Oportun Financial Corp 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations An index to our management's discussion and analysis follows: Topic Forward-Looking Statements 23 Overview 24 Key Financial and Operating Metrics 26 Historical Credit Performance 28 Results of Operations 30 Fair Value Estimate Methodology for Loans Receivable at Fair Value 36 Non-GAAP Financial Measures 37 Liquidity and Capital Resources 40 Critical Accounting Policies and Significant Judgments and Estimates 43 Recently Issued Accounting Pronouncements 43 You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, on March 14, 2023 . Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-Looking Statements This report contains forward-looking statements, within the meani ng of the Private Securities Litigation Reform Act of 1995, Sec tion 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. 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 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 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 expectation regarding the transfer of certain loans receivable; • our ability to realize the expected benefits from the reduction in workforce and other streamlining measures announced in February and 23 May 2023; • our expectations regarding our costs and seasonality; • our ability to successfully build our brand and protect our reputation from negative publicity; • our ability to expand our digital capabilities for origination and increase the volume of loans originated through our digital channels; • our ability to increase the effectiveness of our marketing efforts; • our ability to grow market share in existing markets or any new markets we may enter; • our ability to continue to expand our demographic focus; • 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 provide an attractive and comprehensive user experience through our recently launched mobile application, the Oportun Mobile App, and further our position as a leading fintec h; • our ability to maintain the terms on which we lend to our borrowers; • our ability to manage fraud risk; • our ability to effectively secure and maintain the confidentiality of the information provided and utilized across our systems; • our ability to successfully compete with companies that are currently in, or may in the future enter, the markets in which we operate; • our ability to attract, integrate and retain qualified employees; • the effect of macroeconomic conditions on our business, including the impact of 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; and • 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. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate we have conducted exhaustive inquiry into, or review of, all potentially available relevant information. We anticipate that subsequent events and developments may cause our views to change. Forward-looking statements do not guarantee future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this report. We also operate in a rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. As a result, any or all of our forward-looking statements in this report may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. You should read this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. These forward-looking statements speak only as of the date of this report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements. Overview We are a mission-driven fintech that puts our members’ financial goals within reach. With intelligent borrowing, savings, and budgeting 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. In our 17-year lending history, we have extended more than $16.6 billion in responsible credit through more than 6.7 million loans and credit cards . We have been certified as a Community Development Financial Institution ("CDFI") by the U.S. Department of the Treasury since 2009. 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 24 members. Our credit products include personal loans, secured personal loans and credit cards. Our digital banking products include automated savings, long-term investing and retirement savings. Consumers are able to become members and access our products through our Oportun Mobile App and the Oportun.com website, which are our primary channels for onboarding and serving members. As of July 31, 2023, our personal loan products are also available over the phone or through our 167 Oportun retail locations, and at 74 of our Lending as a Service partner locations. Credit Products Personal Loans - Our personal loan is a simple-to-understand, affordable, unsecured, fully amortizing installment loan with fixed payments throughout the life of the loan. We charge fixed interest rates on our loans, which vary based on the amount disbursed and applicable state law, with a cap of 36% annual percentage rate (“APR”) in all cases. As of June 30, 2023, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 40 months and 32.3%, respectively. The average loan size for loans we originated during the three months ended June 30, 2023 was $4,101. Our loans do not have prepayment penalties or balloon payments, and typically range in size from $300 to $10,000 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 June 30, 2023, we originate unsecured personal loans in 6 states through state licenses and in 36 through our partnership with Pathward, N.A. (formerly known as MetaBank, N.A.). Secured Personal Loans - In April 2020, we launched a personal installment loan product secured by an automobile, which we refer to as secured personal loans. Our secured personal loans range in size from $2,525 to $18,500 with terms ranging from 24 to 64 months. The average loan size for secured personal loans we originated during the three months ended June 30, 2023 was $7,486. As of June 30, 2023, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 51 months and 28.3%, 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 44 states as of June 30, 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 June 30, 2023 . The average credit line for credit cards activated during the three months ended June 30, 2023 was $876. Digital Banking Products Savings and Investing – 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, we have helped members save more than $9.6 billion. Our investment 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 allocate our members' savings into low-cost risk-adjusted portfolios held in brokerage accounts or tax-advantaged IRAs. Since 2020, our members have invested more than $79.8 million into long-term goals through low-cost ETF portfolios. 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 and investing accounts are owned by our members and are not the assets of the Company. Therefore, these funds are not included in the Condensed Consolidated Balance Sheets (Unaudited) . Lending as a Service Beyond our core direct-to-consumer lending business, we believe that we can leverage our proprietary credit scoring and underwriting model to partner with other consumer brands and expand our member base. Our first Lending as a Service strategic partner was DolEx Dollar Express, Inc. with an initial launch in December 2020. In October of 2021, we launched another Lending as a Service partnership with Barri Financial Group in select locations. We recently re-launched our Lending as a Service program with a new streamlined Lead Generation program through which we are able to offer loans through our existing channels by phone, online, or in our retail locations. Oportun originates, underwrites, and services the loan. Through this new program, we believe we will be able to offer our Lending as a Service Lead Generation program to additional partners with a much faster lead-to-market time while expanding our membership base with a true Oportun service experience. In January 2022, we announced our first all-digital Lending as a Service partnership with Sezzle, a leading provider of Buy Now Pay Later 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. Capital Markets Funding To fund our growth at a low and efficient cost, we have built a diversified and well-established capital markets funding program, which allows us to partially hedge our exposure to rising interest rates or credit spreads by locking in our interest expense for up to three years. Over the past eight years, we have executed 20 bond offerings in the asset-backed securities market, the last 17 of which include tranches that have been rated 25 investment grade. We have generally issued two- and three-year fixed rate bonds which have provided us committed capital to fund future loan originations at a fixed Cost of Debt. In higher interest rate environments we may consider issuing amortizing bonds. Workforce Optimization and Streamlining Operations On February 9, 2023 and on May 8, 2023, we announced 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, the income statement impact of $8.4 million and $15.2 million was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023, respectively. These reductions are anticipated to result in annualized run-rate savings of $126.0 to $136.0 million. We routinely evaluate the balance of investment and productivity of our retail locations. During the second quarter of 2023, we made the decision to close 32 retail locations and reduce a portion of the workforce who manage and operate these retail locations. In the second quarter of 2023, we incurred $0.2 million in expenses related to these additional retail location closures and estimate remaining expenses of $0.2 million to be recognized in the third quarter of 2023. In addition, we have also recognized $0.8 million related to severance and benefits related to the store closures in the second quarter of 2023 which represents all severance and benefit related costs to be incurred as a result of these store closures. The income statement impact of $1.0 million was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023. During the first quarter of 2022, we made the decision to close 27 retail locations in April 2022 and reduce a portion of the workforce who manage and operate these retail locations. The income statement impact of $1.5 million and $2.1 million was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2022, respectively . 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 We monitor and evaluate the following key metrics in order to measure our current performance, develop and refine our growth strategies, and make strategic decisions. As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, (in thousands of dollars) 2023 2022 2023 2022 Key Financial and Operating Metrics Members 2,005,008 1,818,588 2,005,008 1,818,588 Products 2,155,240 1,928,261 2,155,240 1,928,261 Aggregate Originations $ 485,120 $ 878,177 $ 893,081 $ 1,678,292 30+ Day Delinquency Rate 5.3 % 4.3 % 5.3 % 4.3 % Annualized Net Charge-Off Rate 12.5 % 8.6 % 12.3 % 8.6 % Return on Equity (13.1) % (5.7) % (46.9) % 11.8 % Adjusted Return on Equity 2.0 % 2.3 % (34.4) % 18.2 % Other Metrics Managed Principal Balance at End of Period $ 3,253,283 $ 3,243,400 $ 3,253,283 $ 3,243,400 Owned Principal Balance at End of Period $ 2,963,217 $ 2,792,193 $ 2,963,217 $ 2,792,193 Average Daily Principal Balance $ 2,993,598 $ 2,577,186 $ 3,031,639 $ 2,495,546 See “ Glossary ” at the end of Part II of this report for formulas and definitions of our key performance metrics. Members We define Members as borrowers with an outstanding or successfully paid off loan, originated by us or under a bank partnership program that we service, or individuals who have been approved for a credit card issued under a bank partnership program. Members also include individuals who have signed-up to use or are using any of our Savings, Direct, Investing and/or Retirement products. We view Members as an indication of growth of our business and our ability to establish long term relationships with the users of our products. Member growth is generally an indicator of future revenue, but is not directly correlated with revenue, since not all Members who sign up for one of our products fully utilize or continue to use our products. Members as of June 30, 2023 grew to 2.0 million, as compared to 1.8 million as of June 30, 2022. This increase was due to the success in our marketing efforts. New members seeking our personal loan and credit card products are discovering and also activating the Savings product via the Oportun Mobile App. 26 Products Products refers to the aggregate number of personal loans and/or credit card accounts that our Members have had or been approved for that have been originated by us or through one of our bank partners. Products also include the aggregate number of digital banking products we offer as a result of our acquisition of Digit, including Savings, Direct, Investing and Retirement, that our Members use or have signed-up to use. We view Products as an indicator of the effectiveness of our member acquisition efforts and multiproduct adoption. Products as of June 30, 2023 grew to 2.2 million as compared to 1.9 million as of June 30, 2022. This increase was due to growth in both our credit products and our digital banking products. Aggregate Originations Aggregate Originations decreased to $485.1 million for the three months ended June 30, 2023 from $878.2 million for the three months ended June 30, 2022, representing a 44.8% decrease. The decrease is primarily driven by a decrease in the number of loans originated . We originated 117,940 and 241,256 loans for the three months ended June 30, 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. 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. The decrease in number of loans originated was partially offset by growth in average loan size due to a focus on returning members. Aggregate Originations decreased to $893.1 million for the six months ended June 30, 2023 from $1,678.3 million for the six months ended June 30, 2022, representing a 46.8% decrease. The decrease is primarily driven by a decrease in the number of loans originated . We originated 218,062 and 469,984 loans for the six months ended June 30, 2023 and 2022, respectively. The increase is primarily due to actions taken to focus lending towards existing members to improve credit outcomes and lower marketing spend. 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. 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 5.3% and 4.3% as of June 30, 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 June 30, 2023 and 2022 was 12.5% and 8.6%, respectively. Annualized Net Charge-Off Rate for the six months ended June 30, 2023 and 2022 was 12.3% 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. If macroeconomic conditions do not worsen, 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 June 30, 2023 and 2022, Return on Equity was (13.1)% and (5.7)%, respectively, and Adjusted Return on Equity was 2.0% and 2.3%, respectively, For the six months ended June 30, 2023 and 2022, Return on Equity was (46.9)% and 11.8%, respectively, and Adjusted Return on Equity was (34.4)% and 18.2%, respectively. The decreases in Return on Equity for the three and six months ended were primarily due to lower net income. Net income was lower primarily due to higher credit losses and higher cost of funds, partially offset by increased revenue and decreased operating expenses for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022. The decrease in Adjusted Return on Equity for the three and six months ended June 30, 2023 was primarily due to lower Adjusted Net Income. Adjusted Net Income was lower primarily due to increased fair value of our asset-backed notes, higher credit losses, and higher cost of funds, partially offset by increased revenue and decreased operating expenses for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022. For a reconciliation of Return on Equity to Adjusted Return on Equity, see “Non–GAAP Financial Measures.” 27 Historical Credit Performance 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. 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 six months ended June 30, for the indicated fiscal year. In addition to monitoring our loss and delinquency performance on an owned portfolio basis, we also monitor the performance of our loans by the period in which the loan was disbursed, generally years or quarters, which we refer to as a vintage. We calculate net lifetime loan loss rate by vintage as a percentage of original principal balance. Net lifetime loan loss rates equal the net lifetime loan losses for a given year through June 30, 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. We were able to stabilize cumulative net loan losses after the financial crisis that started in 2008. We even achieved a net lifetime loan loss rate of 5.5% during the peak of the recession in 2009. The evolution of our credit models has allowed us to increase our average loan size and commensurately extend our average loan terms. Cumulative net lifetime loan losses for the 2015, 2016, 2017, and 2018 vintages increased partially due to the delay in tax refunds in 2017 and 2019, the impact of natural disasters such as Hurricane Harvey, and the longer duration of the loans. The 2018 and 2019 vintages are increasing due to the COVID-19 pandemic. 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. 28 Year of Origination 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 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 June 30, 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% 8.3%* 12.8%* 2.7%* Outstanding principal balance as of June 30, 2023 as a percentage of original amount disbursed —% —% —% —% —% —% —% —% —% —% —% —% 0.8% 6.1% 31.3% 80.0% * Vintage is not yet fully mature from a loss perspective. 29 Results of Operations The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three and six months ended June 30, 2023 and 2022. Three Months Ended June 30, Six Months Ended June 30, (in thousands of dollars) 2023 2022 2023 2022 Revenue Interest income $ 240,463 $ 207,655 $ 478,082 $ 399,892 Non-interest income 26,100 18,147 47,993 40,630 Total revenue 266,563 225,802 526,075 440,522 Less: Interest expense 41,448 17,104 80,445 30,781 Total net decrease in fair value (106,490) (63,484) (322,200) (59,513) Net revenue 118,625 145,214 123,430 350,228 Operating expenses: Technology and facilities 55,116 52,788 111,990 101,977 Sales and marketing 19,195 32,368 38,377 66,909 Personnel 30,762 38,629 68,080 74,555 Outsourcing and professional fees 9,900 17,165 23,702 31,492 General, administrative and other 21,123 16,936 40,285 30,297 Total operating expenses 136,096 157,886 282,434 305,230 Income (loss) before taxes (17,471) (12,672) (159,004) 44,998 Income tax expense (benefit) (2,572) (3,515) (42,015) 8,492 Net income (loss) $ (14,899) $ (9,157) $ (116,989) $ 36,506 Total revenue Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Revenue Interest income $ 240,463 $ 207,655 $ 32,808 15.8 % $ 478,082 $ 399,892 $ 78,190 19.6 % Non-interest income 26,100 18,147 7,953 43.8 % 47,993 40,630 7,363 18.1 % Total revenue $ 266,563 $ 225,802 $ 40,761 18.1 % $ 526,075 $ 440,522 $ 85,553 19.4 % Percentage of total revenue: Interest income 90.2 % 92.0 % 90.9 % 90.8 % Non-interest income 9.8 % 8.0 % 9.1 % 9.2 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Interest Income. Total interest income increased by $32.8 million, or 15.8%, from $207.7 million for the three months ended June 30, 2022 to $240.5 million for the three months ended June 30, 2023. This increase was primarily attributable to growth in our Average Daily Principal Balance, which increased from $2.58 billion for the three months ended June 30, 2022 to $2.99 billion for the three months ended June 30, 2023, an increase of 16.2%. The increase was partially offset by a decrease in portfolio yield of 10 basis points in the three months ended June 30, 2023 compared to the three months ended June 30, 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. Total interest income increased by $78.2 million, or 19.6%, from $399.9 million for the six months ended June 30, 2022 to $478.1 million for the six months ended June 30, 2023. This increase was primarily attributable to growth in our Average Daily Principal Balance, which increased from $2.50 billion for the six months ended June 30, 2022 to $3.03 billion for the six months ended June 30, 2023, an increase of 21.5%. The increase was partially offset by a decrease in portfolio yield of 51 basis points in the six months ended June 30, 2023 compared to the six months ended June 30, 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 $8.0 million, or 43.8%, from $18.1 million for the three months ended June 30, 2022 to $26.1 million for the three months ended June 30, 2023. This increase is primarily due to $6.4 million increase in interest earned on neobanking deposit accounts, $3.9 million increase in documentation fees on the Pathward retained loans, $2.3 million increase related to our gain on loan sales, partially offset by $2.8 million decrease in servicing revenue, and $2.2 million decrease in subscription revenue. 30 Total non-interest income increased by $7.4 million, or 18.1%, from $40.6 million for the six months ended June 30, 2022 to $48.0 million for the six months ended June 30, 2023. This increase is primarily due to $11.4 million increase in interest earned on neobanking deposit accounts, $4.3 million increase in documentation fees on the Pathward retained loans, partially offset by $4.0 million decrease in subscription revenue, $3.1 million decrease in servicing revenue and $2.0 million lower gain on loans sold under our whole loan sale programs. 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. Interest expense Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Interest expense $ 41,448 $ 17,104 $ 24,344 142.3 % $ 80,445 $ 30,781 $ 49,664 161.3 % Percentage of total revenue 15.5 % 7.6 % 15.3 % 7.0 % Cost of Debt 6.0 % 3.0 % 5.8 % 2.8 % Leverage as a percentage of Average Daily Principal Balance 92.9 % 90.1 % 93.0 % 89.8 % Interest Expense. Interest expense increased by $24.3 million, or 142.3%, from $17.1 million for the three months ended June 30, 2022 to $41.4 million for the three months ended June 30, 2023. $20.9 million of the increase was driven by a 301 bps increase in interest rate. $3.4 million of the increase was due to an increase in our Average Daily Debt Balance. Our Average Daily Debt Balance increased from $2.32 billion for the three months ended June 30, 2022 to $2.78 billion for the three months ended June 30, 2023, an increase of 19.8%. We financed approximately 92.9% of our loans receivable through debt for the three months ended June 30, 2023, as compared to 90.1% for the three months ended June 30, 2022. Our Cost of Debt has increased due to increases in interest rates and wider credit spreads on our new asset-backed securitization issuances. Interest expense increased by $49.7 million, or 161.3%, from $30.8 million for the six months ended June 30, 2022 to $80.4 million for the six months ended June 30, 2023. $43.1 million of the increase was driven by a 298 bps increase in interest rate. $6.6 million of the increase was due to an increase in our Average Daily Debt Balance. Our Average Daily Debt Balance increased slightly from $2.24 billion for the six months ended June 30, 2022 to $2.82 billion for the six months ended June 30, 2023, an increase of 25.8%. We financed approximately 93.0% of our loans receivable through debt for the six months ended June 30, 2023, as compared to 89.8% for the six months ended June 30, 2022. 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 borrowings. 31 Total net increase (decrease) in fair value Net increase (decrease) in fair value reflects changes in fair value of loans receivable held for investment and asset-backed notes on an aggregate basis and is based on a number of factors, including benchmark interest rates, credit spreads, remaining cumulative charge-offs and borrower payment rates. Increases in the fair value of loans increase Net Revenue. Conversely, decreases in the fair value of loans decrease Net Revenue. Increases in the fair value of asset-backed notes decrease Net Revenue. Decreases in the fair value of asset-backed notes increase Net Revenue. We also have derivative instruments related to our bank partnership program with Pathward, N.A. Changes in the fair value of the derivative instrument are reflected in the total fair value mark-to-market adjustment below. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Fair value mark-to-market adjustment: Fair value mark-to-market adjustment on Loans Receivable at Fair Value $ 14,186 $ (34,605) $ 48,791 * $ (23,133) $ (51,542) $ 28,409 * Fair value mark-to-market adjustment on asset-backed notes (12,623) 44,477 (57,100) * (61,518) 102,748 (164,266) * Fair value mark-to-market adjustment on derivatives 6,258 1,877 4,381 * 7,954 1,484 6,470 * Total fair value mark-to-market adjustment 7,821 11,749 (3,928) * (76,697) 52,690 (129,387) * Charge-offs, net of recoveries on loans receivable at fair value (93,480) (55,097) (38,383) * (185,065) (106,447) (78,618) * Net settlements on derivative instruments (1,924) (6,003) 4,079 * (4,362) (7,480) 3,118 * Fair value mark on loans sold (1) (18,907) (14,133) (4,774) * (56,076) 1,724 (57,800) Total net decrease in fair value $ (106,490) $ (63,484) $ (43,006) * $ (322,200) $ (59,513) $ (262,687) * Percentage of total revenue: Fair value mark-to-market adjustment 2.9 % 5.2 % (14.6) % 12.0 % Charge-offs, net of recoveries on loans receivable at fair value (35.1) % (24.4) % (35.2) % (24.2) % Total net increase (decrease) in fair value (32.1) % (19.2) % (49.8) % (12.2) % Discount rate 11.10 % 8.97 % 11.10 % 8.97 % Remaining cumulative charge-offs 11.35 % 11.25 % 11.35 % 11.25 % Average life in years 0.96 0.90 0.96 0.90 * Not meaningful (1) The fair value mark on loans sold shown for the three and six months ended June 30, 2023 includes $(18.9) million related to the cumulative fair value mark on the loans sold in other loans sales in Q2 2023. The fair value mark on loans sold shown for the six months ended June 30, 2023 also includes $(37.2) million related to the cumulative fair value mark on the loans sold in other loans sales in Q1 2023. The fair value mark on loans sold shown for the three and six months ended June 30, 2022 includes $(14.1) million related to the cumulative fair value mark on loans sold in the Q2 2022 Loan Sales. The fair value mark on loans sold shown for the six months ended June 30, 2022 also includes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction. This 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 Q2 2023, Q1 2023 and Q2 2022 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 June 30, 2023 was $106.5 million. This amount represents a total fair value mark-to-market increase of $7.8 million, and $93.5 million of charge-offs, net of recoveries on Loans Receivable at Fair Value. The total fair value mark-to-market adjustment consists of a $14.2 million mark-to-market adjustment on Loans Receivable at Fair Value due to (a) an increase in the discount rate from 11.07% as of March 31, 2023 to 11.10% as of June 30, 2023, partially offset by (b) a decrease in remaining cumulative charge-offs from 11.72% as of March 31, 2023 to 11.35% as of June 30, 2023. The $12.6 million mark-to-market adjustment on asset-backed notes is due to lower medium-term interest rates and tighter spreads. The total net increase (decrease) in fair value for the three months ended June 30, 2023 and June 30, 2022 also includes a $(18.9) million and ($14.1) million adjustment related to the fair value mark on the loans sold as part of the other loans sales for the three months ended June 30, 2023 and June 30, 2022, respectively. Net decrease in fair value for the six months ended June 30, 2023 was $322.2 million. This amount represents a total fair value mark-to-market decrease of $(76.7) million, and $185.1 million of charge-offs, net of recoveries on Loans Receivable at Fair Value. The total fair value mark-to-market adjustment consists of a $23.1 million mark-to-market reduction 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 11.35% as of June 30, 2023, (b) a decrease in average life from 1.00 years as of December 31, 2022 to 0.96 years as of June 30, 2023, partially offset by (c) a decrease in the discount rate from 11.48% as of December 31, 2022 to 11.10% as of June 30, 2023. The $(61.5) million mark-to-market adjustment on asset-backed notes is due to lower medium-term interest rates and tighter spreads. The total net increase (decrease) in fair value for the six months ended June 30, 2023 and June 30, 2022 includes $(56.1) million and $1.7 million in adjustments related to the fair value mark on loans sold as part of the structured and other loan sales for the six months ended June 30, 2023 and June 30, 2022, respectively. Through the remainder of 2023, we expect to continue to see volatility in fair value primarily as a result of macroeconomic conditions. 32 Charge-offs, net of recoveries Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Total charge-offs, net of recoveries $ 93,480 $ 55,097 $ 38,383 69.7 % $ 185,065 $ 106,447 $ 78,618 73.9 % Average Daily Principal Balance $ 2,993,598 $ 2,577,186 $ 416,412 16.2 % $ 3,031,639 $ 2,495,546 $ 536,093 21.5 % Annualized Net Charge-Off Rate 12.5 % 8.6 % 12.3 % 8.6 % Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate increased to 12.5% and 12.3% for the three and six months ended June 30, 2023, respectively, from 8.6% and 8.6% for the three and six months ended June 30, 2022, respectively. Net charge-offs for the three months and six months ended June 30, 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. 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 w hen it is 180 days contractually past due. Operating expenses Operating expenses consist of technology and facilities, sales and marketing, personnel, outsourcing and professional fees and general, administrative and other expense. Technology and facilities 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 consulting, legal and other services as a result of our efforts to grow our business, as well as personnel expenses. The second component includes rent for retail and corporate locations, utilities, insurance, telephony costs, property taxes, equipment rental expenses, licenses and fees and depreciation and amortization. Lastly, the third component includes all software licenses, subscriptions, and technology service costs to support our corporate operations, excluding sales and marketing. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Technology and facilities $ 55,116 $ 52,788 $ 2,328 4.4 % $ 111,990 $ 101,977 $ 10,013 9.8 % Percentage of total revenue 20.7 % 23.4 % 21.3 % 23.1 % Technology and facilities. Technology and facilities expense increased by $2.3 million, or 4.4%, from $52.8 million for the three months ended June 30, 2022 to $55.1 million for the three months ended June 30, 2023. The increase is primarily due to $2.8 million higher expenses due to lower capitalization of internally developed software costs related to fewer employees working on software development as a result of our workforce optimization efforts, and $2.0 million increased depreciation commensurate with growth in our internally developed software balance compared to prior year. These increases were offset by $1.4 million lower expenses incurred for temporary contractors to supplement staffing related to new product investment and $0.9 million decrease in salaries, benefits and stock compensation due to the decrease in headcount following our workforce optimization efforts. Technology and facilities expense increased by $10.0 million, or 9.8%, from $102.0 million for the six months ended June 30, 2022 to $112.0 million for the six months ended June 30, 2023. The increase is primarily due to $5.1 million increased depreciation commensurate with growth in our internally developed software balance, $4.1 million increase in salaries and benefits due to the increase in headcount prior to our workforce optimization efforts, $3.1 million increase in service costs related to higher usage of software and cloud services, and $2.3 million higher expenses due to lower capitalization of internally developed software costs related to fewer employees working on software development as a result of our workforce optimization efforts. These increases were offset by $1.5 million lower expenses incurred for temporary contractors to supplement staffing related to new product investment and $3.1 million lower expenses due to lower stock compensation expense, reduction in utility costs in 2023 compared to 2022 and other expenses. 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 Sales and marketing expense consists of two components and represents the costs to acquire our customers. The first component is comprised of the expense to acquire a customer through various paid marketing channels including direct mail, digital marketing and brand marketing. The second component is comprised of the costs associated with our telesales, lead generation and retail operations, including personnel expenses, but excluding costs associated with retail locations. 33 Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages and CAC) 2023 2022 $ % 2023 2022 $ % Sales and marketing $ 19,195 $ 32,368 $ (13,173) (40.7) % $ 38,377 $ 66,909 $ (28,532) (42.6) % Percentage of total revenue 7.2 % 14.3 % 7.3 % 15.2 % Customer Acquisition Cost (CAC) $ 163 $ 134 $ 29 21.6 % $ 176 $ 142 $ 34 23.9 % Sales and marketing. Sales and marketing expenses to acquire our customers decreased by $13.2 million, or 40.7%, from $32.4 million for the three months ended June 30, 2022 to $19.2 million for the three months ended June 30, 2023. Our decrease in marketing spend during the three months ended June 30, 2023 was $9.6 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 $2.5 million decrease related to outsourcing and professional fees and $1.4 million decrease in salaries and benefits due to the decrease in headcount following our efforts to streamline operations. As a result of our decrease in number of loans originated during the three months ended June 30, 2023, our CAC increased by 21.6% as compared to the three months ended June 30, 2022. Sales and marketing expenses to acquire our customers decreased by $28.5 million, or 42.6%, from $66.9 million for the six months ended June 30, 2022 to $38.4 million for the six months ended June 30, 2023 . Our decrease in marketing spend during the six months ended June 30, 2023 was $23.2 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 $3.9 million decrease related to outsourcing and professional fees and $1.9 million decrease in salaries and benefits due to the decrease in headcount following our efforts to streamline operations. As a result of our decrease in number of loans originated during the six months ended June 30, 2023, our CAC increased by 23.9% as compared to the six months ended June 30, 2022. We expect our sales and marketing expense to decrease in 2023 compared to 2022 as we maintain focus on our strategy to improve credit outcomes by focusing lending towards existing and returning members. Personnel 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 June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Personnel $ 30,762 $ 38,629 $ (7,867) (20.4) % $ 68,080 $ 74,555 $ (6,475) (8.7) % Percentage of total revenue 11.5 % 17.1 % 12.9 % 16.9 % Personnel. Personnel expense decreased by $7.9 million, or 20.4%, from $38.6 million for the three months ended June 30, 2022 to $30.8 million for the three months ended June 30, 2023, primarily driven by the workforce optimization announced in February and May 2023. Personnel expense decreased by $6.5 million, or 8.7%, from $74.6 million for the six months ended June 30, 2022 to $68.1 million for the six months ended June 30, 2023, primarily driven by the workforce optimization announced in February and May 2023. 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. The costs related to our third-party contact centers located in Colombia, Jamaica and the Philippines are included in outsourcing and professional fees. These third-party contact centers provide business support, including application processing, verification, customer service and collections. Professional fees also include the cost of legal and audit services, credit reports, recruiting, cash transportation, collection services and fees and consultant expenses. Direct loan origination expenses related to application processing are expensed when incurred. In addition, outsourcing and professional fees include any financing expenses, including legal and underwriting fees, related to our asset-backed notes. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Outsourcing and professional fees $ 9,900 $ 17,165 $ (7,265) (42.3) % $ 23,702 $ 31,492 $ (7,790) (24.7) % Percentage of total revenue 3.7 % 7.6 % 4.5 % 7.1 % Outsourcing and professional fees. Outsourcing and professional fees decreased by $7.3 million, or 42%, from $17.2 million for the three months ended June 30, 2022 to $9.9 million for the three months ended June 30, 2023. The decrease is primarily attributable to $2.8 million lower debt financing fees not present in current year, $2.1 million decrease in professional service costs related to credit card programs and other consulting services, $1.5 million decrease related to 58% decline in contact center full-time equivalents ("FTEs") as a result of decrease in demand for new applications and a shift to in-house call services, and $0.7 million decrease in credit report expenses due to the decline in loan application volume. 34 Outsourcing and professional fees decreased by $7.8 million, or 25%, from $31.5 million for the six months ended June 30, 2022 to $23.7 million for the six months ended June 30, 2023. The decrease is primarily attributable to $2.8 million lower debt financing fees not present in current year, $2.2 million decrease in professional service costs related to credit card programs and other consulting services, $1.5 million decrease in credit report expenses due to the decline in loan application volume, and $1.4 million decrease related to 58% decline in contact center FTEs as a result of decrease in demand for new applications and a shift to in-house call services. 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, expenses related to workforce optimization and streamlining operations and Digit-related acquisition and integration expenses. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % General, administrative and other $ 21,123 $ 16,936 $ 4,187 24.7 % $ 40,285 $ 30,297 $ 9,988 33.0 % Percentage of total revenue 7.9 % 7.5 % 7.7 % 6.9 % General, administrative and other. General, administrative and other expense increased by $4.2 million, or 25%, from $16.9 million for the three months ended June 30, 2022 to $21.1 million for the three months ended June 30, 2023, primarily due to the establishment of a $7.4 million reserve related to the workforce optimization announced in May 2023. This increase was partially offset by $2.4 million decrease in legal expenses, and $1.2 million decrease in travel expenses. General, administrative and other expense increased by $10.0 million, or 33%, from $30.3 million for the six months ended June 30, 2022 to $40.3 million for the six months ended June 30, 2023, primarily due to the establishment of a $14.2 million reserve related to the workforce optimization announced in February and May 2023. These increases were partially offset by $2.6 million decrease in legal expenses, and $1.4 million decrease in travel expenses. 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 Income taxes consist of U.S. federal, state and foreign income taxes, if any. For the periods ended June 30, 2023 and 2022, we recognized tax expense (benefit) attributable to U.S. federal, state and foreign income taxes. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2023 2022 $ % 2023 2022 $ % Income tax expense (benefit) $ (2,572) $ (3,515) $ 943 (26.8) % $ (42,015) $ 8,492 $ (50,507) 594.8 % Percentage of total revenue (1.0) % (1.6) % (8.0) % 1.9 % Effective tax rate 14.7 % 27.7 % 26.4 % 18.9 % Income tax expense (benefit). Income tax benefit decreased by $0.9 million or 27%, from $3.5 million for the three months ended June 30, 2022 to $2.6 million benefit for the three months ended June 30, 2023, primarily resulting from having lower income and discrete tax expense associated with stock-based compensation for the three months ended June 30, 2023. Income tax expense decreased by $50.5 million or 595%, from $8.5 million for the six months ended June 30, 2022 to $42.0 million benefit for the six months ended June 30, 2023, primarily resulting from the generation of tax credits and having a lower pretax income for the six months ended June 30, 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. 35 Fair Value Estimate Methodology for Loans Receivable at Fair Value Summary Fair value is an electable option under GAAP to account for any financial instruments, including loans receivable and debt. It differs from amortized cost accounting in that loans receivable and debt are recorded on the balance sheet at fair value rather than on a cost basis. Under the fair value option credit losses are recognized through income as they are incurred rather than through the establishment of an allowance and provision for losses. The fair value of instruments under this election is updated at the end of each reporting period, with changes since the prior reporting period reflected in the Condensed Consolidated Statements of Operations (Unaudited) as net increase (decrease) in fair value which impacts Net Revenue. Changes in interest rates, credit spreads, realized and projected credit losses and cash flow timing will lead to changes in fair value and therefore impact earnings. These changes in the fair value of the Loans Receivable at Fair Value may be partially offset by changes in the fair value of the asset-backed notes, depending upon the relative duration of the instruments. Fair Value Estimate Methodology for Loans Receivable at Fair Value We calculate the fair value of Loans Receivable at Fair Value using a model that projects and discounts expected cash flows. The fair value is a function of: • Portfolio yield; • Average life; • Prepayments (or principal payment rate for our credit card receivables); • Remaining cumulative charge-offs; and • Discount rate. 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 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. 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 and credit card, the discount rate is determined by using the Weighted Average Capital Cost (WACC), which was calculated using the Capital Asset Pricing Model (CAPM) method, also considering several components of financing, debt and equity. It is also possible to estimate the fair value of our loans using a simplified calculation. The table below illustrates a simplified calculation to aid investors in understanding how fair value may be estimated using the last five quarters: • Subtracting the servicing fee from the weighted average portfolio yield over the remaining life of the loans to calculate net portfolio yield; • Multiplying the net portfolio yield by the weighted average life in years of the loans receivable, which is based upon the contractual amortization of the loans and expected remaining prepayments and charge-offs, to calculate pre-loss net cash flow; • Subtracting the remaining cumulative charge-offs from the net portfolio yield to calculate the net cash flow; • Subtracting the product of the discount rate and the average life from the net cash flow to calculate the gross fair value premium as a percentage of loan principal balance; and • 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. 36 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 Jun 30, 2023 Mar 31, 2023 Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Weighted average portfolio yield over the remaining life of the loans 30.02 % 29.78 % 29.50 % 29.90 % 30.27 % Less: Servicing fee (5.00) % (5.00) % (5.00) % (5.00) % (5.00) % Net portfolio yield 25.02 % 24.78 % 24.50 % 24.90 % 25.27 % Multiplied by: Weighted average life in years 0.955 0.963 1.000 0.924 0.895 Pre-loss cash flow 23.90 % 23.85 % 24.50 % 23.01 % 22.61 % Less: Remaining cumulative charge-offs (11.35) % (11.72) % (10.38) % (11.67) % (11.25) % Net cash flow 12.55 % 12.13 % 14.12 % 11.34 % 11.37 % Less: Discount rate multiplied by average life (10.61) % (10.66) % (11.48) % (9.42) % (8.03) % Gross fair value premium as a percentage of loan principal balance 1.94 % 1.47 % 2.64 % 1.92 % 3.34 % Less: Accrued interest and fees as a percentage of loan principal balance (1.20) % (1.22) % (1.18) % (1.19) % (1.10) % Fair value premium as a percentage of loan principal balance 0.74 % 0.26 % 1.45 % 0.73 % 2.24 % Discount Rate 11.10 % 11.07 % 11.48 % 10.19 % 8.97 % The illustrative table included above is designed to assist investors in understanding the impact of our election of the fair value option. Non-GAAP Financial Measures 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. There are limitations related to the use of these non-GAAP financial measures versus their most directly comparable GAAP measures, which include the following: ▪ Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure. ▪ These measures do not consider the potentially dilutive impact of stock-based compensation. ▪ Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements. ▪ Although the fair value mark-to-market adjustment is a non-cash adjustment, it does reflect our estimate of the price a third party would pay for our loans receivable held for investment or our asset-backed notes. ▪ Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us. Reconciliations of non-GAAP to GAAP measures can be found below. Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure defined as our net income, adjusted to eliminate the effect of certain items as described below. We believe that Adjusted EBITDA is an important measure because it allows management, investors and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described below. 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 (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 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 our workforce optimization, acquisition and integration related expenses and other non-recurring charges because these items do not reflect ongoing 37 business operations. Other non-recurring charges include litigation reserve, impairment charges, debt amendment and warrant amortization costs related to our Corporate Financing facility. • We also reverse origination fees for Loans Receivable at Fair Value, net. We recognize the full amount of any origination fees as revenue at the time of loan disbursement in advance of our collection of origination fees through principal payments. As a result, we believe it is beneficial to exclude the uncollected portion of such origination fees, because such amounts do not represent cash that we received. • We also reverse the fair value mark-to-market adjustment because it is a non-cash adjustment as shown in the table below. Components of Fair Value Mark-to-Market Adjustment (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Fair value mark-to-market adjustment on loans receivable at fair value (1) $ 14,186 $ (34,605) $ (23,133) $ (51,542) Fair value mark-to-market adjustment on asset-backed notes (12,623) 44,477 (61,518) 102,748 Fair value mark-to-market adjustment on derivatives 6,258 1,877 $ 7,954 $ 1,484 Total fair value mark-to-market adjustment $ 7,821 $ 11,749 $ (76,697) $ 52,690 (1) The fair value mark-to-market adjustment on loans receivable at fair value shown for the three and six months ended June 30, 2023 excludes $(18.9) million related to the cumulative fair value mark on the loans sold in other loan sales in Q2 2023. The fair value mark-to-market adjustment on loans receivable at fair value shown for the six months ended June 30, 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 and six months ended June 30, 2022 excludes $(14.1) million related to the cumulative fair value mark on the loans sold in other loan sales in Q2 2022. The fair value mark-to-market adjustment on loans receivable at fair value shown for the six months ended June 30, 2022 also excludes $15.9 million related to the cumulative fair value mark on the loans sold in the 2022-1 transaction. For details regarding the Q2 2023, Q1 2023 and Q2 2022 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. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022: Three Months Ended June 30, Six Months Ended June 30, Adjusted EBITDA (in thousands) 2023 2022 2023 2022 Net income (loss) $ (14,899) $ (9,157) $ (116,989) $ 36,506 Adjustments: Income tax expense (benefit) (2,572) (3,515) (42,015) 8,492 Interest on corporate financing (1) 8,852 — 14,929 — Depreciation and amortization 10,805 8,788 21,227 16,101 Stock-based compensation expense 4,385 6,929 8,884 13,702 Workforce optimization expenses 8,408 1,488 15,226 1,697 Acquisition and integration related expenses 7,198 6,944 14,178 14,231 Origination fees for loans receivable at fair value, net (10,600) (6,666) (15,343) (11,351) Other non-recurring charges (1) 580 2,450 3,089 2,750 Fair value mark-to-market adjustment (7,821) (11,749) 76,697 (52,690) Adjusted EBITDA $ 4,336 $ (4,488) $ (20,117) $ 29,438 (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 our workforce optimization, acquisition and integration related expenses and other non-recurring charges because these items do not reflect ongoing business operations. Other non-recurring charges include litigation reserve, impairment charges, debt amendment and warrant amortization costs related to our Corporate Financing facility. • 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. 38 The following table presents a reconciliation of net income to Adjusted Net Income (Loss) for the three and six months ended June 30, 2023 and 2022: Three Months Ended June 30, Six Months Ended June 30, Adjusted Net Income (Loss) (in thousands) 2023 2022 2023 2022 Net income (loss) $ (14,899) $ (9,157) $ (116,989) $ 36,506 Adjustments: Income tax expense (benefit) (2,572) (3,515) (42,015) 8,492 Stock-based compensation expense 4,385 6,929 8,884 13,702 Workforce optimization expenses 8,407 1,488 15,226 1,697 Acquisition and integration related expenses 7,198 6,944 14,178 14,231 Other non-recurring charges (1) 580 2,450 3,089 2,750 Adjusted income (loss) before taxes 3,099 5,139 (117,627) 77,378 Normalized income tax expense 837 1,388 (31,759) 20,892 Adjusted Net Income (Loss) $ 2,262 $ 3,751 $ (85,868) $ 56,486 Income tax rate (2) 27.0 % 27.0 % 27.0 % 27.0 % (1) Certain prior-period financial information has been reclassified to conform to current period presentation. (2) Income tax rate for the three and six months ended June 30, 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 Diluted Adjusted EPS for the three and six months ended June 30, 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 June 30, Six Months Ended June 30, (in thousands, except share and per share data) 2023 2022 2023 2022 Diluted earnings (loss) per share $ (0.41) $ (0.28) $ (3.31) $ 1.10 Adjusted EPS Adjusted Net Income (Loss) $ 2,262 $ 3,751 $ (85,868) $ 56,486 Basic weighted-average common shares outstanding 36,691,291 32,831,499 35,342,663 32,525,768 Weighted average effect of dilutive securities: Stock options 9,543 — — 453,695 Restricted stock units 291,942 — — 262,218 Diluted adjusted weighted-average common shares outstanding 36,992,776 32,831,499 35,342,663 33,241,681 Adjusted Earnings (Loss) Per Share $ 0.06 $ 0.11 $ (2.43) $ 1.70 Adjusted Return on 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 six months ended June 30, 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 June 30, As of or for the Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Return on Equity (13.1) % (5.7) % (46.9) % 11.8 % Adjusted Return on Equity Adjusted Net Income (Loss) $ 2,262 $ 3,751 $ (85,868) $ 56,486 Average stockholders' equity $ 457,272 $ 649,067 $ 502,999 $ 626,040 Adjusted Return on Equity 2.0 % 2.3 % (34.4) % 18.2 % 39 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 our workforce optimization, acquisition and integration related expenses and other non-recurring charges divided by total revenue. Other non-recurring charges include litigation reserve, impairment charges, and debt amendment costs related to our Corporate Financing facility. We believe Adjusted Operating Efficiency is an important measure because it allows management, investors and our Board to evaluate how efficiently we manage costs relative to revenue. The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency for the three and six months ended June 30, 2023 and 2022: As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Operating Efficiency 51.1 % 69.9 % 53.7 % 69.3 % Adjusted Operating Efficiency Total revenue 266,563 225,802 526,075 440,522 Total operating expense 136,096 157,886 282,434 305,230 Stock-based compensation expense (4,385) (6,929) (8,884) (13,702) Workforce optimization expenses (8,407) (1,488) (15,226) (1,697) Acquisition and integration related expenses (7,198) (6,944) (14,178) (14,231) Other non-recurring charges (1) (344) (2,450) (2,628) (2,750) Total adjusted operating expenses $ 115,762 $ 140,075 $ 241,518 $ 272,850 Adjusted Operating Efficiency 43.4 % 62.0 % 45.9 % 61.9 % (1) Certain prior-period financial information has been reclassified to conform to current period presentation. Liquidity and Capital Resources To date, we fund the majority of our operating liquidity and operating needs through a combination of cash flows from operations, securitizations, secured borrowings, Corporate Financing and whole loan sales. We may utilize these or other sources in the future. Our material cash requirements relate to funding our lending activities, our debt service obligations, our operating expenses, and investments in the long-term growth of the company. During the six months ended June 30, 2023, available liquidity increased primarily due to draws under our PLW facility, the amendment and upsizing of our Corporate Financing facility and our asset-backed borrowings at amortized cost. 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. Cash and cash flows The following table summarizes our cash and cash equivalents, restricted cash and cash flows for the periods indicated: Six Months Ended June 30, (in thousands) 2023 2022 Cash, cash equivalents and restricted cash $ 202,335 $ 133,856 Cash provided by (used in) Operating activities 179,357 91,642 Investing activities (104,021) (638,024) Financing activities (76,818) 487,278 Our cash is held for working capital purposes and originating loans. Our restricted cash represents collections held in our securitizations and is applied currently after month-end to pay interest expense and satisfy any amount due to whole loan buyer with any excess amounts returned to us. Operating Activities Our net cash provided by operating activities was $179.4 million and $91.6 million for the six months ended June 30, 2023 and 2022, 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 40 proceeds from sale of loans and (iii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of various payments. Investing Activities Our net cash provided by (used in) investing activities was $(104.0) million and $(638.0) million for the six months ended June 30, 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 six months ended June 30, 2023, includes $1.7 million of proceeds related to the loans sold in other loan sales in Q1 2023 and Q2 2023. Our net cash provided by (used in) investing activities for the six months ended June 30, 2022, includes $247.2 million of proceeds related to a structured loan sale in the first quarter 2022 and other loan sales in Q2 2022. 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 $779.6 million while repayments of loan principal decreased by $6.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and our proceeds from loan sales originated as held for investment decreased by $245.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Financing Activities Our net cash provided by (used in) financing activities was $(76.8) million and $487.3 million for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023, net cash used in financing activities was primarily driven by scheduled amortization payments on our Acquisition Financing facility, our Series 2019-A, Series 2021-A, Series 2022-2 and Series 2022-3 asset-backed notes, and repayments of borrowings on our CCW facility, partially offset by borrowings under our PLW facility, Corporate Financing facility, and our asset-backed borrowings at amortized cost. For the six months ended June 30, 2022, net cash provided by financing activities was primarily driven the issuance of our Series 2022-A asset-backed securitization and the borrowings under our Secured Financing facilities and Acquisition Financing, partially offset by repayments of borrowings on our Secured Financing facilities and scheduled amortization payments on our Acquisition Financing facility. Sources of Funds Debt and Available Credit Asset-Backed Securitizations As of June 30, 2023, we had $2.12 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. Our securitizations utilize special purpose entities (SPEs) which are also variable inter est entities (VIEs). For VIEs where we have determined we are the primary beneficiary, the financial results of the VIE are consolidated in our financial statements. For VIEs where we have determined we are not the primary beneficiary, the financial results of the VIE are not consolidated in our financial statements. For more information regarding our VIEs and asset-backed securitizations, see Note 4, Variable Interest Entities and Note 8, Borrowings , respectively, of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report. Our ability to utilize our asset-backed securitization facilities as described herein is subject to compliance with various requirements including eligibility criteria for the loan collateral and covenants and other requirements. As of June 30, 2023, we were in compliance with all covenants and requirements of all our asset-backed notes. Secured Financings As of June 30, 2023 , we had Secured Financing facilities with warehouse lines of $720.0 million in the aggregate with undrawn capacity of $231.8 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, our wholly-owned subsidiary, issued a $116.0 million asset-backed floating rate variable funding note, and an asset-backed residual certificate, both of which are secured by certain residual cash flows from our securitizations and guaranteed by Oportun, Inc. The note was used to fund the cash consideration paid for the acquisition of Digit. On May 24, 2022, and subsequently on July 28, 2022, pursuant to amended indentures, Oportun RF, LLC issued an additional $20.9 million and $9.1 million asset-backed floating rate variable funding notes, and asset-backed residual certificates, both of which are also secured by certain cash flows from our securitizations and guaranteed by Oportun, Inc., increasing the size of the facility to $119.5 million. The amendments also replaced the interest rate based on LIBOR with an interest rate based on SOFR plus 8.00%. The Acquisition Financing facility was scheduled to pay down based on an amortization schedule with a final payment in May 2024. Subsequently, on February 10, 2023, the Acquisition Financing facility was further amended, including among other things, revising the interest rate to SOFR plus 11.00% and adjusting the amortization schedule to defer $42.0 million in principal payments through July 2023, with final payment in October 2024. 41 Corporate Financing On September 14, 2022, we entered into an agreement to borrow $150.0 million of a senior secured term loan (the “Corporate Financing”). The term loan bears interest, payable in cash, at an amount equal to 1-month term SOFR plus 9.00%. The term loan is scheduled to mature on September 14, 2026, and is not subject to amortization. Certain prepayments of the term loan are subject to a prepayment premium. The obligations under the Credit Agreement are secured by our assets and certain of our subsidiaries guaranteeing the term loan, including pledges of the equity interests of certain subsidiaries that are directly or indirectly owned by us, subject to customary exceptions. On March 10, 2023 we upsized and amended our Corporate Financing facility to be able to borrow up to an additional $75.0 million. At closing and as part of the Incremental Tranche A-1, we borrowed $20.8 million and 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 an additional $25.0 million of incremental term loans (the “Incremental Tranche C Loans”) on June 30, 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 June 30, 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. Asset-Backed Borrowings at Amortized Cost On June 16, 2023, we entered into a forward flow whole loan sale agreement with an institutional investor. Pursuant to this agreement, we have a commitment to sell up to $300.0 million of our personal loan originations over the next twelve months. While the economics of this transaction are structured as a whole loan sale, the transfer of these loans receivable does not qualify as a sale for accounting purposes. Accordingly, the related assets remain on our balance sheet and cash proceeds received are reported as a secured borrowing under the caption of asset-backed borrowings at amortized cost with related interest expense recognized over the life of the related borrowing. As part of this agreement, during the three months ended June 30, 2023, we transferred loans receivable totaling $25.0 million. Structured loan sales In March 2022, we participated in a securitization and sold loans through the issuance of amortizing asset-backed notes secured by a pool of our unsecured and secured personal installment loans. We also sold our share of the residual interest in the pool. The sold loans had an aggregate unpaid principal balance of approximately $227.6 million. For further information on the structured loan sale transactions, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report. Other 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. Additionally, during the second 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 $19.5 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, 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 and six months ended June 30, 2023 was $15.6 million and $25.7 million, respectively. 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. Bank Partnership Program and Servicing Agreement We entered into a bank partnership program with Pathward, N.A. on August 11, 2020. In accordance with the agreements underlying the bank partnership program, 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. Contractual Obligations and Commitments The material cash requirements for our contractual and other obligations primarily include those related our outstanding borrowings under our asset-backed notes, Acquisition Financing and Secured Financing, corporate and retail leases, and purchase commitments for technology used in the business. See Note 8, Borrowings and Note 15, Leases, Commitments and Contingencies of the Notes to the Condensed Consolidated Financial 42 Statements (Unaudited) included elsewhere in this report for more information. Liquidity Risks We believe that our existing cash balance, anticipated positive cash flows from operations and available borrowing capacity under our credit facilities will be sufficient to meet our anticipated cash operating expense and capital expenditure requirements through at least the next 12 months. We do not have any significant unused sources of liquid assets. 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 an additional amount of $25.0 million of Incremental Tranche C Loans on June 30, 2023. If our available cash balances are insufficient to satisfy our liquidity requirements, we will seek additional debt or equity financing and we may have to take additional actions to decrease expenses, curtail the origination of loans, and our ability to continue to support our growth and to respond to challenges could be impacted. In a rising interest rate environment, our ability to issue additional equity or incur debt may be impaired and our borrowing costs may increase. If we raise additional funds through the issuance of additional debt, the agreements governing such debt could contain covenants that would restrict our operations and such debt would rank senior to shares of our common stock. The sale of equity may result in dilution to our stockholders and those securities may have rights senior to those of our common stock. We may require additional capital beyond our currently anticipated amounts and additional capital may not be available on reasonable terms, or at all. Critical Accounting Policies and Significant Judgments and Estimates Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. 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. For additional inf ormation about our critical accounting policies and estimates, see the disclosure included in our 2022 Form 10-K. Recently Issued Accounting Pronouncements See Note 2 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards. 43 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to our market risk as previously disclosed in our 2022 Form 10-K. Interest rates, credit trends and other macroeconomic conditions could continue to have an impact on market volatility which could impact our financial results .