What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-08 · 257 added, 347 removed, 446 unchanged (58% of the section changed)

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These forward-looking statements include, but are not limited to, statements about:

• our future financial performance, including our expectations regarding our revenue, our operating expenses and our ability to achieve and maintain profitability;

• our ability to increase the volume of loans we make;

• our ability to manage our net charge-off rates;

• our ability to manage loan non-performance, delinquencies and charge-off rates;

• our ability to obtain any additional financing or any refinancing of our debt, including our plan to draw down an additional incremental commitment under the Amended Credit Agreement;

• our ability to effectively estimate the fair value of our loans receivable held for investment and our asset-backed notes;

• our expectations regarding the effect of fair value mark-to-market adjustments on our loan portfolio and asset-backed notes;

• our expectations and management of future growth, including expanding our markets served, member base and product and service offerings, including our digital banking services;

• the successful integration of Hello Digit, Inc.

("Digit") with our business;

• our expectations and management of future growth, including expanding our markets served, member base and product and service offerings, including our digital banking services;

• our ability to successfully adjust our proprietary credit risk models and products in response to changing macroeconomic conditions and fluctuations in the credit market;

• our ability to successfully manage our interest rate spread against our cost of capital;

• our expectations regarding the sufficiency of our cash to meet our operating and cash expenditures;

• our plans for and our ability to successfully maintain our diversified funding strategy, including warehouse facilities, loan sales and securitization transactions;

• our ability to realize the expected benefits from the reduction in workforce and other streamlining measures announced in February and May 2023;

• our expectations regarding our costs and seasonality;

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• our ability to maintain or expand our relationships with our current partners, including bank partners, and our plans to acquire additional partners using our Lending as a Service model;

• our ability to successfully manage our interest rate spread against our cost of capital;

• our ability to provide an attractive and comprehensive user experience through our recently launched mobile application, the Oportun Mobile App, and further our position as a leading fintech;

• our ability to maintain the terms on which we lend to our borrowers;

• our plans for and our ability to successfully maintain our diversified funding strategy, including warehouse facilities, loan sales and securitization transactions;

• our ability to manage fraud risk;

• our expectations regarding the sufficiency of our cash to meet our operating and cash expenditures;

• our ability to effectively estimate the fair value of our loans receivable held for investment and our asset-backed notes;

• our ability to effectively secure and maintain the confidentiality of the information provided and utilized across our systems;

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

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

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

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

• our ability to successfully adapt to complex and evolving regulatory environments.

• our ability to successfully adapt to complex and evolving regulatory environments, including managing potential exposure in connection with new and pending investigations, proceedings and other contingencies.

Forward-looking statements are based on our management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and on our management’s beliefs and assumptions.

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We qualify all of our forward-looking statements by these cautionary statements.

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 in the future.

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

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

and tailored to each member's goals.

We 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 to make achieving financial health automated.

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.

Our credit products include personal loans, secured personal loans and credit cards.

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.

Our personal loan products are also available over the phone or through over 550 retail locations, which includes 348 of our Lending as a Service partner locations.

Our digital banking products include automated

savings, digital banking, long-term investing and retirement savings.

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 360 retail locations, which includes 160 of our Lending as a Service partner locations.

Credit Products

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

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

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

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

from $300 to $12,000 with terms of 12 to 60 months.

As of March 31, 2023, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 39 months and 32.1%, respectively.

The average loan size for loans we originated during the three months ended March 31, 2023 was $4,290.

Our loans do not have prepayment penalties or balloon payments, and typically range in size from $300 to $12,000 with terms of 12 to 54 months.

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

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

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

As of March 31, 2023, we originate unsecured personal loans in 11 states through state licenses and in 31 through our partnership with Pathward, N.A.

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

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Our secured personal loans range in size from $2,525 to $18,500 with terms ranging from 24 to 64 months.

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

As of September 30, 2022, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 48 months and 28.5%, respectively.

The average loan size for secured personal loans we originated during the three months ended March 31, 2023 was $7,654.

As of March 31, 2023, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 50 months and 28.2%, respectively.

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

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

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

Credit Cards - We lau nched Oportun® Visa® Credit Card, issued by WebBank, Member FDIC, in December 2019, and offer credit cards in 45 states as of March 31, 2023 .

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

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

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

The average APR of the outstanding credit card receivables was 29.8% as of March 31, 2023 .

The average credit line for credit cards activated during the three months ended March 31, 2023 was $827.

Digital Banking Products

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

Digit's 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.

Savings – Our Savings product is designed to understand a member’s cash flows and save a calculated 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 $8.5 billion and pay down more than $330.0 million in debt.

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

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

Since 201, we have helped members save more than $9.2 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.

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.

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 Digit members and are not the assets of the Company.

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 Condensed Consolidated Balance Sheets (Unaudited) .

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

In January 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 of goods and services on a BNPL basis, which we believe will allow us to reach more new members.

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

In January 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.

Capital Markets Funding

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

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

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

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

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

On November 3, 2022, we issued $300 million of amortizing asset-backed notes.

For additional information, see Note 9 , Borrowings of the Notes to the Condensed Consolidated

Financial Statements (Unaudited) included elsewhere in this report.

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

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").

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

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

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

Digit Acquisition

On December 22, 2021, we acquired Digit and it became our wholly-owned subsidiary.

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

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

By acquiring Digit, we further expanded our A.I.

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

Retail Network Optimization

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

The income statement impact for the three and nine months ended September 30, 2021 was $0.1 million and $12.8 million, respectively, and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited).

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

Workforce Optimization and Streamlining Operations

On February 9, 2023 and on May 8, 2023, we announced that we are taking a series of personnel and other cost saving measures to reduce expenses and streamline efficiency, including reducing the size of our corporate staff by 10% and 19%, respectively.

These measures have resulted in the reduction of our corporate staff by approximately 28% in 2023.

In relation to these and other personnel related activities, we incurred non-recurring, pre-tax charges of $6.8 million in the first quarter of 2023 and expect to incur non-recurring, pre-tax charges of approximately $8.0 million in the second quarter of 2023.

These reductions are anticipated to result in annualized run-rate savings of $126.0 to $136.0 million.

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

The income statement impact for the three and nine months ended September 30, 2022 was $0.2 million and $1.9 million, respectively, and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) .

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

The income statement impact of $0.2 million was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2022 .

These amounts 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.

Key Financial and Operating Metrics

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As of or for the Three Months

Ended September 30,

As of or for the Nine Months

Ended September 30,

Ended March 31,

(in thousands of dollars) 2023 2022

Key Financial and Operating Metrics

1,858,335 772,361 1,858,335 772,361

1,981,310 772,361 1,981,310 772,361

Members 1,911,592 1,676,754

Products 2,059,007 1,757,339

Aggregate Originations $ 407,961 $ 800,115

30+ Day Delinquency Rate

5.4 % 2.8 % 5.4 % 2.8 %

Annualized Net Charge-Off Rate

9.8 % 5.5 % 9.0 % 6.8 %

Return on Equity (82.5) % 29.5 %

Adjusted Return on Equity (71.3) % 34.1 %

Other Useful Metrics

Other Metrics

Managed Principal Balance at End of Period

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$ 3,069,911 $ 2,412,997

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

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

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

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

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

Reflecting our acquisition of Digit and its users, 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 Digit Savings, Digit Direct, Digit Investing and/or Digit Retirement products.

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

Members as of March 31, 2023 grew to 1.9 million, as compared to 1.7 million as of March 31, 2022.

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

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 Digit Savings, Digit Direct, Digit Investing and Digit Retirement, that our Members use or have signed-up to use.

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 September 30, 2022 were 2.0 million.

Products as of March 31, 2023 grew to 2.1 million as compared to 1.8 million as of March 31, 2022.

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

Aggregate Originations

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

The decrease is primarily driven by fewer loans originated;

partially offset by growth in average loan size.

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

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

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

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

We originated 623,664 and 479,183 loans for the nine months ended September 30, 2022 and 2021, respectively.

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

Aggregate Originations decreased to $408.0 million for the three months ended March 31, 2023 from $800.1 million for the three months ended March 31, 2022, representing a 49.0% decrease.

The decrease is primarily driven by a decrease in the number of loans originated.

We originated 100,122 and 228,728 loans for the three months ended March 31, 2023 and 2022, respectively.

The decrease is primarily due to actions taken to focus lending towards existing members to improve credit outcomes and lower marketing spend.

The decrease in number of loans originated was partially offset by growth in average loan size due to a focus on returning members.

30+ Day Delinquency Rate

Our 30+ Day Delinquency Rate was 5.4% and 2.8% as of September 30, 2022 and 2021, respectively.

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

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

Our 30+ Day Delinquency Rate was 5.5% and 4.5% as of March 31, 2023 and 2022, respectively.

The increase reflects the higher mix of first-time borrowers and the return to pre-pandemic underwriting criteria in late 2021 and early 2022.

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 three months ended September 30, 2022 and 2021 was 9.8% and 5.5%, respectively.

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

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

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

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

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

Annualized Net Charge-Off Rate for the three months ended March 31, 2023 and 2022 was 12.1% and 8.6%, respectively.

The increase is primarily driven by growth in originations to a higher mix of first-time borrowers in 2021 and the first half of 2022.

Further, given macroeconomic factors, such as inflation, our borrowers are facing higher costs for food, fuel and rent.

In July 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.

We refer to the post-July 2022 underwriting vintages as our front book and the originations made prior to our significant credit-tightening in July 2022 we refer to as the back book.

As the average life of our loans is only one year, we expect the back book to become less impactful on our losses by the end of 2023.

We anticipate our Annualized Net Charge-Off Rate will decline during 2023 as our back book of loans amortize down.

Return on Equity and Adjusted Return on Equity

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

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

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

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

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

For the three months ended March 31, 2023 and 2022, Return on Equity was (82.5)% and 29.5%, respectively and Adjusted Return on Equity was (71.3)% and 34.1% respectively.

The decreases in Return on Equity and Adjusted Return on Equity were primarily due to lower net income and Adjusted Net Income.

Net income and Adjusted Net Income were 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.

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

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

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

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.

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 and charge-off a credit card account when it is 180 days contractually past due.

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

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

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

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

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

Net lifetime loan loss rates equal the net lifetime loan losses for a given year through March 31, 2023 divided by the total origination loan volume for that year.

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

100% of those loans were sold pursuant to a whole loan sale agreement.

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

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

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

The 2021 vintage is experiencing higher charge-offs than prior vintages primarily due to a higher percentage of loan disbursements to new members.

We tightened credit and began reducing loan volumes to new and returning members in the third quarter of 2021 and reduced significantly in the second half of 2022.

We refer to the post-July 2022 underwriting vintages as our front book and the originations made prior to our significant credit-tightening in July 2022 we refer to as the back book.

As the average life of our loans is only one year, we expect the back book to become less impactful on our losses by the end of 2023.

30+ Day Delinquencies Rates on vintages originated since significant July 2022 credit tightening are performing near or better than comparable vintages originated in 2019.

First Payment Defaults on newly-originated loans continue to come in at pre-pandemic 2019 levels.

We regard First Payment Defaults to be an early indicator of credit performance as the outstanding principal balance of loans that have their first payment past due are regarded as more likely to default and result in a charge-off.

First Payment Defaults are calculated as the principal balance of any loan whose first payment becomes 30 days past due, divided by the aggregate principal balance of all loans originated during that same week.

Year of Origination

1 unchanged sentence

Dollar weighted average original term for vintage in months 9.3 9.9 10.2 11.7 12.3 14.5 16.4 19.1 22.3 24.2 26.3 29.0 30.0 32.0 33.3 37.8

Net lifetime loan losses as of September 30, 2022 as a percentage of original principal balance 7.7% 8.9% 5.5% 6.4% 6.2% 5.6% 5.6% 6.1% 7.1% 8.0% 8.2% 9.8% 10.5%* 6.8%* 6.0%*

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

Net lifetime loan losses as of March 31, 2023 as a percentage of original principal balance 7.7% 8.9% 5.5% 6.4% 6.2% 5.6% 5.6% 6.1% 7.1% 8.0% 8.2% 9.8% 10.7% 8.0%* 11.0%* 0.0%*

Outstanding principal balance as of March 31, 2023 as a percentage of original amount disbursed —% —% —% —% —% —% —% —% —% —% —% —% 1.3% 9.5% 40.1% 90.7%

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

Results of Operations

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

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

The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

(in thousands of dollars) 2023 2022

3 unchanged sentences

Interest expense 38,997 13,677

Total net decrease in fair value (76,422) (8,987) (135,935) (26,457)

Total net increase (decrease) in fair value (215,710) 3,971

Net revenue 4,805 205,014

5 unchanged sentences

General, administrative and other 19,162 13,361

Goodwill impairment 108,472 — 108,472 —

Total operating expenses 146,338 147,344

4 unchanged sentences

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

8 unchanged sentences

Interest income.

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

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

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

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

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

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

Total interest income increased by $45.4 million, or 23.6%, from $192.2 million for the three months ended March 31, 2022 to $237.6 million for the three months ended March 31, 2023.

The increase is primarily attributable to growth in our Average Daily Principal Balance from $2.4 billion for the three months ended March 31, 2022 to $3.1 billion for the three months ended March 31, 2023 , an increase of 27.2% .

The increase is partially offset by a decrease in portfolio yield of 92 basis points in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 driven by lower originations and origination fees due to 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 $4.3 million, or 31.7%, from $13.6 million for the three months ended September 30, 2021 to $18.0 million for the three months ended September 30, 2022.

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

This was partially offset by decreased gain on loans sold of $7.3 million under our whole loan sale programs due to the expiration of our whole loan sale agreement on March 4, 2022.

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

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

documentation fees.

This was partially offset by decreased gain on loans sold of $11.4 million, or 66.6% under our whole loan sale programs due to the expiration of our whole loan sale agreement on March 4, 2022.

Total non-interest income decreased by $0.6 million, or 2.6%, from $22.5 million for the three months ended March 31, 2022 to $21.9 million for the three months ended March 31, 2023.

This decrease is primarily due to lower gain on loans sold of $4.4 million under our whole loan sale programs due to lower volume of whole loan sales, partially offset by $3.4 million attributable to interest earned on neobanking deposit accounts.

See Note 2, Summary of Significant Accounting Policies , and Note 12, Revenue , of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our interest income, non-interest income and revenue.

1 unchanged sentence

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

5 unchanged sentences

Interest expense.

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

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

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

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

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

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

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

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

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

Interest expense increased by $25.3 million, or 185.1%, from $13.7 million for the three months ended March 31, 2022 to $39.0 million for the three months ended March 31, 2023.

We financed approximately 93.1% of our loans receivable through debt for the three months ended March 31, 2023, as compared to 89.5% for the three months ended March 31, 2022, and our Average Daily Debt Balance increased from $2.2 billion to $2.9 billion for the three months ended March 31, 2023, an increase of 32.4%.

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 our asset-backed notes issued at lower interest rates amortize and are replaced with more expensive current funding.

See Note 8, Borrowings , in the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further information on our Interest expense and our Secured Financing and asset-backed notes.

Total net increase (decrease) in fair value

7 unchanged sentences

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

9 unchanged sentences

(37,169) 15,857 (53,026) *

Total net decrease in fair value $ (76,422) $ (8,987) $ (67,435) * $ (135,935) $ (26,457) $ (109,478) *

Total net increase (decrease) in fair value $ (215,710) $ 3,971 $ (219,681) *

Percentage of total revenue:

6 unchanged sentences

* Not meaningful

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

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

(1) The fair value mark on loans sold shown for the three months ended March 31, 2023 includes $37.2 million related to the cumulative fair value mark on the loans sold in other loans sales Q1 2023.

The fair value mark on loans sold shown for the three months ended March 31, 2022 also includes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction.

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

For details regarding the Q3 2022 Loan Sales, the Q2 2022 Loan Sale and the 2022-1 transaction, refer to Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

For details regarding the Q1 2023 other loan sales and the 2022-1 transaction, refer to Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Net increase (decrease) in fair value.

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

This amount represents a total fair value mark-to-market increase of $21.4 million, and $71.7 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $(40.7) million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 11.25% as of June 30, 2022 to 11.67% as of September 30, 2022, (b) an increase in the discount rate from 8.97% as of June 30, 2022 to 10.19% as of September 30, 2022, partially offset by (c) an increase in average life from 0.90 years as of June 30, 2022 to 0.92 years as of September 30, 2022, The $61.2 million mark-to-market adjustment on asset-backed notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value for the three months ended September 30, 2022 also includes a $(21.1) million adjustment related to the fair value mark on the loans sold as part of the Q3 2022 Loan Sales.

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

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

The total fair value mark-to-market adjustment consists of a $92.3 million mark-to-market reduction on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 9.60% as of December 31, 2021 to 11.67% as of September 30, 2022, (b) an increase in the discount rate from 6.94% as of December 31, 2021 to 10.19% as of September 30, 2022, partially offset by (c) an increase in average life from 0.86 years as of December 31, 2021 to 0.92 years as of September 30, 2022, The $164.0 million mark-to-market adjustment on asset-backed notes is due to rising rates and widening asset-backed securitization spreads.

The total net increase (decrease) in fair value for the nine months ended September 30, 2022 includes a $(21.1) million adjustment related to the fair value mark on loans sold as part of the Q3 2022 Loan Sales completed in the third quarter, $(14.1) million adjustment related to the fair value mark on the loans sold as part of the Q2 2022 Loan Sale completed in the second quarter of 2022 and also includes a $15.9 million adjustment related to the fair value mark on the loans sold as part of the structured sale completed in the first quarter of 2022.

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

Net decrease in fair value for the three months ended March 31, 2023 was $215.7 million.

This amount represents a total fair value mark-to-market decrease of $84.5 million on Loans Receivable at Fair Value and asset-backed notes, and $91.6 million of charge-offs, net of recoveries on Loans Receivable at Fair Value.

The total fair value mark-to-market adjustment consists of a $37.3 million mark-to-

market adjustment on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative charge-offs from 10.38% as of December 31, 2022 to 11.72% as of March 31, 2023, (b) a decrease in average life from 1.00 years as of December 31, 2022 to 0.96 years as of March 31, 2023, partially offset by (c) a decrease in the discount rate from 11.48% as of December 31, 2022 to 11.07% as of March 31, 2023.

The $(48.9) million mark-to-market adjustment on asset-backed notes is due to increasing prices on our asset-backed notes due to lower medium-term interest rates and tighter spreads.

The total net increase (decrease) in fair value includes a $37.2 million and a $15.9 million adjustment related to the fair value mark on loans sold as part of the structured and other loan sales for the three months ended March 31, 2023 and March 31, 2022, respectively.

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

Charge-offs, net of recoveries

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

4 unchanged sentences

Charge-offs, net of recoveries.

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

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

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

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

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

Our Annualized N et Charge-Off Rate increased to 12.1% for the three months ended March 31, 2023 from 8.6% for the three months ended March 31, 2022.

Net Charge-offs for the three months ended March 31, 2023 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.

We refer to the post-July 2022 underwriting vintages as our front book and the originations made prior to our significant credit-tightening in July 2022 we refer to as the back book.

As the average life of our loans is only one year, we expect the back book to become less impactful on our losses by the end of 2023.

Operating expenses

1 unchanged sentence

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 consisting 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.

2 unchanged sentences

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

Technology and facilities.

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

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

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

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

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

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

Technology and facilities expense increased by $7.7 million, or 15.6%, from $49.2 million for the three months ended March 31, 2022 to $56.9 million for the three months ended March 31, 2023.

The increase is primarily due to a $3.7 million increase in salaries and benefits due to the increase in headcount, $3.1 million increased depreciation commensurate with growth in internally developed software, and a $2.3 million increase in service costs related to higher usage of software and cloud services.

These increases were offset by $2.2 million lower expenses due to the capitalization of internally developed software, lower stock compensation expense and reduction in utility costs in 2023 compared to 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

3 unchanged sentences

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

4 unchanged sentences

Sales and marketing.

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

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

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

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

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

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

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

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

As a result of our increased loan originations during the nine months ended September 30, 2022, our CAC decreased by 14.5% as compared to the nine months ended September 30, 2021.

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

Sales and marketing expense to acquire our customers decreased by $15.4 million, or 44.5%, from $34.5 million for the three months ended March 31, 2022 to $19.2 million for the three months ended March 31, 2023.

Our decrease in marketing spend during the three months ended March 31, 2023 was $13.7 million across various marketing channels, including direct mail and digital advertising.

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

The decrease was also attributable to a $1.4 million decrease related to outsourcing and professional fees.

As a result of our decrease in number of loans originated during the three months ended March 31, 2023, our CAC increased by 27.2%, from $151 the three months ended March 31, 2022 to $192 for the three months ended March 31, 2023.

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

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

2 unchanged sentences

Percentage of total revenue 14.4 % 16.7 %

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

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

Personnel expense increased by $1.4 million, or 3.9%, from $35.9 million for the three months ended March 31, 2022 to $37.3 million for the three months ended March 31, 2023, primarily driven by increase in U.S headcount prior to the plan announced on February 9, 2023 to reduce headcount and streamline operations.

We expect our personnel expense to decrease in 2023 compared to 2022 as a result of the reduction in headcount due to actions taken in February and May 2023.

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, Jamaica and the Philippines provide support for the business including application processing, verification, customer service and collections.

We utilize third parties to operate the contact centers in Colombia, Jamaica and the Philippines and include the costs in outsourcing and 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.

2 unchanged sentences

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

Outsourcing and professional fees.

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

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

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

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

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

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

Outsourcing and professional fees decreased by $0.5 million, or 3.7%, from $14.3 million for the three months ended March 31, 2022 to $13.8 million for the three months ended March 31, 2023 .

The decrease is primarily attributable to a $0.8 million decrease in credit report expenses due to the decline in loan application volume.

We expect our outsourcing and professional fees to decrease in 2023 compared to 2022 as a result of our continued focus on strong expense discipline 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, retail network optimization expenses and Digit-related acquisition and integration expenses.

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

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

3 unchanged sentences

General, administrative and other.

General, administrative and other expense increased by $11.7 million, or 436%, from $2.7 million for the three months ended September 30, 2021 to $14.4 million for the three months ended September 30, 2022, primarily due to $8.1 million of transaction and integration related expenses as a result of the Digit acquisition, $2.4 million of charge-offs related to fraud and $1.3 million increase in postage and printing expenses, travel expenses and other general and administrative expenses due to new products and services and continuing growth of the business.

General, administrative and other expense increased by $21.8 million, or 96%, from $22.9 million for the nine months ended September 30, 2021 to $44.7 million for the nine months ended September 30, 2022, primarily due to $22.4 million of transaction and integration related expenses as a result of the Digit acquisition, $5.1 million of charge-offs related to fraud, $2.7 million increase in litigation expense and $5.9 million increase in postage and printing expenses, travel expenses and other general and administrative expenses due to new products and services and continuing growth of the business.

These increases were partially offset by a $3.3 million decrease attributable to an impairment charge recognized in 2021 on a right-of-use asset related to our leased office space in San Carlos, California, not present in the current year and a $10.9 million decrease in retail network optimization expenses incurred in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

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

Goodwill impairment

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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

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

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

Goodwill impairment.

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

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

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

General, administrative and other expense increased by $5.8 million, or 43.4%, from $13.4 million for the three months ended March 31, 2022 to $19.2 million for the three months ended March 31, 2023, primarily due to the establishment of a $6.8 million reserve related to the headcount reduction announced in February 2023.

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

Income taxes consist of U.S.

federal, state and foreign income taxes, if any.

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

For the periods ended March 31, 2023 and 2022, we recognized tax expense (benefit) attributable to U.S.

federal, state and foreign income taxes.

Three Months Ended

September 30,

Period-to-period Change Nine Months Ended

September 30,

Period-to-period Change

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Effective tax rate 27.9 % 20.8 %

Income tax expense (benefit).

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

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

Income tax expense .

Income tax expense decreased by $51.4 million or 428.5%, from an expense of $12.0 million for the three months ended March 31, 2022 to a benefit of $39.4 million for the three months ended March 31, 2023, resulting from the generation of tax credits, and having lower pretax income for the three months ended March 31, 2023 .

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

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• Discount rate.

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.

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.

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 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.

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

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

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

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

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

The data for the periods ending on or after December 31, 2021 in the table below represents all of our credit products.

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

For prior quarters, the data in the table below represents only our unsecured personal loan portfolio which was the primary driver of fair value during those periods.

The table below reflects the application of this methodology for the five quarters since January 1, 2022, on loans held for investment.

The data in the table below represents all of our credit products.

Three Months Ended

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

Mar 31, 2023 Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022

Weighted average portfolio yield over the remaining life of the loans 29.78 % 29.50 % 29.90 % 30.27 % 30.15 %

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Non-GAAP Financial Measures

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.

We believe that the provision of non-GAAP financial measures in this report, including Adjusted EBITDA, Adjusted Net Income (Loss), 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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In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of taxes, certain non-cash items, variable charges and timing differences.

• We believe it is useful to exclude the impact of income tax expense, 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 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 non-cash charges.

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

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

• We believe it is useful to exclude the impact of interest expense associated with the Company's Corporate Financing, as 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 any litigation reserve, our workforce optimization expenses, impairment charges, acquisition and integration related expenses and debt amendment costs because

these items do not reflect ongoing business operations.

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

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

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

2022 2021 2022 2021

Three Months Ended March 31,

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

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Total fair value mark-to-market adjustment $ (84,518) $ 40,941

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

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

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

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

(1) The fair value mark-to-market adjustment on loans receivable at fair value shown for the three months ended March 31, 2023 excludes $37.2 million related to the cumulative fair value mark on the loans sold in other loan sales in Q1 2023.

The fair value mark-to-market adjustment on loans receivable at fair value shown for the three months ended March 31, 2022 also excludes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction.

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Adjusted EBITDA (in thousands)

2022 2021 2022 2021

Net income $ (105,827) $ 22,979 $ (69,321) $ 33,248

Net income (loss) $ (102,090) $ 45,663

Income tax expense (benefit) (39,443) 12,007

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Stock-based compensation expense 4,500 6,773

Litigation reserve — — 2,750 —

Retail network optimization expenses, net

183 114 1,881 12,787

Impairment 108,472 — 108,472 3,324

Workforce optimization expenses

Acquisition and integration related expenses 6,980 7,287

Origination fees for loans receivable at fair value, net (4,743) (4,685)

Other non-recurring charges (1)

Fair value mark-to-market adjustment 84,518 (40,941)

Adjusted EBITDA $ (24,452) $ 33,926

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.

(1) Certain prior-period financial information has been reclassified to conform to current period presentation.

Adjusted Net Income (Loss)

We define Adjusted Net Income (Loss) 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 (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.

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

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

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

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

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

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

Adjusted Net Income (in thousands)

2022 2021 2022 2021

Net income $ (105,827) $ 22,979 $ (69,321) $ 33,248

The following table presents a reconciliation of net income to Adjusted Net Income (Loss) for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Adjusted Net Income (Loss) (in thousands)

Net income (loss) $ (102,090) $ 45,663

Income tax expense (benefit) (39,443) 12,007

Stock-based compensation expense 4,500 6,773

Litigation reserve — — 2,750 —

Retail network optimization expenses, net

183 114 1,881 12,787

Impairment 108,472 — 108,472 3,324

Workforce optimization expenses

Acquisition and integration related expenses 6,980 7,287

Adjusted income before taxes 11,474 32,834 88,853 72,553

Other non-recurring charges (1)

Adjusted income (loss) before taxes (120,951) 72,240

Normalized income tax expense (32,657) 19,505

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

Adjusted Net Income (Loss) $ (88,294) $ 52,735

Income tax rate (2)

27.0 % 27.0 %

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

Adjusted Earnings Per Share (“Adjusted EPS”)

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

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

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

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

(1) Certain prior-period financial information has been reclassified to conform to current period presentation.

(2) Income tax rate for the three months ended March 31, 2023 and 2022 is based on a normalized statutory rate.

Adjusted Earnings (Loss) Per Share (“Adjusted EPS”)

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

The following table presents a reconciliation of diluted EPS to Adjusted EPS for the three months ended March 31, 2023 and 2022.

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

Three Months Ended March 31,

(in thousands, except share and per share data) 2023 2022

Diluted earnings (loss) per share $ (3.00) $ 1.37

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

Adjusted Net Income (Loss) $ (88,294) $ 52,735

Basic weighted-average common shares outstanding 33,979,050 32,216,641

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Diluted adjusted weighted-average common shares outstanding 33,979,050 33,323,134

Adjusted Earnings Per Share $ 0.25 $ 0.78 $ 1.95 $ 1.75

Adjusted Earnings (Loss) Per Share $ (2.60) $ 1.58

Adjusted Return on Equity

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

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

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

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

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

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

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

The following table presents a reconciliation of Return on Equity to Adjusted Return on Equity as of and for the three months ended March 31, 2023 and 2022.

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

As of or for the Three Months Ended March 31,

(in thousands) 2023 2022

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Adjusted Return on Equity

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

Adjusted Net Income (Loss) $ (88,294) $ 52,735

Average stockholders' equity $ 501,873 $ 626,909

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Adjusted Operating Efficiency

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

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 any litigation reserve, our workforce optimization expenses, impairment charges, acquisition and integration related expenses and debt amendment costs divided by total revenue.

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

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

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

The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency for the three months ended March 31, 2023 and 2022:

As of or for the Three Months Ended March 31,

(in thousands) 2023 2022

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Stock-based compensation expense (4,500) (6,773)

Litigation reserve — — (2,750) —

Retail network optimization expenses, net

Workforce optimization expenses

(6,818) (210)

Impairment (108,472) — $ (108,472) $ (3,324)

Acquisition and integration related expenses (6,980) (7,287)

Other non-recurring charges (1)

(2,284) (300)

Total adjusted operating expenses $ 125,756 $ 132,774

Adjusted Operating Efficiency 48.5 % 61.8 %

(1) Certain prior-period financial information has been reclassified to conform to current period presentation.

Liquidity and Capital Resources

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

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

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

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

During the three months ended March 31, 2023, available liquidity increased primarily due to the amendment and upsizing of our Corporate Financing facility and draws under our PLW facility.

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 $25.0 million that may be available under the second amendment to the Corporate Financing facility dated March 10, 2023, 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

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2023 2022

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Operating Activities

Our net cash provided by operating activities was $159.3 million and $103.7 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Our net cash provided by operating activities was $76.8 million and $38.6 million for the three months ended March 31, 2023 and 2022, respectively.

business due to the amount and timing of various payments.

Investing Activities

Our net cash provided by (used in) investing activities was $(915.9) million and $(316.7) million for the nine months ended September 30, 2022 and 2021, respectively.

Our net cash provided by (used in) investing activities was $(39.6) million and $(122.5) million for the three months ended March 31, 2023 and 2022, respectively.

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

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

Our net cash provided by (used in) investing activities for the three months ended March 31, 2023, includes $1.0 million of proceeds related to the Q1 2023 Loan Sale.

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

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

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

The change in our net cash provided by (used in) investing activities is due to disbursements on originations of loans increasing by $330.8 million while repayments of loan principal decreased by $3.2 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Financing Activities

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

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

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

Our net cash provided by (used in) financing activities was $(39.1) million and $61.5 million for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, net cash used in financing activities was primarily driven by borrowings under our PLW and Corporate Financing facility, partially offset by repayments of borrowings on our CCW 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 three months ended March 31, 2022, net cash provided by financing activities was primarily driven by the borrowings under our Secured Financing facilities, partially offset by repayments of borrowings on our Secured Financing facilities and scheduled amortization payments on our Acquisition Financing facility.

Sources of Funds

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Asset-Backed Securitizations

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

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

As of March 31, 2023, we had $2.30 billion of outstanding asset-backed notes.

For additional information, see Note 8 , Borrowings of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

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

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

As of March 31, 2023, we were in compliance with all covenants and requirements of all our asset-backed notes.

Secured Financings

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

As of March 31, 2023 , we had Secured Financing facilities with warehouse lines of $720.0 million in the aggregate with undrawn capacity of $314.7 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.

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, pursuant to an amended indenture, Oportun RF, LLC issued an additional $20.9 million asset-backed floating rate variable funding note, and an asset-

backed residual certificate, both of which are secured by Class D Notes and residual cash flows from the Company's 2022-A Securitization and guaranteed by Oportun, Inc.

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

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

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

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

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, the Company entered into an agreement to borrow $150.0 million of a senior secured term loan (the “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 is subject to a prepayment premium.

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

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

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 borrowed an additional $4.2 million in Incremental Tranche A-2 loans on March 27, 2023.

Under the Amended Credit Agreement, we borrowed an additional $25.0 million of incremental term loans (the "Incremental Tranche B Loans" on May 5, 2023 and may borrow up to an additional amount of $25.0 million on an uncommitted basis (the “Incremental Tranche C Loans”) expected to be available, if provided by the applicable lenders, on or about June 23, 2023.

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 our option, equal to 3.00%.

As of March 31, 2023, we were in compliance with all covenants and requirements on our outstanding debt and available credit.

For more information regarding our Secured Financing facilities and Acquisition and Corporate Financing, see Note 8, Borrowings of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

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Other loan sales

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

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

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

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

During the first quarter of 2023, we entered into agreements to sell certain populations of our personal loans and credit card receivables that had an aggregate unpaid principal balance, including unpaid interest and fees, of approximately $38.2 million.

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

Whole loan sales

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

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

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

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.

In November 2022, we entered into a forward flow whole loan sale agreement with an institutional investor.

Pursuant to this agreement, we have a commitment to sell a minimum of $2.0 million of our unsecured loan originations each month, with an option to sell an additional $4.0 million each month, over an approximately one-year period, subject to certain eligibility criteria.

The originations of loans sold and held for sale during the three months ended March 31, 2023 was $10.0 million.

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

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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 Pathward based on thresholds specified in the agreements.

In accordance with the agreements underlying the bank partnership program, we have 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 Tranche A-1 Loans and borrowed an additional $4.2 million of Incremental Tranche A-2 Loans on March 27, 2023.

Under the Amended Credit Agreement, we borrowed an additional $25.0 million of Incremental Tranche B Loans on May 5, 2023 and may borrow up to an additional amount of $25.0 million Incremental Tranche C Loans, on an uncommitted basis, expected to be available if provided by the applicable lenders, on or about June 23, 2023.

We anticipate that we will likely draw down on the remaining incremental commitment amount, however, given its 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.

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

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

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

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

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

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

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

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

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K dated December 31, 2022, filed with the Securities and Exchange Commission on March 14, 2023 ("2022 Form 10-K"), under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations.

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There have been no material changes to our market risk as previously disclosed in our 2022 Form 10-K.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis