36,843 shares of Class A common stock and for which the Company paid withholding taxes of $46 thousand.

During the nine months ended September 30, 2020, Options exercisable for 105,000 shares of Class A common stock were exercised by means of a cashless net exercise procedure, which resulted in the issuance of 15,051 shares of Class A common stock and for which the Company paid withholding taxes of $73 thousand.

(4)Expired Options represent vested, underwater Options that were not exercised by terminated employees as stipulated in the Option award agreements, generally within 30 days from the employment termination date.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

(5)The aggregate intrinsic value and weighted average remaining contractual terms of Options outstanding and Options exercisable were as follows as of the date indicated:


	September 30, 2021
Aggregate intrinsic value
Options outstanding	$	7.2
Options exercisable	$	2.6
Weighted average remaining term (in years)
Options outstanding	7.1
Options exercisable	6.4

(6)The total fair value, based on grant date fair value, of Options that vested during the nine months ended September 30, 2021 and 2020 was $2.3 million and $3.2 million, respectively.

Unvested Holdco Units

As part of the Reorganization Transactions and IPO, certain profits interests in GS Holdings were converted to vested and unvested Holdco Units based on the prevailing profits interests thresholds and the IPO price. The converted Holdco Units remain subject to the same service vesting requirements as the original profits interests and are not subject to post-vesting restrictions. Unvested Holdco Units activity was as follows during the periods indicated:


	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020

	Number of Holdco Units	Weighted Average Grant Date Fair Value		Number of Holdco Units
Unvested at beginning of period	489,486	$	23.00	1,112,607
Forfeited	—	N/A		—
Vested(1)	(187,428)	23.00		(336,127)
Unvested at end of period	302,058	$	23.00	776,480

(1)The total fair value, based on grant date fair value, of previously unvested Holdco Units that vested during the nine months ended September 30, 2021 and 2020 was $4.3 million and $7.7 million, respectively.

Restricted Stock Awards

As part of the Reorganization Transactions and IPO, certain outstanding profits interests in GS Holdings were converted into vested and unvested Class A common stock awards based on the prevailing profits interests thresholds and the IPO price. The converted unvested Class A common stock awards remain subject to the same service vesting requirements as the original profits interests and are not subject to post-vesting restrictions.

Subsequent to the Reorganization Transactions and IPO, we granted restricted stock awards in the form of unvested Class A common stock to certain employees that vest ratably over three or four-years based on continued employment at the Company and to certain non-employee directors that vest one year from grant date based on continued service on the Board of Directors ("Board"). For these awards, compensation expense is measured based on the closing stock price of the Company's Class A common stock on the date of grant, and the total value of the awards is expensed ratably over the requisite service period.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Unvested Class A common stock activity was as follows during the periods indicated:


	Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020

	Class A Common Stock	Weighted Average Grant Date Fair Value		Class A Common Stock
Unvested at beginning of period	4,956,922	$	6.53	2,999,343
Granted	2,263,300	6.74		3,140,959
Forfeited(1)	(620,038)	6.53		(360,230)
Vested(2)	(1,457,269)	6.93		(791,662)
Unvested at end of period	5,142,915	$	6.50	4,988,410

(1)Forfeited shares of unvested Class A common stock associated with restricted stock awards are held in our treasury stock account. Refer to Note 11 for additional information on our treasury stock.

(2)The total fair value, based on grant date fair value, of previously unvested Class A common stock that vested during the nine months ended September 30, 2021 and 2020 was $10.1 million and $9.4 million, respectively.

Note 13. Income Taxes

GreenSky, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from GS Holdings based upon GreenSky, Inc.’s economic interest held in GS Holdings. GS Holdings is treated as a pass-through partnership for income tax reporting purposes and not subject to federal income tax. Accordingly, the Company is not liable for income taxes on the portion of GS Holdings' earnings not allocated to it.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 9.9% and 9.9%, respectively, and the Company recorded $4.4 million and $10.8 million of income tax expense for the three and nine months ended September 30, 2021, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2021 was less than our combined federal and state statutory tax rate of 24.4%, primarily because the Company is not liable for income taxes on the portion of GS Holdings’ earnings that are attributable to noncontrolling interests. The effective tax rate for the three and nine months ended September 30, 2021 includes a stock-based compensation shortfall primarily related to restricted stock awards vesting, which is required to be recorded discretely in the interim period in which it occurs, and tax effects of a nondeductible regulatory matter which was recorded discretely during this period. The effective tax rate is dependent on many factors, including the estimated amount of income subject to income tax; therefore, the effective tax rate can vary from period to period.

The Company's effective tax rate for the three and nine months ended September 30, 2020 was 6.5% and 13.2%, respectively, and the Company recorded $0.2 million and $0.8 million of income tax expense for the three and nine months ended September 30, 2020, respectively. The Company's effective tax rate for the three and nine months ended September 30, 2020 was less than our combined federal and state statutory tax rate of 24.3%, primarily because the Company is not liable for income taxes on the portion of GS Holdings’ earnings that are attributable to noncontrolling interests. The effective tax rate for the three and nine months ended September 30, 2020 include the effects of stock-based compensation deductions, which are required to be recorded discretely in the interim period in which those items occur.

As of September 30, 2021 and December 31, 2020, the total liability related to uncertain tax positions was $98 thousand and $98 thousand, respectively. The Company recognizes interest and penalties, if applicable, related to uncertain tax positions as a component of income tax expense. Accrued interest and penalties were immaterial as of September 30, 2021, and therefore did not impact the effective income tax rate.

Deferred tax assets, net of $407.2 million and $388.0 million as of September 30, 2021 and December 31, 2020, respectively, relate primarily to the basis difference in our investment in GS Holdings. This basis difference arose

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

primarily as a result of the Reorganization Transactions, the IPO and subsequent exchanges of Class B common stock for Class A common stock.

As of September 30, 2021, we concluded based on the weight of all available positive and negative evidence that all of our deferred tax assets are more likely than not to be realized. As such, no additional valuation allowance was recognized.

Tax Receivable Agreement

Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of GS Holdings when Holdco Units are redeemed or exchanged by the Continuing LLC Members of GS Holdings. We intend to treat any redemptions and exchanges of Holdco Units as direct purchases of Holdco Units for United States federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On May 23, 2018, we entered into a tax receivable agreement ("TRA") that provides for the payment by us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of GS Holdings resulting from any redemptions or exchanges of Holdco Units and from our acquisition of the equity of certain of the Former Corporate Investors (as defined in the 2020 Form 10-K), (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the "TRA Payments"). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in GS Holdings or us. The rights of each member of GS Holdings that is a party to the TRA are assignable to transferees of their respective Holdco Units. The timing and amount of aggregate payments due under the TRA may vary based on several factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable. During the nine months ended September 30, 2021, we paid a total of $4.1 million to the members of GS Holdings pursuant to the TRA.

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.

As of September 30, 2021 and December 31, 2020, the Company had a liability of $332.3 million and $310.4 million, respectively, related to its projected obligations under the TRA, which is captioned as tax receivable agreement liability in our Unaudited Condensed Consolidated Balance Sheets.

Note 14. Commitments, Contingencies and Guarantees

Commitment

Leases

In accordance with ASC 842, Leases, we determine if an arrangement is or contains a lease at inception of the contract. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We primarily lease our premises under multi-year, non-cancelable operating leases. Operating leases are included in other assets and other liabilities in our Unaudited Condensed Consolidated Balance Sheets. As of September 30, 2021 and December 31, 2020, we did not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. Operating lease cost associated with our ROU assets and lease liabilities was $1.4 million and $1.1 million for the three months ended

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

September 30, 2021 and 2020, respectively, and $3.5 million and $3.1 million for the nine months ended September 30, 2021 and 2020, respectively. See Note 15 for additional information regarding office space leased from a related party.

On June 23, 2021 GreenSky exercised an early termination option for one of its leases effective December 31, 2021. Accordingly, GreenSky will remain in the leased space through December 31, 2021 and will pay a termination penalty of $1.2 million in January 2022 following the end of the abridged lease term. The remeasurement of the lease liability resulted in a reduction of $1.0 million and a corresponding adjustment to the right of use asset.

On June 30, 2021 GreenSky amended the lease term for one of its leases through November 30, 2029 and extended a portion of one of its leases through November 30, 2027. The remeasurement of the lease liability resulted in the increase of the combined, underlying right of use asset by $8.9 million and the lease liability by $10.9 million, net of an estimated lease incentive receivable of $2.0 million.

Our operating leases have terms expiring from 2021 through 2029, exclusive of renewal option periods. Our leases contain renewal option periods of five years from the expiration dates. In our normal course of business, we expect our leases to be renewed, amended or replaced by other leases.

As of September 30, 2021, we did not have any operating leases that had not yet commenced.

Supplemental cash flow and noncash information related to our operating leases were as follows for the periods indicated:


	Nine Months Ended September 30,
	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases	$	3,376	$	3,491
Noncash operating lease ROU assets obtained in exchange for operating lease liabilities
Resulting from new or modified leases	$	7,888	$	9

Supplemental balance sheet information related to our operating leases was as follows as of the dates indicated.


	September 30, 2021		December 31, 2020
Operating lease ROU assets	$	13,039	$	8,265
Operating lease liabilities	$	17,155	$	10,107
Weighted average remaining lease term (in years)	6.1		2.4
Weighted average discount rate	5.6%		5.8%

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

The following table provides a reconciliation of the total undiscounted cash flows related to our future lease obligations recorded in other liabilities in the Unaudited Condensed Consolidated Balance Sheets in accordance with ASC 842:


	September 30, 2021
Remainder of 2021	$	1,956
2022	3,812
2023	2,661
2024	2,009
2025	2,065
Thereafter	8,006
Total lease payments	$	20,509
Less: imputed interest	(3,354)
Operating lease liabilities	$	17,155

Covenants

Our transaction processor and some Bank Partners impose financial covenants upon our wholly-owned subsidiary, GSLLC. As of September 30, 2021 and December 31, 2020, GSLLC was in compliance with the financial covenant provisions in these agreements. In addition, the agreements entered into as part of our loan participation sales with institutional investors and financial institutions impose financial covenants upon the Company. As of September 30, 2021, the Company was in compliance with the financial covenant provisions in these agreements. See Note 7 for discussion of financial and non-financial covenants associated with our borrowings.

Other Commitments

As of September 30, 2021 and December 31, 2020, the outstanding open and unused line of credit on approved loan receivables held for sale was $109.6 million and $99.9 million, respectively. We did not record a provision for these unfunded commitments, but we believe we have adequate cash on hand to fund these commitments.

For certain Bank Partners, we maintain a restricted cash balance based on a contractual percentage of the total interest billed on outstanding deferred interest loans that are within their respective promotional periods less previous FCR on such outstanding loans. As of September 30, 2021 and December 31, 2020, restricted cash in the Unaudited Condensed Consolidated Balance Sheets included $51.1 million and $84.6 million, respectively, associated with these arrangements.

Contingencies

In limited instances, the Company may be subject to operating losses if we make certain errors in managing credit programs and we determine that a customer is not liable for a loan originated by a Bank Partner. We evaluated this contingency in accordance with ASC 450, Contingencies, and determined that it is reasonably possible that losses could result from errors in underwriting. However, in management’s opinion, it is not possible to estimate the likelihood or range of reasonably possible future losses related to errors in underwriting based on currently available information. Therefore, we have not established a liability for this loss contingency.

Further, from time to time, we place Bank Partner loans on non-accrual and non-payment status (“Pended Status”) while we investigate consumer loan balance inquiries, which may arise from disputed charges related to work performed by third-party merchants. As of September 30, 2021, Bank Partner loan balances in Pended Status were $12.9 million. While it is management’s expectation that the majority of these loan balance inquiries will be resolved without incident, in certain instances we may determine that it is appropriate for the Company to permanently reverse the loan balance, assume the related economic responsibility and record a liability for these instances. As of September 30, 2021, our liability for potential Pended Status future losses was $3.4 million.

In addition, from time to time, we enter into indemnification agreements with business partners and other third parties in the ordinary course of business in connection with which we typically agree to indemnify and defend the

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

indemnified parties against certain claims and related losses that they may suffer or incur as a result of our activities. The duration of these indemnification agreements is generally perpetual, and our maximum exposure with respect to such arrangements is not reasonably determinable. Historically, we have not incurred material costs related to these indemnity obligations, and we maintain insurance to offset certain of these potential costs. We also have entered into indemnification agreements with each of our directors and with certain of our officers, which require us to indemnify such individuals, to the fullest extent permitted by Delaware law, against certain liabilities to which they may become subject by reason of their service to us and to advance certain expenses on their behalf.

Legal Proceedings

IPO Litigation. The Company, together with certain of its officers and directors and one of its former directors and certain underwriters of the Company’s IPO were named in a putative class action in the United States District Court for the Southern District of New York (the "District Court") (In Re: GreenSky, Inc. Securities Litigation (Consolidated Action), Case No. 1:2018-cv-11071-AKH (S.D.N.Y.)).

In April 2021, the parties in the case entered into a binding Memorandum of Understanding to settle the matter and the proposed settlement was approved by the District Court in October 2021. Substantially all amounts payable by the Company under the settlement were paid by the Company’s insurers. The payable under the approved settlement and the related insurance proceeds are recorded in other liabilities and other assets, respectively, in the Company’s Unaudited Condensed Consolidated Balance Sheets at September 30, 2021.

Regulatory matter. We have, from time to time in the normal course of our business, received or are subject to, inquiries or investigations by regulators regarding the GreenSky program, including the origination and servicing of consumer loans, practices by merchants or other third parties, and licensing and registration requirements.

In July 2021, the Company entered into a consent order with the Consumer Financial Protection Bureau to resolve its inquiry related to consumer complaints about certain allegedly unauthorized loans initiated by certain merchants. Without admitting any liability or wrongdoing, GreenSky agreed to pay a civil money penalty of $2.5 million and to provide redress to eligible consumers where there is insufficient evidence of customer authorization that will be capped at $3 million in cash redress (with a minimum remittance of $750,000) and capped at $6 million in credit redress via loan cancellations.

Other matters. We are also involved in a number of other proceedings concerning matters arising in connection with the ordinary conduct of our business. While the ultimate outcome of such proceedings cannot be determined, we do not believe that the resolution of these other proceedings, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.

With respect to all legal proceedings, it is our policy to recognize legal fees as they are incurred as a sales, general and administrative expense in our Consolidated Statements of Operations.

Financial Guarantees

As of September 30, 2021, the contingent aspect of our financial guarantee was measured under ASC 326, Financial Instruments – Credit Losses, which requires us to estimate expected credit losses, and the impact of those estimates on our required payments under the financial guarantee arrangement, for loans within our Bank Partner portfolios that are either funded or approved for funding at the measurement date, but precludes us 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 that we establish with each Bank Partner. Typically, changes in the estimated financial guarantee liability as measured under ASC 326 are driven primarily by new Bank Partner loans

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

that are facilitated on our platform during the period and thereby increase the contractual escrow balance and, to a lesser degree, by changes in underlying assumptions.

We use a discounted cash flow method to estimate our expected risk of loss under the contingent aspect of our financial guarantees for each Bank Partner. Significant assumptions for each Bank Partner portfolio used in valuing our financial guarantee liability include the following:

Loan portfolio composition: We forecast each Bank Partner's loan portfolio composition in a "run-off" scenario, which is primarily impacted by expected loan prepayments and paydowns derived from historical behavior curves for each loan plan and were applied to each Bank Partner's portfolio based on its composition of loans and where such loans were in their economic life cycle at the measurement date. The loan portfolio composition additionally informs our forecasts of the components that determine our incentive payments or, alternatively, escrow usage. All other factors remaining constant, generally the higher the expected prepayments and pay down rates, the lower the measurement of our financial guarantee liability, as our contractual escrow balance is calculated based on the month-end outstanding portfolio balance.

Credit losses: We use lifetime historical credit loss experience for each loan plan comprising a Bank Partner's loan portfolio as a basis for estimating future credit losses. In assessing the current conditions and forecasts of future conditions as of September 30, 2021, we primarily considered the current and expected economic impacts of the COVID-19 pandemic on the macroeconomic environment, as well as initiatives undertaken by the Company to mitigate credit losses, such as the emphasis on our Bank Partners' super-prime promotional loan programs with our merchants and offering loan deferral options to GreenSky program borrowers. All other factors remaining constant, higher credit losses reduce our incentive payments and thereby increase our risk of loss for escrow usage. Generally, higher credit losses earlier in the forecast period expose us to greater risk of loss under our financial guarantee arrangements, as the contractual escrow balance is highest early in the forecast period in conjunction with the outstanding portfolio balance in a "run-off" scenario.

As of September 30, 2021 and December 31, 2020, the estimated value of the escrow financial guarantee was $114.5 million and $131.9 million, respectively, relative to our $162.9 million and $173.2 million contractual escrow that was included in our restricted cash balance as of September 30, 2021 and December 31, 2020, respectively. The financial guarantee liability as of September 30, 2021 assumes 100% escrow use for a bank partner that provided notice of loan origination termination in August 2021. We recognized a financial guarantee expense of $2.0 million and financial guarantee benefit of $0.3 million during the three months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021 and 2020, we recognized a financial guarantee benefit of $7.7 million and financial guarantee expense of $28.4 million, respectively, in the Unaudited Condensed Consolidated Financial Statements. Refer to Note 1 for additional discussion of our accounting for financial guarantees.

Note 15. Related Party Transactions

Lease

We lease office space from a related party under common management control for which lease expense is recognized within related party expenses in the Unaudited Condensed Consolidated Statements of Operations and for which operating lease ROU assets and operating lease liabilities are recognized within those respective line items in the Unaudited Condensed Consolidated Balance Sheets. Total operating lease cost related to this office space was $435 thousand and $435 thousand for the three months ended September 30, 2021 and 2020, respectively, and $1.3 million and $1.3 million for the nine months ended September 30, 2021 and 2020, respectively. Operating lease ROU assets and operating lease liabilities related to this office space were $2.8 million and $3.2 million, respectively, as of September 30, 2021, and $3.9 million and $4.5 million, respectively, as of December 31, 2020.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

Note 16. Segment Reporting

We conduct our operations through a single operating segment and, therefore, one reportable segment. There are no significant concentrations by state or geographical location, nor are there any significant individual customer concentrations by balance.

Note 17. Variable Interest Entities

Upon completion of our IPO, GreenSky, Inc. became the managing member of GS Holdings with 100% of the management and voting power in GS Holdings. In its capacity as managing member, GreenSky, Inc. has the sole authority to make decisions on behalf of GS Holdings and bind GS Holdings to agreements. GS Holdings maintains separate capital accounts for its investors as a mechanism for tracking earnings and subsequent distribution rights. Accordingly, management concluded that GS Holdings is a limited partnership or similar legal entity as contemplated in ASC 810, Consolidation. Further, management concluded that GreenSky, Inc. is GS Holdings' primary beneficiary and, as such, GreenSky, Inc. consolidates the results of GS Holdings for financial reporting purposes under the variable interest consolidation model guidance in ASC 810.

GreenSky, Inc.’s relationship with GS Holdings results in no recourse to the general credit of GreenSky, Inc. GS Holdings and its consolidated subsidiaries represent GreenSky, Inc.’s sole investment. GreenSky, Inc. shares in the income and losses of GS Holdings in direct proportion to GreenSky, Inc.’s ownership percentage. Further, GreenSky, Inc. has no contractual requirement to provide financial support to GS Holdings.

GSLLC is a wholly-owned subsidiary of GS Holdings and is consolidated with GS Holdings. In May 2020, GSLLC formed Depositor as an indirect subsidiary, which in turn formed the Warehouse SPV as an indirect subsidiary, for the purposes of establishing the Warehouse Facility to fund purchases of loan participations. GSLLC, on behalf of the Bank Partner that owns the loans underlying the loan participations, serves as the designated servicer of the Warehouse SPV’s loan receivables held for sale. Management concluded that the Warehouse SPV is a variable-interest entity. GSLLC is the primary beneficiary and consolidates the Warehouse SPV under the variable interest consolidation model guidance under ASC 810.

The Warehouse SPV's relationship with GSLLC results in no recourse to the general credit of the Company. Further, the Company has no contractual requirement to provide financial support to the Warehouse SPV. In addition, each of the Warehouse SPV and Depositor is a separate legal entity from the Company and from each other subsidiary of the Company, the respective assets of the Warehouse SPV and Depositor are owned by the Warehouse SPV and Depositor, respectively, and are solely available to satisfy their respective creditors. As such, neither the Warehouse SPV’s assets nor Depositor’s assets are available to satisfy obligations of GreenSky, Inc., GS Holdings, GSLLC or other subsidiaries of the Company.

Pursuant to the Facility Bank Partner Agreements, GreenSky acts as servicer on behalf of a Bank Partner for the loans with respect to which loan participations have been sold to third parties. GreenSky has concluded that the third parties that purchased loan participations are variable interest entities and, primarily as a result of this at-market servicing arrangement, GreenSky maintains a variable interest in the third party purchasers. However, as GreenSky is not the primary beneficiary of the purchasers and does not consolidate the purchasers, GreenSky lacks the power to direct the activities of the purchasers that most significantly impact their economic performance. Our exposure to loss is limited to compensation provided through the servicing arrangement and the Company would only experience a loss if it were required to repurchase a loan participation due to a breach in representations and warranties associated with its loan sale or servicing contracts. GreenSky did not provide any financial support to the variable interest entities in 2021. The loan participations transferred to the purchasers qualified for sales treatment under ASC 860, Transfers and Servicing, as the participations were legally isolated from the Company, the purchasers had the right to freely pledge or exchange their interests in the participations, and the Company does not maintain effective control over the transferred participations.

Below are tabular disclosures that provide insight into how GS Holdings, inclusive of the Warehouse SPV, affects GreenSky, Inc.’s financial position, performance and cash flows. Prior to the IPO and Reorganization Transactions, GreenSky, Inc. did not have any variable interest in GS Holdings.

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

The following table presents the balances related to GS Holdings, inclusive of the Warehouse SPV, that are included in the Unaudited Condensed Consolidated Balance Sheets as of the dates indicated, inclusive of GreenSky, Inc.'s interest in the variable interest entity.


	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	203,875	$	116,231
Restricted cash	264,387		319,879
Loan receivables held for sale, net	327,045		571,415
Accounts receivable, net	17,629		21,958
Property, equipment and software, net	22,630		21,452
Other assets	123,808		51,965
Total assets(1)	$	959,374	$	1,102,900

Liabilities and Members Equity (Deficit)
Liabilities
Accounts payable	$	10,797	$	15,418
Accrued compensation and benefits	16,624		13,666
Other accrued expenses	15,880		5,207
Finance charge reversal liability	139,307		185,134
Term loan	451,190		452,806
Warehouse facility	278,278		502,830
Financial guarantee liability	114,472		131,894
Other liabilities	120,423		80,478
Total liabilities(2)	1,146,971		1,387,433

Members Equity (Deficit)
Equity (deficit) attributable to Continuing LLC Members	(105,538)		(169,484)
Equity (deficit) attributable to GreenSky, Inc.	(82,059)		(115,049)
Total members equity (deficit)	(187,597)		(284,533)
Total liabilities and members equity (deficit)	$	959,374	$	1,102,900

(1)Includes $345.7 million and $600.8 million of assets held by the Warehouse SPV as of September 30, 2021 and December 31, 2020, respectively.

(2)Includes $279.1 million and $503.9 million of liabilities held by the Warehouse SPV as of September 30, 2021 and December 31, 2020, respectively.

The following table reflects the impact of consolidation of GS Holdings, inclusive of the Warehouse SPV, into the Unaudited Condensed Consolidated Statements of Operations for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Total revenue	$	128,149	$	142,023	$	389,839	$	396,842
Total costs and expenses	78,755		132,807		263,525		375,748
Operating profit	49,394		9,216		126,314		21,094
Total other income (expense), net	(5,252)		(6,192)		(16,877)		(15,136)
Net income	$	44,142	$	3,024	$	109,437	$	5,958

Table of Contents

GreenSky, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(United States Dollars in thousands, except per share data, unless otherwise stated)

The following table reflects the cash flow impact of GS Holdings, inclusive of the Warehouse SPV, on the Unaudited Condensed Consolidated Statements of Cash Flows for the periods indicated.


	Nine Months Ended September 30,
	2021		2020
Net cash provided by (used in) operating activities	$	300,854	$	(430,492)
Net cash used in investing activities	(11,311)		(12,120)
Net cash provided by (used in) financing activities	(257,391)		430,372

Net increase (decrease) in cash and cash equivalents and restricted cash	32,152		(12,240)
Cash and cash equivalents and restricted cash at beginning of period	436,110		427,811
Cash and cash equivalents and restricted cash at end of period	$	468,262	$	415,571

Note 18. Subsequent Events

Subsequent to September 30, 2021, the following events have occurred:

Loan Participation Sales

Subsequent to September 30, 2021, the Company completed loan participation sales totaling approximately $135 million. In connection with the sales, the Company repaid amounts under the Warehouse Facility and subsequently also borrowed amounts in connection with additional Warehouse Loan Participation purchases.

Table of Contents

ITEM 2: 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 Unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this Form 10-Q, as well as the Audited Consolidated Financial Statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the GreenSky, Inc. 2020 Form 10-K filed with the Securities and Exchange Commission on March 2, 2020 ("2020 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 the Company's 2020 Form 10-K and Part II, Item 1A "Risk Factors" in this Form 10-Q.

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 initial public offering ("IPO") of its Class A common stock and certain Reorganization Transactions, as further described in the 2020 Form 10-K, in order to carry on the business of GreenSky, LLC ("GSLLC"), a Georgia limited liability company, which is an operating entity and wholly-owned subsidiary of GS Holdings, LLC ("GS Holdings"). GS Holdings is a holding company with no operating assets or operations, was organized in August 2017, and on August 24, 2017 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.

Executive Summary

Merger Agreement

In September, 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 approval of the Company's stockholders, the receipt of required regulatory approvals, and satisfaction of other customary closing conditions. See Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 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 three months ended September 30, 2021, our transaction volume increased 4% compared to the third quarter of the prior year. Our transaction volume growth in the third quarter was impacted by escalating supply chain constraints in the U.S. that we expect to shift transactions to future periods.

Table of Contents

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.

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" in our 2020 10-K, and, in particular, "– The global outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. economy, and may have an adverse impact on our performance and results of operations."

Third Quarter and Year-to-date 2021 Results

The following are key business metrics and financial measures as of and for the three and nine months ended September 30, 2021:

Business Metrics

•Transaction volume (as defined below) was $1.54 billion during the three months ended September 30, 2021 compared to $1.48 billion during the three months ended September 30, 2020, an increase of 4%. Transaction volume was $4.38 billion during the nine months ended September 30, 2021 compared to $4.20 billion during the nine months ended September 30, 2020, an increase of 4%;

•Total revenue of $128.1 million during the three months ended September 30, 2021 decreased 10% from $142.0 million during the three months ended September 30, 2020. Total revenue of $389.8 million during the nine months ended September 30, 2021 decreased 2% from $396.8 million during the nine months ended September 30, 2020;

•The outstanding balance of loans serviced by our platform totaled $9.56 billion as of September 30, 2021 compared to $9.55 billion as of September 30, 2020;

•We maintained a strong consumer profile. GreenSky program borrowers with credit scores over 780 comprised 41% of the loan servicing portfolio as of September 30, 2021, and over 91% of the loan servicing portfolio as of September 30, 2021 consisted of GreenSky program borrowers with credit scores over 700; and

•The 30-day delinquencies as of September 30, 2021 were 0.73%, an improvement of 31 basis points over September 30, 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 September 30, 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

We had net income of $39.8 million and $98.6 million, respectively, during the three and nine months ended September 30, 2021 compared to net income of $2.8 million and $5.2 million, respectively, during the three and nine months ended September 30, 2020. The higher earnings in the 2021 periods was primarily due to:

•Our cost of revenue decreased $58.9 million and $88.6 million, respectively, during the three and nine months ended September 30, 2021 compared to the same periods in 2020, largely driven by a decrease in 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. Refer to "Three and Nine Months Ended September 30, 2021 and 2020 - Cost of Revenue" in this Part 1, Item 2 for additional discussion.

Table of Contents

•A $2.0 million non-cash financial guarantee expense and $7.7 million benefit, respectively, during the three and nine months ended September 30, 2021, compared to a $0.3 million benefit and $28.4 million expense, respectively, during the same periods in 2020. Refer to "Three and Nine Months Ended September 30, 2021 and 2020–Financial guarantee expense (benefit)" in this Part I, Item 2 as well as Note 1 and Note 14 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for additional discussion of our financial guarantee.

•Sales, general and administrative costs decreased $4.9 million during the three months ended September 30, 2021 and increased $2.1 million during the nine months ended September 30, 2021 compared to the same periods in 2020. Refer to "Three and Nine Months Ended September 30, 2021 and 2020–Sales, general and administrative" in this Part I, Item 2 for additional discussion.

For additional information, see Results of Operations within this Part I, Item 2.

Adjusted EBITDA (as defined below) increased $19.6 million or 51% and $58.5 million or 61%, respectively, during the three and nine months ended September 30, 2021 when compared to the same periods in 2020. 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 Measure."

Seasonality. Historically, our business has generally been subject to seasonality in consumer spending and payment patterns. We cannot yet predict the impacts of COVID-19 on the seasonality of our business for the remainder of 2021 or future periods. For example, we have continued to observe supply chain impacts on materials costs and project completion times, which can impact the timing of transaction volumes and also lead to increased consumer complaints. Increased project completion times can also increase variability from historical seasonality patterns.

Given that our home improvement vertical is a significant contributor to our overall revenue, our revenue generally has been 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. Conversely, our revenue growth generally has been relatively slower 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. Historically, the elective healthcare vertical has been susceptible to seasonality during the fourth quarter of the year, as the licensed healthcare providers take more vacation time around the holiday season. Our seasonality trends may vary in the future as we introduce our program to new industry verticals and the GreenSky program becomes less concentrated in the home improvement industry.

The origination related and finance charge reversal components of our cost of revenue also have been subject to these same seasonal factors, while the servicing related component of cost of revenue, in particular customer service staffing, printing and postage costs, has not been as closely correlated to seasonal volume patterns. 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 follow a similar seasonal pattern as transaction volumes over the course of a calendar year.

Lastly, we historically have observed seasonal patterns in consumer credit, driven to an extent by income tax refunds, which results in lower charge-offs during the second and third quarters of the year.

Non-GAAP Financial Measure

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 (loss) before interest expense, taxes, depreciation and amortization, adjusted to eliminate share-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

Table of Contents

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 platform.

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 this non-GAAP financial measure to the most directly comparable GAAP measure, net income, as presented below.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	39,777	$	2,811	$	98,613	$	5,247
Interest expense(1)	6,801		6,775		20,136		18,289
Income tax expense	4,368		197		10,822		799
Depreciation and amortization	3,548		2,973		10,343		8,180
Share-based compensation expense(2)	4,033		4,338		11,776		11,318
Financial guarantee liability - Escrow(3)	—		(2,382)		—		26,274
Servicing asset and liability changes(4)	1,499		368		(9,995)		(1,370)
Mark-to-market on sales facilitation obligations(5)	(6,955)		18,262		(6,174)		18,262
Merger-related costs(6)	5,036		—		5,036		—
Transaction and non-recurring expenses(7)	157		5,367		13,608		8,625
Adjusted EBITDA	$	58,264	$	38,709	$	154,165	$	95,624

(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 Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional discussion of share-based compensation.

(3)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.

(4)Includes the non-cash changes in the fair value of servicing assets and liabilities related to our servicing obligations associated with Bank Partner agreements and other contractual arrangements.

(5)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 Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional discussion.

(6)Includes professional services fees related to the pending merger with Goldman Sachs.

(7)The three and nine months ended September 30, 2021 primarily include legal fees associated with IPO litigation and regulatory matter. The three and nine months ended September 30, 2020 include legal fees associated with IPO litigation and regulatory matter and professional fees associated with our strategic alternatives review process.

Table of Contents

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.


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Transaction Volume
Dollars (in millions)	$	1,541		$	1,475	$	4,382		$	4,205
Percentage increase	4		%			4		%
Loan Servicing Portfolio
Dollars (in millions, at end of period)	$	9,560		$	9,547	$	9,560		$	9,547
Percentage increase	0.1		%			0.1		%
Cumulative Consumer Accounts
Number (in millions, at end of period)	4.23			3.57		4.23			3.57
Percentage increase	18		%			18		%

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. The average loan servicing portfolio for the three months ended September 30, 2021 and 2020 was $9.5 billion. The average loan servicing portfolio for the nine months ended September 30, 2021 and 2020 was $9.4 billion and $9.3 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.

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 facilitated on our platform and, therefore, impacts the fees that we earn and the per-unit cost of the services that we provide.

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 banks in connection with which we provide point-of-sale financing, payments technology and related marketing, servicing, collection and other services. 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.

As of September 30, 2021, we had aggregate funding commitments from our 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 September 30, 2021 for use in the next 12 months, approximately $2.6 billion was unused, and we anticipate approximately $1.6 billion of additional funding capacity will become available as loans pay-down under revolving commitments during this period, assuming renewal of all current revolving commitments. During the third quarter of 2021, an existing Bank Partner increased its revolving commitment by $100 million to $1.0 billion. Also during the third quarter of 2021, as previously disclosed, a Bank Partner provided termination notice that its loan origination agreement with us will end in November 2021 and that

Table of Contents

Bank Partner's funding commitment is excluded from our aggregate Bank Partner commitments at September 30, 2021, referenced above.

As we add new Bank Partners, their 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 meaningful 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 quarter 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 $1.0 billion in additional loan participations over a one-year period. In April 2021, that commitment was increased by $500 million to $1.5 billion. During the nine months ended September 30, 2021, GreenSky executed approximately $1.3 billion of sales of loan participations and whole loans (inclusive of the sale 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.

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 (the “Commitment Letter”) with Goldman Sachs Bank. Pursuant to the Commitment Letter, Goldman Sachs Bank committed to provide such subsidiaries with (a) a commitment of up to $0.8 billion to purchase economic 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 economic participations in loans originated by the Company’s Bank Partners under the GreenSky program during the period from the Merger Agreement termination date through the last day of the ninth full calendar month following such termination date. The Company is in the process of finalizing the definitive agreements for such purchase facility.

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 wholly-owned loan portfolios, Bank Partner credit losses and prepayments impact our profitability in the following ways:

•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

Table of Contents

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 2.2% of the total outstanding loan balance as of September 30, 2021. Cash set aside to meet this requirement is classified as restricted cash in our Unaudited Condensed Consolidated Balance Sheets. As of September 30, 2021, the financial guarantee liability associated with our escrow arrangements represented approximately 70% 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 brief.

For further discussion of our sensitivity to the credit risk exposure of our Bank Partners, see Part I, Item 3 "Quantitative and Qualitative Disclosures About Market Risk–Credit risk." In January 2020, our Bank Partners also became subject to ASU 2016-13, which may affect how they reserve for losses on loans.

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.

Results of Operations Summary

Three and Nine Months Ended September 30, 2021 and 2020

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

During the three months ended September 30, 2021, transaction fees revenue decreased 8% compared to the same period in 2020 due to a decrease in transaction fee rate, partially offset by 4% increase in transaction volume. During the nine months ended September 30, 2021, transactions fees revenue decreased 4% compared to the same period in 2020, primarily attributable to a decrease in transaction fee rate. In addition, interchange fees decreased during the three and nine months ended September 30, 2021 compared to the same periods in 2020 due to an increase in direct processing of payments to merchants. These decreases were partially offset by a 4% increase in transaction volume.

Transaction fees earned per dollar originated ("transaction fee rate") were 6.40% and 6.54%, respectively, during the three and nine months ended September 30, 2021 compared to 7.29% and 7.12%, respectively, during the same periods in 2020. The year over year transaction fee rate decreases are primarily related to the mix of promotional terms of loans originated on our platform. Loans with lower interest rates, longer stated maturities and longer

Table of Contents

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 shifted originations to more promotional loans, which resulted in the upward shift in the transaction fee rate. In 2021, we've seen 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 Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information on our servicing assets and liabilities.

The following table presents servicing revenue earned from servicing fees and the fair value changes in servicing assets and liabilities related to our Bank Partner agreements included in our servicing revenue.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Servicing fee	$	27,911	$	28,238	$	83,172	$	87,261
Fair value changes in servicing assets and liabilities	(1,795)		(792)		8,986		(51)
Total servicing revenue	$	26,116	$	27,446	$	92,158	$	87,210

During the three months ended September 30, 2021, servicing revenue decreased $1.3 million, or 5%, compared to the same period in 2020, which was primarily attributable to the $1.8 million net decrease in the fair value of servicing assets and liabilities related to our Bank Partner servicing arrangements in 2021, as compared to the $0.8 million decrease during the same period in 2020. The fair value changes in servicing assets and liabilities for the three months ended three months ended September 30, 2021 reflects changes in balances of Bank partner portfolios and the respective applicable fees during the quarter. The servicing fee decrease reflects a 2021 average servicing fee rate of 1.17%, compared to 1.19% during the same period of 2020 primarily attributable to the diversification of our funding strategy.

During the nine months ended September 30, 2021, servicing revenue increased $4.9 million, or 6%, compared to the same period in 2020, which was primarily attributable to the $9.0 million net increase in the fair value change in servicing assets and liabilities related to our Bank Partner servicing arrangements in 2021, as compared to the $(0.1) million decrease during the same period in 2020. In addition to the same factors that impacted the third quarter, described above, the net increase during the nine months ended September 30, 2021 reflects the significant improvements in credit forecasts since December. The servicing fee decrease reflects a 2021 average servicing fee rate of 1.18%, compared to 1.25% during the same period in 2020 primarily attributable to the diversification of our funding strategy.

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 the three months ended September 30, 2021, interest income decreased $3.6 million compared to the same period in 2020 due to the lower balance of loan receivables held for sale during the quarter. During the nine months ended September 30, 2021, interest income increased $0.6 million compared to the same period in 2020.

Table of Contents

Cost of Revenue (exclusive of depreciation and amortization expense)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Origination related	$	5,816	$	7,396	$	16,338	$	20,153
Servicing related	12,190		13,415		38,328		38,937
Fair value change in FCR liability	11,805		21,832		57,483		110,386
Loan and loan participation sales costs	11,011		31,823		35,824		42,672
Mark-to-market on sales facilitation obligations	(6,955)		18,262		(6,174)		$	18,262
Total cost of revenue (exclusive of depreciation and amortization expense)	$	33,867	$	92,728	$	141,799	$	230,410

Origination related

During the three and nine months ended September 30, 2021, loan origination related expenses decreased 21% and 19%, respectively, compared to the same periods in 2020, largely driven by operational efficiencies in loan processing, with origination related expenses as a percent of transaction volume decreasing to 0.38% and 0.37% during the three and nine months ended September 30, 2021, respectively, from 0.48% and 0.47% for the same periods in 2020. Additionally, there were lower customer protection expenses of $2.0 million and $2.8 million during the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, which are incurred when the Company determines that a merchant did not fulfill its obligation to a borrower and compensates a Bank Partner for the applicable portion of the loan principal balance.

Servicing related

Loan servicing related expenses were relatively flat year-over-year. Servicing related expenses as a percent of our average loan servicing portfolio were 0.51% and 0.51% during the three and nine months ended September 30, 2021, respectively, compared to 0.54% and 0.51% for the same periods in 2020.

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 Unaudited Condensed Consolidated Balance Sheets.

See Note 3 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information on our finance charge reversal liability, including a qualitative discussion of the impact to the fair value of our liability resulting from changes in the finance charge reversal rate and discount rate. See Part I, Item 3 “Quantitative and Qualitative Disclosures About Market Risk–Credit risk.”

Table of Contents

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 deferred interest loans by the Warehouse SPV.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning balance	$	141,605	$	198,755	$	185,134	$	206,035
Receipts(1)	65,604		62,631		170,038		166,939
Settlements(2)	(79,707)		(95,706)		(273,348)		(295,848)
Fair value changes recognized in cost of revenue(3)	11,805		21,832		57,483		110,386
Ending balance	$	139,307	$	187,512	$	139,307	$	187,512

(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 $7.4 million and $4.3 million, respectively, during the three months ended September 30, 2021 and 2020, and $20.1 million and $24.3 million, respectively, during the nine months ended September 30, 2021 and 2020, which were not yet collected and subject to 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.

Further detail regarding our receipts is provided below for the periods indicated.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Incentive payments	$	57,020	$	57,525	$	146,522	$	155,737
Recoveries on unsold charged-off receivables(1)	8,584		5,106		23,516		11,202
Total receipts	$	65,604	$	62,631	$	170,038	$	166,939

(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 $4.8 million and $6.2 million during the three months ended September 30, 2021 and 2020, respectively, and $15.6 million and $17.4 million during the nine months ended September 30, 2021 and 2020, respectively. These collected recoveries are excluded from receipts, as they do not impact our fair value change in FCR liability.

The decreases in the fair value change in FCR liability recognized in cost of revenue during the three and nine months ended September 30, 2021 of $10.0 million, or 46%, and $52.9 million, or 48%, respectively, compared to the same periods in 2020, were 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 participations sales costs

Loan and loan participation sales costs primarily include interest expense on the Warehouse Facility, lower of cost or fair value adjustments on sold loan participations or currently owned loan participations ("Warehouse Loan Participations") and fair value changes in contingent consideration receivables, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining the Warehouse Facility.

Table of Contents

During the three and nine months ended September 30, 2021, the loan and loan participations sales costs were $11.0 million and $35.8 million, respectively, inclusive of realized losses of $10.4 million and $25.2 million, respectively, on Warehouse Loan Participations sold. During the three and nine months ended September 30, 2020, the loan and loan participations sales costs were $31.8 million and $42.7 million, respectively, inclusive of $19.7 million realized discount 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.

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 is 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 of 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 three and nine months ended September 30, 2021, the mark-to-market benefits recognized on sales facilitation obligations were $7.0 million and $6.2 million, respectively. As the first sales facilitation obligations were entered into in the third quarter of 2020, the mark-to-market expense during both the three and nine months ended September 30, 2020 was $18.3 million. See Note 3 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for further information.

Compensation and benefits

Compensation and benefits expense primarily consists 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.

For the three months ended September 30, 2021, compensation and benefits expense increased $1.6 million, or 7%, compared to the same period in 2020 as a result of a $1.9 million increase in salary expense, partially offset by a $0.3 million decrease in stock-based compensation expense.

During the nine months ended September 30, 2021, compensation and benefits expense increased $2.1 million, or 3%, compared to the same period in 2020 as a result of a $1.2 million increase in salary expense, a $0.3 million increase in stock-based compensation expense, and a $0.6 million decrease in capitalized IT costs.

Property, office and technology

During the three months ended September 30, 2021, property, office, and technology expense increased $146 thousand, or 4%, compared to the same period in 2020.

During the nine months ended September 30, 2021, property, office, and technology expense increased $1.0 million, or 8%, compared to the same period in 2020, primarily due to an increase in software, hardware and hosting costs.

Depreciation and amortization

During the three and nine months ended September 30, 2021, depreciation and amortization expense increased $0.6 million, or 19%, and $2.2 million, or 26%, respectively, compared to the same periods in 2020, primarily driven by increases over time in capitalized internally-developed software from our growing infrastructure, resulting in increased amortization expense.

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.

Table of Contents

During the three months ended September 30, 2021, sales, general and administrative expense decreased $4.9 million, or 42%, compared to the same period in 2020. The decrease is primarily related to non-recurring legal and regulatory costs incurred during the three months ended September 30, 2020.

During the nine months ended September 30, 2021, sales, general and administrative expense increased $2.1 million, or 7%, compared to the same period in 2020, primarily related to an increase in legal and regulatory costs of $7.0 million. The increase was partially offset by a decrease in provision for losses for loan receivables held for sale of $4.7 million and a decrease in provision for losses on accounts receivable of $0.4 million. See Note 14 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for further information on our legal proceedings.

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 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 Unaudited Condensed Consolidated Statements of Operations.

During the three months ended September 30, 2021, the Company recognized financial guarantee expense of $2.0 million compared to a financial guarantee benefit of $0.3 million during the same period in 2020.

During the nine months ended September 30, 2021, the Company recognized a financial guarantee benefit of $7.7 million, compared to financial guarantee expense of $28.4 million during the same period in 2020. The financial guarantee benefit recognized in 2021 is primarily due to an improved credit forecast and lower delinquency rates while the same periods last year were largely impacted by the onset of the COVID-19 pandemic and the decreased expectations of Bank Partner loan credit performance. The financial guarantee benefit recognized in 2021 is also attributable to accelerated prepayments on loans within our Bank Partner portfolios and sales of whole loans and loan participations from our existing bank partner arrangements into alternative structures that are not subject to our financial guarantee. See Note 1 and Note 14 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 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 $5.0 million during the three and nine months ended September 30, 2021. For more information on the pending merger, see Note 1 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1.

Related party

Related party expenses, on a recurring basis, primarily consist of rent expense, as we lease office space from a related party.

During the three and nine months ended September 30, 2021, related party expenses increased $85 thousand, or 24%, and $35 thousand, or 3%, compared to the same periods in 2020, due to decreased amortization of employee loans.

Other income (expense), net

During the three months ended September 30, 2021, other expense, net increased $1.0 million, or 15%, compared to the same period in 2020, primarily due to the fair value change in our interest rate swap for which we discontinued hedge accounting during the third quarter of 2021. For further information on our interest rate swap accounting, see Note 8 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1.

Table of Contents

During the nine months ended September 30, 2021, other expense, net increased $1.8 million, or 12%, compared to the same period in 2020. The increase was primarily due to (i) $1.8 million increase in interest expense from the 2020 Amended Credit Agreement; (ii) $0.8 million gain from the change in fair value of our interest rate swap; (iii) $0.6 million decrease in interest income; (iv) net $0.4 million lower income from the change in the fair value of our servicing liabilities; and (v) $0.3 million decrease in other losses.

Income tax expense

Income tax expense recorded during the three and nine months ended September 30, 2021 of $4.4 million and $10.8 million, respectively, reflected the expected income tax expense on the net earnings for the periods related to GreenSky, Inc.'s economic interest in GS Holdings, as well as $20 thousand of tax benefit and $200 thousand of tax expense, respectively, arising from discrete items, primarily consisting of a stock-based compensation shortfall as a result of restricted stock award vesting during the period and the tax expense impact of a nondeductible regulatory matter incurred during the period.

The increase in income tax expense during the three and nine months ended September 30, 2021, as compared to the income tax expense in the same periods in 2020, was primarily related to an increase in overall net earnings attributable to GreenSky, Inc.'s economic interest in GS Holdings in 2021.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests for the three and nine months ended September 30, 2021 and 2020 reflects income attributable to the Continuing LLC Members for the entire periods based on their weighted average ownership interest in GS Holdings, which was 57.6% and 60.4% for the three months ended September 30, 2021 and 2020, respectively, and 58.8% and 62.4% for the nine months ended September 30, 2021 and 2020, respectively.

Financial Condition Summary

Significant changes in the composition and balance of our assets and liabilities as of September 30, 2021 compared to December 31, 2020 were principally attributable to the following:

•a $94.2 million increase in cash and cash equivalents and a $55.5 million decrease in restricted cash. See "Liquidity and Capital Resources" in this Part I, Item 2 for further discussion of our cash flow activity;

•a $244.4 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 nine months ended September 30, 2021 as the company has implemented monthly and quarterly sales of whole loans and loan participations as an integral part of its funding diversification program;

•a $45.8 million decrease in the FCR liability primarily due to a decline in deferred interest loans in Bank Partner portfolios, primarily attributable to the diversification of our funding strategy and sales of loan participations. This activity is analyzed in further detail throughout this Part I, Item 2;

•a $17.4 million decrease in our financial guarantee liability primarily driven by (i) the credit performance of the Bank Partner portfolios in the first nine months of 2021 and (ii) the improvement in the forecasted credit performance of those portfolios relative to December 31, 2020. The decrease in the liability also reflects approximately $5.3 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 the nine months ended September 30, 2021;

•an increase in total equity of $101.0 million primarily due to: (i) net income of $98.6 million, (ii) share-based compensation of $11.8 million and (iii) other comprehensive income, net of tax of $3.6 million associated with our interest rate swap, partially offset by distributions of $15.6 million, which were primarily tax distributions; and

•a $224.6 million decrease in notes payable resulting from repayments of the Warehouse Facility.

Table of Contents

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 the 2020 Form 10-K.

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, 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 "–Borrowings–Term loan and revolving facility" and "–Borrowings–Warehouse Facility" within this Item 2, and sales facilitation obligations as discussed within this Item 2 and Note 3 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1. 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 $51.1 million is held for certain Bank Partners in restricted cash as of September 30, 2021, and for payments under our financial guarantees (see Note 14 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for further discussion), and (ii) sales facilitation obligations (see Note 3 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for further discussion on 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, with the Company funding 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 intends to finance through the Warehouse Facility at similar rates. As of September 30, 2021, the Warehouse SPV held $324.9 million of loan participations and the Warehouse Facility had an outstanding balance of $278.3 million. In addition, the Warehouse SPV conducts periodic sales of the loan participations and may in the future 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 in Part II, Item 7 of our 2020 Form 10-K, which did not change materially during the three and nine months ended September 30, 2021.

Table of Contents

Significant Changes in Capital Structure

There were no significant changes in the Company's capital structure during the three and nine months ended September 30, 2021. During the nine months ended September 30, 2020, we established the Warehouse Facility and amended our 2018 Amended Credit Agreement.

Cash flows

We prepare our Unaudited Condensed Consolidated Statements of Cash Flows using the indirect method, under which we reconcile net income (loss) to cash flows provided by operating activities by adjusting net income (loss) for those items that impact net income (loss), 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.


	Nine Months Ended September 30,
	2021		2020
Net cash provided by (used in) operating activities	$	300,854	$	(430,492)
Net cash used in investing activities	$	(11,311)	$	(12,120)
Net cash provided by (used in) financing activities	$	(250,840)	$	435,278

Cash and cash equivalents and restricted cash totaled $506.4 million as of September 30, 2021, an increase of $38.7 million from December 31, 2020. Restricted cash, which had a balance of $264.4 million as of September 30, 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 September 30, 2021 and December 31, 2020 were comprised primarily of four components: (i) $162.9 million and $173.2 million, respectively, which represented the amounts that we have escrowed with Bank Partners 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) $51.1 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) $32.2 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) $18.2 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 Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information on our restricted cash held as escrow with Bank Partners.

Cash provided by (used in) operating activities

Nine Months Ended September 30, 2021. Cash flows provided by operating activities were $300.9 million during the nine months ended September 30, 2021. The largest source of operating cash flow for the nine months ended September 30, 2021 was a $240.5 million decrease in loan receivables held for sale as a result of completed sales in the period. Net income of $98.6 million and other working capital benefits also contributed as sources of operating cash flows. These were partially offset by the use of $45.8 million of cash related to previously billed finance charges that reversed in the period.

Nine Months Ended September 30, 2020. Cash flows used in operating activities were $430.5 million during the nine months ended September 30, 2020. Net income of $5.2 million was adjusted favorably for certain non-cash items of $64.1 million, which were predominantly related to financial guarantee losses, depreciation and amortization, equity-based expense, and mark to market adjustment on loan receivables held for sale, partially offset by the fair value changes in servicing assets and liabilities and deferred tax benefit.

Table of Contents

The primary uses of operating cash during the nine months ended September 30, 2020 were: (i) purchases of Warehouse Loan Participations by the Warehouse SPV and (ii) a decrease in billed finance charges on deferred interest loans that are expected to reverse in future periods driven by the settlements of billed finance charges on Warehouse Loan Participations at the time of purchase by the Warehouse SPV.

Cash used in investing activities

Detail of the cash used in investing activities is included below for each period indicated.


	Nine Months Ended September 30,
	2021		2020
Software	$	10,668	$	11,231
Computer hardware	348		658
Leasehold improvements	295		88
Furniture	—		143
Purchases of property, equipment and software	$	11,311	$	12,120

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 $250.8 million during the nine months ended September 30, 2021 compared to net cash provided by financing activities of $435.3 million during the same period in 2020. In the 2021 period, the cash used primarily related to net repayments on the Warehouse Facility as a result of sales of loan participations.

In the 2020 period, our proceeds of cash were primarily related to proceeds from the Warehouse Facility and proceeds from the term loan. The net cash provided by financing activities was offset by net cash used for tax and non-tax distributions to members and repayments of the principal balance of our term loan (net of original issuance discount).

Borrowings

See Note 7 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for further information about our borrowings, including the use of 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 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.

Table of Contents

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 September 30, 2021, which is available to fund future needs of GS Holdings’ business. We had no amount drawn under available letter of credit as of September 30, 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 $300.0 million, and an uncommitted $200.0 million accordion that was 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 $300.0 million to $555.0 million, including $500.0 million under the Class A commitment and $55.0 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.

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 and the related interest rate swap agreement, both of which are 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. At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate; however, we continue to monitor the efforts of various parties, including government agencies, seeking to identify an alternative rate to replace LIBOR. 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. 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 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 Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 and in the 2020 Form 10-K) have resulted and any future exchanges 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

Table of Contents

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 the 2020 Form 10-K), 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.

For further information on the TRA, please refer to our 2020 Form 10-K.

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 Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for discussion of certain legal proceedings and other contingent matters.

Contractual Obligations

We have future obligations under various contracts relating to debt and interest payments and operating leases. See Note 7 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for additional information regarding changes to the Company's contractual obligations.

Recently Adopted or Issued Accounting Standards

See "Recently Adopted Accounting Standards" and "Accounting Standards Issued, But Not Yet Adopted" in Note 1 to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 for additional information.

Critical Accounting Policies and Estimates

The accounting policies and estimates that we believe are the most critical to an understanding of our results of operations and financial condition as disclosed in our Management's Discussion and Analysis of Financial Condition and Results of Operations as filed in our 2020 Form 10-K include those related to our accounting for finance charge reversals, servicing assets and liabilities, financial guarantees, income taxes and loan receivables held for sale. In the preparation of our Unaudited Condensed Consolidated Financial Statements as of and for the three and nine months ended September 30, 2021, there have been no significant changes to the accounting policies and estimates related to our accounting for finance charge reversals, servicing assets and liabilities, income taxes and loan receivables held for sale.

ITEM 3. 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.

Table of Contents

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 would result in an increase in the agreed upon Bank Partner portfolio yield, which impacts future incentive payments and, therefore, can 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 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 Unaudited Condensed 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 $3.5 million and $5.9 million in the carrying value of our loan receivables held for sale as of September 30, 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 our 2018 Amended Credit Agreement, and our $75.0 million term loan under our 2020 Amended Credit Agreement, to changes in interest expense and cash flows. In June 2019, we entered into a four-year interest rate swap agreement that effectively converted interest payments on $350.0 million of our variable-rate term loan under our 2018 Amended Credit Agreement, to a fixed-rate basis, thus mitigating the impact of interest rate changes on future interest expense. The term loan has a maturity date of March 29, 2025. Based on an outstanding principal balance of $460.1 million as of September 30, 2021, and accounting for our scheduled quarterly principal balance repayments, a hypothetical 100 basis point increase in the one-month LIBOR rate would result in an increase in annualized interest expense, net of the effects of our interest rate swap, of $1.1 million.

LIBOR is used as the reference rate for our interest rate swap agreement that we use to hedge interest rate exposure of $350.0 million notional under our $475.0 million term loan. Our interest rate swap agreement is set to mature after the expected phase out of LIBOR in 2021. See Part I, Item 2 "–Liquidity and Capital Resources–Borrowings" for further discussion regarding the LIBOR transition and its perceived impact on the Company.

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 fluctuation. The revolving funding period of the Warehouse Facility expires on December 17, 2021 and the maturity date is December 17, 2023. Based on the outstanding principal balance of $278.3 million as of September 30, 2021, a hypothetical 100 basis point increase in the commercial paper conduit funding rate would result in an increase in annualized interest expense of $2.8 million. 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

Table of Contents

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 2.20% of the total outstanding loan balance as of September 30, 2021. As of September 30, 2021, the financial guarantee liability associated with our escrow arrangements recognized in accordance with ASU 2016-13 represents over 70% of the contractual escrow that we have established with each Bank Partner.

Based on our incentive payments received during the three months ended September 30, 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 $15.6 million and $18.7 million, respectively, in the fair value of our FCR liability. Similarly, for the nine months ended September 30, 2021 and 2020, a hypothetical 100 basis point increase in loan servicing portfolio credit losses would result in increases of $40.9 million and $57.9 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 $2.7 million and $2.2 million during the three months ended September 30, 2021 and 2020, respectively, and $13.7 million and $7.4 million during the nine months ended September 30, 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. This portfolio was highly diversified across 35,601 and 61,142 consumer loan receivables as of September 30, 2021 and December 31, 2020, respectively, without significant individual exposures. Based on our $327.0 million and $571.4 million loan receivables held for sale balance as of September 30, 2021 and December 31, 2020, respectively, a hypothetical 100 basis point increase in portfolio credit losses would result in lower annualized earnings of $3.3 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 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 performance of the assets sold or the underlying loans), which are significantly impacted by credit risk. Increases in the credit losses related to these loan participations reduce the fair value of the contingent consideration receivables but such fair value can never be less than $0.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2021, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)), was carried out by our management and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer). Based upon the evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of September 30, 2021.

Changes in Internal Control Over Financial Reporting

During the quarter ended September 30, 2021, no changes in our internal control over financial reporting occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to legal proceedings incidental to our business. See Note 14 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for information regarding legal proceedings. For more information regarding the Federal Case (as defined in Note 14), class members may view and download the Class Action Notice at www.Greenskysecuritieslitigation.com.

ITEM 1A. RISK FACTORS

In addition to information set forth in this report, you should carefully review and consider the risk factors discussed in "Part 1, Item 1A. Risk Factors" of our 2020 Form 10-K, which set forth information relating to important risks and uncertainties that could materially adversely affect 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. You should review and consider such Risk Factors in making any investment decision with respect to our securities. An investment in our securities continues to involve a high degree of risk. There have been no material changes to the risk factors previously disclosed in our 2020 Form 10-K, except as follows.

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.

There are a number of risks and uncertainties relating to the Mergers. Because of these risks and uncertainties, we have supplemented the risk factors previously disclosed in our 2020 Form 10-K to add the below risk factors. For more information regarding the Mergers, GreenSky stockholders are encouraged to read the preliminary proxy statement / prospectus filed on Form S-4 by Goldman Sachs on October 21, 2021 (the "Preliminary 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 common unit of GS Holdings (the “Common Units”) will be converted into the right to receive the Merger Consideration (other than Common 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 of the GreenSky special meeting at which GreenSky stockholders will vote on the Merger Agreement and the date on which the Mergers are completed and thereafter. Accordingly, at the time of the GreenSky special meeting, GreenSky stockholders will not know or be able to determine the market value of the Merger Consideration they will receive upon completion of the Mergers. Stock price changes may result from a variety of factors, including, among others, general market and economic

Table of Contents

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. You are urged to obtain current market quotations for Goldman Sachs’s common stock traded on the NYSE (trading symbol “GS”) and GreenSky’s Class A Common Stock traded on the NASDAQ (trading symbol “GSKY”).

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 respective businesses of Goldman Sachs and GreenSky and certain factors to consider in connection with those businesses, see the documents incorporated by reference into the Preliminary Proxy Statement / Prospectus and referred to in the “Where You Can Find More Information” section of the same document. 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 the effect of depressing 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 the effect of depressing 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.

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 post-completion integration process 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:

Table of Contents

•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 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) the affirmative vote of the holders of a majority of the shares of GreenSky Common Stock outstanding and entitled to vote at the GreenSky special meeting approving and adopting the Merger Agreement; (ii) certain governmental filings and/or approvals having been made, obtained or received (or the waiting periods with respect thereto having expired or been terminated), as applicable (without the imposition of a Materially Burdensome Regulatory Condition (as defined in the Merger Agreement)); (iii) approval for listing on the NYSE of the shares of Goldman Sachs Common Stock to be issued in the Mergers, subject to official notice of issuance; and (iv) 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 make certain governmental filings and obtain certain governmental authorizations, and if such filings and authorizations are not made or 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 make certain

Table of Contents

governmental filings or obtain the required governmental authorizations, as the case may be, there is no assurance that the relevant waiting periods will expire or 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. 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 to match any competing acquisition proposals that may be made. Notwithstanding the foregoing, at any time prior to the approval and adoption of the Merger Agreement by GreenSky stockholders, the GreenSky board of directors is permitted to 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 in certain circumstances if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law. 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 the 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.

Table of Contents

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) will 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 Preliminary Proxy Statement / Prospectus.

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, former GreenSky stockholders 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 parties’ board of directors breached their respective duties to their stockholders by entering into a merger agreement, by failing to obtain a greater value in a transaction for their 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.

Table of Contents

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 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 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 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 the effect of depressing 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 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 three months ended September 30, 2021. See Note 11 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 for additional discussion of our Class A common stock repurchases.


Period	Total Number of Shares Purchased(1)	Average Price Paid per Share(1)
July 1, 2021 through July 31, 2021	6,310	$	5.56
August 1, 2021 through August 31, 2021	8,560	$	6.38
September 1, 2021 through September 30, 2021	63,208	$	8.02
Total	78,078

(1)For the periods presented, represents shares surrendered to us to satisfy tax withholding obligations in connection with the vesting of equity awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

Table of Contents

ITEM 6. EXHIBITS


Exhibit Number	Exhibit Description	Form
2.1 #	Agreement and Plan of Merger, dated as of September 14, 2021, by and among The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, GreenSky, Inc. and GreenSky Holdings, LLC	8-K
10.1*	Second Amendment to Second Amended and Restated Operating Agreement of GreenSky Holdings, LLC, dated September 14, 2021
10.2*	Amendment No. 1to the Tax Receivable Agreement, dated July 27, 2021
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101	The following financial information from GreenSky, Inc.'s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2021, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited), (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited), (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020 (unaudited), (iv) Condensed Consolidated Statements of Changes in Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020 (unaudited), (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited), and (vi) Notes to Unaudited Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

*	Filed herewith.
#	Certain portions of this exhibit have been excluded because they are both not material and would likely cause competitive harm to the Company if publicly disclosed.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GREENSKY, INC.

November 4, 2021

/s/ David Zalik

David Zalik

Chief Executive Officer and Chairman of the Board of Directors

GREENSKY, INC.

November 4, 2021

/s/ Andrew Kang

Andrew Kang

Executive Vice President and Chief Financial Officer