What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 233 added, 149 removed, 507 unchanged (43% of the section changed)

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• our ability to attract, integrate and retain qualified employees;

• the impact of macroeconomic conditions on our business, including the impact of the COVID-19 pandemic;

• the impact of macroeconomic conditions on our business, including the impact of the ongoing COVID-19 pandemic and rising interest rates;

• our ability to effectively manage and expand the capabilities of our contact centers, outsourcing relationships and other business operations abroad;

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We charge fixed interest rates on our loans, which vary based on the amount disbursed and applicable state law, with a cap of 36% annual percentage rate (“APR”) in all cases.

As of March 31, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 35 months and 32.3%, respectively.

The average loan size for loans we originated during the three months ended March 31, 2022 was $3,893.

Our loans do not have prepayment penalties or balloon payments, and typically range in size from $300 to $11,000 with terms of 6 to 61 months.

Generally, loan payments are structured on a bi-weekly or semi-monthly basis to coincide with our members'

receipt of their income.

As of June 30, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 36 months and 32.2%, respectively.

The average loan size for loans we originated during the three months ended June 30, 2022 was $4,118.

Our loans do not have prepayment penalties or balloon payments, and typically range in size from $300 to

$11,000 with terms of 7 to 61 months.

Generally, loan payments are structured on a bi-weekly or semi-monthly basis to coincide with our members' receipt of their income.

As part of our underwriting process, we verify income for all applicants and only approve loans that meet our ability-to-pay criteria.

As of March 31, 2022, we originate unsecured personal loans in 12 states through state licenses and in 27 through our partnership with MetaBank, N.A.

As of June 30, 2022, we originate unsecured personal loans in 12 states through state licenses and in 30 through our partnership with Pathward, N.A.

(formerly known as MetaBank, N.A.).

Secured Personal Loans - In April 2020, we launched a personal installment loan product secured by an automobile, which we refer to as secured personal loans.

Our secured personal loans range in size from $2,525 to $20,000 with terms ranging from 21 to 64 months.

The average loan size for secured personal loans we originated during the three months ended March 31, 2022 was $8,394.

As of March 31, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 47 months and 29.1%, respectively.

The average loan size for secured personal loans we originated during the three months ended June 30, 2022 was $8,167.

As of June 30, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 48 months and 28.8%, respectively.

As part of our underwriting process, we evaluate the collateral value of the vehicle, verify income for all applicants and only approve loans that meet our ability-to-pay criteria.

Our secured personal loans are currently offered in California, Texas and Florida.

in April 2022 we launched our secured personal loans in Arizona and we are in the process of considering expansion into other states.

Credit Cards - We lau nched Oportun® Visa® Credit Card, issued by WebBank, Member FDIC, in December 2019, and offer credit cards in 45 states as of March 31, 2022 .

Our secured personal loans are currently offered in California, Texas, Florida, Arizona and New Jersey and we are in the process of considering expansion into other states.

Credit Cards - We lau nched Oportun® Visa® Credit Card, issued by WebBank, Member FDIC, in December 2019, and offer credit cards in 45 states as of June 30, 2022 .

Credit lines on our credit cards range in size from $300 to $3,000 with an APR between 24.9% to 29.9%.

The average APR of the outstanding credit card receivables was 29.8% as of March 31, 2022 .

The average credit line for credit cards activated during the three months ended March 31, 2022 was $944.

The average APR of the outstanding credit card receivables was 29.8% as of June 30, 2022 .

The average credit line for credit cards activated during the three months ended June 30, 2022 was $754.

Digital Banking Products

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Since 2015 Digit has helped members save more than $8.1 billion and pay down more than $330.0 million in debt.

The funds in these saving accounts are owned by Digit members and are not the assets of the Company.

Therefore, these funds are not included in the Condensed Consolidated Balance Sheets (Unaudited) .

Digit Direct – Our Digit Direct product offers a full checking account, through a bank partner, that intelligently organizes and budgets a member’s money across bills, savings, and spending.

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The investment products include a general investing account and a retirement account for our members’ longer term goals, utilizing smart recommendations to invest savings in risk-adjusted portfolios.

The funds in these savings, checking, investing and retirement accounts are owned by Digit members and are not the assets of the Company.

Therefore, these funds are not included in the Condensed Consolidated Balance Sheets (Unaudited) .

Lending as a Service

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Over the past eight years, we have executed 18 bond offerings in the asset-backed securities market, the last 15 of which include tranches that have been rated investment grade.

We issued two- and three-year fixed rate bonds which have provided us committed capital to fund future loan originations at a fixed Cost of Debt.

We have issued two- and three-year fixed rate bonds which have provided us committed capital to fund future loan originations at a fixed Cost of Debt.

In May 2022, we issued $400.0 million of two-year asset-backed notes.

On July 22, 2022, we issued another $400 million two-year asset-backed notes.

For additional information, see Note 9 , Borrowings of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Through March 4, 2022, we were also party to a whole loan sale program whereby we sold a percentage of our loans to a third-party financial institution.

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The sold loans had an aggregate unpaid principal balance of approximately $227.6 million ("2022-1

In addition to possible future whole loan or structured loan sales, we also have a $600.0 million Personal Loan Warehouse facility with a term through September 2024 and a $150.0 million Credit Card Warehouse facility with a term through December, 2023 which also helps to fund our receivables growth.

transaction").

In April 2022, we sold a population of loans that had an aggregate unpaid principal balance of approximately $14.7 million ("Q2 2022 Loan Sale").

In addition to possible future whole loan, structured or delinquent loan sales, we also have a $600.0 million Personal Loan Warehouse facility with a term through September 2024 and a $150.0 million Credit Card Warehouse facility with a term through December 2023 which also helps to fund our receivables growth.

Digit Acquisition

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and digital capabilities and added additional service offerings to provide members a comprehensive suite of digital banking products, either directly or through our partners.

The total consideration we provided for Digit was approximately $205.3 million, comprised of $73.2 million in equity and $132.1 million in cash.

The cash consideration was funded with a $116.0 million Acquisition Financing facility.

Retail Network Optimization

During the first quarter of 2021, pursuant to our retail network optimization plan we closed 136 retail locations and reduced a portion of the employee workforce who managed and operated these retail locations.

In addition, for the three months ended March 31, 2021, we incurred $6.2 million in expenses related to the retail location closures and $1.6 million related to severance and benefits related to the store closures which represented all severance and benefits related costs to be incurred in connection with the retail network optimization plan.

The income statement impact for the three months ended March 31, 2021 was $7.8 million and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited).

The income statement impact for the three and six months ended June 30, 2021 was $4.9 million and $12.7 million, respectively, and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited).

These amounts included expenses related to the retail location closures and all severance and benefits-related costs.

During the first quarter of 2022, we made the decision to close an additional 27 retail locations in April 2022 and reduce a portion of the workforce who manage and operate these retail locations.

In the first quarter of 2022, we incurred $0.2 million in expenses related to these additional retail location closures and estimate remaining expenses of $1.5 million to be recognized in the second quarter of 2022.

In addition we have also recognized $0.4 million related to severance and benefits related to the store closures in the first quarter of 2022 which represents all severance and benefit related costs to be incurred as a result of the additional store closures.

The income statement impact of $0.6 million was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022.

The income statement impact for the three and six months ended June 30, 2022 was $1.5 million and $2.1 million, respectively, and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) .

These amounts included expenses related to the retail location closures and all severance and benefits-related costs and we do not expect any significant additional expenses to be incurred.

Key Financial and Operating Metrics

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As of or for the Three Months

Ended March 31,

Ended June 30,

As of or for the Six Months

Ended June 30,

(in thousands of dollars) 2022 2021 2022 2021

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30+ Day Delinquency Rate

4.3 % 2.5 % 4.3 % 2.5 %

Annualized Net Charge-Off Rate

8.6 % 6.4 % 8.6 % 7.5 %

Return on Equity (5.7) % 6.1 % 11.8 % 4.4 %

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$ 2,577,186 $ 1,596,320 $ 2,495,546 $ 1,610,471

(1) The 643,967 Members and Products reported as of March 31, 2021 reflect our previously defined and disclosed "Active Customer" metric.

Products presented as of March 31, 2021 represents one product per member as we did not have members with multiple products at that time.

(1) The 684,843 Members and Products reported as of June 30, 2021 reflect our previously defined and disclosed "Active Customer" metric.

Products presented as of June 30, 2021 represents one product per member as we did not have members with multiple products at that time.

Effective January 1, 2022, Active Customers is no longer a Key Financial and Operating Metric.

See the definition of Members and Products in the Glossary at the end of Part II.

See the definitions of Members and Products in the Glossary at the end of Part II.

See “ Glossary ” at the end of Part II of this report for formulas and definitions of our key performance metrics.

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We view Members as an indication of growth of our business and our ability to establish long term relationships with the users of our products.

Member growth is generally an indicator of future revenue, but is not directly correlated with revenues, since not all Members who sign up for one of our products fully utilize or continue to use our products.

Members were 1.7 million as of March 31, 2022, and include members acquired in connection with the acquisition of Digit on December 22, 2021.

Active Customers were 0.6 million as of March 31, 2021.

Member growth is generally an indicator of future revenue, but is not directly correlated with revenue, since not all Members who sign up for one of our products fully utilize or continue to use our products.

Members were 1.8 million as of June 30, 2022, and include members acquired in connection with the acquisition of Digit on December 22, 2021.

Active Customers were 0.7 million as of June 30, 2021.

Effective January 1, 2022, Active Customers is no longer a Key Financial and Operating Metric and the year over year change is not directly comparable due to the difference in the metric.

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We view Products as an indicator of the effectiveness of our member acquisition efforts and multiproduct adoption.

Products as of March 31, 2022 were 1.8 million.

Products as of June 30, 2022 were 1.9 million.

Aggregate Originations

Aggregate Originations increased to $800.1 million for the three months ended March 31, 2022 from $335.2 million for the three months ended March 31, 2021, representing a 138.7% increase.

The increase is primarily driven by an increase in the number of loans originated.

We originated 228,728 and 114,670 loans for the three months ended March 31, 2022 and 2021, respectively.

The increase is primarily driven by an increased number of applications due to higher demand.

Aggregate Originations for the three months ended March 31, 2021 were lower due to tightened underwriting practices as a result of the pandemic.

Aggregate Originations increased to $878.2 million for the three months ended June 30, 2022 from $433.0 million for the three months ended June 30, 2021, representing a 102.8% increase.

The increase is primarily driven by an increase in the number of loans originated and growth in average loan size.

We originated 241,256 and 154,994 loans for the three months ended June 30, 2022 and 2021, respectively.

The increase is primarily driven by an increased number of applications due to higher demand, partially offset by a reduction in our approval rate as we tightened credit.

Aggregate Originations increased to $1,678.3 million for the six months ended June 30, 2022 from $768.3 million for the six months ended June 30, 2021, representing a 118.4% increase.

The increase is primarily driven by an increase in number of loans originated and growth in average loan size.

We originated 469,984 and 269,664 loans for the six months ended June 30, 2022 and 2021, respectively.

The increase is primarily driven by an increased number of applications due to higher demand, partially offset by a reduction in our approval rate as we tightened credit.

30+ Day Delinquency Rate

Our 30+ Day Delinquency Rate was 4.5% and 3.0% as of March 31, 2022 and 2021, respectively.

Our 30+ Day Delinquency Rate was 4.3% and 2.5% as of June 30, 2022 and 2021, respectively.

The increase reflects the higher mix of first-time borrowers and the return to pre-pandemic underwriting criteria later in 2021.

However, had we not sold $227.6 million of loans, or approximately 8.8% of our owned portfolio, at the end of the quarter, the 30+ Day Delinquency Rate would be 4.1%, as compared to 3.9% as of December 31, 2021.

Annualized Net Charge-Off Rate

Annualized Net Charge-Off Rate for the three months ended March 31, 2022 and 2021 remained relatively flat at 8.6%.

Net charge-offs remained flat due to the overall improvement in the economy, as well as the effectiveness of our A.I.-driven underwriting models, collections tools and payment options that have helped our borrowers manage through the pandemic.

Annualized Net Charge-Off Rate for the three months ended June 30, 2022 and 2021 was 8.6% and 6.4%, respectively.

Annualized Net Charge-Off Rate for the six months ended June 30, 2022 and 2021 was 8.6% and 7.5%, respectively.

Due to credit tightening in response to the COVID-19 pandemic and government stimulus payments our Annualized Net Charge-Off Rate was lower in 2021.

We anticipate that this rate may increase further in the current environment due to the impact of inflation on members.

Return on Equity and Adjusted Return on Equity

For the three months ended March 31, 2022 and 2021, Return on Equity was 29.5% and 2.6%, respectively and Adjusted Return on Equity was 34.1% and 10.6% respectively.

The increases in Return on Equity and Adjusted Return on Equity were primarily due to higher net income.

Net income was higher due to increased interest rates reducing the prices of our asset-backed notes which led to a net increase in fair value.

For a reconciliation of Return on Equity to Adjusted Return on Equity, see “Non–GAAP Financial Measures.”

For the three months ended June 30, 2022 and 2021, Return on Equity was (5.7)% and 6.1%, respectively, and Adjusted Return on Equity was 2.3% and 14.2%, respectively, For the six months ended June 30, 2022 and 2021, Return on Equity was 11.8% and 4.4%, respectively, and Adjusted Return on Equity was 18.2% and 12.4%, respectively.

The decreases in Return on Equity and Adjusted Return on Equity for the three months ended were primarily due to a net loss for the quarter.

The net loss was primarily driven by the decrease in the fair value of our loan portfolio as a result of higher loss and discount rate assumptions and an increase in operating expenses, partially offset by increased revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

The increases in Return on Equity and Adjusted Return on Equity for the six months ended June 30, 2022 were primarily due to higher net income.

The higher net income was primarily driven by increased revenue, partially offset by a decrease in fair value and an increase in operating expenses for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

For a reconciliation of Return on Equity to Adjusted Return on Equity, see “Non–GAAP Financial Measures—Fair Value Pro Forma.”

Historical Credit Performance

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Due to credit tightening in response to the COVID-19 pandemic and government stimulus payments our Annualized Net Charge-Off Rate decreased to 6.8% in 2021.

However, we anticipate this rate will return to levels consistent with performance in pre-pandemic years.

Consistent with our charge-off policy, we evaluate our loan portfolio and charge a loan off at the earlier of when the loan is determined to be uncollectible or when loans are 120 days contractually past due or 180 days contractually past due in the case of credit cards.

*Numbers shown reflect year-to-date amounts for the three months ended March 31, for the indicated fiscal year.

We anticipate that this rate may increase further in the current environment due to the impact of inflation on members.

Consistent with our charge-off policy, we charge a loan off at the earlier of when the loan is determined to be uncollectible or when the loan is 120 days contractually past due and charge-off a credit card account when it is 180 days contractually past due.

*Numbers shown reflect year-to-date amounts for the six months ended June 30, for the indicated fiscal year.

In addition to monitoring our loss and delinquency performance on an owned portfolio basis, we also monitor the performance of our loans by the period in which the loan was disbursed, generally years or quarters, which we refer to as a vintage.

We calculate net lifetime loan loss rate by vintage as a percentage of original principal balance.

Net lifetime loan loss rates equal the net lifetime loan losses for a given year through March 31, 2022 divided by the total origination loan volume for that year.

Net lifetime loan loss rates equal the net lifetime loan losses for a given year through June 30, 2022 divided by the total origination loan volume for that year.

The below chart and table shows our net lifetime loan loss rate for each annual vintage of our personal loan product since we began lending in 2006, excluding loans originated from July 2017 to August 2020 under a loan program for borrowers who did not meet the qualifications for our core loan origination program.

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The 2018 and 2019 vintages are increasing due to the COVID-19 pandemic.

The 2021 vintage is running higher than prior vintages primarily due to a higher percentage of loan disbursements to new members.

We have tightened credit and began reducing loan volumes to new members in the third quarter of 2021 and reduced further during the first half of 2022.

Year of Origination

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Dollar weighted average original term for vintage in months 9.3 9.9 10.2 11.7 12.3 14.5 16.4 19.1 22.3 24.2 26.3 29.0 30.0 32.0 33.3

Net lifetime loan losses as of March 31, 2022 as a percentage of original principal balance 7.7% 8.9% 5.5% 6.4% 6.2% 5.6% 5.6% 6.1% 7.1% 8.0% 8.2% 10.0% 10.3%* 5.4%* 0.0%*

Outstanding principal balance as of March 31, 2022 as a percentage of original amount disbursed —% —% —% —% —% —% —% —% —% —% 0.1% 0.9% 9.4% 40.6% 89.0%

Net lifetime loan losses as of June 30, 2022 as a percentage of original principal balance 7.7% 8.9% 5.5% 6.4% 6.2% 5.6% 5.6% 6.1% 7.1% 8.0% 8.2% 9.8% 10.4%* 6.2%* 3.0%*

Outstanding principal balance as of June 30, 2022 as a percentage of original amount disbursed —% —% —% —% —% —% —% —% —% —% —% 0.6% 5.9% 30.6% 75.8%

* Vintage is not yet fully mature from a loss perspective.

Results of Operations

The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three months ended March 31, 2022 and 2021.

Three Months Ended March 31,

The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three and six months ended June 30, 2022 and 2021.

Three Months Ended June 30, Six Months Ended June 30,

(in thousands of dollars) 2022 2021 2022 2021

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Interest expense 17,104 12,163 30,781 25,667

Total net increase (decrease) in fair value 3,971 (11,568)

Total net decrease in fair value (63,484) (5,902) (59,513) (17,470)

Net revenue 145,214 120,189 350,228 230,430

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Total operating expenses 157,886 110,386 305,230 216,652

Income before taxes 57,670 3,975

Income tax expense 12,007 956

Net income $ 45,663 $ 3,019

Income (loss) before taxes (12,672) 9,803 44,998 13,778

Income tax expense (benefit) (3,515) 2,553 8,492 3,509

Net income (loss) $ (9,157) $ 7,250 $ 36,506 $ 10,269

Total revenue

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Interest Income.

Total interest income increased by $65.0 million, or 51.1%, from $127.2 million for the three months ended March 31, 2021 to $192.2 million for the three months ended March 31, 2022.

The increase is primarily attributable to growth in our Average Daily Principal Balance from $1.6 billion for the three months ended March 31, 2021 to $2.4 billion for the three months ended March 31, 2022 , an increase of 48.5% .

The increase is due to growth in our portfolio as a result of higher application volume due to increased demand and due to first quarter 2021 originations being depressed as a result of the COVID-19 pandemic.

Interest income was also favorably impacted by an increase in portfolio yield of 55 basis points in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to growth in originations to new members who generally receive higher APRs than returning members.

Total interest income increased by $79.1 million, or 61.5%, from $128.6 million for the three months ended June 30, 2021 to $207.7 million for the three months ended June 30, 2022.

This increase was primarily attributable to higher Average Daily Principal Balance, which increased from $1.60 billion for the three months ended June 30, 2021 to $2.58 billion for the three months ended June 30, 2022.

The increase is due to growth in our portfolio as a result of higher application volume due to increased demand.

Total interest income increased by $144.1 million, or 56.3%, from $255.8 million for the six months ended June 30, 2021 to $399.9 million for the six months ended June 30, 2022.

This increase was primarily attributable to higher Average Daily Principal Balance, which increased from $1.61 billion for the six months ended June 30, 2021 to $2.50 billion for the six months ended June 30, 2022.

The increase is due to growth in our portfolio as a result of higher application volume due to increased demand.

Interest income was also favorably impacted by an increase in portfolio yield of 28 basis points in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to growth in originations to new members who generally receive higher APRs than returning members.

Non-interest income.

Total non-interest income increased by $14.4 million, or 176.8%, from $8.1 million for the three months ended March 31, 2021 to $22.5 million for the three months ended March 31, 2022.

This increase is primarily due to $9.3 million attributable to Digit subscription income, $1.6 million of increased fees related to our credit card portfolio, $1.2 million increase related to MetaBank, N.A.

documentation fees, $0.9 million increase in servicing revenue and increased gain on loans sold of $0.8 million under our whole loan sale programs due to an increase in loans sold resulting from higher origination volume.

Total non-interest income increased by $8.5 million, or 87.8%, from $9.7 million for the three months ended June 30, 2021 to $18.1 million for the three months ended June 30, 2022.

This increase is primarily due to $9.1 million attributable to Digit subscription income, $3.4 million increase in servicing revenue, $0.9 million of increased fees related to our credit card portfolio and $0.5 million increase related to our Pathward, N.A.

documentation fees.

This was partially offset by decreased gain on loans sold of $5.3 million under our whole loan sale programs due to the expiration of our whole loan sale agreement on March 4, 2022.

Total non-interest income increased by $22.8 million, or 128.4%, from $17.8 million for the six months ended June 30, 2021 to $40.6 million for the six months ended June 30, 2022.

This increase is primarily due to $18.4 million attributable to Digit subscription income, $4.2 million increase in servicing revenue, $2.6 million of increased fees related to our credit card portfolio and $1.7 million increase related to our Pathward, N.A.

documentation fees.

This was partially offset by decreased gain on loans sold of $4.0 million, or 41.4% under our whole loan sale programs due to the expiration of our whole loan sale agreement on March 4, 2022.

See Note 2, Summary of Significant Accounting Policies , and Note 13, Revenue , of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our interest income, non-interest income and revenue.

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Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Interest Expense.

Interest expense increased by $0.2 million, or 1.3%, from $13.5 million for the three months ended March 31, 2021 to $13.7 million for the three months ended March 31, 2022.

We financed approximately 89.5% of our loans receivable through debt for the three months ended March 31, 2022, as compared to 87.0% for the three months ended March 31, 2021, and our Average Daily Debt Balance increased from $1.4 billion to $2.2 billion for the three months ended March 31, 2022, an increase of 52.7%.

W e have continued to improve our Cost of Debt as we have been able to refinance at lower interest rates and increase the size of our securitizations.

In 2022, we expect our interest expense to increase as we borrow to fund our portfolio growth and interest rates increase.

Interest expense increased by $4.9 million, or 40.6%, from $12.2 million for the three months ended June 30, 2021 to $17.1 million for the three months ended June 30, 2022.

We financed approximately 90.1% of our loans receivable through debt for the three months ended June 30, 2022, as compared to 93.2% for the three months ended June 30, 2021, and our Average Daily Debt Balance increased from $1.49 billion for the three months ended June 30, 2021 to $2.32 billion for the three months ended June 30, 2022, an increase of 56.0%.

Cost of Debt decreased due to the refinancing of older securitizations in 2021 to lower interest rates.

Our Cost of Debt has begun to increase due to increases in interest rates and wider credit spreads on our most recent asset-backed securitization issuances.

Interest expense increased by $5.1 million, or 19.9%, from $25.7 million for the six months ended June 30, 2021 to $30.8 million for the six months ended June 30, 2022.

We financed approximately 89.8% of our loans receivable through debt for the six months ended June 30, 2022, as compared to 90.1% for the six months ended June 30, 2021, and our Average Daily Debt Balance increased slightly from $1.45 billion for the six months ended June 30, 2021 to $2.24 billion for the six months ended June 30, 2022, an increase of 54.4%.

Cost of Debt decreased due to the refinancing of older securitizations in 2021 to lower interest rates.

Our Cost of Debt has begun to increase due to increases in interest rates and wider credit spreads on our new asset-backed securitization issuances.

Through the remainder of 2022, we expect our interest expense to increase as we borrow to fund our portfolio growth and benchmark rates increase .

See Note 9, Borrowings , in the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further information on our Interest expense and our Secured Financing and asset-backed notes.

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Decreases in the fair value of asset-backed notes increase Net Revenue.

We also have derivative instruments related to our bank partnership program with MetaBank, N.A.

We also have derivative instruments related to our bank partnership program with Pathward, N.A.

Changes in the fair value of the derivative instrument are reflected in the total fair value mark-to-market adjustment below.

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Net settlements on derivative instruments (6,003) 177 (6,180) * (7,480) 177 (7,657) *

Cumulative mark on loans sold in structured loan sale 15,857 — 15,857 *

Total net increase (decrease) in fair value $ 3,971 $ (11,453) $ 15,424 *

Cumulative mark on loans sold (1)

(14,133) — (14,133) * 1,724 — 1,724

Total net decrease in fair value $ (63,484) $ (5,902) $ (57,582) * $ (59,513) $ (17,470) $ (42,043) *

Percentage of total revenue:

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* Not meaningful

(1) The cumulative mark on loans sold shown for the three and six months ended June 30, 2022 includes ($14.1) million related to the cumulative fair value mark on the loans sold in the Q2 2022 Loan Sale.

The cumulative mark on loans sold shown for the six months ended June 30, 2022 also includes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction.

This cumulative mark on loans sold represents the life-to-date mark-to-market adjustment for the loans sold and is presented separately for the loans sold to assist in reconciling to our non-GAAP measure, Adjusted EBITDA.

For details regarding the Q2 2022 Loan Sale and the 2022-1 transaction, refer to Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Net increase (decrease) in fair value.

Net increase in fair value for the three months ended March 31, 2022 was $4.0 million.

This amount represents a total fair value mark-to-market increase of $40.9 million on Loans Receivable at Fair Value and asset-backed notes, and $51.4 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $16.9 million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 9.60% as of December 31, 2021 to 10.37% as of March 31, 2022, (b) a decrease in average life from 0.86 years as of December 31, 2021 to 0.85 years as of March 31, 2022, partially offset by (c) a decrease in the discount rate from 6.94% as of December 31, 2021 to 6.76% as of March 31, 2022.

The $58.3 million mark-to-market adjustment on asset-backed notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value also includes a $15.9 million adjustment related to the cumulative mark on the loans sold as part of the structured loan sale completed in the first quarter of 2022.

In 2022, we expect to continue to see volatility in the fair value as a result of macro economic conditions.

Net decrease in fair value for the three months ended June 30, 2022 was $63.5 million.

This amount represents a total fair value mark-to-market increase of $11.7 million, and $55.1 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $(34.6) million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 10.37% as of March 31, 2022 to 11.25% as of June 30, 2022, (b) an increase in the discount rate from 6.76% as of March 31, 2022 to 8.97% as of June 30, 2022, partially offset by (c) an increase in average life from 0.85 years as of March 31, 2022 to 0.90 years as of June 30, 2022, The $44.5 million mark-to-market adjustment on asset-backed notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value for the three months ended June 30, 2022 also includes a $(14.1) million adjustment related to the cumulative mark on the loans sold as part of the Q2 2022 Loan Sale.

Net decrease in fair value for the six months ended June 30, 2022 was $59.5 million.

This amount represents a total fair value mark-to-market increase of $52.7 million, and $106.4 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $51.5 million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 9.60% as of December 31, 2021 to 11.25% as of June 30, 2022, (b) an increase in the discount rate from 6.94% as of December 31, 2021 to 8.97% as of June 30, 2022, partially offset by (c) an increase in average life from 0.86 years as of December 31, 2021 to 0.90 years as of June 30, 2022, The $102.7 million mark-to-market adjustment on asset-backed notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value for the six months ended June 30, 2022 includes a $(14.1) million adjustment related to the cumulative mark on the loans sold as part of the Q2 2022 Loan Sale completed in the second quarter of 2022 and also includes a $15.9 million adjustment related to the cumulative mark on the loans sold as part of the structured sale completed in the first quarter of 2022.

Through the remainder of 2022, we expect to continue to see volatility in fair value as a result of macroeconomic conditions.

Charge-offs, net of recoveries

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

4 unchanged sentences

Charge-offs, net of recoveries.

Our Annualized Net Charge-Off Rate remained flat at 8.6% for the three months ended March 31, 2022 and 2021, respectively, primarily due to the overall improvement in the economy, the impact of stimulus payments to consumers as well as the effectiveness of our A.I.-driven underwriting models, collections tools and payment options that have helped our borrowers manage through the pandemic;

partially offset by growth in new loan originations leading to higher charge-offs.

Our Annualized Net Charge-Off Rate increased to 8.6% and 8.6% for the three and six months ended June 30, 2022, respectively, from 6.4% and 7.5% for the three and six months ended June 30, 2021, respectively.

Net charge-offs for the three months and six months ended June 30, 2022 increased primarily due to growth in new loan originations and a strategic underwriting change to accelerate growth in the portfolio while maintaining a reasonable level of loss expectation.

Consistent with our charge-off policy, we evaluate our loan portfolio and charge a loan off at the earlier of when the loan is determined to be uncollectible or when the loan is 120 days contractually past due and we charge-off a credit card account when it is 180 days contractually past due.

Operating expenses

6 unchanged sentences

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

3 unchanged sentences

Technology and facilities.

Technology and facilities expense increased by $16.3 million, or 49.4%, from $32.9 million for the three months ended March 31, 2021 to $49.2 million for the three months ended March 31, 2022.

The increase is primarily due to $6.8 million of service costs related to higher usage of software and cloud services, a $6.4 million increase in salaries and benefits due to the increase in headcount, $3.0 million in usage of India off-shoring services and other temporary contractors to supplement staffing related to new product investment and $2.0 million of increased depreciation commensurate with growth in internally developed software.

These increases were partially offset by $1.5 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $1.1 million lower office rent associated with retail locations that were closed in early 2021.

Technology and facilities expense increased by $19.7 million, or 59.4%, from $33.1 million for the three months ended June 30, 2021 to $52.8 million for the three months ended June 30, 2022.

The increase is primarily due to a $8.2 million increase in salaries and benefits due to the increase in headcount, a $7.6 million increase in service costs related to higher usage of software and cloud services, $3.3 million incurred for India off-shoring services and other temporary contractors to supplement staffing related to new product investment and $2.8 million of increased depreciation commensurate with growth in internally developed software.

These increases are partially offset by $2.9 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $0.6 million lower office rent due to retail location closures in early 2021.

Technology and facilities expense increased by $35.9 million, or 54.4%, from $66.0 million for the six months ended June 30, 2021 to $102.0 million for the six months ended June 30, 2022.

The increase is primarily due to a $14.6 million increase in salaries and benefits due to the increase in headcount, a $14.4 million increase in service costs related to higher usage of software and cloud services, $6.3 million incurred for India off-shoring services and other temporary contractors to supplement staffing related to new product investment and $4.8 million of increased depreciation commensurate with growth in internally developed software.

These increases are partially offset by $4.4 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $1.4 million lower office rent due to retail location closures in early 2021.

Sales and marketing

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Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Sales and marketing.

Sales and marketing expense to acquire our customers increased by $10.6 million, or 44.6%, from $23.9 million for the three months ended March 31, 2021 to $34.5 million for the three months ended March 31, 2022.

To grow our Aggregate Originations, we increased our investment in marketing initiatives by $9.8 million across various marketing channels, including direct mail, digital advertising, lead aggregators and our referral programs.

As a result of our increased number of loans originated during the three months ended March 31, 2022, our CAC decreased by 27.4%, from $208 the three months ended March 31, 2021 to $151 for the three months ended March 31, 2022.

Sales and marketing expenses to acquire our customers increased by $8.6 million, or 36.3%, from $23.7 million for the three months ended June 30, 2021 to $32.4 million for the three months ended June 30, 2022.

To grow our loan originations, we increased our investment in marketing initiatives by $4.6 million across various marketing channels, including direct mail, digital advertising, lead aggregators and our referral programs.

We also incurred $1.8 million related to outsourcing and professional fees primarily related to outsourced telesales FTEs as a result of an increase in demand for new applications and $1.6 million higher salaries and benefit costs due to an increase in retail hours worked and salary raises.

As a result of our increased loan originations during the three months ended June 30, 2022, our CAC decreased by 12.4% as compared to the three months ended June 30, 2021.

Sales and marketing expenses to acquire our customers increased by $19.3 million, or 40%, from $47.6 million for the six months ended June 30, 2021 to $66.9 million for the six months ended June 30, 2022.

To grow our loan originations, we increased our investment in marketing initiatives by $14.8 million across various marketing channels, including direct mail, digital advertising, lead aggregators and our referral programs.

We also incurred $2.7 million related to outsourcing and professional fees primarily related to outsourced telesales FTEs as a result of an increase in demand for new applications and $0.6 million higher salaries and benefit costs due to higher sales incentives driven by more retail locations reaching sales goals.

As a result of our increased loan originations during the six months ended June 30, 2022, our CAC decreased by 19.8% as compared to the six months ended June 30, 2021.

Personnel expense represents compensation and benefits that we provide to our employees and includes salaries, wages, bonuses, commissions, related employer taxes, medical and other benefits provided and stock-based compensation expense for all of our staff with the exception of our telesales, lead generation, retail operations which are included in sales and marketing expenses and technology which is included in technology and facilities.

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Percentage of total revenue 17.1 % 20.6 % 16.9 % 20.2 %

Personnel expense increased by $9.1 million, or 33.9%, from $26.8 million for the three months ended March 31, 2021 to $35.9 million for the three months ended March 31, 2022, primarily driven by a $9.1 million increase in compensation expense due to a 41.5% increase in U.S.

Personnel expense increased by $10.1 million, or 35.3%, from $28.5 million for the three months ended June 30, 2021 to $38.6 million for the three months ended June 30, 2022, driven by increased compensation expense due to a 44.3% increase in U.S.

Personnel expense increased by $19.2 million, or 34.6%, from $55.4 million for the six months ended June 30, 2021 to $74.6 million for the six months ended June 30, 2022, primarily driven by increased compensation expense due to a 44.3% increase in U.S.

Outsourcing and professional fees

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Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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Outsourcing and professional fees.

Outsourcing and professional fees increased by $1.7 million, or 13.5%, from $12.6 million for the three months ended March 31, 2021 to $14.3 million for the three months ended March 31, 2022 .

The increase is primarily attributable to $2.3 million of higher professional service costs related to credit card and bank partnership programs and $2.1 million increase in credit report expense due to higher application volume.

These increases were partially offset by a $3.2 million decrease in debt financing fees and expenses incurred in March 2021 related to an asset-backed securitization that were not present in the three months ended March 31, 2022 .

Outsourcing and professional fees increased by $2.4 million, or 16%, from $14.8 million for the three months ended June 30, 2021 to $17.2 million for the three months ended June 30, 2022.

The increase is primarily attributable to $1.7 million of higher professional service costs related to credit card and bank partnership programs, $0.9 million related to 30.6% growth in call center outsourced FTEs as a result of an increase in demand for new applications and $0.7 million increase in credit report expense due to higher application volume.

These increases were partially offset by a $1.4 million decrease in debt financing fees and expenses incurred in the three months ended June 30, 2021 related to 2021-B compared to 2022-A in the three months ended June 30, 2022 as the size of 2022-A was smaller than 2021-B.

Outsourcing and professional fees increased by $4.1 million, or 15%, from $27.4 million for the six months ended June 30, 2021 to $31.5 million for the six months ended June 30, 2022.

The increase is primarily attributable to $4.0 million of higher professional service costs related to credit card and bank partnership programs, $2.8 million increase in credit report expense due to higher application volume and $1.0 million related to 30.6% growth in call center outsourced FTEs as a result of an increase in demand for new applications.

These increases were partially offset by a $4.6 million decrease in debt financing fees and expenses incurred in the six months ended June 30, 2021 related to 2021-A and 2021-B compared to only 2022-A in the six months ended June 30, 2022.

General, administrative and other

General, administrative and other expense includes non-compensation expenses for employees, who are not a part of the technology and sales and marketing organization, which include travel, lodging, meal expenses, political and charitable contributions, office supplies, printing and shipping.

Also included are franchise taxes, bank fees, foreign currency gains and losses, transaction gains and losses, debit card expenses, litigation reserve, expenses associated with our retail network optimization plan and acquisition and integration related expenses in connection with the Digit acquisition.

Also included are franchise taxes, bank fees, foreign currency gains and losses, transaction gains and losses, debit card expenses, litigation reserve, retail network optimization expenses and Digit-related acquisition and integration expenses.

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

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General, administrative and other.

General, administrative and other expense increased by $3.4 million, or 33.7%, from $10.0 million for the three months ended March 31, 2021 to $13.4 million for the three months ended March 31, 2022, primarily due to $7.3 million of transaction and integration related expenses as a result of the Digit acquisition and $4.0 million increase in postage and printing expenses, travel expenses and other general and administrative expenses due to new products and services and the continuing growth of the business.

These increases were partially offset by a $7.6 million decrease in retail network optimization expenses incurred in the three months ended March 31, 2022 compared to March 31, 2021.

In the first quarter of 2022, we incurred $0.2 million in expenses related to the retail location closures and estimate remaining expenses of $1.5 million to be recognized in the second quarter of 2022.

General, administrative and other expense increased by $6.8 million, or 66%, from $10.2 million for the three months ended June 30, 2021 to $16.9 million for the three months ended June 30, 2022, primarily due to $6.9 million of transaction and integration related expenses as a result of the Digit acquisition, $2.5 million increase in litigation expense and $3.8 million increase in postage and printing expenses, travel expenses and other general and administrative expenses due to new products and services and continuing growth of the business.

These increases were partially offset by a $3.3 million decrease attributable to an impairment charge recognized in 2021 on a right-of-use asset related to our leased office space in San Carlos, California, not present in the current year and a $3.4 million decrease in retail network optimization expenses incurred in the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

In the second quarter of 2022, we incurred $1.5 million in expenses related to the retail location closures.

General, administrative and other expense increased by $10.1 million, or 50%, from $20.2 million for the six months ended June 30, 2021 to $30.3 million for the six months ended June 30, 2022, primarily due to $14.2 million of transaction and integration related expenses as a result of the Digit acquisition, $2.7 million increase in litigation expense and 8.0 million increase in postage and printing expenses, travel expenses and other general and administrative expenses due to new products and services and continuing growth of the business.

These increases were partially offset by a $3.3 million decrease attributable to an impairment charge recognized in 2021 on a right-of-use asset related to our leased office space in San Carlos, California, not present in the current year and a $11.0 million decrease in retail network optimization expenses incurred in the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

In the six months ended June 30, 2022, we incurred $1.7 million in expenses related to the retail location closures.

Income taxes consist of U.S.

federal, state and foreign income taxes, if any.

For the three months ended March 31, 2022 and 2021, we recognized tax expense attributable to U.S.

For the periods ended June 30, 2022 and 2021, we recognized tax expense (benefit) attributable to U.S.

federal, state and foreign income taxes.

Three Months Ended

Period-to-period Change Six Months Ended

Period-to-period Change

(in thousands, except percentages) 2022 2021 $ % 2022 2021 $ %

Income tax expense $ 12,007 $ 956 $ 11,051 1,156.0 %

Income tax expense (benefit) $ (3,515) $ 2,553 $ (6,068) (237.7) % $ 8,492 $ 3,509 $ 4,983 (142.0) %

Percentage of total revenue (1.6) % 1.8 % 1.9 % 1.3 %

Effective tax rate 27.7 % 26.0 % 18.9 % 25.5 %

Income tax expense .

Income tax expense increased by $11.1 million or 1,156.0%, from $1.0 million for the three months ended March 31, 2021 to $12.0 million for the three months ended March 31, 2022, primarily as a result of higher pretax income for the three months ended March 31, 2022 .

Income tax expense (benefit).

Income tax expense decreased by $6.1 million or 238%, from $2.6 million for the three months ended June 30, 2021 to $3.5 million benefit for the three months ended June 30, 2022, primarily as a result of having a pretax loss for the three months ended June 30, 2022.

Income tax expense increased by $5.0 million or 142%, from $3.5 million for the six months ended June 30, 2021 to $8.5 million for the six months ended June 30, 2022, primarily as a result of having higher pretax income for the six months ended June 30, 2022.

See Note 2, Summary of Significant Accounting Policies , and Note 14, Income Taxes , of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our income taxes.

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Discount rate is the sum of the interest rate and the credit spread.

The interest rate is based upon the interpolated LIBOR/swap curve rate that corresponds to the average life.

The interest rate is based upon the interpolated treasury curve rate that corresponds to the average life.

The credit spread is based upon the credit spread implied by the loan purchase price at the time loans are sold, updated for observable changes in the fixed income markets, which serve as a proxy for how a potential loan buyer would adjust their yield requirements relative to the originally agreed price.

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It is also possible to estimate the fair value of our loans using a simplified calculation.

The table below illustrates a simplified calculation to aid investors in understanding how fair value may be estimated using the last five quarters:

The table below illustrates a simplified calculation to aid investors in understanding how fair value may be estimated using the last six quarters:

• Subtracting the servicing fee from the weighted average portfolio yield over the remaining life of the loans to calculate net portfolio yield;

3 unchanged sentences

• Subtracting the accrued interest and fees as a percentage of loan principal balance from the gross fair value premium as a percentage of loan principal balance to calculate the fair value premium as a percentage of loan principal balance.

The table below reflects the application of this methodology for the five quarters since January 1, 2021, on loans held for investment.

The data for the three months ended March 31, 2022 and December 31, 2021 in the table below represents all of our credit products.

The table below reflects the application of this methodology for the six quarters since January 1, 2021, on loans held for investment.

The data for the three months ended June 30, 2022, March 31, 2022 and December 31, 2021 in the table below represents all of our credit products.

The data for the three months ended September 30, 2021 in the table below represents our secured and unsecured loan portfolio.

1 unchanged sentence

Three Months Ended

Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021

Jun 30, 2022 Mar 31, 2022 Dec 31, 2021 Sep 30, 2021 Jun 30, 2021 Mar 31, 2021

Weighted average portfolio yield over the remaining life of the loans 30.27 % 30.15 % 30.14 % 30.35 % 30.28 % 30.25 %

29 unchanged sentences

• We believe it is useful to exclude the impact of depreciation and amortization and stock-based compensation expense because they are non-cash charges.

• We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with a litigation reserve, our retail network optimization plan and acquisition and integration related expenses because these items do not reflect ongoing business

• We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with a litigation reserve, our retail network optimization plan, impairment charges and acquisition and integration related expenses because these items do not reflect

ongoing business operations.

• We also reverse origination fees for Loans Receivable at Fair Value, net.

3 unchanged sentences

Components of Fair Value Mark-to-Market Adjustment (in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Fair value mark-to-market adjustment on loans receivable at fair value (1)

$ (34,605) $ 17,809 $ (51,542) $ 39,371

Fair value mark-to-market adjustment on asset-backed notes 44,477 2,013 102,748 3,537

1 unchanged sentence

Total fair value mark-to-market adjustment $ 11,749 $ 19,572 $ 52,690 $ 42,612

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(1) The fair value mark-to-market adjustment on loans receivable at fair value shown for the three and six months ended June 30, 2022 excludes ($14.1) million related to the cumulative fair value mark on the loans sold in the Q2 2022 Loan Sale.

The fair value mark-to-market adjustment on loans receivable at fair value shown for the six months ended June 30, 2022 also excludes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction.

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended June 30,

Adjusted EBITDA (in thousands)

2022 2021 2022 2021

Net income $ (9,157) $ 7,250 $ 36,506 $ 10,269

Income tax expense 12,007 956

Income tax expense (benefit) (3,515) 2,553 8,492 3,509

Depreciation and amortization 8,788 5,970 16,101 11,302

2 unchanged sentences

Retail network optimization expenses, net

1,488 4,874 1,697 12,673

Impairment — 3,324 — 3,324

Acquisition and integration related expenses 6,944 — 14,231 —

6 unchanged sentences

• We believe it is useful to exclude the impact of income tax expense, as reported, because historically it has included irregular tax items that do not reflect our ongoing business operations.

• We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with a litigation reserve, our retail network optimization plan and acquisition and integration related expenses, because these items do not reflect ongoing business operations.

• We believe it is useful to exclude stock-based compensation expense because it is a non-cash charge.

• We include the impact of normalized statutory income tax expense by applying the income tax rate noted in the table.

The following table presents a reconciliation of net income to Adjusted Net Income for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents a reconciliation of net income to Adjusted Net Income for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended June 30,

Adjusted Net Income (in thousands)

2022 2021 2022 2021

Net income $ (9,157) $ 7,250 $ 36,506 $ 10,269

Income tax expense 12,007 956

Income tax expense (benefit) (3,515) 2,553 8,492 3,509

Stock-based compensation expense 6,929 5,366 13,702 10,454

1 unchanged sentence

Retail network optimization expenses, net

1,488 4,874 1,697 12,673

Impairment — 3,324 — 3,324

Acquisition and integration related expenses 6,944 — 14,231 —

4 unchanged sentences

27.0 % 27.4 % 27.0 % 27.4 %

(1) Income tax rate for the three months ended March 31, 2022 and 2021 is based on a normalized statutory rate.

(1) Income tax rate for the three and six months ended June 30, 2022 and 2021 is based on a normalized statutory rate.

Adjusted Earnings Per Share (“Adjusted EPS”)

Adjusted Earnings Per Share is a non-GAAP financial measure that allows management, investors and our Board to evaluate the operating results, operating trends and profitability of the business in relation to diluted adjusted weighted-average shares outstanding post initial public offering.

In addition, it provides a useful measure for period-to-period comparisons of our business, as it considers the effect of conversion of all convertible preferred shares as of the beginning of each annual period.

The following table presents a reconciliation of diluted EPS to Adjusted EPS for the three months ended March 31, 2022 and 2021.

The following table presents a reconciliation of Diluted EPS to Diluted Adjusted EPS for the three and six months ended June 30, 2022 and 2021.

For the reconciliation of net income to Adjusted Net Income, see the immediately preceding table “Adjusted Net Income.”

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except share and per share data) 2022 2021 2022 2021

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Average stockholders’ equity is an average of the beginning and ending stockholders’ equity balance for each period.

We believe Adjusted Return on Equity is an important measure because it allows management, investors and our Board to evaluate the profitability of the business in relation to equity and how well we generate income from the equity available.

The following table presents a reconciliation of Return on Equity to Adjusted Return on Equity as of and for the three months ended March 31, 2022 and 2021.

We believe Adjusted Return on Equity is an important measure because it allows management, investors and our Board to evaluate the profitability of the business in relation to stockholders' equity and how efficiently we generate income from stockholders' equity.

The following table presents a reconciliation of Return on Equity to Adjusted Return on Equity as of and for the three and six months ended June 30, 2022 and 2021.

For the reconciliation of net income to Adjusted Net Income, see the immediately preceding table “Adjusted Net Income.”

As of or for the Three Months Ended March 31,

As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

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Adjusted Operating Efficiency

We define Adjusted Operating Efficiency as total operating expenses adjusted to exclude stock-based compensation expense and certain non-recurring charges such as expenses associated with a litigation reserve, our retail network optimization plan and acquisition and integration related expenses divided by total revenue.

We believe Adjusted Operating Efficiency is an important measure because it allows management, investors and our Board to evaluate how efficient we are at managing costs relative to revenue.

The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency for the three months ended March 31, 2022 and 2021:

As of or for the Three Months Ended March 31,

We define Adjusted Operating Efficiency as total operating expenses adjusted to exclude stock-based compensation expense and certain non-recurring charges such as expenses associated with a litigation reserve, our retail network optimization plan, impairment charges and acquisition and integration related expenses divided by total revenue.

We believe Adjusted Operating Efficiency is an important measure because it allows management, investors and our Board to evaluate how efficiently we manage costs relative to revenue.

The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency for the three and six months ended June 30, 2022 and 2021:

As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

7 unchanged sentences

(1,488) (4,874) (1,697) (12,673)

Impairment — (3,324) $ — $ (3,324)

Acquisition and integration related expenses (6,944) — $ (14,231) $ —

5 unchanged sentences

Our material cash requirements relate to funding our lending activities, our debt service obligations, our operating expenses, and investments in the long-term growth of the company.

During the three months ended March 31, 2022, available liquidity increased primarily due to increased borrowing capacity under Secured Financings, partially offset by a decrease in cash and cash equivalents.

During the three months ended June 30, 2022, available liquidity increased primarily due to increased borrowing capacity under Secured Financings and asset-backed securitizations, partially offset by a decrease in cash and cash equivalents.

We generally target liquidity levels to support at least twelve months of our expected net cash outflows, including new originations, without access to new debt financing transactions or other capital markets activity.

Inflation, rising interest rates, credit trends and other macroeconomic conditions could continue to have an impact on market volatility which could adversely impact our business, liquidity, and capital resources.

R ising interest rates, credit trends and other macroeconomic conditions could continue to have an impact on market volatility which could adversely impact our business, liquidity, and capital resources.

Future decreases in cash flows from operations resulting from delinquencies, defaults, losses, would decrease the cash available for the capital uses described above.

2 unchanged sentences

The following table summarizes our cash and cash equivalents, restricted cash and cash flows for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands) 2022 2021

6 unchanged sentences

Our restricted cash represents collections held in our securitizations and is applied currently after month-end to pay interest expense and satisfy any amount due to whole loan buyer with any excess amounts returned to us.

Our restricted cash balance was elevated as of June 30, 2021 due to $171.3 million of cash in the prefunding account of our 2021-B securitization.

Operating Activities

Our net cash provided by operating activities was $38.6 million and $18.2 million for the three months ended March 31, 2022 and 2021, respectively.

Cash flows from operating activities primarily include net income or losses adjusted for (i) non-cash items included in net income or loss, including depreciation and amortization expense, fair value adjustments, net, origination fees for loans at fair value, net, gain on loan sales, stock-based compensation expense and deferred tax provision, net, (ii) originations of loans sold and held for sale, and proceeds from sale of loans and (iii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of various payments.

Our net cash provided by operating activities was $91.6 million and $53.8 million for the six months ended June 30, 2022 and 2021, respectively.

and timing of various payments.

Investing Activities

Our net cash provided by (used in) investing activities was $(122.5) million and $9.0 million for the three months ended March 31, 2022 and 2021, respectively.

Our net cash provided by (used in) investing activities was $(638.0) million and $(57.2) million for the six months ended June 30, 2022 and 2021, respectively.

Our investing activities consist primarily of loan originations and loan repayments.

Our net cash provided by (used in) investing activities for the three months ended March 31, 2022, includes $245.0 million of proceeds related to a structured loan sale.

Our net cash provided by (used in) investing activities for the six months ended June 30, 2022, includes $247.2 million of proceeds related to a structured loan sale in the first quarter and the Q2 2022 Loan Sale in the second quarter.

We invest in purchases of property and equipment and incur system development costs.

Purchases of property and equipment, and capitalization of system development costs may vary from period to period due to the timing of the expansion of our operations, the addition of employee headcount and the development cycles of our system development.

The change in our net cash provided by (used in) investing activities is due to disbursements on originations of loans increasing by $444.0 million while repayments of loan principal increased by $72.7 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The change in our net cash provided by (used in) investing activities is due to disbursements on originations of loans increasing by $964.6 million while repayments of loan principal increased by $148.3 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Financing Activities

Our net cash provided by (used in) financing activities was $61.5 million and $(12.6) million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022, net cash provided by financing activities was primarily driven by the borrowings under our Secured Financing facilities, partially offset by repayments of borrowings on our Secured Financing facilities and scheduled amortization payments on our Acquisition Financing facility.

For the three months ended March 31, 2021, net cash used in financing activities was primarily driven by the redemption of our Series 2018-A asset-backed notes and repayments on our Secured Financing facility.

The issuance of our Series 2021-A asset-backed notes securitization was the primary source of funds for the redemption and repayments.

Our net cash provided by (used in) financing activities was $487.3 million and $192.7 million for the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, net cash provided by financing activities was primarily driven the issuance of our Series 2022-A asset-backed securitization and the borrowings under our Secured Financing facilities and Acquisition Financing, partially offset by repayments of borrowings on our Secured Financing facilities and scheduled amortization payments on our Acquisition Financing facility.

For the six months ended June 30, 2021, net cash provided by financing activities was primarily driven by the issuance of our Series 2021-A and Series 2021-B asset-backed notes, partially offset by redemptions of our Series 2018-A and 2018-B asset-backed notes and repayments on our Secured Financing facility.

Sources of Funds

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Asset-Backed Securitizations

As of March 31, 2022, we had $1.59 billion of outstanding asset-backed notes.

As of June 30, 2022, we had $1.94 billion of outstanding asset-backed notes.

In addition, on July 22, 2022, we completed the issuance of $400 million two-year asset-backed notes.

For additional information, see Note 9 , Borrowings of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Our securitizations utilize special purpose entities (SPEs) which are also variable inter est entities (VIEs).

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Our ability to utilize our asset-backed securitization facilities as described herein is subject to compliance with various requirements including eligibility criteria for the loan collateral and covenants and other requirements.

As of March 31, 2022, we were in compliance with all covenants and requirements of all our asset-backed notes.

As of June 30, 2022, we were in compliance with all covenants and requirements of all our asset-backed notes.

Secured Financings

As of March 31, 2022 , we had Secured Financing facilities with warehouse lines of $750.0 million in the aggregate with undrawn capacity of $273.0 million.

As of June 30, 2022 , we had Secured Financing facilities with warehouse lines of $750.0 million in the aggregate with undrawn capacity of $241.0 million.

Our ability to utilize our Secured Financing facilities as described herein is subject to compliance with various requirements, including eligibility criteria for collateral, concentration limits for our collateral pool, and covenants and other requirements.

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On December 20, 2021, Oportun RF, LLC, a wholly-owned subsidiary of the Company issued a $116.0 million asset-backed floating rate variable funding note, and an asset-backed residual certificate, both of which are secured by certain residual cash flows from the Company's securitizations and guaranteed by Oportun, Inc.

The note was used to fund the cash consideration paid for the acquisition of Digit and bears interest at a rate of one-month LIBOR plus 8.00%.

The Acquisition Financing is structured to pay down based on an amortization schedule, with a final payment in October 2024.

As of March 31, 2022, we were in compliance with all covenants and requirements per the Secured Financing facilities and Acquisition Financing.

The note was used to fund the cash consideration paid for the acquisition of Digit.

On May 24, 2022, pursuant to an amended indenture, Oportun RF, LLC issued an additional $20.9 million asset-backed floating rate variable funding note, and an asset-backed residual certificate, both of which are secured by Class D Notes and residual cash flows from the Company's 2022-A Securitization and guaranteed by Oportun, Inc.

The amendment also replaced the Acquisition Financing interest rate based on LIBOR with an interest rate based on SOFR.

The notes bear interest at a rate of SOFR plus 8.00%.

The amendment did not modify the maturity date of the Acquisition Financing facility, it is still structured to pay down based on an amortization schedule with a final payment in October 2024.

As of June 30, 2022, we were in compliance with all covenants and requirements per the Secured Financing facilities and Acquisition Financing.

For more information regarding our Secured Financing facilities and Acquisition Financing, see Note 9, Borrowings of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

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The sold loans had an aggregate unpaid principal balance of approximately $227.6 million.

For further information on the whole loan sale transactions, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

For further information on the structured loan sale transactions, see Note 5, Loans Held for Sale

and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Other loan sales

In April 2022, the Company entered into an agreement to sell a population of loans.

The sold loans had an aggregate unpaid principal balance of approximately $14.7 million.

For further information on this sale, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Whole loan sales

Through March 4, 2022, the Company had a commitment to sell to a third-party institutional investor 10% of its unsecured loan originations that satisfy certain eligibility criteria, and an additional 5% subject to certain eligibility criteria and minimum and maximum volumes.

chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022.

The originations of loans sold and held for sale during the three months ended March 31, 2022 was $48.7 million.

The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022.

The originations of loans sold and held for sale during the three months ended June 30, 2022 was insignificant.

Bank Partnership Program and Servicing Agreement

We entered into a bank partnership program with MetaBank, N.A.

We entered into a bank partnership program with Pathward, N.A.

on August 11, 2020.

In accordance with the agreements underlying the bank partnership program, Oportun has a commitment to purchase an increasing percentage of program loans originated by MetaBank based on thresholds specified in the agreements.

In accordance with the agreements underlying the bank partnership program, Oportun has a commitment to purchase an increasing percentage of program loans originated by Pathward based on thresholds specified in the agreements.

Lending under the partnership was launched in August of 2021.

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There have been no material changes to our market risk as previously disclosed in our 2021 Form 10-K.

Inflation, rising interest rates, credit trends and other macroeconomic conditions could continue to have an impact on market volatility which could impact our financial results .

Rising interest rates, credit trends and other macroeconomic conditions could continue to have an impact on market volatility which could impact our financial results .

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis