What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-01 · 287 added, 303 removed, 421 unchanged (58% of the section changed)

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“Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this MD&A.

We are a financial technology company and digital banking platform driven by our mission to provide inclusive, affordable financial services that empower our members to build a better future.

By intentionally designing our products with our members in mind, we are focused on realizing our vision to deliver a complete set of financial solutions that meet the needs of hardworking people, from borrowing and banking to savings, investing and more.

We are a digital banking platform that puts our members’ financial goals within reach.

With intelligent borrowing, savings, budgeting, and spending capabilities, we empower members with the confidence to build a better financial future .

By intentionally designing our products to help solve the financial health challenges facing a majority of people in the U.S., we believe our business is well positioned for significant growth.

We take a holistic approach to serving our members and view it as our purpose to responsibly meet their current capital needs, help grow our members’ financial profiles, increase their financial awareness and put them on a path to a financially healthy life.

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Department of the Treasury since 2009.

With our acquisition of Hello Digit, Inc.

("Digit") on December 22, 2021, we believe we now have a strong competitive advantage over other fintechs and neobanks.

With our acquisition of Digit in 2021, 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.

and tailored to each member's goals.

Digit began with a savings product and the intent to apply A.I.

to make financial health effortless for everyone.

Following the success of the initial savings product, Digit has now expanded its offering to bank account and investment products.

Since 2015, Digit members have saved over $7.2 billion towards their rainy day fund and other savings goals and paid down more than $330.0 million in debt.

Our financial products allow us to meet our members where they are and assist them with their overall financial health, resulting in opportunities to present multiple relevant products to our members.

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Our digital banking products include digital banking, automated savings, long-term investing and retirement savings.

Consumers are able to become members and access our products through our digital banking app — the Digit app — and the Oportun.com website, which are our primary channels for onboarding and serving members.

Consumers are able to become members and access our products through our digital banking app — the Oportun Mobile app — and the Oportun.com website, which are our primary channels for onboarding and serving members.

Our personal loan products are also available over the phone or through over 700 retail locations, which includes 590 of our Lending as a Service partner locations.

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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 December 31, 2021, we originate unsecured personal loans in 12 states through state licenses and in 26 states through our partnership with MetaBank, N.A.

As of December 31, 2022, we originate unsecured personal loans in 12 states through state licenses and in 30 states 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 $18,000 with terms ranging from 27 to 63 months.

The average loan

size for secured personal loans we originated in 2021 was $7,003.

The average loan size for secured personal loans we originated in 2022 was $8,304.

As of December 31, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 49 months and 28.3%, respectively.

As part of our underwriting process, we 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, and we are in the process of expanding to other states.

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 December 31, 2022 .

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Digital Banking Products

Digit Savings – Our Digit Savings product is designed to understand a member’s cash flows and save the right amount on a regular basis to effortlessly achieve savings goals.

Digit Direct – Our Digit Direct product offers intelligent budgeting across bills, savings and spending via a checking account, offered through a bank partner, and members can have Digit be their primary banking relationship.

Digit Investing and Digit Retirement – Our Digit investment and retirement products are a longer-term savings solution via an A.I.-driven portfolio allocation into low-cost investments based upon risk-tolerance.

Savings – Our Savings product is designed to understand a member’s cash flows and save the right amount on a regular basis to effortlessly achieve savings goals.

Our savings product utilizes mac hine learning to analyze a member’s transaction activity and build forecasts of the member’s future cash flows to make small, frequent savings decisions according to the member’s financial goals in a personalized manner.

Members integrate their existing bank accounts into the platform or they can make Digit their primary banking relationship through a bank partner.

After one year using the automated savings product, members have been able to increase their liquid savings by approximately 50%.

Since 2015 Digit has helped members save more than $8.9 billion .

Direct – Our 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.

The bank account with a brain™, Direct leverages the same A.I.

engine used for our savings product to automatically identify and organize recurring bills and guides spending to ensure members' savings goals are met, and that members know exactly what they can safely spend.

This is on top of what members can expect from a traditional checking account, including a physical and virtual debit card to use for purchases and ATM withdrawals and checks.

Investing and Retirement – Our investment and retirement products are a longer-term savings solution via an A.I.-driven portfolio allocation into low-cost investments based upon risk-tolerance.

Our long-term investment solutions automatically allocates our members' savings into low-cost risk-adjusted portfolios held in brokerage accounts or tax-advantaged IRAs.

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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 members of our digital banking products and are not the assets of the Company.

Therefore, these funds are not included in the Consolidated Balance Sheets.

Lending as a Service

Beyond our core direct-to-consumer lending business, we believe that we can leverage our proprietary credit scoring and underwriting model to partner with other consumer brands.

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

In this partnership, DolEx markets loans and enters borrower applications into Oportun’s system, and Oportun underwrites, originates and services the loans.

In July 2021, we signed Barri Financial Group as a Lending as a Service partner, which we launched in several locations in October 2021.

In January of 2022, we announced our first all-digital Lending as a Service partnership with Sezzle, a leading provider of Buy Now Pay Later (“BNPL”) financing options.

When deployed, Oportun will be available as a checkout option, through Sezzle, for larger purchases, which we believe will allow us to reach more new members.

Beyond our core direct-to-consumer lending business, we believe that we can leverage our proprietary credit scoring and underwriting model to partner with other consumer brands and expand our member base.

With our Lending as a Service model, our partner markets loans and enters borrower applications into our system and Oportun underwrites, originates and services the loans.

Our first lending as a service partner was DolEx Dollar Express, Inc.

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.

In January of 2022, we announced our first all-digital Lending as a Service partnership with Sezzle, a leading provider of Buy Now Pay Later ("BNPL") financing options which launched in the first quarter of 2023.

Oportun is now available as a checkout option, through Sezzle, for larger purchases which we believe will allow us to reach more new members.

We believe we will be able to offer Lending as a Service to additional partners, and expand our membership base.

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Over the past eight years, we have executed 20 bond offerings in the asset-backed securities market, the last 17 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 are also party to a whole loan sale program whereby we sell a percentage of our loans to a third-party financial institution.

In addition to our whole loan sale program, 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

On December 22, 2021, we completed our acquisition of Digit.

Digit is a digital banking platform that provides automated savings, investing and banking tools.

Digit members can keep and integrate their existing bank accounts into the platform, or they can make Digit their primary banking relationship by opening new accounts via Digit’s bank partner.

By acquiring Digit, Oportun further expands its A.I.

and digital capabilities, adding to its services to provide consumers a holistic offering built to address their financial needs.

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, subject to customary adjustments.

The total consideration as reported herein differs from the amounts previously disclosed due to changes in the underlying value of the stock between the date the of the definitive agreement and the closing of the acquisition .

The number of shares of Company common stock comprising the stock portion of the consideration was determined using the stock price as of the signing of the definitive agreement.

We acquired 100% of the outstanding stock of Digit, and Digit is now our wholly-owned subsidiary.

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

Digit started as a savings platform that connects to members’ checking accounts and analyzes their income and spending patterns to find amounts that can safely be set aside towards savings goals.

Digit calculates these amounts by identifying upcoming bills and regular spending habits to ensure optimal amounts are flagged for savings and transferred to savings accounts.

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 Consolidated Balance Sheets.

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.

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

On September 14, 2022, we entered into a credit agreement for a $150.0 million senior secured term loan, which was upsized and amended on March 10, 2023 to provide the ability to be able to borrow up to an additional $75.0 million.

On March 10, 2023, we borrowed $20.8 million of Incremental Tranche A-1 Loans and intend to borrow an additional $4.2 million of Incremental Tranche A-2 Loans on or about March 27, 2023, which amount has been committed by the applicable lenders.

We may borrow up to an aggregate additional amount of $50.0 million on an uncommitted basis, in two $25.0 million tranches, expected to be available, if provided by the applicable lenders, on or about April 21, 2023 and June 23, 2023, respectively.

On November 3, 2022, we issued $300.0 million of amortizing asset-backed notes.

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.

We allowed the whole loan sale program agreement to expire on its own terms.

In March 2022, we participated in a securitization and sold loans through the issuance of amortizing asset-backed notes secured by a pool of our unsecured and secured personal installment loans.

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").

During 2022, we sold certain populations of our personal loans and credit card receivables that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $66.2 million.

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.

On March 8, 2023, the Credit Card Warehouse facility

was amended, extending its term through December 2024 and reducing its commitment from $150.0 million to $120.0 million.

Streamlining Operations

On February 9, 2023, we announced that we are taking a series of measures to streamline our operations, including reducing the size of our corporate staff by 10%, impacting approximately 155 employees, and reducing our expenditures on external contractors.

In relation to these and other personnel related activities, we expect to incur non-recurring, pre-tax charges of $6 to $7 million in the first quarter of 2023.

These reductions are anticipated to result in annualized run-rate savings in compensation and benefits of approximately $38 million beginning in 2023.

We have also identified certain non-personnel related operational efficiencies that are anticipated to result in annualized run-rate savings of $10 to $15 million beginning in 2023.

Retail Network Optimization

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

In addition, for the twelve months ended December 31, 2021, we incurred $11.2 million in expenses related to the retail location closures.

In the first quarter of 2021, we recognized $1.6 million related to severance and

benefits related to the store closures which represents all severance and benefits related costs to be incurred related to the retail network optimization plan.

During the first quarter of 2022, we closed 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 twelve months ended December 31, 2022 was $1.9 million, and was recorded through General, administrative and other on the Consolidated Statements of Operations .

As the initial retail network optimization plan was substantially completed in the third quarter, there were no significant expenses incurred for the three months ended December 31, 2021.

This amount included expenses related to the retail location closures and all severance and benefits-related costs.

While we do not expect any significant additional expenses to be incurred related to these closures, we are continually evaluating the performance of retail and partner locations.

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 twelve months ended December 31, 2021 was $12.8 million, and was recorded through General, administrative and other on the Consolidated Statements of Operations .

This amount included expenses related to the retail location closures and all severance and benefits-related costs.

Key Financial and Operating Metrics

We monitor and evaluate the following key metrics in order to measure our current performance, develop and refine our growth strategies, and make strategic decisions.

For a presentation of the actual impact of the election of the fair value option for the periods presented in the financial statements included elsewhere in this report, please see the next section, "Non-GAAP Financial Measures".

The Fair Value Pro Forma information is presented in that section because it is non-GAAP presentation.

The following table and related discussion set forth key financial and operating metrics for our operations as of and for the years ended December 31, 2022 and 2021.

For similar financial and operating metrics and discussion of our 2021 results compared to our 2020 results, refer to Part II.

Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on February 23, 2021 (File No.

Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 1, 2022.

As of or for the Year Ended December 31,

(in thousands of dollars, except CAC) 2021 2020

(in thousands of dollars) 2022 2021

Key Financial and Operating Metrics

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Other Metrics

Number of Loans Originated 753,474 449,362

Customer Acquisition Cost $ 155 $ 199

Average Daily Principal Balance

Managed Principal Balance at End of Period

$ 3,406,981 $ 2,583,462

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$ 3,098,609 $ 2,272,864

Managed Principal Balance at End of Period

Average Daily Principal Balance

$ 2,740,318 $ 1,756,170

Operating Efficiency 74.6 % 67.4 %

Adjusted Operating Efficiency 67.3 % 61.1 %

(1) The Member metric reported as of December 31, 2020 is our previously defined Active Customer metric.

(2) Products presented as of December 31, 2020 represents one product per member as we did not have members with multiple products at that time.

(1) The 1,479,660 Members and 1,545,463 Products reported as of December 31, 2021 reflect our previously defined and disclosed "Members" and "Products" metrics.

Beginning January 1, 2022, we modified our definition of Members to reflect the long-term nature of our relationship with our members and modified our definition of Products to reflect multiproduct adoption by our members.

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

We define Members as borrowers with an outstanding or successfully paid off loan, originated by us or under a bank partnership program that we service, or individuals who have been approved for a credit card issued under a bank partnership program.

Members also include individuals who have signed-up to use or are using any of our Savings, Direct, Investing and/or Retirement products.

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 revenue, since not all Members who sign up for one of our products fully utilize or continue to use our products.

Members as of December 31, 2022 grew to 1.9 million, as compared to 1.5 million as of December 31, 2021 .

This increase was primarily driven by the acquisition of Digit and its members, as well as the increase in application volume and the growth of our credit card and secured personal loan products due to investments in d igital marketing, direct mail and referral programs.

This increase was due to the success in our marketing efforts during the year.

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.

Products also include the aggregate number of digital banking products we offer as a result of our acquisition of Digit, including Savings, Direct, Investing and Retirement, that our Members use or have signed-up to use.

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

Products as of December 31, 2022, grew to 2.0 million, compared to the 1.5 million Products we had as of December 31, 2021.

This increase was primarily driven by the acquisition of Digit and its four digital banking products:

Digit Savings, Digit Investing, Digit Retirement and Digit Direct.

Combined with Oportun's unsecured personal loans, secured personal loans and credit cards, these seven products comprise our product offerings.

This increase was due to growth in both our credit products and our digital banking products.

Aggregate Originations

Aggregate Originations increased to $2.92 billion for the year ended December 31, 2022 from $2.30 billion for the year ended December 31, 2021, representing a 27.4% increase.

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

The increase is primarily driven by a growth in average loan size due to a focus on returning members with historically lower credit risk and a larger number of loans originated.

We originated 764,516 and 753,474 loans for the years ended December 31, 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 remained relatively flat at 3.9% and 3.7% as of December 31, 2021 and 2020, respectively, due to the effectiveness of our collections tools and payment options that have helped our borrowers manage through the pandemic as well as tighter underwriting criteria for loans originated since the pandemic began .

Our 30+ Day Delinquency Rate increased to 5.6% as of December 31, 2022 from 3.9% as of December 31, 2021.

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 took numerous actions to improve the credit performance on newly originated loans;

including significantly tightening our underwriting standards for all borrowers, particularly for higher risk digital marketing channels, and adjusting loan size based on member free cash flow.

We also focused lending towards existing and returning members to address rising delinquencies.

Annualized Net Charge-Off Rate

Annualized Net Charge-Off Rate for the years ended December 31, 2022 and 2021 was 10.1% and 6.8%, respectively.

Net charge-offs decreased 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.

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

In mid-2022, we took numerous actions to improve the credit performance on newly originated loans;

including significantly tightening our underwriting standards for all borrowers, particularly for higher risk digital marketing channels, and adjusting loan size based on member free cash flow.

We also focused lending towards existing and returning members to improve credit outcomes as existing and returning members historically have had 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 in 2023 due to the impact of inflation and other macroeconomic factors on members.

Return on Equity and Adjusted Return on Equity

For the year ended December 31, 2021 and 2020, Return on Equity was 8.9% and (9.4)%, respectively, and Adjusted Return on Equity was 14.7% and (3.0)%, respectively.

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

Net income was higher due to lower credit losses and increased fair value of our loan portfolio due to improved credit outlook.

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

For the year ended December 31, 2022 and 2021, Return on Equity was (13.5)% and 8.9%, respectively.

The decrease in Return on Equity is primarily due to lower net income, primarily as a result of the goodwill impairment.

For the year ended December 31, 2022 and 2021, Adjusted Return on Equity was 12.1% and 14.7%, respectively.

The decrease in Adjusted Return on Equity is primarily due to lower Adjusted Net Income.

Adjusted Net Income was lower due to higher credit losses, higher cost of funds and decreased fair value of our loan portfolio as a result of higher loss and discount rate assumptions.

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

Historical Credit Performance

Our A.I.-driven credit models enable us to originate loans with low and stable loss rates.

Our Annualized Net Charge-off Rate ranged between 7% and 9% from 2011 to 2019 and was 9.8% in 2020, a modest variance above this range during the pandemic.

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.

Our Annualized Net Charge-off Rate increased to 10.1% in 2022 primarily due to a higher mix of first-time borrowers in 2021 and the first half of 2022.

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

card account when it is 180 days contractually past due.

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.

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 December 31, 2022 divided by the total origination loan volume for that year.

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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 and returning members in the third quarter of 2021 and reduced further in the second half of 2022.

Year of Origination

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Our business is highly seasonal, and the fourth quarter is typically our strongest quarter in terms of loan originations.

For the three months ended December 31, 2021, our business exhibited growth in originations and revenue and improved profitability.

For the three months ended December 31, 2022, our business exhibited lower than typical originations due to our credit tightening.

Prior to the pandemic, we historically experienced a seasonal decline in credit performance in the fourth quarter primarily attributable to competing demand of our borrowers' available cash flow around the holidays.

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We experienced this seasonal trend in 2022, consistent with years prior to the COVID-19 pandemic.

The economic impact of COVID-19 disrupted these seasonal trends in March 2020 and for the remainder of 2020.

Results of Operations

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For a discussion regarding our operating and financial data for the year ended December 31, 2021, as compared to the same period in 2020, refer to Part II, Item 7.

“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 23, 2021 (File No.

“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022.

Years Ended December 31,

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General, administrative and other 58,838 37,480

Goodwill impairment 108,472 —

Total operating expenses 715,943 467,690

Income (loss) before taxes (75,286) 62,791

Income tax expense (benefit) 15,377 (13,012)

Income tax expense 2,458 15,377

Net income (loss) $ (77,744) $ 47,414

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The increase is primarily attributable to growth in our Average Daily Principal Balance, which grew from $1.76 billion for 2021 to $2.74 billion for 2022 , an increase of 56.0%.

The increase is due to growth in our portfolio as a result of higher application volume due to increased demand and due to 2020 originations being depressed as a result of the COVID-19 pandemic.

Interest income was also favorably impacted by an increase in portfolio yield of 72 basis points in the year ended December 31, 2021 compared to the year ended December 31, 2020 due to growth in originations to new members who generally receive higher APRs than returning members.

The increase was partially offset by a decrease in portfolio yield of 82 basis points in the year ended December 31, 2022 compared to the year ended December 31, 2021 driven by our tightening of credit underwriting standards and focusing lending towards existing and returning members in the second half of 2022.

Existing and returning members generally receive lower APRs, but historically have lower loss rates compared to new members.

Non-interest income.

Total non-interest income increased by $25.5 million, or 50.0%, from $50.9 million for 2021 to $76.4 million for 2022.

This increase is primarily due to increased gain on loans sold of $6.4 million, or 31.7% under our whole loan sale programs due to an increase in loans sold resulting from higher origination volume.

The increase in non-interest income is also due to $4.2 million of increased fees related to our credit card portfolio, $3.0 million increase related to MetaBank, N.A.

documentation fees and $0.9 million attributed to Digit subscription income for the last ten days of 2021 after the acquisition, partially offset by decreased servicing fees of $2.0 million for the year ended December 31, 2021, due to the reduction in our serviced portfolio of sold loans due to lower sale volume since the onset of the COVID-19 pandemic and our decision to sell 10% versus 15% of originated loans.

This increase is primarily due to $37.5 million attributable to Digit subscription income and $6.7 million increase in servicing revenue.

This was partially offset by decreased gain on loans sold of $21.5 million 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 Consolidated Financial Statements included elsewhere in this report for further discussion on our interest income, non-interest income and revenue.

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Interest expense.

Interest expense decreased by $10.7 million, or 18.3%, from $58.4 million for 2020 to $47.7 million for 2021.

Interest expense increased by $45.4 million, or 95.2%, from $47.7 million for 2021 to $93.0 million for 2022.

We financed approximately 91.2% of our loans receivable through debt for 2022 as compared to 88.5% for 2021, and our Average Daily Debt Balance increased from $1.55 billion to $2.50 billion for 2022, an increase of 60.9%.

We 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.

See Note 2 , Summary of Significant Accounting Policies , and Note 9 , Borrowings , in the Notes to the Consolidated Financial Statements included in this report for further information on our Interest expense and our Secured Financing and asset-backed notes.

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

We expect our interest expense to increase as benchmark interest rates rise and as we continue to fund our portfolio growth through debt.

See Note 2, Summary of Significant Accounting Policies , and Note 9, Borrowings , in the Notes to the Consolidated Financial Statements included elsewhere in this report for further information on our Interest expense and our borrowings.

Total net decrease in fair value

Net decrease in fair value reflects changes in fair value of Fair Value Loans and Fair Value Notes on an aggregate basis and is based on a number of factors, including benchmark interest rates, credit spreads, remaining cumulative charge-offs and borrower payment rates.

Net increase (decrease) in fair value reflects changes in fair value of loans receivable held for investment and asset-backed notes on an aggregate basis and is based on a number of factors, including benchmark interest rates, credit spreads, remaining cumulative charge-offs and borrower payment rates.

Increases in the fair value of loans increase Net Revenue.

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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.

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Fair value mark-to-market adjustment:

Fair value mark-to-market adjustment on fair value loans $ 57,044 $ (25,548) $ 82,592 *

Fair value mark-to-market adjustment on Loans Receivable at Fair Value $ (68,897) $ 57,044 $ (125,941) *

Fair value mark-to-market adjustment on asset-backed notes 184,906 15,408 169,498 *

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Charge-offs, net of recoveries on loans receivable at fair value (276,796) (119,413) (157,383) *

Excess interest - credit card performance fee 1,426 — 1,426 *

Net settlements on derivative instruments (15,688) 1,426 (17,114) *

Fair value mark on loans sold (1)

(46,069) — (46,069) *

Total net decrease in fair value $ (218,842) $ (48,632) $ (170,210) *

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* Not meaningful

(1) The fair value mark-to-market adjustment on loans receivable at fair value shown for the year ended December 31, 2022, excludes $(46.1) million related to the cumulative fair value mark on loans sold as part of the structured and other loan sales in 2022.

For details regarding the structured and other loan sales in 2022, refer to Note 5, Loans Held for Sale and Loans Sold of the Notes to the Consolidated Financial Statements included elsewhere in this report.

Net decrease in fair value.

Net decrease in fair value for 2022 was $218.8 million.

This amount represents a total fair value mark-to-market increase of $69.4 million, and $119.4 million of charge-offs, net of recoveries on Fair Value Loans.

The total fair value mark-to-market adjustment consists of a $57.0 million mark-to-market adjustment on Fair Value Loans due to (a) a decrease in remaining cumulative charge-offs from 10.03% as of December 31, 2020 to 9.60% as of December 31, 2021 due to improving credit trends, (b) an increase in average life from 0.80 years as of December 31, 2020 to 0.86 years as of December 31, 2021, partially offset by (c) an increase in the discount rate from 6.85% as of December 31, 2020 to 6.94% as of December 31, 2021 caused by higher interest rates.

The $15.4 million mark-to-market adjustment on Fair Value Notes is due to rising rates and widening asset-backed securitization spreads.

In 2022, we expect net decrease in fair value to be lower due to faster growth in new loans leading to increased losses.

This amount represents a total fair value mark-to-market increase of $119.7 million, and $276.8 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $(68.9) million mark-to-market adjustment 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 10.38% as of December 31, 2022, (b) an increase in the discount rate from 6.94% as of December 31, 2021 to 11.48% as of December 31, 2022, partially offset by (c) an increase in average life from 0.86 years as of December 31, 2021 to 1.00 years as of December 31, 2022.

The $184.9 million mark-to-market adjustment on asset-back notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value for the year ended December 31, 2022 includes a $(46.1) million adjustment related to the fair value mark on loans sold as part of the structured and other loan sales in 2022.

In 2023, we expect to continue to see volatility in fair value primarily as a result of macroeconomic conditions.

Charge-offs, net of recoveries

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Charge-offs, net of recoveries.

Our Annualized Net Charge-Off Rate decreased to 6.8% for the year ended December 31, 2021 from 9.8% for the year ended December 31, 2020.

Net charge-offs for the year ended December 31, 2021 decreased 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 .

In 2022, we expect growth in new loan originations and our loan portfolio overall to lead to higher charge-offs.

Our Annualized Net Charge-Off Rate increased to 10.1% for the year ended December 31, 2022 from 6.8% for the year ended December 31, 2021.

Net charge-offs for the year ended December 31, 2022 increased primarily due to a higher mix of first-time borrowers in 2021 and the first half of 2022.

In response to this increase, we tightened our credit underwriting standards and focused lending towards existing and returning members to improve credit outcomes in the second half of 2022.

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.

Operating expenses

Operating expenses consist of technology and facilities, sales and marketing, personnel, outsourcing and professional fees and general, administrative and other expenses.

Operating expenses include $50.1 million and $21.9 million related to new products for the years ended December 31, 2021 and 2020, respectively.

Technology and facilities

Technology and facilities expense is the largest segment of our operating expenses, representing the costs required to build our A.I.-enabled digital platform, and consisting of three components.

Technology and facilities expense is the largest segment of our operating expenses, representing the costs required to build and maintain our A.I.-enabled digital platform, and consists of three components.

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.

Year Ended December 31, 2022 vs.

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Technology and facilities expense increased by $76.6 million, or 54.9%, from $139.6 million for 2021 to $216.1 million for 2022.

The increase is primarily due to $7.9 million service costs related to higher usage of software and cloud services, $3.5 million of increased depreciation commensurate with growth in internally developed software, $2.1 million in usage of India off-shoring services and other temporary contractors to supplement staffing related to new product investment and $3.4 million increase in salaries and benefits due to the increase in headcount.

These increases were partially offset by the $3.7 million lower impairment charge related to fixed assets and system development costs associated with our direct auto product recorded in 2020 that were not present in 2021, $1.8 million lower office rent associated with retail locations that were closed as a result of the retail network optimization plan earlier in 2021 and $1.4 million lower expense due to higher capitalization of internally developed software in 2021 compared to 2020.

The increase is primarily due to a $31.7 million increase in salaries and benefits due to the increase in headcount, a $27.2 million increase in service costs related to higher usage of software and cloud services which includes a $7.4 million increase attributable to Digit bank processing fees, $13.5 million incurred for India off-shoring services and other temporary contractors to supplement staffing related to new product investment and $11.5 million of increased depreciation commensurate with growth in internally developed software.

These increases are partially offset by $8.0 million lower expense due to higher capitalization of internally developed software in 2022 compared to 2021 and $1.9 million lower office rent due to retail location closures in early 2021 and early 2022.

We expect our technology and facilities expense may increase in 2023 compared to 2022 due to increased depreciation related to internally developed software and increased service costs due to higher usage of software and cloud services.

Sales and marketing

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Sales and marketing.

Sales and marketing expenses to acquire our members increased by $27.5 million, or 30.8%, from $89.4 million for 2020 to $116.9 million for 2021.

To grow our Aggregate Originations, we increased our investment in marketing initiatives by $33.8 million across various

marketing channels, including direct mail, digital advertising, lead aggregators and our referral programs.

This increase was partially offset by $8.0 million lower personnel-related costs as a result of the implementation of our retail network optimization plan that began in the first quarter of 2021.

As a result of our increased number of loans originated during the year ended December 31, 2021, our CAC decreased by 22.1%, from $199 for the year ended December 31, 2020 to $155 for the year ended December 31, 2021.

Personnel expense represents compensation and benefits that we provide to our employees, and include 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, and retail operations which are included in sales and marketing expense and technology which is included in technology and facilities expense.

Sales and marketing expenses to acquire our members decreased by $6.8 million, or 5.9%, from $116.9 million for 2021 to $110.0 million f or 2022.

Our net decrease in marketing spend during the year ended December 31, 2022 was $14.8 million across various marketing channels, including digital advertising and direct mail.

We decreased marketing spend as we shifted our strategy to focus lending towards existing and returning members to improve credit outcomes.

The decrease in marketing spend was partially offset by an increase of $4.1 million related to outsourcing and professional fees primarily due to outsourced telesales FTEs as a result of an increase in demand for new applications and $2.7 million higher salaries and benefit costs due to increased headcount and increase in average compensation.

As a result of our decreased marketing spend during the year ended December 31, 2022, our CAC decreased by 7.1%, from $155 for the year ended December 31, 2021 to $144 for the year ended December 31, 2022.

We expect our sales and marketing expense to decrease in 2023 compared to 2022 as we maintain focus on our strategy to improve credit outcomes by focusing lending towards existing and returning members.

Personnel expense represents compensation and benefits that we provide to our employees, and include 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, and retail operations which are included in sales and marketing expenses and technology which is included in technology and facilities.

Year Ended December 31, 2022 vs.

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Percentage of total revenue 16.3 % 18.5 %

Personnel expense increased by $9.4 million, or 8.8%, from $106.4 million for 2020 to $115.8 million for 2021, primarily driven by a $9.5 million increase in compensation expense due to a 14.2% increase in U.S.

headcount and merit increases.

Personnel expense increased by $39.0 million, or 33.7%, from $115.8 million for 2021 to $154.9 million for 2022.

$13.2 million of the increase is attributable to the Digit acquisition and the remaining increase is due to a 17.0% increase in U.S.

We expect our personnel expense to decrease in 2023 compared to 2022 as a result of our recently announced plan to reduce headcount and streamline operations.

Outsourcing and professional fees

Outsourcing and professional fees consist of costs for various third-party service providers and contact center operations, primarily for the sales, customer service, collections and store operation functions.

Our contact centers located in Mexico and our third-party contact centers located in Colombia and Jamaica provide support for the business including application processing, verification, customer service and collections.

We utilize third parties to operate the contact centers in Colombia and Jamaica and include the costs in outsourcing and other professional fees.

The costs related to our third-party contact centers located in Colombia, Jamaica and the Philippines are included in outsourcing and professional fees.

These third-party contact centers provide business support, including application processing, verification, customer service and collections.

Professional fees also include the cost of legal and audit services, credit reports, recruiting, cash transportation, collection services and fees and consultant expenses.

Direct loan origination expenses related to application processing are expensed when incurred.

In addition, outsourcing and professional fees include any financing expenses, including legal and underwriting fees, related to our Fair Value Notes.

In addition, outsourcing and professional fees include any financing expenses, including legal and underwriting fees, related to our asset-backed notes.

Year Ended December 31, 2022 vs.

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Outsourcing and professional fees increased by $9.7 million, or 16.7%, from $57.9 million for 2021 to $67.6 million for 2022.

The increase is primarily attributable to $11.3 million in debt financing fees and expenses related to asset-backed securitizations, $5.4 million increase in credit report expense due to higher application volume and $4.6 million of higher professional service costs related to credit card and bank partnership programs and expenses associated with our bank charter application.

These increases were partially offset by a $5.3 million decrease related to ceasing legal collection on defaulted loans beginning in August 2020, $2.9 million lower outsourced service costs due to the decline in contact center outsourced headcount that was needed as a result of the uncertainty around the COVID-19 pandemic and $1.5 million in lower legal fees.

The increase is primarily attributable to $7.5 million of higher professional service costs related to credit card programs and other consulting services and $3.3 million related to 84.2% 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 $3.4 million decrease in debt financing fees and expenses incurred on asset-backed notes issued in 2022 compared to asset-backed notes issued in 2021.

We expect our outsourcing and professional fees to decrease in 2023 compared to 2022 as a result of our continued focus on cost cutting and streamlining operations.

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-related costs.

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.

Year Ended December 31, 2022 vs.

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General, administrative and other .

General, administrative and other expense increased by $17.0 million, or 83.1%, from $20.5 million for 2020 to $37.5 million for 2021, primarily due to our retail network optimization expenses of $11.2 million related to the retail location closures and $1.6 million related to severance and benefits related to the retail location closures.

The increase was also attributable to $10.0 million of transaction and integration related expenses as a result of the Digit acquisition and a $3.3 million impairment charge recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.

These increases were partially offset by an $8.8 million decrease in litigation reserve relative to prior year and decreases in travel expenses due to travel restrictions and remote working arrangements resulting from the COVID-19 pandemic.

General, administrative and other expense increased by $21.4 million, or 57.0%, from $37.5 million for 2021 to $58.8 million for 2022, primarily due to an increase of $19.6 million of transaction and integration related expenses as a result of the Digit acquisition, $6.1 million of losses related to fraudulent loans, $2.7 million increase in litigation expense related to Digit CID litigation and $7.1 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 2022 and a $10.9 million decrease in retail network optimization expenses incurred in the year ended December 31, 2022 compared to the year ended December 31, 2021.

We expect our general, administrative and other expense to decrease in 2023 compared to 2022 as a result of our continued focus on cost cutting and strong expense discipline.

Goodwill impairment

Year Ended December 31, 2022 vs.

(in thousands, except percentages) 2022 2021 $ %

Goodwill impairment $ 108,472 $ — $ 108,472 *

Percentage of total revenue 11.4 % — %

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 year ended December 31, 2022 .

There were no goodwill impairment charges during the year ended December 31, 2021 .

Income taxes consist of U.S.

federal, state and foreign income taxes, if any.

For the years ended December 31, 2021 and 2020 we recognized tax expense (benefit) attributable to U.S.

For the years ended December 31, 2022 and 2021 we recognized tax expense attributable to U.S.

federal, state and foreign income taxes.

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(in thousands of dollars) 2022 2021 $ %

Income tax expense (benefit) $ 15,377 $ (13,012) $ 28,389 218.2 %

Income tax expense $ 2,458 $ 15,377 $ (12,919) 84.0 %

Percentage of total revenue 0.3 % 2.5 %

Effective tax rate (3.3) % 24.5 %

Income tax expense (benefit) .

Income tax expense increased by $28.4 million or 218.2%, from a benefit of $13.0 million for 2020 to an expense of $15.4 million for 2021, primarily as a result of a pretax loss for the year ended December 31, 2020.

Income tax expense .

Income tax expense decreased by $12.9 million or 84.0%, from $15.4 million for 2021 to $2.5 million for 2022, primarily resulting from the tax benefits of the return-to-provision adjustments, generation of tax credits, and having lower pretax income for the year ended December 31, 2022 as a result of the goodwill impairment, which is non-deductible for income tax purposes.

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

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Under the fair value option credit losses are recognized through income as they are incurred rather than through the establishment of an allowance and provision for losses.

The fair value of instruments under this election is updated at the end of each reporting period, with changes since the prior reporting period reflected in the Consolidated Statements of Operations as net decrease in fair value which impacts Net Revenue.

Changes in interest rates, credit spreads, realized and projected credit losses and cash flow timing will lead to changes in fair value and therefore impact earnings.

These changes in the fair value of the Fair Value Loans may be partially offset by changes in the fair value of the Fair Value Notes, depending upon the relative duration of the instruments.

These changes in the fair value of the Loans Receivable at Fair Value may be partially offset by changes in the fair value of the asset-backed notes, depending upon the relative duration of the instruments.

Fair Value Estimate Methodology for Loans Receivable at Fair Value

We calculate the fair value of Fair Value Loans using a model that projects and discounts expected cash flows.

We calculate the fair value of Loans Receivable at Fair Value using a model that projects and discounts expected cash flows.

The fair value is a function of:

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• Discount rate.

Portfolio yield is the expected interest and fees collected from the loans as an annualized percentage of outstanding principal balance.

Portfolio yield is the expected interest and fees collected from the loans and credit cards as an annualized percentage of outstanding principal balance.

Portfolio yield is based upon (a) the contractual interest rate, reduced by expected delinquencies and interest charge-offs and (b) late fees, net of late fee charge-offs based upon expected delinquencies.

Origination fees are not included in portfolio yield since they are generally capitalized as part of the loan’s principal balance at origination.

Origination fees are not included in portfolio yield for personal loans since they are generally capitalized as part of the loan’s principal balance at origination.

Average life is the time-weighted average of expected principal payments divided by outstanding principal balance.

The timing of principal payments is based upon the contractual amortization of loans, adjusted for the impact of prepayments, Good Customer Program refinances, and charge-offs.

Prepayments are the expected remaining cumulative principal payments that will be repaid earlier than contractually required over the life of the loan, divided by the outstanding principal balance.

For credit card receivables we estimate principal payment rates which are the expected amount and timing of principal payments over the life of the receivable.

Remaining cumulative charge-offs is the expected net principal charge-offs over the remaining life of the loans, divided by the outstanding principal balance.

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 credit spread is based upon the credit spread implied by the whole loan purchase price at the time the flow sale agreement was entered into, updated for observable changes in the fixed income markets, which serve as a proxy for how a whole loan buyer would adjust their yield requirements relative to the originally agreed price.

Our internal valuation committee includes members from our risk, legal, finance, capital markets and operations departments and provides governance and oversight over the fair value pricing and related financial statement disclosures.

Additionally, this committee provides a challenge of the assumptions used and outputs of the model, including the appropriateness of such measures and periodically reviews the methodology and process to determine the fair value pricing.

Any significant changes to the process must be approved by the committee.

For personal loans, prepayments are the expected remaining cumulative principal payments that will be repaid earlier than contractually required over the life of the loan, divided by the outstanding principal balance.

For credit cards, we estimate principal payment rates which are the expected amount and timing of principal payments over the life of the receivable.

Remaining cumulative charge-offs is the expected net principal charge-offs over the remaining life of the loans and credit cards, divided by the outstanding principal balance.

For personal loans, the discount rate is the sum of the interest rate and the credit spread.

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.

For credit cards, the discount rate is the sum of our weighted average cost of funds and the spread implied by the personal loan discount rate.

An implied spread is calculated by subtracting the weighted average borrowing cost of the Personal Loan Warehouse from the personal loan discount rate.

This spread is then added to the weighted average borrowing cost of the Credit Card Warehouse to arrive at a discount rate for credit cards.

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

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

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

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.

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Non-GAAP Financial Measures

We believe that the provision of non-GAAP financial measures in this report, including Fair Value Pro Forma information, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Adjusted Operating Efficiency and Adjusted Return on Equity, can provide useful measures for period-to-period comparisons of our core business and useful information to investors and others in understanding and evaluating our operating results.

We believe that the provision of non-GAAP financial measures in this report, including Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Adjusted Operating Efficiency and Adjusted Return on Equity, can provide useful measures for period-to-period comparisons of our core business and useful information to investors and others in understanding and evaluating our operating results.

However, non-GAAP financial measures are not calculated in accordance with United States generally accepted accounting principles, or GAAP, and should not be considered as an alternative to any measures of financial performance calculated and presented in accordance with GAAP.

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▪ These measures do not consider the potentially dilutive impact of stock-based compensation.

▪ During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted Net Income and Adjusted EBITDA.

As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Net Income or Adjusted EBITDA because our business practices have been updated to operate in the current environment.

▪ Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements.

▪ Although the fair value mark-to-market adjustment is a non-cash adjustment, it does reflect our estimate of the price a third party would pay for our Fair Value Loans or our Fair Value Notes.

▪ Although the fair value mark-to-market adjustment is a non-cash adjustment, it does reflect our estimate of the price a third party would pay for our loans receivable held for investment or our asset-backed notes.

▪ Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us.

Reconciliations of non-GAAP to GAAP measures can be found below.

Fair Value Pro Forma

We previously elected the fair value option to account for all Fair Value Loans held for investment and all Fair Value Notes issued on or after January 1, 2018.

In order to facilitate comparisons to prior periods, we have provided below unaudited financial information for the year ended December 31, 2020 on a pro forma basis, or the Fair Value Pro Forma, as if we had elected the fair value option since our inception for all loans originated and held for investment and all asset-backed notes issued.

Upon adoption of ASU 2019-05, effective January 1, 2020, we elected the fair value option on all remaining loans that had previously been measured at amortized cost.

Accordingly, for the years ended December 31, 2021 and 2020, we did not have any loans receivable measured at amortized cost.

Therefore, there are no Fair Value Pro Forma adjustments related to assets or revenue as of and for the years ended December 31, 2021 and 2020.

As of January 1, 2021, we no longer have any Fair Value Pro Forma adjustments as there are no longer any amortized cost balances.

However, on a Fair Value Pro Forma basis, the year ended December 31, 2020 includes Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

Fair Value Pro Forma Consolidated Statements of Operations Data:

Year Ended December 31, 2021 (1)

Year Ended December 31, 2020 Period-to-period Change in FVPF (1)

(in thousands) As Reported As Reported FV Adjustments FV Pro Forma $ %

Interest income $ 575,839 $ 545,466 $ — $ 545,466 $ 30,373 5.6 %

Non-interest income 50,943 38,268 — 38,268 12,675 33.1 %

Total revenue 626,782 583,734 — 583,734 43,048 7.4 %

Interest expense 47,669 58,368 (889) 57,479 (9,810) (17.1) %

Net decrease in fair value (48,632) (190,306) 667 (189,639) 141,007 74.4 %

Net revenue 530,481 335,060 1,556 336,616 193,865 57.6 %

Operating expenses:

Technology and facilities 139,564 129,795 — 129,795 9,769 7.5 %

Sales and marketing 116,882 89,375 — 89,375 27,507 30.8 %

Personnel 115,833 106,446 — 106,446 9,387 8.8 %

Outsourcing and professional fees 57,931 47,067 — 47,067 10,864 23.1 %

General, administrative and other 37,480 20,471 — 20,471 17,009 83.1 %

Total operating expenses 467,690 393,154 — 393,154 74,536 19.0 %

Income (loss) before taxes 62,791 (58,094) 1,556 (56,538) 119,329 211.1 %

Income tax expense (benefit) 15,377 (13,012) 682 (12,330) 27,707 224.7 %

Net income (loss) $ 47,414 $ (45,082) $ 874 $ (44,208) $ 91,622 207.3 %

(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.

Therefore, the year ended December 31, 2021 is presented on a GAAP basis and the year ended December 31, 2020 includes Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

Fair Value Pro Forma Consolidated Balance Sheet Data:

December 31, 2021 (1)

December 31, 2020 Period-to-period Change in FVPF (1)

(in thousands) As Reported As Reported FV Adjustments FV Pro Forma $ %

Cash and cash equivalents $ 130,959 $ 136,187 $ — $ 136,187 $ (5,228) (3.8) %

Restricted cash 62,001 32,403 — 32,403 29,598 91.3 %

Loans receivable 2,386,807 1,696,526 — 1,696,526 690,281 40.7 %

Other assets 366,858 143,935 — 143,935 222,923 154.9 %

Total assets 2,946,625 2,009,051 — 2,009,051 937,574 46.7 %

Total debt 2,159,687 1,413,694 — 1,413,694 745,993 52.8 %

Other liabilities

183,057 128,729 682 129,411 53,646 41.5 %

Total liabilities

2,342,744 1,542,423 682 1,543,105 799,639 51.8 %

Total stockholder's equity 603,881 466,628 (682) 465,946 137,935 29.6 %

Total liabilities and stockholders' equity $ 2,946,625 $ 2,009,051 $ — $ 2,009,051 $ 937,574 46.7 %

(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.

Therefore, the balances as of December 31, 2021 are presented on a GAAP basis and the balances as of December 31, 2020 include Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as our net income (loss), adjusted for the impact of our election of the fair value option and further adjusted to eliminate the effect of certain items as described below.

Adjusted EBITDA is a non-GAAP financial measure defined as our net income, adjusted to eliminate the effect of certain items as described below.

We believe that Adjusted EBITDA is an important measure because it allows management, investors and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described below.

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

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

• 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 interest expense associated with the Company's Corporate Financing, as we view this expense as related to our capital structure rather than our funding.

• 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.

During the last three quarters of 2020 we excluded COVID-19 expenses in our adjustments to derive Adjusted EBITDA.

As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted EBITDA because our business practices have been updated to operate in the current environment.

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

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

We recognize the full amount of any origination fees as revenue at the time of loan disbursement in advance of our collection of origination fees through principal payments.

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• We also reverse the fair value mark-to-market adjustment because it is a non-cash adjustment as shown in the table below.

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

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

Year Ended December 31,

Fair value mark-to-market adjustment on Fair Value Loans $ 57,044 $ (25,548)

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

$ (68,897) $ 57,044

Fair value mark-to-market adjustment on asset-backed notes 184,906 15,408

Fair value mark-to-market adjustment on derivatives 3,702 (3,097)

Total fair value mark-to-market adjustment - Fair Value Pro Forma $ 69,355 $ (22,744)

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the years ended December 31, 2021 and 2020 as if the fair value option had been in place since inception for all loans held for investment and all asset-backed notes:

Total fair value mark-to-market adjustment $ 119,711 $ 69,355

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

Year Ended December 31,

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Net income (loss) $ (77,744) $ 47,414

Fair Value Pro Forma net income adjustment (1)

Income tax expense (benefit) 15,377 (12,330)

COVID-19 expenses (2)

Income tax expense 2,458 15,377

Interest on corporate financing 5,987 —

Depreciation and amortization 35,182 23,714

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Acquisition and integration related expenses 29,682 10,648

Origination fees for Fair Value Loans, net (15,836) (900)

Origination fees for loans receivable at fair value, net (26,845) (15,836)

Fair value mark-to-market adjustment (119,711) (69,355)

Adjusted EBITDA $ (10,267) $ 46,971

$ 46,971 $ 22,098

(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.

(2) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted EBITDA because our business practices have been updated to operate in the current environment.

(3) The impairment charge in 2021 was recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.

The impairment charge in 2020 was recognized on fixed assets and system development costs associated with our direct auto product.

(4) For the year ended December 31, 2021, Adjusted EBITDA includes a pre-tax impact of $28.8 million, related to the launch of new products and services (such as secured personal loans, credit card, bank partnership and expenses associated with our bank charter application).

For the year ended December 31, 2020, Adjusted EBITDA included a pre-tax impact of $18.2 million related to the launch of new products and services (such as direct auto and credit card).

Adjusted Net Income (Loss)

We define Adjusted Net Income (Loss) as our net income (loss), adjusted for the impact of our election of the fair value option, and further adjusted to exclude income tax expense (benefit), stock-based compensation expenses and certain non-recurring charges.

We believe that Adjusted Net Income (Loss) is an important measure of operating performance because it allows management, investors, and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period to period.

Adjusted Net Income

We define Adjusted Net Income as our net income, adjusted to exclude income tax expense, stock-based compensation expenses and certain non-recurring charges.

We believe that Adjusted Net Income is an important measure of operating performance because it allows management, investors, and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period to period.

• We believe it is useful to exclude the impact of income tax expense (benefit), 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, impairment charges and acquisition and integration related expenses, because these items do not reflect ongoing business operations.

During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted Net Income.

As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Net Income because our business practices have been updated to operate in the current environment.

• 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 (loss) to Adjusted Net Income (Loss) for the years ended December 31, 2021 and 2020 as if the fair value option had been in place since inception for all loans held for investment and all asset-backed notes:

The following table presents a reconciliation of net income (loss) to Adjusted Net Income for the years ended December 31, 2022 and 2021 :

Year Ended December 31,

Adjusted Net Income (Loss) (in thousands)

Adjusted Net Income (in thousands)

Net income (loss) $ (77,744) $ 47,414

Fair Value Pro Forma net income adjustment (1)

Income tax expense (benefit) 15,377 (12,330)

COVID-19 expenses (2)

Income tax expense 2,458 15,377

Impairment 108,472 3,324

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Acquisition and integration related expenses 29,682 10,648

Adjusted income (loss) before taxes 108,448 (19,966)

Normalized income tax expense (benefit) 29,715 (5,738)

Adjusted Net Income (Loss) (4)

$ 78,733 $ (14,228)

Adjusted income before taxes 95,120 108,448

Normalized income tax expense 25,682 29,715

Adjusted Net Income $ 69,438 $ 78,733

Income tax rate (1)

27.0 % 27.4 %

(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.

(2) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Net Income because our business practices have been updated to operate in the current environment.

The impairment charge in 2020 was recognized on fixed assets and system development costs associated with our direct auto product.

(4) For the year ended December 31, 2021, Adjusted Net Income includes an after-tax impact of $17.4 million, related to the launch of new products and services (such as secured personal loans, credit card, bank partnership and expenses associated with our prior bank charter application).

For the year ended December 31, 2020, Adjusted Net Income includes an after-tax impact of $14.2 million, related to the launch of new products and services (such as direct auto and credit card).

(5) Income tax rate for the year ended December 31, 2021 is based on a normalized statutory rate and the year ended December 31, 2020, is based on the effective tax rate.

(1) Income tax rates for the years ended December 31, 2022 and December 31, 2021, are 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 Diluted Adjusted EPS for the years ended December 31, 2022 and 2021.

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

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

Year Ended December 31,

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Diluted earnings (loss) per share $ (2.37) $ 1.56

Adjusted Net Income (Loss) $ 78,733 $ (14,228)

Adjusted Net Income $ 69,438 $ 78,733

Basic weighted-average common shares outstanding 32,825,772 28,191,610

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Diluted adjusted weighted-average common shares outstanding 33,251,221 30,323,194

Adjusted Earnings (Loss) Per Share $ 2.60 $ (0.52)

Adjusted Earnings Per Share $ 2.09 $ 2.60

Adjusted Return on Equity

We define Adjusted Return on Equity as annualized Adjusted Net Income (loss) divided by average stockholders’ equity.

We define Adjusted Return on Equity as annualized Adjusted Net Income divided by average stockholders’ equity.

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

Before January 1, 2021, we previously defined Adjusted Return on Equity as annualized Adjusted Net Income divided by average Fair Value Pro Forma total stockholders’ equity.

Average Fair Value Pro Forma stockholders’ equity is an average of the beginning and ending Fair Value Pro Forma 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.

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 for the years ended December 31, 2022 and 2021.

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

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

As of or for the Year Ended December 31,

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Adjusted Return on Equity

Adjusted Net Income (Loss) $ 78,733 $ (14,228)

Fair Value Pro Forma average stockholders' equity (1)

$ 535,255 $ 476,474

Adjusted Net Income $ 69,438 $ 78,733

Average stockholders' equity $ 575,740 $ 535,255

Adjusted Return on Equity 12.1 % 14.7 %

(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.

Therefore, the average stockholders' equity amount as of December 31, 2021 reflects the average of the GAAP stockholders' equity account as of December 31, 2020 and the GAAP stockholders' equity account as of December 31, 2021.

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, impairment charges and acquisition and integration related expenses divided by total revenue.

During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted Operating Efficiency.

As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Operating Efficiency because our business practices have been updated to operate in the current environment.

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.

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 years ended December 31, 2022 and 2021 :

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Total operating expense 715,943 467,690

COVID-19 expenses (1)

Impairment (108,472) (3,324)

(3,324) (3,702)

Stock-based compensation expense (27,620) (18,857)

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Retail network optimization expenses

(1,882) (12,828)

Acquisition and integration related expenses (29,682) (10,648)

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Adjusted Operating Efficiency 57.3 % 67.3 %

(1) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Operating Efficiency because our business practices have been updated to operate in the current environment.

(2) The impairment charge in 2021 was recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.

The impairment charge in 2020 was recognized on fixed assets and system development costs associated with our direct auto product.

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.

We may also utilize other sources in the future.

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 2021, available liquidity increased primarily due to increased borrowing capacity under secured financings, 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.

We expect the COVID-19 pandemic to continue to adversely impact our business, liquidity, and capital resources.

During 2022, available liquidity increased primarily due to the closing of our Corporate Financing facility and the issuance of additional asset-backed securitizations.

We generally target liquidity levels to support at least twelve months of our expected net cash outflows, including new originations, without access to our Corporate Financing facility or equity markets.

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.

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

We may incur additional indebtedness or issue equity in order to meet our capital spending and liquidity requirements, as well as to fund growth opportunities that we may pursue.

In addition to the $75.0 million that may be available under the recent amendment to the Corporate Financing facility and the associated warrants, we may incur additional indebtedness or issue equity in order to meet our capital spending and liquidity requirements, as well as to fund growth opportunities that we may pursue.

Cash and cash flows

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Our net cash provided by operating activities was $247.9 million and $163.4 million for the years ended December 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.

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 $884.8 million and $16.4 million for the years ended December 31, 2021 and 2020, respectively.

Our net cash used in investing activities was $1,171.5 million and $884.8 million for the years ended December 31, 2022 and 2021, respectively.

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

We currently do not own any real estate.

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 primarily due to disbursements on originations of loans increasing by $830.4 million while repayments of loan principal only increased by $53.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

The change our net cash provided by (used in) investing activities is also driven by our acquisition of Digit, net of acquirer's cash received of $111.7 million.

The change in our net cash used in investing activities is primarily due to disbursements on originations of loans increasing by $920.6 million while repayments of loan principal only increased by $289.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Our net cash used in investing activities for the year ended December 31, 2022, includes proceeds of $249.3 million related to a structured loan sale in the first quarter 2022 and other loan sales during the remainder of 2022.

The change in our net cash used in investing activities is also driven by our acquisition of Digit, net of acquirer's cash received, of $111.7 million for the year ended December 31,2021.

Financing Activities

Our net cash provided by (used in) financing act ivities was $745.7 million and $(136.8) million for the years en ded December 31, 2021 and 2020, respectively.

For the year ended December 31, 2021, net cash provided by financing activities was primarily driven by the issuance of our Series 2021-A, 2021-B and 2021-C asset-backed securitizations and the borrowings under the Secured Financing facilities and Acquisition Financing.

For the year ended December 31, 2020, net cash used in financing activities was primarily driven by repayments of borrowings of our Secured Financing facility and redemption of our Series 2017-A and 2017-B asset-backed notes, partially offset by borrowings on our Secured Financing facility.

Our net cash provided by financing activities was $934.5 million and $745.7 million for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, net cash provided by financing activities was primarily driven the issuance of our Series 2022-A, Series 2022-2 and Series 2022-3 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, Series 2022-2 and Series 2022-3 asset-backed notes.

For the year ended December 31, 2021, net cash provided by financing activities was primarily driven by the issuance of our Series 2021-A, Series 2021-B and Series 2021-C asset-backed notes and the borrowings under our Secured Financing facilities and Acquisition Financing, partially offset by redemptions of our Series 2018-A, Series 2018-B, Series 2018-C and Series 2018-D asset-backed notes and repayments of borrowings on our Secured Financing facility.

Sources of Funds

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As of December 31, 2022, we had $2.39 billion of outstanding asset-backed notes.

During 2021, we issued $1.38 billion of asset-backed securities with maturities ranging from 2 to 3 years.

Our securitizations utilize special purpose entities (SPEs) which are also variable interest entities (VIEs) that meet the requirements to be consolidated in our financial statements.

For more information regarding our asset-backed securitizations, see Note 9, Borrowings of the Notes to the Consolidated Financial Statements included elsewhere in this report.

During 2022, we issued $1.10 billion of asset-backed securities.

Our securitizations utilize special purpose entities which are also variable interest entities (VIEs) that meet the requirements to be consolidated in our financial statements.

For more information regarding our VIEs and asset-backed securitizations, see Note 4, Varia ble Interest Entities and Note 9, Borrowings of the Notes to the Consolidated Financial Statements included elsewhere in this report.

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.

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As of December, 31, 2022 , we had Secured Financing facilities with warehouse lines of $750.0 million in the aggregate with undrawn capacity of $430.0 million.

On March 8, 2023, the Credit Card Warehouse facility was amended, reducing its commitment from $150.0 million to $120.0 million, thereby reducing the combined commitment to $720.0 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.

Acquisition Financing

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 December 31, 2021, 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 Consolidated Financial Statements included elsewhere in this report.

On December 20, 2021, Oportun RF, LLC, our wholly-owned subsidiary, 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 our securitizations and guaranteed by Oportun, Inc.

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

On May 24, 2022, and subsequently on July 28, 2022, pursuant to amended indentures, Oportun RF, LLC issued an additional $20.9 million and $9.1 million asset-backed floating rate variable funding notes, and asset-backed residual certificates, both of which are also secured by certain cash flows from our securitizations and guaranteed by Oportun, Inc., increasing the size of the facility to $119.5 million.

The amendments also replaced the interest rate based on LIBOR with an interest rate based on SOFR plus 8.00%.

The Acquisition Financing facility was scheduled to pay down based on an amortization schedule with a final payment in May 2024.

Subsequently, on February 10, 2023, the Acquisition Financing facility was further amended, including among other things, revising the interest rate to SOFR plus 11.00% and adjusting the amortization schedule to defer $42.0 million in principal payments through July 2023, with final payment in October 2024.

Corporate Financing

On September 14, 2022, we 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 are subject to a prepayment premium.

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

On March 10, 2023 we upsized and amended our Corporate Financing facility to be able to borrow up to an additional $75.0 million.

At closing and as part of the Incremental Tranche A-1, we borrowed $20.8 million and intend to borrow an additional $4.2 million in Incremental Tranche A-2 loans on or about March 27, 2023, which amount has been committed by the applicable lenders.

We may borrow up to an aggregate additional amount of $50.0 million on an uncommitted basis in two $25.0 million additional Incremental Tranche B and Incremental Tranche C loans expected to be available, if provided by the applicable lenders, on or about April 21, 2023 and June 23, 2023, respectively.

The term loan now bears interest at (a) an amount payable in cash equal to 1-month term SOFR plus 9.00% plus (b) an amount payable in cash or in kind, at the Company’s option, equal to 3.00%.

As of December 31, 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 Financing and Corporate Financing, see Note 9, Borrowings of the Notes to the Consolidated Financial Statements included elsewhere in this report.

Structured Loan Sales

In March 2022, we participated in a securitization and sold loans through the issuance of amortizing asset-backed notes secured by a pool of our unsecured and secured personal installment loans.

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.

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

Other Loan Sales

During 2022, we entered into agreements to sell certain populations of its personal loans and credit card receivables that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $66.2 million.

For further information on these sales, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Consolidated Financial Statements included elsewhere in this report.

Whole Loan Sales

As of December 31, 2021, we have a whole loan sale flow agreement with an institutional investor through March 4, 2022, in which we agreed to sell at least 10% of our personal loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes.

The o riginations of loans sold and held for sale during the year ended December 31, 2021 was $214.6 million .

information on the whole loan sale transactions, see Note 5, Loans Held for Sale of the Notes to the Consolidated Financial Statements included in this report.

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

We 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 year ended December 31, 2022 was $52.7 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 Consolidated Financial Statements included elsewhere in this report.

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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We do not have any significant unused sources of liquid assets.

If our available cash balances are insufficient to satisfy our liquidity requirements, we will seek additional debt or equity financing.

On the Second Amendment Closing Date, the Company borrowed $20.8 million of incremental term loans and intends to borrow an additional $4.2 million of Incremental Tranche A-2 Loans on or about March 27, 2023, which amount has been committed by the applicable lenders.

Under the Amended Credit Agreement, the Company may borrow up to an aggregate additional amount of $50.0 million on an uncommitted basis, in two $25.0 million tranches, the Incremental Tranche B Loans and Incremental Tranche C Loans expected to be available, if provided by the applicable lenders, on or about April 21, 2023 and June 23, 2023, respectively.

We anticipate that we will likely draw down these additional incremental commitments, however, given their uncommitted nature there can be no assurance that we will be able to access such additional capital.

If our available cash balances are insufficient to satisfy our liquidity requirements, we will seek additional debt or equity financing and we may have to take additional actions to decrease expenses, curtail the origination of loans, and our ability to continue to support our growth and to respond to challenges could be impacted.

In a rising interest rate environment, our ability to issue additional equity or incur debt may be impaired and our borrowing costs may increase.

If we raise additional funds through the issuance of additional debt, the agreements governing such debt could contain covenants that would restrict our operations and such debt would rank senior to shares of our common stock.

common stock.

The sale of equity may result in dilution to our stockholders and those securities may have rights senior to those of our common stock.

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Fair Value of Loans Held for Investment

We elected the fair value option for our Fair Value Loans.

We elected the fair value option for our loans receivable held for investment.

We primarily use a discounted cash flow model to estimate fair value based on the present value of estimated future cash flows.

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Discount rates for aged loans are adjusted to reflect the market relationship between interest rates and remaining time to maturity.

We developed an internal model to estimate the fair value of Fair Value Loans.

We developed an internal model to estimate the fair value of loans receivable held for investment.

To generate future expected cash flows, the model combines receivable characteristics with assumptions about borrower behavior based on our historical loan performance.

These cash flows are then discounted

using a required rate of return that management estimates would be used by a market participant.

These cash flows are then discounted using a required rate of return that management estimates would be used by a market participant.

We test the fair value model by comparing modeled cash flows to historical loan performance to ensure that the model is complete, accurate and reasonable for our use.

We also engaged a third party to create an independent fair value estimate for the Fair Value Loans, which provides a set of fair value marks using our historical loan performance data and whole loan sale prices to develop independent forecasts of borrower behavior.

Their model used these assumptions to generate expected cash flows which were then aggregated and compared to actual cash flows within an acceptable range.

Our internal valuation committee provides governance and oversight over the fair value pricing calculations and related financial statement disclosures.

Any significant changes to the process must be approved by the committee.

As discussed above, our fair value model uses inputs that are not observable but reflect our best estimates of the assumptions a market participant would use to calculate fair value.

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, " Quantitative and Qualitative Disclosures About Market Risk " included elsewhere in this report .

Business Combination

Under the acquisition method of accounting, we recognize tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.

We record the excess of the fair value of the purchase consideration over the value of net assets acquired as goodwill.

The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing developed technology, member relationships and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets and the appropriate discount rate.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense.

If our estimates of economic lives change, depreciation or amortization expenses could be accelerated or slowed.

Goodwill Impairment

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 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 our stock price.

In response to a sustained decline in our share price primarily 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 year ended December 31, 2022.

no triggering events or goodwill impairment charges during the year ended December 31, 2021 (see Note 7 , Capitalized Software, Other Intangibles and Goodwill of the Notes to the Consolidated Financial Statements included elsewhere in this report for further details).

Recently Issued Accounting Pronouncements

1 unchanged sentence

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

What changed 10-K

Item 7. Management’s Discussion and Analysis