What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 233 added, 180 removed, 560 unchanged (42% 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 ongoing COVID-19 pandemic and rising interest rates;

• the effect of macroeconomic conditions on our business, including the impact of the COVID-19 pandemic, rising interest rates and recession or slowing growth;

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

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Department of the Treasury since 2009.

With our recent acquisition of Hello Digit, Inc.

("Digit"), we believe we now have a strong competitive advantage over other fintechs and neobanks.

With our recent acquisition of Digit, we believe we now have a strong competitive advantage over other fintechs and neobanks.

As a combined company, we can now offer access to a comprehensive suite of digital banking products, offered either directly or through partners, including lending, savings and investing powered by A.I.

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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 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.

As of September 30, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 37 months and 32.1%, respectively.

The average loan size for loans we originated during the three months ended September 30, 2022 was $4,414.

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

from $300 to $12,000 with terms of 12 to 60 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 June 30, 2022, we originate unsecured personal loans in 12 states through state licenses and in 30 through our partnership with Pathward, N.A.

As of September 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.).

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Our secured personal loans range in size from $2,525 to $20,000 with terms ranging from 24 to 63 months.

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.

The average loan size for secured personal loans we originated during the three months ended September 30, 2022 was $8,107.

As of September 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 28.5%, 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, 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 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 September 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 June 30, 2022 .

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

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

The average credit line for credit cards activated during the three months ended September 30, 2022 was $793.

Digital Banking Products

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Our first Lending as a Service strategic partner was DolEx Dollar Express, Inc.

(“DolEx”) with an initial launch in December 2020.

with an initial launch in December 2020.

In October of 2021, we launched another Lending as a Service partnership with Barri Financial Group in select locations.

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When deployed, Oportun will be available as a checkout option, through Sezzle, for larger purchases of goods and services on a BNPL basis, which we believe will allow us to reach more new members.

We anticipate launching as a Sezzle checkout option before the end of 2022.

Capital Markets Funding

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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.

On July 22, 2022, we issued $400.0 million of amortizing asset-backed notes.

On September 14, 2022, the Company entered into a credit agreement for a $150 million senior secured term loan.

The term loan bears interest, payable in cash, at an amount equal to 1-month term SOFR plus 9.00%.

The term loan is scheduled to mature on September 14, 2026, and is not subject to amortization.

On November 3, 2022, we issued $300 million of amortizing 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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We also sold our share of the residual interest in the pool.

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

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.

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

In April 2022, we sold a population of loans that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $16.3 million ("Q2 2022 Loan Sale").

During the third quarter of 2022, we sold populations of loans that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $22.2 million ("Q3 2022 Loan Sales").

In addition to possible future whole loan, structured or other 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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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.

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).

The income statement impact for the three and nine months ended September 30, 2021 was $0.1 million and $12.8 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.

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) .

The income statement impact for the three and nine months ended September 30, 2022 was $0.2 million and $1.9 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.

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As of or for the Three Months

Ended June 30,

As of or for the Six Months

Ended June 30,

Ended September 30,

As of or for the Nine Months

Ended September 30,

(in thousands of dollars) 2022 2021 2022 2021

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$ 2,903,928 $ 1,741,358 $ 2,633,169 $ 1,654,582

(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.

(1) The 772,361 Members and Products reported as of September 30, 2021 reflect our previously defined and disclosed "Active Customer" metric.

Products presented as of September 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.

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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.

Members were 1.9 million as of September 30, 2022, and include members acquired in connection with the acquisition of Digit on December 22, 2021.

Products refers to the aggregate number of personal loans and/or credit card accounts that our Members have had or been approved for that have been originated by us or through one of our bank partners.

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

Products as of June 30, 2022 were 1.9 million.

Products as of September 30, 2022 were 2.0 million.

Aggregate Originations

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.

Aggregate Originations decreased to $634.2 million for the three months ended September 30, 2022 from $662.1 million for the three months ended September 30, 2021, representing a 4.2% decrease.

The decrease is primarily driven by fewer loans originated;

partially offset by growth in average loan size.

We originated 153,680 and 210,731 loans for the three months ended September 30, 2022 and 2021, respectively.

The decrease is primarily driven by our tightening of credit underwriting standards and focusing lending towards existing and returning members to improve credit outcomes.

Aggregate Originations increased to $2,312.5 million for the nine months ended September 30, 2022 from $1,430.4 million for the nine months ended September 30, 2021, representing a 61.7% increase.

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

We originated 623,664 and 479,183 loans for the nine months ended September 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 4.3% and 2.5% as of June 30, 2022 and 2021, respectively.

Our 30+ Day Delinquency Rate was 5.4% and 2.8% as of September 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.

In mid-2022, we focused lending towards existing and returning members to address rising delinquencies.

Annualized Net Charge-Off Rate

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.

Annualized Net Charge-Off Rate for the three months ended September 30, 2022 and 2021 was 9.8% and 5.5%, respectively.

Annualized Net Charge-Off Rate for the nine months ended September 30, 2022 and 2021 was 9.0% and 6.8%, respectively.

The increase is primarily driven by a higher mix of first-time borrowers in 2022 compared to 2021.

In response to this increase, we focused lending towards existing and returning members in mid-2022 to improve credit outcomes as existing and returning members generally have lower loss rates .

Further, 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 this year 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 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.”

For the three months ended September 30, 2022 and 2021, Return on Equity was (70.1)% and 18.3%, respectively, and Adjusted Return on Equity was 5.6% and 19.0%, respectively, For the nine months ended September 30, 2022 and 2021, Return on Equity was (16.1)% and 9.1%, respectively, and Adjusted Return on Equity was 15.0% and 14.4%, respectively.

The decreases in Return on Equity for the three and nine months ended were primarily due to lower net income.

The lower net income was primarily driven by the non-cash goodwill impairment charge, the decrease in the fair value of our loan portfolio as a result of higher loss and discount rate assumptions, an increase in operating expenses and an increase in interest expense, partially offset by increased revenue for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.

The decrease in Adjusted Return on Equity for the three months ended September 30, 2022 was primarily due to lower Adjusted Net Income for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

The improvement in Adjusted Return on Equity for the nine months ended September 30, 2022 was primarily due to higher Adjusted Net Income for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

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

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.

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

While we anticipate that the Annualized Net Charge-Off Rate could increase further in the current environment due to the impact of inflation on members, we have seen a decrease in early-stage delinquencies, with 8 to 14 day delinquencies and 15 to 29 day delinquencies of 1.7% and 1.8%, respectively, as of September 30, 2022 as compared to 1.7% and 2.1%, respectively, as of July 31, 2022 when we further tightened our credit underwriting standards and focused lending towards existing and returning members to improve credit outcomes.

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.

*Numbers shown reflect year-to-date amounts for the nine months ended September 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 June 30, 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 September 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 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.

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

Net lifetime loan losses as of September 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% 10.5%* 6.8%* 6.0%*

Outstanding principal balance as of September 30, 2022 as a percentage of original amount disbursed —% —% —% —% —% —% —% —% —% —% —% 0.6% 3.7% 22.0% 62.6%

* 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 and six months ended June 30, 2022 and 2021.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands of dollars) 2022 2021 2022 2021

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General, administrative and other 14,401 2,686 44,698 22,862

Goodwill impairment 108,472 — 108,472 —

Total operating expenses 259,346 111,401 564,576 328,053

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Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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Interest Income.

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.

Total interest income increased by $86.7 million, or 59.6%, from $145.4 million for the three months ended September 30, 2021 to $232.1 million for the three months ended September 30, 2022.

This increase was primarily attributable to higher Average Daily Principal Balance, which increased from $1.74 billion for the three months ended September 30, 2021 to $2.90 billion for the three months ended September 30, 2022.

The increase was partially offset by a decrease in portfolio yield of 143 basis points in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 driven by our tightening of credit underwriting standards and focusing lending towards existing and returning members who generally receive lower APRs, but have lower loss rates compared to new members.

Total interest income increased by $230.8 million, or 57.5%, from $401.2 million for the nine months ended September 30, 2021 to $632.0 million for the nine months ended September 30, 2022.

This increase was primarily attributable to higher Average Daily Principal Balance, which increased from $1.65 billion for the nine months ended September 30, 2021 to $2.63 billion for the nine months ended September 30, 2022.

The increase was partially offset by a decrease in portfolio yield of 33 basis points in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 driven by our tightening of credit underwriting standards and focusing lending towards existing and returning members who generally receive lower APRs, but have lower loss rates compared to new members.

Non-interest income.

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.

Total non-interest income increased by $4.3 million, or 31.7%, from $13.6 million for the three months ended September 30, 2021 to $18.0 million for the three months ended September 30, 2022.

This increase is primarily due to $9.7 million attributable to Digit subscription income and $2.0 million increase in servicing revenue.

This was partially offset by decreased gain on loans sold of $7.3 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.

Total non-interest income increased by $27.2 million, or 86.4%, from $31.4 million for the nine months ended September 30, 2021 to $58.6 million for the nine months ended September 30, 2022.

This increase is primarily due to $28.1 million attributable to Digit subscription income, $6.3 million increase in servicing revenue, $2.3 million of increased fees related to our credit card portfolio and $1.8 million increase related to our Pathward, N.A.

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Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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Interest Expense.

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%.

Interest expense increased by $16.1 million, or 152.2%, from $10.6 million for the three months ended September 30, 2021 to $26.7 million for the three months ended September 30, 2022.

We financed approximately 92.7% of our loans receivable through debt for the three months ended September 30, 2022, as compared to 86.4% for the three months ended September 30, 2021, and our Average Daily Debt Balance increased from $1.50 billion for the three months ended September 30, 2021 to $2.69 billion for the three months ended September 30, 2022, an increase of 78.9%.

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

Interest expense increased by $21.2 million, or 58.5%, from $36.2 million for the nine months ended September 30, 2021 to $57.5 million for the nine months ended September 30, 2022.

We financed approximately 90.9% of our loans receivable through debt for the nine months ended September 30, 2022, as compared to 88.8% for the nine months ended September 30, 2021, and our Average Daily Debt Balance increased slightly from $1.47 billion for the nine months ended September 30, 2021 to $2.39 billion for the nine months ended September 30, 2022, an increase of 62.8%.

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

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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.

Total net increase (decrease) in fair value

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Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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Net settlements on derivative instruments (5,059) 340 (5,399) * (12,539) 517 (13,056) *

Cumulative mark on loans sold (1)

Fair value mark on loans sold (1)

(21,074) — (21,074) * (19,350) — (19,350)

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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.

(1) The fair value mark on loans sold shown for the three and nine months ended September 30, 2022 includes ($21.1) million related to the cumulative fair value mark on the loans sold in the Q3 2022 Loan Sales.

The fair value mark on loans sold shown for the nine months ended September 30, 2022 also includes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction and $(14.1) million related to the cumulative fair value mark on the Q2 2022 Loan Sale.

This fair value 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 Q3 2022 Loan Sales, 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 decrease in fair value for the three months ended June 30, 2022 was $63.5 million.

Net decrease in fair value for the three months ended September 30, 2022 was $76.4 million.

This amount represents a total fair value mark-to-market increase of $21.4 million, and $71.7 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.

The total fair value mark-to-market adjustment consists of a $(40.7) million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 11.25% as of June 30, 2022 to 11.67% as of September 30, 2022, (b) an increase in the discount rate from 8.97% as of June 30, 2022 to 10.19% as of September 30, 2022, partially offset by (c) an increase in average life from 0.90 years as of June 30, 2022 to 0.92 years as of September 30, 2022, The $61.2 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 September 30, 2022 also includes a $(21.1) million adjustment related to the fair value mark on the loans sold as part of the Q3 2022 Loan Sales.

Net decrease in fair value for the nine months ended September 30, 2022 was $135.9 million.

This amount represents a total fair value mark-to-market increase of $74.1 million, and $178.1 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $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.

The total fair value mark-to-market adjustment consists of a $92.3 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 11.67% as of September 30, 2022, (b) an increase in the discount rate from 6.94% as of December 31, 2021 to 10.19% as of September 30, 2022, partially offset by (c) an increase in average life from 0.86 years as of December 31, 2021 to 0.92 years as of September 30, 2022, The $164.0 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 nine months ended September 30, 2022 includes a $(21.1) million adjustment related to the fair value mark on loans sold as part of the Q3 2022 Loan Sales completed in the third quarter, $(14.1) million adjustment related to the fair value 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 fair value 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 primarily as a result of macroeconomic conditions.

Charge-offs, net of recoveries

Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

4 unchanged sentences

Charge-offs, net of recoveries.

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.

Our Annualized Net Charge-Off Rate increased to 9.8% and 9.0% for the three and nine months ended September 30, 2022, respectively, from 5.5% and 6.8% for the three and nine months ended September 30, 2021, respectively.

Net charge-offs for the three months and nine months ended September 30, 2022 increased primarily due to a higher mix of first-time borrowers in 2022 compared to 2021.

In response to this increase, we tightened our credit underwriting standards and focused lending towards existing and returning members to improve credit outcomes.

Further, due to credit tightening in response to the COVID-19 pandemic and government stimulus payments, our charge-offs were lower in 2021.

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.

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The first component comprises costs associated with our technology, engineering, information security, cybersecurity, platform development, maintenance, and end user services, including fees for software licenses, consulting, legal and other services as a result of our efforts to grow our business, as well as personnel expenses.

The second includes rent for retail and corporate locations, utilities, insurance, telephony costs, property taxes, equipment rental expenses, licenses and fees and depreciation and amortization.

Lastly, the third category includes all software licenses, subscriptions, and technology service costs to support our corporate operations, excluding sales and marketing.

The second component includes rent for retail and corporate locations, utilities, insurance, telephony costs, property taxes, equipment rental expenses, licenses and fees and depreciation and amortization.

Lastly, the third component includes all software licenses, subscriptions, and technology service costs to support our corporate operations, excluding sales and marketing.

Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

Technology and facilities.

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.

Technology and facilities expense increased by $21.9 million, or 63.9%, from $34.2 million for the three months ended September 30, 2021 to $56.1 million for the three months ended September 30, 2022.

The increase is primarily due to a $8.8 million increase in salaries and benefits due to the increase in headcount, a $7.1 million increase in service costs related to higher usage of software and cloud services, $3.7 million incurred for India off-shoring services and other temporary contractors to supplement staffing related to new product investment, $3.5 million of increased depreciation commensurate with growth in internally developed software and $0.5 million of increased insurance expense for cyber-security.

These increases are partially offset by $1.6 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $0.3 million lower office rent due to retail location closures in early 2021 and early 2022.

Technology and facilities expense increased by $57.8 million, or 57.7%, from $100.3 million for the nine months ended September 30, 2021 to $158.1 million for the nine months ended September 30, 2022.

The increase is primarily due to a $23.4 million increase in salaries and benefits due to the increase in headcount, a $21.5 million increase in service costs related to higher usage of software and cloud services, $10.0 million incurred for India off-shoring services and other temporary contractors to supplement staffing related to new product investment, $8.3 million of increased depreciation commensurate with growth in internally developed software and $1.4 million of increased insurance expense for cyber-security.

These increases are partially offset by $6.0 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $1.7 million lower office rent due to retail location closures in early 2021 and early 2022.

Sales and marketing

3 unchanged sentences

Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

4 unchanged sentences

Sales and marketing.

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.

Sales and marketing expenses to acquire our customers decreased by $10.3 million, or 32.2%, from $32.1 million for the three months ended September 30, 2021 to $21.8 million for the three months ended September 30, 2022.

In an effort to reduce our operating expense growth, we decreased our investment in marketing initiatives by $13.2 million across various marketing channels, including direct mail, digital advertising, lead aggregators and our referral programs.

This decrease was partially offset by an increase of $1.3 million related to professional fees primarily related to outsourced telesales FTEs as a result of an increase in demand for new applications and $1.3 million higher salaries and benefit costs due to an increase in retail hours worked and salary raises.

As a result of the decline in our sales and marketing expenses during the three months ended September 30, 2022, our CAC decreased by 6.6% as compared to the three months ended September 30, 2021.

Sales and marketing expenses to acquire our customers increased by $8.9 million, or 11.2%, from $79.7 million for the nine months ended September 30, 2021 to $88.7 million for the nine months ended September 30, 2022.

To grow our loan originations, we increased our investment in marketing initiatives early in 2022 before decreasing our spend in the third quarter.

Our net increase during the nine months ended September 30, 2022 was $1.6 million across various marketing channels, including digital advertising, lead aggregators, our referral programs.

We also incurred $4.0 million related to outsourcing and professional fees primarily due to outsourced telesales FTEs as a result of an increase in demand for new applications, $2.0 million higher salaries and benefit costs due to higher sales incentives driven by more retail locations reaching sales goals and $0.8 million higher services costs related to new data sources.

As a result of our increased loan originations during the nine months ended September 30, 2022, our CAC decreased by 14.5% as compared to the nine months ended September 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

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

2 unchanged sentences

Percentage of total revenue 16.0 % 18.3 % 16.6 % 19.5 %

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.

Personnel expense increased by $10.9 million, or 37.6%, from $29.0 million for the three months ended September 30, 2021 to $40.0 million for the three months ended September 30, 2022, driven by increased compensation expense due to a 36.7% increase in U.S.

Personnel expense increased by $30.1 million, or 35.7%, from $84.4 million for the nine months ended September 30, 2021 to $114.5 million for the nine months ended September 30, 2022, primarily driven by increased compensation expense due to a 36.7% increase in U.S.

Outsourcing and professional fees

6 unchanged sentences

Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

Outsourcing and professional fees.

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.

Outsourcing and professional fees increased by $5.3 million, or 39%, from $13.3 million for the three months ended September 30, 2021 to $18.6 million for the three months ended September 30, 2022.

The increase is primarily attributable to $2.8 million increase in debt financing fees and expenses related to 2022-2, not present in the three months ended September 30, 2021, $1.8 million of higher professional service costs related to credit card programs and data integrity and infrastructure, $1.0 million related to 77.0% growth in contact

center outsourced FTEs as a result of an increase in demand for new applications and the new Philippines contact center, partially offset by $0.6 million decrease in credit report expense due to lower application volume.

Outsourcing and professional fees increased by $9.4 million, or 23%, from $40.8 million for the nine months ended September 30, 2021 to $50.1 million for the nine months ended September 30, 2022.

The increase is primarily attributable to $5.9 million of higher professional service costs related to credit card programs and data integrity and infrastructure, $2.2 million increase in credit report expense due to higher application volume and $2.0 million related to 77.0% growth in contact center outsourced FTEs as a result of an increase in demand for new applications and the new Philippines contact center.

These increases were partially offset by a $1.8 million decrease in debt financing fees and expenses incurred in the nine months ended September 30, 2022 related to 2022-A and 2022-2 compared to 2021-A and 2021-B in the nine months ended September 30, 2021.

General, administrative and other

2 unchanged sentences

Three Months Ended

Period-to-period Change Six Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

General, administrative and other.

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.

General, administrative and other expense increased by $11.7 million, or 436%, from $2.7 million for the three months ended September 30, 2021 to $14.4 million for the three months ended September 30, 2022, primarily due to $8.1 million of transaction and integration related expenses as a result of the Digit acquisition, $2.4 million of charge-offs related to fraud and $1.3 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.

General, administrative and other expense increased by $21.8 million, or 96%, from $22.9 million for the nine months ended September 30, 2021 to $44.7 million for the nine months ended September 30, 2022, primarily due to $22.4 million of transaction and integration related expenses as a result of the Digit acquisition, $5.1 million of charge-offs related to fraud, $2.7 million increase in litigation expense and $5.9 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 $10.9 million decrease in retail network optimization expenses incurred in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

In the nine months ended September 30, 2022, we incurred $1.9 million in expenses related to the retail location closures.

Goodwill impairment

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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

Goodwill impairment $ 108,472 $ — $ 108,472 100.0 % $ 108,472 $ — $ 108,472 100.0 %

Percentage of total revenue 43.4 % — % 15.7 % — %

Goodwill impairment.

In response to a sustained decline in our share price primarily driven by macroeconomic conditions, we conducted a quantitative test of our goodwill as of September 30, 2022.

As a result of this quantitative test, we identified an impairment to goodwill resulting in recognition of a $108.5 million non-cash goodwill impairment charge for the three and nine months ended September 30, 2022.

There were no goodwill impairment charges during the three and nine months ended September 30, 2021 because we did not have a goodwill balance as of September 30, 2021.

Income taxes consist of U.S.

federal, state and foreign income taxes, if any.

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

For the periods ended September 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

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

4 unchanged sentences

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.

Income tax expense decreased by $11.7 million or 227%, from $5.1 million for the three months ended September 30, 2021 to $6.5 million benefit for the three months ended September 30, 2022, primarily resulting from the discrete tax benefit of the return-to-provision adjustments and having lower pretax income for the three months ended September 30, 2022.

Income tax expense decreased by $6.7 million or 77%, from $8.7 million for the nine months ended September 30, 2021 to $2.0 million for the nine months ended September 30, 2022, primarily resulting from the discrete tax benefit of the return-to-provision adjustments and having a lower pretax income for the nine months ended September 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.

35 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 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 table below reflects the application of this methodology for the seven quarters since March 1, 2021, on loans held for investment.

The data for the periods ending on or after 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

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

Sep 30, 2022 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 29.90 % 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, impairment charges and acquisition and integration related expenses because these items do not reflect

ongoing business operations.

• We believe it is useful to exclude the impact of interest expense associated with the Company's Corporate Financing, as this expense is a function of our capital structure.

• 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

4 unchanged sentences

Total fair value mark-to-market adjustment $ 21,387 $ 14,597 $ 74,077 $ 57,209

(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,

(1) The fair value mark-to-market adjustment on loans receivable at fair value shown for the three and nine months ended September 30, 2022 excludes ($21.1) million related to the cumulative fair value mark on the loans sold in the Q3 2022 Loan Sales.

The fair value mark-to-market adjustment on loans receivable at fair value shown for the nine months ended September 30, 2022 also excludes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction and $(14.1) million related to the cumulative fair value mark on the loans sold in the Q2 2022 Loan Sale.

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

Three Months Ended September 30, Nine Months Ended September 30,

Adjusted EBITDA (in thousands)

2 unchanged sentences

Income tax expense (benefit) (6,536) 5,143 1,956 8,652

Interest on corporate financing 871 — 871 —

Depreciation and amortization 9,229 5,690 25,329 16,992

15 unchanged sentences

• 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 and six months ended June 30, 2022 and 2021:

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

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

Three Months Ended September 30, Nine Months Ended September 30,

Adjusted Net Income (in thousands)

13 unchanged sentences

27.0 % 27.4 % 27.0 % 27.4 %

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

(1) Income tax rate for the three and nine months ended September 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.

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.

The following table presents a reconciliation of Diluted EPS to Diluted Adjusted EPS for the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

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

Diluted earnings per share $ (0.28) $ 0.24 $ 1.10 $ 0.34

Diluted earnings (loss) per share $ (3.21) $ 0.75 $ (2.12) $ 1.11

Adjusted Net Income $ 8,376 $ 23,837 $ 64,863 $ 52,673

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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.

The following table presents a reconciliation of Return on Equity to Adjusted Return on Equity as of and for the three and nine months ended September 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 June 30, As of or for the Six Months Ended June 30,

As of or for the Three Months Ended September 30, As of or for the Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

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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,

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

As of or for the Three Months Ended September 30, As of or for the Nine Months Ended September 30,

(in thousands) 2022 2021 2022 2021

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Liquidity and Capital Resources

To date, we fund the majority of our operating liquidity and operating needs through a combination of cash flows from operations, securitizations, secured borrowings and whole loan sales.

To date, we fund the majority of our operating liquidity and operating needs through a combination of cash flows from operations, securitizations, secured borrowings, Corporate Financing and whole loan sales.

We may utilize these or other sources in the future.

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 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.

During the three months ended September 30, 2022, available liquidity increased primarily due to the execution of our Corporate Financing facility and the issuance of another asset-backed securitization.

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.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021

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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 $91.6 million and $53.8 million for the six months ended June 30, 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 $159.3 million and $103.7 million for the nine months ended September 30, 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, goodwill impairment charges, 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.

Investing Activities

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 net cash provided by (used in) investing activities was $(915.9) million and $(316.7) million for the nine months ended September 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 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.

Our net cash provided by (used in) investing activities for the nine months ended September 30, 2022, includes $247.9 million of proceeds related to a structured loan sale in the first quarter, the Q2 2022 Loan Sale in the second quarter and the Q3 2022 Loan Sales in the third 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 $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.

The change in our net cash provided by (used in) investing activities is due to disbursements on originations of loans increasing by $1,065.2 million while repayments of loan principal increased by $237.3 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Financing Activities

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.

Our net cash provided by (used in) financing activities was $835.8 million and $268.2 million for the nine months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022, net cash provided by financing activities was primarily driven the issuance of our Series 2022-A and Series 2022-2 asset-backed notes and the borrowings under our Secured Financing facilities and Acquisition and Corporate Financing facilities, partially offset by repayments of borrowings on our Secured Financing facilities and scheduled amortization payments on our Acquisition Financing facility and our Series 2019-A and Series 2022-2 asset-backed notes.

For the nine months ended September 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 and the borrowings under our Secured Financing facilities, partially offset by redemptions of our Series 2018-A, 2018-B and 2018-C asset-backed notes and repayments of borrowings on our Secured Financing facility.

Sources of Funds

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Asset-Backed Securitizations

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.

As of September 30, 2022, we had $2.24 billion of outstanding asset-backed notes.

In addition, on November 3, 2022, we completed the issuance of $300 million amortizing 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.

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

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

Secured Financings

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.

As of September 30, 2022 , we had Secured Financing facilities with warehouse lines of $750.0 million in the aggregate with undrawn capacity of $382.0 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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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.

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.

On July 28, 2022, pursuant to an amended indenture, the facility was upsized for an additional $9.1 million.

The amendments 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.

Corporate Financing

On September 14, 2022, the Company entered into an agreement to borrow $150.0 million of a senior secured term loan (the “Corporate Financing”).

The term loan bears interest, payable in cash, at an amount equal to 1-month term SOFR plus 9.00%.

The term loan is scheduled to mature on September 14, 2026, and is not subject to amortization.

Certain prepayments of the term loan is subject to a prepayment premium.

The obligations under the Credit Agreement are secured by the assets of the Company and certain of its subsidiaries guaranteeing the term loan, including pledges of the equity interests of certain subsidiaries that are directly or indirectly owned by the Company, subject to customary exceptions.

As of September 30, 2022, we were in compliance with all covenants and requirements on our outstanding debt and available credit.

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

Structured loan sales

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

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.

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.

The sold loans had an aggregate unpaid principal balance of approximately $14.7 million (the "Q2 2022 Loan Sale").

During the third quarter of 2022, the Company entered into agreements to sell populations of loans.

The sold loans had an aggregate unpaid principal balance of approximately $20.7 million (the "Q3 2022 Loan Sales").

For further information on these sales, 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

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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.

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

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.

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Actual results may differ from these estimates under different assumptions or conditions.

Goodwill is tested for impairment annually and more frequently if events and circumstances indicate that the asset might be impaired.

We have a single reporting unit for the purpose of conducting the goodwill impairment assessment.

A goodwill impairment charge is recognized for the amount that the our carrying value, including goodwill, exceeds the fair value, limited to the total amount of goodwill.

Factors that could lead to a future impairment include material uncertainties such as a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in the our stock price.

In response to a sustained decline in our share price driven by macroeconomic conditions, we conducted a quantitative test of its goodwill as of September 30, 2022.

We recognized a $108.5 million non-cash impairment charge for the three and nine months ended September 30, 2022.

There were no triggering events or goodwill impairment charges during the three and nine months ended September 30, 2021 because we did not have a goodwill balance as of September 30, 2021 (see Note 7 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further details).

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K dated December 31, 2021, filed with the Securities and Exchange Commission on March 1, 2022 ("2021 Form 10-K"), under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis