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 27 Results of Operations 29 Fair Value Estimate Methodology for Loans Receivable at Fair Value 36 Non-GAAP Financial Measures 37 Liquidity and Capital Resources 41 Critical Accounting Policies and Significant Judgments and Estimates 45 Recently Issued Accounting Pronouncements 45 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, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, on March 15, 2024 . 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, (the “Securities Act”), 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; • 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 and trends in 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, and realizing the benefits and synergies from acquisitions; • 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 reductions in workforce and other streamlining measures, including our estimate of the changes and expenditures, and the timing thereof; • our ability to successfully manage and complete the sale of our credit card portfolio; 23 • our expectations regarding our costs and seasonality; • our ability to successfully build our brand and protect our reputation from negative publicity; • 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 Oportun Mobile App, and further our position as a leading fintec h company; • our ability to maintain the terms on which we lend to our borrowers; • our ability to manage fraud risk, including regulatory intervention and impacts on our brand reputation; • our ability to develop our technology, including our artificial intelligence (“A.I.”) enabled digital platform; • 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 elevated interest rates and inflation; • 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. As used in this report, the terms “Oportun Financial Corporation,” “Oportun,” “Company,” “we,” “us,” and “our” mean Oportun Financial Corporation and its subsidiaries unless the context indicates otherwise. 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 18-year lending history, we have extended more than $18.7 billion in responsible credit through more than 7.1 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 financial products, offered either directly or through partners, including lending and savings powered by A.I. Our financial products allow us to meet our members where they are and assist them with their overall financial health, resulting in opportunities to present multiple relevant products to our members. Our credit products include unsecured and secured personal loans. We also offer 24 automated savings, through our Set & Save platform. Consumers are able to become members and access our products through the Oportun Mobile App and the Oportun.com website, which are our primary channels for onboarding and serving members. As of June 30, 2024 our personal loan products are also available over the phone or through our 130 retail locations, and 519 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, 2024, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 41 months and 33.5%, respectively. The average loan size for loans we originated during the three months ended June 30, 2024 was $3,252. Our loans do not have prepayment penalties or balloon payments, and 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 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, 2024, we originated unsecured personal loans in 3 states through state licenses and in 38 states through our partnership with Pathward, 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, 2024 was $6,789. As of June 30, 2024, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 51 months and 29.9%, 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 6 states and we are in the process of expanding into other states. Credit Cards - We lau nched Oportun® Visa® Credit Card, issued by WebBank, Member FDIC, in December 2019, and offered credit cards in 44 states as of June 30, 2024 . 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, 2024 . The average credit line for credit cards activated during the three months ended June 30, 2024 was $999. On November 6, 2023, we announced that we were exploring strategic options for our credit card portfolio. On June 21, 2024, we entered into a nonbinding letter of intent with a third-party to sell the credit card receivable portfolio originated under our credit card program. Set & Save Savings – Our Set & Save product is designed to understand a member’s cash flows and save the right amount on a regular basis to effortlessly achieve savings goals. Members link their bank account with the platform and Set & Save 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. Since 2015, our savings product has helped members save more than $10.8 billion and helped our members save an average of more than $1,800 annually. The funds in these savings accounts are owned by members of our products 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 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 (with both DolEx Dollar Express, Inc. and Barri Financial Group now consolidated into a single company “DolFinTech”). We recently re-launched our Lending as a Service program with a new streamlined Lead Generation program through which DolFinTech provides us with information for potential members and 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 order to strategically realign our resources to focus on other products, on November 6, 2023, we announced the sunsetting of our embedded finance partnership with Sezzle, a provider of Buy Now Pay Later financing options, which launched in the first quarter of 2023. 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 ten years, we have executed 21 bond offerings in the asset-backed securities market, the last 18 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 have also issued amortizing bonds. Workforce Optimization and Streamlining Operations On March 12, 2024, during our fourth quarter and full year earnings call, we announced a plan to reduce operating expenses by an additional $30 million on an annualized basis to continue to streamline efficiency and improve profitability. In connection with the plan, on May 22, 2024, we took a series of personnel and other cost saving measures inclusive of roles eliminated due to recent attrition, representing a reduction of approximately 12% of the Company’s corporate staff, which excludes retail and contact center agents. We incurred non-recurring, pre-tax charges of $2.0 million, consisting primarily of severance payments, employee benefits contributions and related costs which were recorded through General, administrative and other on the Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2024. During the first quarter of 2024, we made the decision to close 39 retail locations and reduce a portion of the workforce who manage and operate these retail locations. The income statement impact of $0.2 million and $0.9 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, 2024, 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. During 2023, we announced a series of personnel and other cost savings measures to reduce expenses and streamline efficiency. 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. 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) 2024 2023 2024 2023 Key Financial and Operating Metrics Aggregate Originations $ 434,766 $ 485,120 $ 772,981 $ 893,081 Portfolio Yield 33.9 % 32.2 % 33.2 % 31.8 % 30+ Day Delinquency Rate 5.0 % 5.3 % 5.0 % 5.3 % Annualized Net Charge-Off Rate 12.3 % 12.5 % 12.2 % 12.3 % Other Metrics Managed Principal Balance at End of Period $ 2,997,798 $ 3,253,283 $ 2,997,798 $ 3,253,283 Owned Principal Balance at End of Period $ 2,718,988 $ 2,963,217 $ 2,718,988 $ 2,963,217 Average Daily Principal Balance $ 2,745,667 $ 2,993,598 $ 2,798,654 $ 3,031,639 See “ Glossary ” at the end of Part II of this report for formulas and definitions of our key performance metrics. Aggregate Originations Aggregate Originations decreased to $434.8 million for the three months ended June 30, 2024 from $485.1 million for the three months ended June 30, 2023, representing a 10.4% decrease. The decrease is primarily driven by a reduction in average loan size from $4,113 to $3,261 for the three months ended June 30, 2023 and June 30, 2024, respectively, which was partially offset by a 15,370 increase in the number of loans originated. We originated 133,310 and 117,940 loans for the three months ended June 30, 2024 and 2023, respectively. Aggregate Originations decreased to $773.0 million for the six months ended June 30, 2024 from $893.1 million for the six months ended June 30, 2023, representing a 13.4% decrease. The decrease is primarily driven by a reduction in average loan size from $4,096 to $3,339 for the three months ended June 30, 2023 and June 30, 2024, respectively, which was partially offset by a 13,435 increase in the number of loans originated. We originated 231,497 and 218,062 loans for the six months ended June 30, 2024 and 2023, respectively. Portfolio Yield Portfolio yield increased to 33.9% for the three months ended June 30, 2024, from 32.2% for the three months ended June 30, 2023, and increased to 33.2% for the six months ended June 30, 2024, from 31.8% for the six months ended June 30, 2023, primarily attributable to higher fees on loans originated through our bank partnership. 30+ Day Delinquency Rate 26 Our 30+ Day Delinquency Rate was 5.0% and 5.3% as of June 30, 2024 and 2023, respectively. The decrease was primarily due to improved credit quality as a result of our 2023 efforts to tighten credit standards throughout the second half of 2023 after significantly tightening underwriting standards in 2022. Annualized Net Charge-Off Rate Annualized Net Charge-Off Rate for the three months ended June 30, 2024 and 2023 was 12.3% and 12.5%, respectively. Annualized Net Charge-Off Rate for the six months ended June 30, 2024 and 2023 was 12.2% and 12.3%, respectively. Net Charge-offs for the three and six months ended June 30, 2024 decreased primarily due to our efforts to tighten our credit underwriting standards and focus lending towards existing and returning members to improve credit outcomes. Beginning 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 going forward. Historical Credit Performance Our Annualized Net Charge-off Rate ranged between 7% and 10.1% from 2014 to 2022. Even in 2020, during the pandemic, our Annualized Net Charge-off Rate was 9.8%. 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 an increasing interest rate environment, inflation and the cessation of COVID-19 stimulus payments and a higher mix of first-time borrowers in 2021 and the first half of 2022. In response to this increase, in the second half of 2022 and continuing throughout 2023, we tightened our credit underwriting standards and focused lending towards existing and returning members to improve credit outcomes. Continued elevated charge-offs for the three months ended June 30, 2024 is primarily due to deterioration in our back book and deterioration of the vintages originated in the second half of 2022 prior to further tightening underwriting standards for returning members in December 2022. For the six months ended June 30, 2024, the back book continued to season and made-up 34% of gross charge-offs while only making up approximately 17% of the loans receivable (excluding credit cards). In addition, the increase was partially caused by decreasing originations which caused receivables to decrease throughout 2023 and first half of 2024 as we continued to tighten credit standards throughout the second half 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 loans are 120 days contractually past due and charge-off a credit card account at the earlier of when the account is determined to be uncollectible or 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, 2024 divided by the total origination loan volume for that year. 27 The below chart and table show our net lifetime loan loss rate for each annual vintage of our personal loan product since 2014, excluding loans originated from July 2017 to August 2020 and from December 2023 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. 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, reduced loan size and loan term, and began reducing loan volumes to new and returning members in the third quarter of 2022 and reduced significantly in the second half of 2022. Net Lifetime Loan Loss Rates on vintages originated since significant July 2022 credit tightening are performing near comparable vintages originated in 2019 for the first 7 to 9 months on books but start to diverge due to underperformance of larger loans relative to 2019 and due to longer average term length. Due to macroeconomic factors, such as inflation, our borrowers are facing higher costs for food, fuel, and rent that are also putting pressure on our members. We employ collection strategies and tools to help customers make ongoing payments against their loans, with new efforts launched that: expanded the frequency and content of our digital and telephony communications; broadened eligibility for collection tools that help customers address payment difficulties; and eased customer access to those collection tools via new online and mobile app self-enrollment capability, supported by a new collections strategy system that enables centralized, faster, and more-targeted application of strategies. Year of Origination 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Dollar weighted average original term for vintage in months 19.1 22.3 24.2 26.3 29.0 30.0 32.0 33.3 37.8 39.2 Net lifetime loan losses as of June 30, 2024 as a percentage of original principal balance 6.1% 7.1% 8.0% 8.2% 9.8% 10.8% 9.0% 17.0%* 15.0%* 1.4%* Outstanding principal balance as of June 30, 2024 as a percentage of original amount disbursed —% —% —% —% —% 0.4% 0.8% 8.1% 38.6% 81.3% * Vintage is not yet fully mature from a loss perspective. Seasonality Our quarterly results of operations may not necessarily be indicative of the results for the full year or the results for any future periods. We experience significant seasonality in demand for our loans, which is generally lower in the first quarter. The seasonal slowdown is primarily attributable to high loan demand around the holidays in the fourth quarter and the general increase in our members’ available cash flows in the first quarter, including cash received from tax refunds, which temporarily reduces their borrowing needs. 28 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, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, (in thousands of dollars) 2024 2023 2024 2023 Revenue Interest income $ 231,373 $ 240,463 $ 461,963 $ 478,082 Non-interest income 19,023 26,100 38,915 47,993 Total revenue 250,396 266,563 500,878 526,075 Less: Interest expense 54,244 41,448 108,709 80,445 Total net decrease in fair value (136,119) (106,490) (252,969) (322,200) Net revenue 60,033 118,625 139,200 123,430 Operating expenses: Technology and facilities 40,625 55,116 87,730 111,990 Sales and marketing 16,258 19,195 32,261 38,377 Personnel 21,908 30,762 46,424 68,080 Outsourcing and professional fees 8,375 9,900 18,616 23,702 General, administrative and other 22,016 21,123 33,793 40,285 Total operating expenses 109,182 136,096 218,824 282,434 Income before taxes (49,149) (17,471) (79,624) (159,004) Income tax benefit (18,124) (2,572) (22,160) (42,015) Net loss $ (31,025) $ (14,899) $ (57,464) $ (116,989) Total revenue Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2024 2023 $ % 2024 2023 $ % Revenue Interest income $ 231,373 $ 240,463 $ (9,090) (3.8) % $ 461,963 $ 478,082 $ (16,119) (3.4) % Non-interest income 19,023 26,100 (7,077) (27.1) % 38,915 47,993 (9,078) (18.9) % Total revenue $ 250,396 $ 266,563 $ (16,167) (6.1) % $ 500,878 $ 526,075 $ (25,197) (4.8) % Percentage of total revenue: Interest income 92.4 % 90.2 % 92.2 % 90.9 % Non-interest income 7.6 % 9.8 % 7.8 % 9.1 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Interest Income. Total interest income decreased by $9.1 million, or 3.8%, from $240.5 million for the three months ended June 30, 2023 to $231.4 million for the three months ended June 30, 2024. This decrease was primarily attributable to a decline in our Average Daily Principal Balance, which decreased from $2.99 billion for the three months ended June 30, 2023 to $2.75 billion for the three months ended June 30, 2024, a decrease of 8.3%. The decrease was partially offset by an increase in portfolio yield of 167 basis points in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Total interest income decreased by $16.1 million, or 3.4%, from $478.1 million for the six months ended June 30, 2023 to $462.0 million for the six months ended June 30, 2024. This decrease was primarily attributable to a decline in our Average Daily Principal Balance, which decreased from $3.03 billion for the six months ended June 30, 2023 to $2.80 billion for the six months ended June 30, 2024, a decrease of 7.7%. The decrease was partially offset by an increase in portfolio yield of 139 basis points in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Non-interest income. Total non-interest income decreased by $7.1 million, or 27.1%, from $26.1 million for the three months ended June 30, 2023 to $19.0 million for the three months ended June 30, 2024. This decrease is primarily due to a $8.2 million decrease in fees related to our Pathward program, and a $1.4 million decrease in subscription revenue related to our Set & Save product. These decreases were partially offset by a $2.8 million increase in interest earned on Set & Save member accounts. Total non-interest income decreased by $9.1 million, or 18.9%, from $48.0 million for the six months ended June 30, 2023 to $38.9 million for the six months ended June 30, 2024. This decrease is primarily due to a $7.8 million decrease in fees related to our Pathward program, and $3.0 million decrease in subscription revenue related to our Set & Save product. These decreases were partially offset by a $2.2 million increase in interest earned on Set & Save member accounts. 29 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) 2024 2023 $ % 2024 2023 $ % Interest expense $ 54,244 $ 41,448 $ 12,796 30.9 % $ 108,709 $ 80,445 $ 28,264 35.1 % Percentage of total revenue 21.7 % 15.5 % 21.7 % 15.3 % Cost of Debt 7.7 % 5.6 % 7.6 % 5.4 % Interest expense. Interest expense increased by $12.8 million, or 30.9%, from $41.4 million for the three months ended June 30, 2023 to $54.2 million for the three months ended June 30, 2024. The increase was driven by a 215 basis point increase in our Cost of Debt partially offset by a decrease to our Average Daily Debt Balance. Our Average Daily Debt Balance decreased from $2.98 billion for the three months ended June 30, 2023 to $2.82 billion for the three months ended June 30, 2024, a decrease of 5.3%. 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 $28.3 million, or 35.1%, from $80.4 million for the six months ended June 30, 2023 to $108.7 million for the six months ended June 30, 2024. The increase was driven by a 222 basis point increase in our Cost of Debt partially offset by a decline in our Average Daily Debt Balance. Our Average Daily Debt Bala nce decreased from $2.99 billion for the six months ended June 30, 2023 to $2.86 billion for the six months ended June 30, 2024, a decrease of 4.5%. 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. 30 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 at fair value 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 a derivative instrument 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) 2024 2023 $ % 2024 2023 $ % Fair value mark-to-market adjustment: Fair value mark-to-market adjustment on Loans Receivable at Fair Value (1) $ (36,692) $ 14,186 $ (50,878) * $ (7,754) $ (23,133) $ 15,379 * Fair value mark-to-market adjustment on asset-backed notes at fair value (1,910) (12,623) 10,713 * (29,033) (61,518) 32,485 * Fair value mark-to-market adjustment on derivatives 950 6,258 (5,308) * 2,126 7,954 (5,828) * Total fair value mark-to-market adjustment (37,652) 7,821 (45,473) * (34,661) (76,697) 42,036 * Charge-offs, net of recoveries on Loans Receivable at Fair Value (83,884) (93,480) 9,596 * (169,212) (185,065) 15,853 * Net settlements on derivative instruments 3,803 (1,924) 5,727 * 2,747 (4,362) 7,109 * Fair value mark on loans sold (2) (18,386) (18,907) 521 * (51,843) (56,076) 4,233 * Total net decrease in fair value $ (136,119) $ (106,490) $ (29,629) * $ (252,969) $ (322,200) $ 69,231 * Percentage of total revenue: Fair value mark-to-market adjustment (15.0) % 2.9 % (6.9) % (14.6) % Charge-offs, net of recoveries on Loans Receivable at Fair Value (33.5) % (35.1) % (33.8) % (35.2) % Total net increase (decrease) in fair value (48.5) % (32.1) % (40.7) % (49.8) % Discount rate 8.66 % 11.10 % 8.66 % 11.10 % Remaining cumulative charge-offs 11.57 % 11.35 % 11.57 % 11.35 % Average life in years 1.02 0.96 1.02 0.96 * Not meaningful (1) The fair value mark-to-market adjustment on Loans Receivable at Fair Value includes the fair value mark-to-market adjustment of $(36.2) million related to the credit card portfolio reclassified to held for sale. See Note 5 , Loans Held for Sale and Loans Sol d in the Notes to the Condensed Financial Statements (Unaudited) included elsewhere in this report for further information on Credit cards receivable held for sale. (2) The fair value mark on loans sold shown for the three and six months ended June 30, 2024 includes $(18.4) million related to the cumulative fair value mark on the loans sold in other loan sales in Q 2 2024. 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 loans sold in other loan sales in Q 2 2023. 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. Net increase (decrease) in fair value. Net decrease in fair value for the three months ended June 30, 2024 was $136.1 million. This amount represents a total fair value mark-to-market decrease of $37.7 million, and $83.9 million of charge-offs, net of recoveries on Loans Receivable at Fair Value. The total fair value mark-to-market adjustment consists of a $(36.7) million mark-to-market adjustment on Loans Receivable at Fair Value due to (a) $(36.2) million mark-to-market adjustment in the fair value of our credit cards receivable related to management's decision to sell the portfolio and (b) $(0.5) million mark-to-market adjustment on loans receivable at fair value. The $(0.5) million mark-to-market on loans receivable at fair value was driven by a 0.9% decrease in weighted average life of the portfolio offset by a 44 basis point decrease in the discount rate and a 4 basis point decrease in the remaining cumulative charge offs. The $(1.9) million mark-to-market adjustment on asset-backed notes is due to tighter credit spreads. The total net decrease in fair value for the three months ended June 30, 2024 also includes a $(18.4) million adjustment related to the fair value mark on the loans sold as part of the other loan sales for the three months ended June 30, 2024. 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) a decrease in remaining cumulative charge-offs from 11.72% as of March 31, 2023 to 11.35% as of June 30, 2023, partially offset by (b) a decrease in the weighted average life from 0.963 years as of March 31, 2023 to 0.955 years as of June 30, 2023 and (c) an increase in the discount rate from 11.07% as of March 31, 2023 to 11.10% 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 credit spreads. The total net decrease in fair value for the three months ended June 30, 2023 also includes a $(18.9) 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. 31 Net decrease in fair value for the six months ended June 30, 2024 was $253.0 million. This amount represents a total fair value mark-to-market decrease of $34.7 million, and $169.2 million of charge-offs, net of recoveries on Loans Receivable at Fair Value. The total fair value mark-to-market adjustment consists of a $(7.8) million mark-to-market adjustment on Loans Receivable at Fair Value due to (a) $(36.2) million mark-to-market adjustment in the fair value of our credit cards receivable related to management's decision to sell the portfolio, and (b) $28.4 million mark-to-market adjustment on loans receivable at fair value. The $28.4 million mark-to-market on loans receivable at fair value was driven by (a) a decrease in discount rate from 10.10% as of December 31, 2023 to 8.66% as of June 30, 2024, (b) a decrease in remaining cumulative charge-offs from 11.80% as of December 31, 2023 to 11.57% as of June 30, 2024, and (c) an increase in average life from 1.006 as of December 31, 2023 to 1.015 years as of June 30, 2024. The $(29.0) million mark-to-market adjustment on asset-backed notes is due to lower medium-term interest rates and tighter credit spreads. The total net increase (decrease) in fair value for the six months ended June 30, 2024 includes $(51.8) million in adjustments related to the fair value mark on loans sold as part of the other loan sales for the six months ended June 30, 2024 . 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 adjustment on Loans Receivable at Fair Value due to (a) a decrease in average life from 0.998 as of December 31, 2022 to 0.955 years as of June 30, 2023 and (b) an increase in remaining cumulative charge-offs from 10.38% as of December 31, 2022 to 11.35% as of June 30, 2023, partially offset by (c) a decrease in 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 credit spreads. The total net increase (decrease) in fair value for the six months ended June 30, 2023 includes $(56.1) in adjustments related to the fair value mark on loans sold as part of the other loan sales for the six months ended June 30, 2023. We expect to continue to see volatility in fair value primarily as a result of macroeconomic conditions. Charge-offs, net of recoveries Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2024 2023 $ % 2024 2023 $ % Total charge-offs, net of recoveries $ 83,884 $ 93,480 $ (9,596) (10.3) % $ 169,212 $ 185,065 $ (15,853) (8.6) % Average Daily Principal Balance $ 2,745,667 $ 2,993,598 $ (247,931) (8.3) % $ 2,798,654 $ 3,031,639 $ (232,985) (7.7) % Annualized Net Charge-Off Rate 12.3 % 12.5 % 12.2 % 12.3 % Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate decreased to 12.3% and 12.2% for the three and six months ended June 30, 2024, respectively, from 12.5% and 12.3% for the three and six months ended June 30, 2023, respectively. Net charge-offs for the three and six months ended June 30, 2024 decreased primarily due to our efforts to tighten our credit underwriting standards and focus lending towards existing and returning members to improve credit outcomes. As the average life of our loans is approximately one year, we expect the back book to become less impactful on our losses by the end of 2024. 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 expenses. 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 consists of three components. The first component comprises costs associated with our technology, engineering, information security, cybersecurity, platform development, maintenance, and end user services, including fees for 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) 2024 2023 $ % 2024 2023 $ % Technology and facilities $ 40,625 $ 55,116 $ (14,491) (26.3) % $ 87,730 $ 111,990 $ (24,260) (21.7) % Percentage of total revenue 16.2 % 20.7 % 17.5 % 21.3 % Technology and facilities. Technology and facilities expense decreased by $14.5 million, or 26.3%, from $55.1 million for the three months ended June 30, 2023 to $40.6 million for the three months ended June 30, 2024. The decrease is primarily due to a $6.5 million decrease in wages, salaries and benefits as a result of our workforce optimization efforts that occurred in 2023 and 2024, $3.1 million decrease in service costs, $2.4 million decrease in software and office rent, $2.1 million decrease in outsourcing and professional fees, and $1.2 million decrease in depreciation and other expenses. These decreases were offset by $1.2 million lower capitalization of internally developed software. 32 Technology and facilities expense decreased by $24.3 million, or 21.7%, from $112.0 million for the six months ended June 30, 2023 to $87.7 million for the six months ended June 30, 2024. The decrease is primarily due to $15.0 million decrease in wages, salaries and benefits as a result of our workforce optimization efforts that occurred in 2023 and 2024, $4.5 million decrease in outsourcing and professional fees, $3.7 million decrease in service costs and $3.6 million decrease in software and office rent. These decreases were offset by $4.5 million lower capitalization of internally developed software. Sales and marketing Sales and marketing expenses consist of two components and represents the costs to acquire our members. The first component is comprised of the expense to acquire a member 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. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages and CAC) 2024 2023 $ % 2024 2023 $ % Sales and marketing $ 16,258 $ 19,195 $ (2,937) (15.3) % $ 32,261 $ 38,377 $ (6,116) (15.9) % Percentage of total revenue 6.5 % 7.2 % 6.4 % 7.3 % Customer Acquisition Cost (“CAC”) $ 122 $ 163 $ (41) (25.2) % $ 139 $ 176 $ (37) (21.0) % Sales and marketing. Sales and marketing expenses to acquire our members decreased by $2.9 million, or 15.3%, from $19.2 million for the three months ended June 30, 2023 to $16.3 million for the three months ended June 30, 2024 . The decrease is attributable to a $2.1 million decrease in wages, salaries, benefits, bonus and stock compensation expense due to our streamlining operations efforts. As a result of our increase in number of loans originated during the three months ended June 30, 2024, our CAC decreased by 25.2% from $163 for the three months ended June 30, 2023 to $122 for the three months ended June 30, 2024. Sales and marketing expenses to acquire our members decreased by $6.1 million, or 15.9%, from $38.4 million for the six months ended June 30, 2023 to $32.3 million for the six months ended June 30, 2024 . The decrease is attributable to a $4.7 million net decrease in wages, salaries and benefits related to our streamlining operation efforts, and a $1.4 million decrease in service costs. As a result of our increase in number of loans originated during the six months ended June 30, 2024, our CAC decreased by 21.0% from $176 for the six months ended June 30, 2023, to $139 for the six months ended June 30, 2024. We expect sales and marketing expense to be consistent in 2024 compared to 2023, as we continue to optimize marketing investment allocation across channels. Personnel Personnel expense represents compensation and benefits that we provide to our employees, and include salaries, wages, bonuses, commissions, related employer taxes, medical and other benefits provided and stock-based compensation expense for all of our staff with the exception of our telesales, lead generation, and retail operations which are included in sales and marketing expenses and technology which is included in technology and facilities. Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2024 2023 $ % 2024 2023 $ % Personnel $ 21,908 $ 30,762 $ (8,854) (28.8) % $ 46,424 $ 68,080 $ (21,656) (31.8) % Percentage of total revenue 8.7 % 11.5 % 9.3 % 12.9 % Personnel. Personnel expense decreased by $8.9 million, or 28.8%, from $30.8 million for the three months ended June 30, 2023 to $21.9 million for the three months ended June 30, 2024, primarily driven by our workforce optimization efforts which occurred in 2023 and 2024. Personnel expense decreased by $21.7 million, or 31.8%, from $68.1 million for the six months ended June 30, 2023 to $46.4 million for the six months ended June 30, 2024, primarily driven by our workforce optimization efforts in 2023 and 2024. Driven by our 2023 and 2024 workforce optimization efforts, we expect our personnel expense to decrease in 2024 compared to 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 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 at fair value. 33 Three Months Ended June 30, Period-to-period Change Six Months Ended June 30, Period-to-period Change (in thousands, except percentages) 2024 2023 $ % 2024 2023 $ % Outsourcing and professional fees $ 8,375 $ 9,900 $ (1,525) (15.4) % $ 18,616 $ 23,702 $ (5,086) (21.5) % Percentage of total revenue 3.3 % 3.7 % 3.7 % 4.5 % Outsourcing and professional fees. Outsourcing and professional fees decreased by $1.5 million, or 15.4%, from $9.9 million for the three months ended June 30, 2023 to $8.4 million for the three months ended June 30, 2024. The decrease is primarily attributable to $1.7 million decrease in outsourcing services and a $0.7 million decrease in professional fees and other expenses. These decreases were partially offset by a $0.8 million increase in debt recovery and court filing fees, legal fees, and consulting services. Outsourcing and professional fees decreased by $5.1 million, or 21.5%, from $23.7 million for the six months ended June 30, 2023 to $18.6 million for the six months ended June 30, 2024. The decrease is primarily attributable to $5.2 million decrease in outsourcing and consulting services. We expect our outsourcing and professional fees to decrease in 2024 compared to 2023 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) 2024 2023 $ % 2024 2023 $ % General, administrative and other $ 22,016 $ 21,123 $ 893 4.2 % $ 33,793 $ 40,285 $ (6,492) (16.1) % Percentage of total revenue 8.8 % 7.9 % 6.7 % 7.7 % General, administrative and other. General, administrative and other expense increased by $0.9 million, or 4.2%, from $21.1 million for the three months ended June 30, 2023 to $22.0 million for the three months ended June 30, 2024, due to $6.4 million increase related to the impairment of the San Carlos office right-of-use asset and disposal of related fixed assets and a $1.7 million increase due to partial debt extinguishment expense not present in the prior period. These increases were partially offset by a $5.4 million decrease due to lower reserve related to our workforce optimization efforts in 2024 compared to 2023, a $1.4 million decrease in acquisition and integration related expenses and a $0.8 million decrease related to our streamlining operations efforts. General, administrative and other expense decreased by $6.5 million, or 16%, from $40.3 million for the six months ended June 30, 2023 to $33.8 million for the six months ended June 30, 2024, primarily due to a $12.1 million decrease due to a lower reserve related to our workforce optimization efforts in 2024 compared to 2023, $2.4 million decrease in acquisition and integration related expenses, and a $1.2 million decrease in postage and printing. These increases were partially offset by $6.4 million impairment of the San Carlos office right-of-use asset and disposal of related fixed assets and $3.7 million increase due to a partial debt extinguishment expense not present in the prior period and other expenses. Income taxes Income taxes consist of U.S. federal, state and foreign income taxes, if any. For the periods ended June 30, 2024 and 2023, 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) 2024 2023 $ % 2024 2023 $ % Income tax benefit $ (18,124) $ (2,572) $ (15,552) 604.7 % $ (22,160) $ (42,015) $ 19,855 47.3 % Percentage of total revenue (7.2) % (1.0) % (4.4) % (8.0) % Effective tax rate 36.9 % 14.7 % 27.8 % 26.4 % Income tax benefit. Income tax benefit increased by $15.6 million or 605%, from $2.6 million for the three months ended June 30, 2023 to $18.1 million benefit for the three months ended June 30, 2024, primarily as a result of having a larger pretax loss for the three months ended June 30, 2024. Income tax benefit decreased by $19.9 million or 47%, from $42.0 million benefit for the six months ended June 30, 2023 to $22.2 million benefit for the six months ended June 30, 2024, primarily as a result of having a lower pretax loss for the six months ended June 30, 2024 . 34 Valuation Allowance . As of June 30, 2024 , we have $69.4 million of U.S. net deferred tax assets, which includes $91.5 million of tax-effected net operating losses, tax credits, and other carryforwards that can be used to offset future U.S. taxable income. Certain of these carryforwards will expire if they are not used within a specified timeframe. At this time, we consider it more likely than not that we will have sufficient U.S. taxable income in the future that will allow us to realize these net deferred tax assets. However, it is possible that some, or all, of these tax attributes could ultimately expire unused. Therefore, if we are unable to generate sufficient U.S. taxable income from our operations, a valuation allowance to reduce the U.S. net deferred tax assets may be required, which would materially increase income tax expense in the period in which the valuation allowance is recorded. 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 where the fair value option has been elected, 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; and • 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. 36 The table below reflects the application of this methodology for the six quarters since January 1, 2023, on loans held for investment. The data in the table below represents all of our credit products. Three Months Ended Jun 30, 2024 (1) Mar 31, 2024 Dec 31, 2023 Sep 30, 2023 Jun 30, 2023 Mar 31, 2023 Weighted average portfolio yield over the remaining life of the loans 28.42 % 28.87 % 29.10 % 29.58 % 29.85 % 29.61 % Less: Servicing fee (5.00) % (5.00) % (5.00) % (5.00) % (5.00) % (5.00) % Net portfolio yield 23.42 % 23.87 % 24.10 % 24.58 % 24.85 % 24.61 % Multiplied by: Weighted average life in years 1.016 1.027 1.007 0.995 0.955 0.963 Pre-loss cash flow 23.79 % 24.50 % 24.26 % 24.45 % 23.74 % 23.69 % Less: Remaining cumulative charge-offs (11.57) % (11.92) % (12.10) % (11.93) % (11.35) % (11.72) % Net cash flow 12.23 % 12.58 % 12.16 % 12.52 % 12.39 % 11.97 % Less: Discount rate multiplied by average life (8.80) % (9.34) % (10.17) % (11.09) % (10.61) % (10.66) % Gross fair value premium as a percentage of loan principal balance 3.43 % 3.24 % 1.99 % 1.43 % 1.78 % 1.31 % Discount Rate 8.66 % 9.10 % 10.10 % 11.15 % 11.10 % 11.07 % (1) On June 21, 2024, we entered into a nonbinding letter of intent with a third-party to sell the credit card receivable portfolio and was classified as held-for-sale at June 30, 2024. As such, the credit card portfolio was excluded from June 30, 2024 data. All prior periods presented in the table above include the fair value components of the credit card receivables portfolio. 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 Expense, Adjusted Operating Expense Ratio, 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. Beginning in 2024, we updated the definitions of Adjusted EBITDA, Adjusted Net Income and Adjusted Operating Efficiency to better represent how we view the results of operations and make management decisions. Comparable prior period Non-GAAP financial measures are included in addition to the previously reported metrics. 37 Adjusted EBITDA Rationale for Change Interest on Corporate Financing We have updated the interest on corporate financing adjustment to include interest on our acquisition related financing previously included within the adjustment for acquisition and integration related expenses. Depreciation and amortization We have updated the adjustment related to depreciation and amortization to include the amortization of acquired intangibles. This amortization was previously included within the adjustment for acquisition and integration related expenses. Acquisition and integration related expenses We have removed the adjustment related to acquisition and integration related expenses. Interest expense related to our acquisition related financing has been reclassified to the adjustment for corporate financing. Amortization of acquired intangibles has been reclassified to depreciation and amortization. Origination fees for loans receivable at fair value, net We have removed the adjustment related to origination fees for loans receivable at fair value, net as we believe this better aligns with common practices within our industry. Adjusted Net Income (Loss) Rationale for Change Acquisition and integration related expenses We have removed the adjustment related to acquisition and integration related expenses. Interest expense related to our acquisition related financing has been reclassified to the adjustment for corporate financing, including the senior secured term loan and residual financing facility, as it views this expense as related to its capital structure rather than funding. Fair value mark-to-market adjustment on Asset-Backed Notes at Fair Value We have added an adjustment to exclude the Fair value mark-to-market adjustments related to Asset-Backed Notes at Fair Value. This adjustment aligns with our decision in 2023 to stop electing the fair value option for new debt financings. By the end of 2025 nearly all our existing Asset-Backed Notes at Fair Value will have paid down to zero, so after that there will be no mark-to-market adjustment for our debt. Adjusted Operating Efficiency Rationale for Change Acquisition and integration related expenses We have removed the adjustment related to acquisition and integration related expenses, to maintain consistency with the revised Adjusted EBITDA and Adjusted Net Income (Loss) calculations. Reconciliations of non-GAAP to GAAP measures can be found below. Adjusted EBITDA We define Adjusted EBITDA as 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 of directors to evaluate and compare operating results, including 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 Oportun's business, as it removes the effect of income taxes, certain non-cash items, variable charges and timing differences. • We believe it is useful to exclude the impact of income tax expense, as reported, because historically it has included irregular income tax items that do not reflect ongoing business operations. • We believe it is useful to exclude 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 our corporate financing facilities, including the senior secured term loan and the residual financing facility, as we view this expense as related to our capital structure rather than our funding. • We exclude the impact of certain non-recurring charges, such as expenses associated with our workforce optimization efforts, and other non-recurring charges because we do not believe that these items reflect ongoing business operations. Other non-recurring charges include litigation reserve, impairment charges, debt amendment and warrant amortization costs related to our corporate financing facilities. • We also exclude fair value mark-to-market adjustments on the loans receivable portfolio and asset-backed notes carried at fair value because these adjustments do not impact cash. 38 Components of Fair Value Mark-to-Market Adjustment (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Fair value mark-to-market adjustment on loans receivable at fair value (1) $ (36,692) $ 14,186 $ (7,754) $ (23,133) Fair value mark-to-market adjustment on asset-backed notes (1,910) (12,623) (29,033) (61,518) Fair value mark-to-market adjustment on derivatives 950 6,258 $ 2,126 $ 7,954 Total fair value mark-to-market adjustment $ (37,652) $ 7,821 $ (34,661) $ (76,697) (1) The fair value mark-to-market adjustment on Loans Receivable at Fair Value includes the fair value mark-to-market adjustment of $(36.2) million related to the credit card portfolio reclassified to held for sale. See Note 5 , Loans Held for Sale and Loans Sold in the Notes to the Condensed Financial Statements (Unaudited) included elsewhere in this report for further information on Credit cards receivable held for sale. In addition, t he fair value mark-to-market adjustment on loans receivable at fair value excludes mark-to-market adjustments associated with loans sold. See the section titled " Total net increase (decrease) in fair valu e" in the Results of Operations section for additional information regarding the fair value mark on loans sold. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, Adjusted EBITDA (in thousands) 2024 2023 (1) 2024 2023 (1) Net income (loss) $ (31,025) $ (14,899) $ (57,464) $ (116,989) Adjustments: Income tax benefit (18,124) (2,572) (22,160) (42,015) Interest on corporate financing 13,229 12,611 27,123 22,398 Depreciation and amortization 13,005 13,760 26,203 27,149 Stock-based compensation expense 3,004 4,385 6,986 8,884 Workforce optimization expenses 2,207 8,408 3,007 15,226 Other non-recurring charges 10,273 580 13,804 3,089 Fair value mark-to-market adjustment 37,652 (7,821) 34,661 76,697 Adjusted EBITDA $ 30,221 $ 14,452 $ 32,160 $ (5,561) (1) Our calculation of Adjusted EBITDA was updated in Q1 2024 to more closely align with management’s internal view of the performance of the business. The values for three and six months ended June 30, 2023 for Adjusted EBITDA shown in the table above have been revised and presented on a comparable basis, prior to these revisions the values would have been $4.3 million and $(20.1) million, respectively. Adjusted Net Income (Loss) We define Adjusted Net Income as net income adjusted to eliminate the effect of certain items as described below. We believe that Adjusted Net Income is an important measure of operating performance because it allows management, investors, and our Board to evaluate and compare our operating results, including return on capital and operating efficiencies, from period to period, excluding the after-tax impact of non-cash, stock-based compensation expense and certain non-recurring charges. • 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 also include the impact of normalized income tax expense by applying a normalized statutory tax rate. • We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with our workforce optimization efforts, and other non-recurring charges because we do not believe that these items reflect our ongoing business operations. Other non-recurring charges include litigation reserve, impairment charges, debt amendment and warrant amortization costs related to our corporate financing facilities. • We believe it is useful to exclude stock-based compensation expense because it is a non-cash charge. • We also exclude the fair value mark-to-market adjustment on our asset-backed notes carried at fair value to align with the 2023 accounting policy decision to account for new debt financings at amortized cost. The following table presents a reconciliation of net income to Adjusted Net Income (Loss) for the three and six months ended June 30, 2024 and 2023: 39 Three Months Ended June 30, Six Months Ended June 30, Adjusted Net Income (Loss) (in thousands) 2024 2023 (2) 2024 2023 (2) Net income (loss) $ (31,025) $ (14,899) $ (57,464) $ (116,989) Adjustments: Income tax benefit (18,124) (2,572) (22,160) (42,015) Stock-based compensation expense 3,004 4,385 6,986 8,884 Workforce optimization expenses 2,207 8,407 3,007 15,226 Other non-recurring charges 10,273 580 13,804 3,089 Net decrease in fair value of credit cards receivable 36,177 — 36,177 — Mark-to-market adjustment on asset-backed notes 1,910 12,623 29,033 61,518 Adjusted income (loss) before taxes 4,422 8,524 9,383 (70,287) Normalized income tax expense 1,194 2,301 2,533 (18,977) Adjusted Net Income (Loss) $ 3,228 $ 6,223 $ 6,850 $ (51,310) Income tax rate (1) 27.0 % 27.0 % 27.0 % 27.0 % (1) Income tax rate for the three and six months ended June 30, 2024 and 2023 is based on a normalized statutory rate. (2) Our calculation of Adjusted Net Income (Loss) was updated in Q1 2024 to more closely align with management’s internal view of the performance of the business. The values for three and six months ended June 30, 2023 for Adjusted Net Income (Loss) shown in the table above have been revised and presented on a comparable basis, prior to these revisions the values would have been $2.3 million and $(85.9) million, respectively. 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, 2024 and 2023. 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) 2024 2023 (1) 2024 2023 (1) Diluted earnings (loss) per share $ (0.78) $ (0.41) $ (1.46) $ (3.31) Adjusted EPS Adjusted Net Income (Loss) $ 3,228 $ 6,223 $ 6,850 $ (51,310) Basic weighted-average common shares outstanding 39,816,996 36,691,291 39,358,936 35,342,663 Weighted average effect of dilutive securities: Stock options — 9,543 — — Restricted stock units 469,445 291,942 458,515 — Diluted adjusted weighted-average common shares outstanding 40,286,441 36,992,776 39,817,451 35,342,663 Adjusted Earnings (Loss) Per Share $ 0.08 $ 0.17 $ 0.17 $ (1.45) (1) Our calculation of Adjusted Net Income (Loss) was updated in Q1 2024 to more closely align with management’s internal view of the performance of the business. The values for three and six months ended June 30, 2023 for Adjusted EPS shown in the table above have been revised and presented on a comparable basis, prior to these revisions the values would have been $0.06 and $(2.43), respectively. Return on Equity and 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, 2024 and 2023. For the reconciliation of net income to Adjusted Net Income (Loss), see the immediately preceding table “Adjusted Net Income (Loss).” 40 As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, (in thousands) 2024 2023 (1) 2024 2023 (1) Return on Equity (33.9) % (13.1) % (30.5) % (46.9) % Adjusted Return on Equity Adjusted Net Income (Loss) $ 3,228 $ 6,223 $ 6,850 $ (51,310) Average stockholders' equity $ 368,044 $ 457,272 $ 379,260 $ 502,999 Adjusted Return on Equity 3.5 % 5.5 % 3.6 % (20.6) % (1) Our calculation of Adjusted Net Income (Loss) was updated in Q1 2024 to more closely align with management’s internal view of the performance of the business. The values for three and six months ended June 30, 2023 for Adjusted Return on Equity shown in the table above have been revised and presented on a comparable basis, prior to these revisions the values would have been 2.0% and (34.4)%, respectively. Adjusted Operating Expense, Adjusted Operating Efficiency and Adjusted Operating Expense Ratio We define Adjusted Operating Expense as total operating expenses adjusted to exclude stock-based compensation expense and certain non-recurring charges such as expenses associated with our workforce optimization efforts, and other non-recurring charges. Other non-recurring charges include litigation reserve, impairment charges, and debt amendment costs related to our Corporate Financing facility. We define Adjusted Operating Efficiency as total Adjusted Operating Expense divided by total revenue. We define Adjusted Operating Expense Ratio as Adjusted Operating Expense divided by Average Daily Principal Balance. We believe Adjusted Operating Expense is an important measure because it allows management, investors and our Board to evaluate and compare its operating costs from period to period, excluding the impact of non-cash, stock-based compensation expense and certain non-recurring charges. We believe Adjusted Operating Efficiency and Adjusted Operating Expense Ratio are important measures because they allow management, investors and our Board to evaluate how efficiently we are managing costs relative to revenue and Average Daily Principal Balance. The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency, Operanting Expense to Adjusted Operating Expense and Operating Expense Ratio to Adjusted Operating Expense Ratio for the three and six months ended June 30, 2024 and 2023: As of or for the Three Months Ended June 30, As of or for the Six Months Ended June 30, (in thousands) 2024 2023 (1) 2024 2023 (1) Operating Efficiency 43.6 % 51.1 % 43.7 % 53.7 % Adjusted Operating Efficiency Total revenue 250,396 266,563 500,878 526,075 Total operating expense 109,182 136,096 218,824 282,434 Stock-based compensation expense (3,004) (4,385) (6,986) (8,884) Workforce optimization expenses (2,207) (8,407) (3,007) (15,226) Other non-recurring charges (9,876) (344) (13,014) (2,628) Total adjusted operating expenses $ 94,095 $ 122,960 $ 195,817 $ 255,696 Adjusted Operating Efficiency 37.6 % 46.1 % 39.1 % 48.6 % Average Daily Principal Balance $ 2,745,667 $ 2,993,598 $ 2,798,654 $ 3,031,639 Operating Expense Ratio 16.0 % 18.2 % 15.7 % 18.8 % Adjusted Operating Expense Ratio 13.8 % 16.5 % 14.1 % 17.0 % (1) Our calculation of Adjusted Operating Efficiency was updated in Q1 2024 to more closely align with management’s internal view of the performance of the business. The values for three and six months ended June 30, 2023 shown in the table above have been revised and presented on a comparable basis, prior to these revisions the values would have been 43.4% and 45.9%, respectively. 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. 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. 41 The following table summarizes our total liquidity reserves: June 30, 2024 (in thousands) Total capacity Amount borrowed/utilized Remaining available capacity Cash and cash equivalents $ 72,871 N/A $ 72,871 Restricted cash 163,765 N/A 163,765 Secured financing 680,000 156,696 523,304 Whole loan forward flow agreements (1) 820,895 640,118 180,777 Total liquidity $ 1,737,531 $ 796,814 $ 940,717 (1) The remaining available capacity for whole loan forward flow agreements represents future committed and uncommitted whole loan sales under existing agreements of $20.0 million and $160.8 million, respectively. 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) 2024 2023 Cash, cash equivalents and restricted cash $ 236,636 $ 202,335 Cash provided by (used in) Operating activities 193,609 179,357 Investing activities (26,978) (104,021) Financing activities (136,011) (76,818) 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 principal, interest expense, and satisfy any amount due to whole loan buyers with any excess amounts returned to us. Operating Activities Our net cash provided by operating activities was $193.6 million and $179.4 million for the six months ended June 30, 2024 and 2023, respectively. Cash flows from operating activities primarily include net income or losses adjusted for (i) non-cash items included in net income or loss, including depreciation and amortization expense, goodwill impairment charges, fair value adjustments, net, origination fees for loans at fair value, net, gain on loan sales, stock-based compensation expense and deferred tax provision, net, (ii) originations of loans sold and held for sale, and proceeds from sale of loans and (iii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of various payments. The $14.3 million increase in our net cash provided by operating activities is primarily driven by a $59.5 million decrease in our Net Loss, a $20.5 million decrease in our deferred tax asset, partially offset by a $69.2 million decline in our fair value mark to market adjustment for the current year compared to prior year, respectively. Investing Activities Our net cash used in investing activities was $(27.0) million and $(104.0) million for the six months ended June 30, 2024 and 2023, respectively. Our investing activities consist primarily of loan originations and loan repayments. 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 used in investing activities is due to $101.2 million lower loan disbursements which were partially offset by a $35.7 million decrease in repayments of loan principal and $10.4 million lower capitalization of system development costs for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Financing Activities Our net cash used in financing activities was $(136.0) million and $(76.8) million for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024, net cash used in financing activities was primarily driven by amortization payments on our Series 2021-A, Series 2021-B, Series 2022-2, Series 2022-3 asset-backed notes and Series 2024-1 asset-backed borrowing, and our other asset-backed borrowings and repayments of borrowings on our PLW, CCW and Acquisition and Corporate Financing facilities, partially offset by borrowings under our asset-backed borrowings at amortized cost. For the six months ended June 30, 2023, net cash used in financing activities was primarily driven by borrowings under the PLW partially offset by repayments of borrowings on our CCW and scheduled amortization payments on our Acquisition Financing facility and our Series 2019-A, Series 2021-A, Series 2022-2 and Series 2022-3 asset-backed notes. Sources of Funds Debt and Available Credit 42 Asset-Backed Securitizations As of June 30, 2024, we had $1.9 billion of outstanding asset-backed notes. Our securitizations utilize special purpose entities which are also variable interest entities (“VIEs”) that meet the requirements to be consolidated in our financial statements. For more information regarding our VIEs and asset-backed securitizations, see Note 4, 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, 2024, we were in compliance with all covenants and requirements of all our asset-backed notes. Secured Financings As of June 30, 2024 , we had Secured Financing facilities with warehouse lines of $680.0 million in the aggregate with undrawn capacity of $523.3 million. On March 8, 2023, the Credit Card Warehouse facility was amended, reducing its commitment from $150.0 million to $120.0 million. On December 22, 2023, the Credit Card Warehouse facility was further amended, reducing its commitment from $120.0 million to $100.0 million, thereby reducing the combined commitment to $700.0 million. On January 31, 2024, we further amended the Credit Card Warehouse facility to adjust our payment rate, advance rate, and other loan sales. Additionally, our commitment amount reduced from $100.0 million to $80.0 million, and will reduce again from $80.0 million to $75.0 million effective October 1, 2024. 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. Asset-Backed Borrowings at Amortized Cost On February 13, 2024, we announced the issuance of $199.5 million of asset-backed notes by Oportun Issuance Trust 2024-1 and secured by a pool of its unsecured and secured personal installment loans (the "2024-1 Securitization"). The 2024-1 Securitization included four classes of fixed rate notes. The Notes were offered and sold in a private placement in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended, and were priced with a weighted average yield of 8.600% per annum and weighted average coupon of 8.434% per annum. On October 20, 2023, we entered into a Receivables Loan and Security Agreement (the “Receivables Loan and Security Agreement”), pursuant to which the Company borrowed $197 million. Borrowings under the Receivables Loan and Security Agreement accrue interest at a weighted average interest rate equal to 10.05%. On August 3, 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 $400.0 million of our personal loan originations over a twelve month period. We will continue to service these loans upon transfer of the receivables. 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 six months ended June 30, 2024, we transferred loans receivable totaling $123.2 million, bringing the total loans receivable sold under the agreement to $319.1 million. On June 16, 2023, we entered into a forward flow whole loan sale agreement with an additional institutional investor. On April 26, 2024, we amended the agreement to extend the term through October 2024 and committed to sell $150.0 million of personal loan originations. We will continue to service these loans upon transfer of the receivables. 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 six months ended June 30, 2024, we transferred loans receivable totaling $70.6 million, bringing the total loans receivable sold under the agreement to $291.1 million. 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. On December 20, 2023, Oportun RF, LLC was amended to provide for the exclusion of certain events with respect to Oportun Funding XIV, LLC, a subsidiary of the Company, including a Rapid Amortization Event (as defined in the Sixth RF Indenture Amendment), the release of the RF Issuer’s (as defined in the Sixth RF Indenture Amendment) lien on certain residual certificates and notes, and makes certain other immaterial changes. On March 8, 2024, the Acquisition Financing facility (Oportun RF, LLC) was further amended to provide for a three-month principal payment holiday for the months of March, April and May 2024, in amounts equal to $5.7 million per month. In addition, the amendment extended the term of the Acquisition Financing facility to January 10, 2025. 43 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%. On March 12, 2024, the Company entered into an amendment (the “Third Amendment”), which includes modifications to the minimum asset coverage ratio covenant levels, provides for an interest rate step-up of 3.00% per annum for certain months beginning in August 2024 in which the asset coverage ratio is less than 1.00 to 1.00, and required certain principal payments in amounts equal to $5.7 million per month to be made on the last business day of each of March, April and May 2024. In addition, the Third Amendment requires principal payments equal to 100% of the net cash proceeds of any future issuance of indebtedness junior in priority to the obligations under the Corporate Financing. As of June 30, 2024, 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. Other loan sales During 2023, we entered into agreements to sell certain populations of our personal loans and credit card receivables from time to time, including non-performing loans and credit card receivables originated as held for investment. For the six months ended June 30, 2024 , we sold approximately $54.1 million of such loans. 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 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 six months ended June 30, 2024 was $28.4 million. For further information on the whole loan sale transactions, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report. In November 2023, the Company entered into a forward flow whole loan sale agreement with an institutional investor to sell up to $70 million of its unsecured personal loans over a one-year period beginning December 2023. 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 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. 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 higher 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, 44 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, 2023, filed with the Securities and Exchange Commission on March 15, 2024 ("2023 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 2023 Form 10-K. Recently Issued Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies 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. 45 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "Smaller Reporting Company" as defined by Item 10 of Regulations S-K, the Company is not required to provide this information.