Oportun Financial Corp 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For more information about terms and abbreviations used in this report see the “ Glossary ” at the end of Part II of this report. An index to our management's discussion and analysis follows: Topic Overview 39 Key Financial and Operating Metrics 40 Seasonality 43 Historical Credit Performance 42 Results of Operations 44 Fair Value Estimate Methodology for Loans Receivable at Fair Value 49 Non-GAAP Financial Measures 50 Liquidity and Capital Resources 54 Critical Accounting Policies and Significant Judgments and Estimates 58 Recently Issued Accounting Pronouncements 59 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” included elsewhere in this Annual Report on Form 10-K. 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 information contained in Part I, Item 1A. “Risk Factors” of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a mission-driven financial services company 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 $19.7 billion in responsible credit through more than 7.4 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 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 December 31, 2024, our personal loan products are also available over the phone or through our 128 retail locations, and 491 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 December 31, 2024, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 40 months and 34.3%, respectively. The average loan size for loans we originated in 2024 was $3,281. 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 December 31, 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 in 2024 was $6,798. As of December 31, 2024, for all active loans in our portfolio and at time of disbursement, the weighted average term and APR at origination was 49 months and 31.5%, respectively. As part of our underwriting process, we evaluate the collateral value of the vehicle, verify income for all applicants and only approve loans that meet our ability-to-pay criteria. Our secured personal loans are currently offered in 6 states and we are in the process of expanding into other states. 39 Credit Cards - We lau nched Oportun® Visa® Credit Card, issued by WebBank, Member FDIC, in December 2019. On November 12, 2024, we completed the sale of the credit cards receivable portfolio. This transaction reflected a key milestone towards our initiative to enhance profitability by simplifying the business and driving performance in our core products. 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 $11.4 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 Consolidated Balance Sheets. 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. In addition, we recently announced a collaboration with Western Union. As part of these programs, Oportun originates, underwrites, and services the loan. 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, expanding our membership base while offering a true Oportun service experience. 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. Over the past twelve years, we have executed 22 amortizing and revolving bond offerings in the asset-backed securities market, the last 19 of which include tranches that have been rated investment grade. We have issued one-, two- and three-year fixed rate bonds which have provided us committed capital to fund future loan originations at a fixed Cost of Debt. Additionally, we have entered into certain agreements with institutional investors to sell a portion of our loans as part of structured and whole loan agreements. Refer to Liquidity and Capital Resources in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding these transactions. Workforce Optimization and Streamlining Operations During 2024, we announced a plan to reduce operating expenses by $30 million on an annualized basis to continue to streamline efficiency and improve profitability. In connection with the plan, 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 Consolidated Statements of Operations for the year ended December 31, 2024. In addition, we routinely evaluate the balance of investment and productivity of our retail locations, and as a result, we also made the decision to close 41 retail locations and reduce a portion of the workforce who manage and operate these retail locations. The income statement impact of $1.0 million was recorded through General, administrative and other on the Consolidated Statements of Operations for the year ended December 31, 2024. These amounts included expenses related to the retail location closures and all severance and benefits-related costs. 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, including reducing our corporate staff by approximately 40%. In relation to these and other personnel related activities, the income statement impact of $21.3 million was recorded through General, administrative and other on the Consolidated Statements of Operations for the year ended December 31, 2023. In addition, during 2023, we made the decision to close 32 retail locations and reduce a portion of the workforce who manage and operate these retail locations. The income statement impact of $1.1 million was recorded through General, administrative and other on the Consolidated Statements of Operations for the twelve months ended December 31, 2023. These amounts included expenses related to the retail location closures and all severance and benefits-related costs. Key Financial and Operating Metrics 40 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. The following table and related discussion set forth key financial and operating metrics for our operations as of and for the years ended December 31, 2024 and 2023. For similar financial and operating metrics and discussion of our 2023 results compared to our 2022 results, refer to Part II. Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 15, 2024. As of or for the Year Ended December 31, (in thousands of dollars) 2024 2023 Key Financial and Operating Metrics Aggregate Originations $ 1,775,304 $ 1,813,058 Portfolio Yield 33.5 % 32.2 % 30+ Day Delinquency Rate 4.8 % 5.9 % Annualized Net Charge-Off Rate 12.0 % 12.2 % Other Metrics Managed Principal Balance at End of Period $ 2,973,537 $ 3,182,148 Owned Principal Balance at End of Period $ 2,678,232 $ 2,904,683 Average Daily Principal Balance $ 2,766,634 $ 2,992,592 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 $1.78 billion for the year ended December 31, 2024, from $1.81 billion for the year ended December 31, 2023, representing a 2.1% decrease. The decrease is driven by a decline in the average loan size, which was a result of strategic changes in our underwriting standards and a higher proportion of front book vintages in the portfolio mix for the year 2024 as compared to 2023 . 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. The decrease was offset by an increase in the number of loans originated, 536,018 and 467,188 for the years ended December 31, 2024 and 2023, respectively. This increase is primarily due to the reintroduction of our Access Loan program in the fourth quarter of 2023, which is a program intended to make credit available to select borrowers who do not qualify for credit under the Borrower’s or any of its Subsidiaries’ principal loan origination program. Portfolio Yield Portfolio yield increased to 33.5% for the year ended December 31, 2024, from 32.2% for the year ended December 31, 2023 primarily attributable to higher pricing on our personal loan products. 30+ Day Delinquency Rate Our 30+ Day Delinquency Rate decreased 113 basis points to 4.8% as of December 31, 2024, from 5.9% as of December 31, 2023. The decrease was primarily due to improvement in credit outcomes in the current period compared to the prior year. The improvement is largely driven by increased front book vintages in our portfolio mix for fiscal year 2024 compared to 2023. Our front book has a better credit performance compared to our back book as we continued to tighten credit standards throughout 2023 and 2024 after significantly tightening underwriting standards in 2022. Annualized Net Charge-Off Rate Annualized Net Charge-Off Rate for the year ended December 31, 2024 and 2023 was 12.0% and 12.2%, respectively, down 18 basis points. The decrease is primarily driven by a $32.4 million decrease in Net Charge-offs, partially offset by a decrease in our Average Daily Principal balance of 7.6% from $3.0 billion to $2.8 billion for the years ended December 31, 2023 and 2024 , respectively . The decline in Net Charge-offs is primarily due to improvement in credit quality driven by increased front book vintages in our portfolio mix for fiscal year 2024 compared to 2023. Our front book vintages have lower charge-off rates compared to our 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. 41 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 and 2024, we tightened our credit underwriting standards and focused lending towards existing and returning members to improve credit outcomes. The Annualized Net Charge-Off Rate for the years ended December 31, 2024 and 2023 was 12.0% and 12.2% , respectively . This improvement was primarily due to a $32.4 million decrease in Net Charge-offs. For the year ended December 31, 2024, the back book continued to season and made-up 27% of gross charge-offs while only making up approximately 14% of the loans receivable (excluding credit cards). 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 charged-off a credit card account at the earlier of when the account was determined to be uncollectible or when it was 180 days contractually past due. In addition to monitoring our loss and delinquency performance on an owned portfolio basis, we also monitor the performance of our loans by the period in which the loan was disbursed, generally years or quarters, which we refer to as a vintage. We calculate net lifetime loan loss rate by vintage as a percentage of original principal balance. Net lifetime loan loss rates equal the net lifetime loan losses for a given year through December 31, 2024, divided by the total origination loan volume for that year. The below chart and table show our net lifetime loan loss rate for each annual vintage of our personal loan product since 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 beginning in the third quarter 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. In the second half of 2023 we did further tightening and shortened average term length which resulted in stronger performance of the 2023 vintages in the second half of the year as compared to the 2022 vintages for the same period. 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. 42 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 December 31, 2024 as a percentage of original principal balance 6.1% 7.1% 8.0% 8.2% 9.8% 10.8% 9.0% 17.9%* 18.6%* 6.4%* Outstanding principal balance as of December 31, 2024 as a percentage of original amount disbursed —% —% —% —% —% 0.1% 0.3% 3.8% 23.3% 60.2% * 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. Our business is highly seasonal, and the fourth quarter is typically our strongest quarter in terms of loan originations. We have historically experienced a seasonal decline in credit performance in the fourth quarter primarily attributable to competing demand of our borrowers’ available cash flow around the holidays. General increases in our borrowers’ available cash flow in the first quarter, including from cash received from tax refunds, temporarily reduces our borrowers’ borrowing needs. 43 Results of Operations The following tables and related discussion set forth our Consolidated Statements of Operations for the years ended December 31, 2024 and 2023. For a discussion regarding our operating and financial data for the year ended December 31, 2023, as compared to the same period in 2022, refer to Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 15, 2024. Years Ended December 31, (in thousands of dollars) 2024 2023 Revenue Interest income $ 925,468 $ 963,496 Non-interest income 76,307 93,423 Total revenue 1,001,775 1,056,919 Less: Interest expense 238,158 179,414 Total net decrease in fair value (468,413) (596,839) Net revenue 295,204 280,666 Operating expenses: Technology and facilities 166,177 219,406 Sales and marketing 66,973 75,284 Personnel 87,166 121,843 Outsourcing and professional fees 36,847 45,401 General, administrative and other 53,218 72,385 Total operating expenses 410,381 534,319 Income (loss) before taxes (115,177) (253,653) Income tax benefit (36,495) (73,702) Net income (loss) $ (78,682) $ (179,951) Total revenue Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Revenue Interest income $ 925,468 $ 963,496 $ (38,028) (3.9) % Non-interest income 76,307 93,423 (17,116) (18.3) % Total revenue $ 1,001,775 $ 1,056,919 $ (55,144) (5.2) % Percentage of total revenue: Interest income 92.4 % 91.2 % Non-interest income 7.6 % 8.8 % Total revenue 100.0 % 100.0 % Interest income. Total interest income decreased by $38.0 million, or 3.9%, from $963.5 million for 2023 to $925.5 million for 2024. The decrease is primarily attributable to a decline in our Average Daily Principal Balance, which declined from $2.99 billion for 2023 to $2.77 billion for 2024 , a decrease of 7.6%, offset by an increase in portfolio yield of 125 basis points in the year ended December 31, 2024, compared to the year ended December 31, 2023. Non-interest income. Total non-interest income decreased by $17.1 million, or 18.3%, from $93.4 million for 2023 to $76.3 million for 2024. This decrease is primarily due to a $11.3 million decrease in fees related to our Pathward program, $3.2 million decrease in subscription revenue, $2.4 million decrease related to the gain on loan sales, $2.1 million decrease attributable to a decrease in interchange and servicing fees due to the amortization of our serviced portfolio, and $1.1 million decrease in credit card and sublease income. The decrease was offset by a $3.0 million increase in interest earned on Set & Save member accounts. See Note 2, Summary of Significant Accounting Policies , and Note 12 , Revenue , of the Notes to the Consolidated Financial Statements included elsewhere in this report for further discussion on our interest income, non-interest income and revenue. 44 Interest expense Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Interest expense $ 238,158 $ 179,414 $ 58,744 32.7 % Percentage of total revenue 23.8 % 17.0 % Cost of Debt 8.4 % 6.0 % Interest expense. Interest expense increased by $58.7 million, or 32.7%, from $179.4 million for 2023 to $238.2 million for 2024. Our Average Daily Debt Balance decreased from $2.97 billion to $2.85 billion for 2024, a decrease of 4.1%. Our Cost of Debt has increased due to higher interest rates and credit spreads on current debt issuances as compared to lower cost funding issued in 2021 that is amortizing. Additionally, interest expense in 2024 included a $16.6 million write off of deferred financing costs related to our Corporate Financing, which was refinanced in the fourth quarter of 2024; excluding this write-off, cost of debt would have been 7.8%. See Note 8 , Borrowings , in the Notes to the Consolidated Financial Statements included elsewhere in this report for further information on our Interest expense and our borrowings. Total net decrease in fair value Net 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. Year Ended December 31, 2024 vs. 2023 Change (in thousands) 2024 2023 $ % Fair value mark-to-market adjustment: Fair value mark-to-market adjustment on Loans Receivable at Fair Value (1) $ (1,706) $ (18,180) $ 16,474 * Fair value mark-to-market adjustment on asset-backed notes (72,089) (99,951) 27,862 * Fair value mark-to-market adjustment on derivatives 4,464 8,583 (4,119) * Total fair value mark-to-market adjustment (69,331) (109,548) 40,217 * Charge-offs, net of recoveries on loans receivable at fair value (331,413) (363,824) 32,411 * Net settlements on derivative instruments 7,531 (5,284) 12,815 * Fair value mark on loans sold (2) (75,200) (118,183) 42,983 * Total net decrease in fair value $ (468,413) $ (596,839) $ 128,426 * Percentage of total revenue: Fair value mark-to-market adjustment (6.9) % (10.4) % Charge-offs, net of recoveries on loans receivable at fair value (33.1) % (34.4) Total net decrease in fair value (40.0) % (44.8) % Discount rate 7.92 % 10.10 % Remaining cumulative charge-offs 11.68 % 12.10 % Average life in years 1.11 1.01 * Not meaningful (1) The fair value mark-to-market adjustment on Loans Receivable at Fair Value for the year ended December 31, 2024, includes a fair value mark-to-market adjustment of $(33.7) million related to the credit cards receivable portfolio reclassified as held for sale. See Note 5 , Loans Held for Sale and Loans Sold in the Notes to the Consolidated Financial Statements included elsewhere in this report for further information on Credit cards receivable held for sale. (2) The fair value mark-to-market adjustment on loans receivable at fair value shown for the year ended December 31, 2023 and December 31, 2024, includes $(118.2) million and $(75.2) million, respectively, related to the cumulative fair value mark on loans sold in other sales in 2023 and 2024. 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 decrease in fair value. Net decrease in fair value for 2024 was $468.4 million. This amount represents a total fair value mark-to-market decrease of $69.3 million on Asset-backed notes, Loans Receivable at fair value, and our derivative assets. The total fair value mark-to-market adjustment consists of a $(1.7) million mark-to-market adjustment on Loans Receivable at Fair Value due to a decrease in remaining cumulative charge-offs from 12.10% as of December 31, 2023 to 11.68% as of December 31, 2024, a decrease in the discount rate from 10.10% as of December 31, 2023 to 7.92% as of December 31, 2024, and an increase in average life from 1.01 years as of December 31, 2023 to 1.11 years as of December 31, 2024. These were offset by a $33.7 million decrease in fair value associated with the sale of the credit cards receivable portfolio. The $(72.1) million mark-to-market adjustment on Asset-backed notes is due to falling rates and narrowing asset-backed securitization spreads. The net decrease in charge-offs, net of recoveries, for 2024 was $331.4 million. The total net decrease in fair value for the year ended December 31, 2024 includes a $(75.2) million adjustment related to the fair value mark on other loan sales in 2024. We expect to continue to see volatility in fair value primarily as a result of macroeconomic conditions. 45 Net decrease in fair value for 2023 was $596.8 million. This amount represents a total fair value mark-to-market decrease of $109.5 million on Asset-backed notes, Loans Receivable at fair value, and our derivative assets. The total fair value mark-to-market adjustment consists of a $(18.2) million mark-to-market adjustment on Loans Receivable at Fair Value due to an increase in remaining cumulative charge-offs from 10.38% as of December 31, 2022 to 12.10% as of December 31, 2023 , partially offset by a decrease in the discount rate from 11.48% as of December 31, 2022 to 10.10% as of December 31, 2023 . The $(100.0) million mark-to-market adjustment on Asset-backed notes is due to falling rates and narrowing asset-backed securitization spreads. The net decrease in charge-offs, net of recoveries, for 2023 was $363.8 million. The total net decrease in fair value for the year ended December 31, 2023 includes a $(118.2) million adjustment related to the fair value mark on other loan sales in 2023 . Charge-offs, net of recoveries Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Total charge-offs, net of recoveries $ 331,413 $ 363,824 $ (32,411) (8.9) % Average Daily Principal Balance 2,766,634 2,992,592 (225,958) (7.6) % Annualized Net Charge-Off Rate 12.0 % 12.2 % Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate decreased to 12.0% for the year ended December 31, 2024, from 12.2% for the year ended December 31, 2023. When measured in dollars, Net Charge-Offs decreased by $32.4 million for the year ended December 31, 2024 . The annualized net charge-off rate decreased by 18 basis points due to an 8.9% decrease in total charge-offs net of recoveries, offset by a 7.6% decrease in average daily principal balance. Our annualized net charge-offs decreased in 2024 as loans from our back-book, originated prior to our significant credit tightening actions in July 2022, decreased as a percentage of our owned receivables. As of December 31, 2024, loans from our back-book represented only 5% of our owned receivables balance, and as a result, we expect the back book to become less impactful in 2025. 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. We anticipate operating expenses to decrease in 2025 as compared to 2024, primarily driven by the continued diversification of the workforce to lower-cost geographies and a reduction in non-essential vendor spend. This will be partially offset by additional investments in loan originations and portfolio growth. 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 multi-channel 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. Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Technology and facilities $ 166,177 $ 219,406 $ (53,229) (24.3) % Percentage of total revenue 16.6 % 20.8 % Technology and facilities . Technology and facilities expense decreased by $53.2 million, or 24.3%, from $219.4 million for 2023 to $166.2 million for 2024. The decrease is primarily due to a $21.7 million decrease in wages and salaries, $13.8 million decrease in services and software costs driven by lower usage, $8.0 million decrease in outsourcing and professional fees, $5.5 million decrease driven by the write-off of embedded finance, investing, and retirement products in 2023, $4.7 million decrease in office rent, and $2.7 million decrease in depreciation costs. The decrease was offset by a $4.0 million decrease in capitalization of internally developed software following the reductions in force in 2023 and 2024. 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. 46 Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages and CAC) 2024 2023 $ % Sales and marketing $ 66,973 $ 75,284 $ (8,311) (11.0) % Percentage of total revenue 6.7 % 7.1 % Customer Acquisition Cost (CAC) $ 125 $ 161 $ (36) (22.4) % Sales and marketing. Sales and marketing expenses to acquire our members decreased by $8.3 million, or 11.0%, from $75.3 million for 2023 to $67.0 million f or 2024. Our net decrease in sales and marketing expenses during the year ended December 31, 2024 was primarily attributable to a $7.7 million decrease in wages and salaries due to the decrease in headcount following our efforts to streamline operations, $1.3 million decrease in service costs, $1.8 million decrease in our digital marketing and pay per lead channels, and $1.1 million decrease in our outsourcing and professional fees. This decrease was offset by a $3.5 million increase in our direct mail marketing channel. As a result of our increase in number of loans originated and decrease in our sales and marketing expenses during the year ended December 31, 2024, our CAC decreased by 22.4%, from $161 for the year ended December 31, 2023, to $125 for the year ended December 31, 2024. 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. Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Personnel $ 87,166 $ 121,843 $ (34,677) (28.5) % Percentage of total revenue 8.7 % 11.5 % Personnel . Personnel expense decreased by $34.7 million, or 28.5%, from $121.8 million for 2023, to $87.2 million for 2024. The decrease is primarily driven by our workforce optimization efforts in 2023 and 2024. We expect our 2025 personnel expense to be similar to the personnel expense for 2024. 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. 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. The costs related to our third-party contact centers located in Colombia and the Philippines are included in outsourcing and professional fees, however, both locations were closed during 2024. Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Outsourcing and professional fees $ 36,847 $ 45,401 $ (8,554) (18.8) % Percentage of total revenue 3.7 % 4.3 % Outsourcing and professional fees . Outsourcing and professional fees decreased by $8.6 million, or 18.8%, from $45.4 million for 2023 to $36.8 million for 2024. The decrease is primarily attributable to a $5.8 million decrease in outsourcing services, a $3.0 million decrease in professional services, credit reports and legal fees, and a $1.1 million decrease in accounting and auditing fees. These were offset by a $2.0 million increase in expenses associated with debt recovery and court filings. 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 acquisition-related expenses. Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % General, administrative and other $ 53,218 $ 72,385 $ (19,167) (26.5) % Percentage of total revenue 5.3 % 6.8 % General, administrative and other . General, administrative and other expense decreased by $19.2 million, or 26.5%, from $72.4 million for 2023, to $53.2 million for 2024, primarily due to a decrease of $19.3 million driven by lower costs related to our workforce optimization, $6.5 million decrease in acquisition and integration related expenses, and $1.2 million decrease in postage and printing. These were offset by a $6.4 47 million increase related to impairment of right-of-use asset and fixed asset disposal of our San Carlos office and a $2.0 million increase due to loss on foreign currency exchange. Income taxes Income taxes consist of U.S. federal, state and foreign income taxes, if any. For the years ended December 31, 2024 and 2023 we recognized tax expense (benefit) attributable to U.S. federal, state and foreign income taxes. Year Ended December 31, 2024 vs. 2023 Change (in thousands, except percentages) 2024 2023 $ % Income tax expense (benefit) $ (36,495) $ (73,702) $ 37,207 50.5 % Percentage of total revenue (3.6) % (7.0) % Effective tax rate 31.7 % 29.1 % Income tax benefit . Income tax benefit decreased by $37.2 million or 50.5%, from $73.7 million for 2023 to $36.5 million for 2024, primarily resulting from lower pretax losses for the annual period ended December 31, 2024, the tax benefits of the return-to-provision adjustments and the generation of tax credits. Valuation Allowance . As of December 31, 2024, we have $80.3 million of U.S. net deferred tax assets, of which $71.5 million is related to the 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 Consolidated Financial Statements included elsewhere in this report for further discussion on our income taxes. 48 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 Consolidated Statements of Operations 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 eight 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. The table below reflects the application of this methodology for the eight quarters since January 1, 2023, on loans held for investment. The data in the table below represents all of our credit products. 49 Three Months Ended Dec 31, 2024 Sep 30, 2024 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 26.81 % 26.96 % 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) % (5.00) % (5.00) % Net portfolio yield 21.81 % 21.96 % 23.42 % 23.87 % 24.10 % 24.58 % 24.85 % 24.61 % Multiplied by: Weighted average life in years 1.110 1.113 1.016 1.027 1.007 0.995 0.955 0.963 Pre-loss cash flow 24.21 % 24.44 % 23.79 % 24.50 % 24.26 % 24.45 % 23.74 % 23.69 % Less: Remaining cumulative charge-offs (11.68) % (11.94) % (11.57) % (11.92) % (12.10) % (11.93) % (11.35) % (11.72) % Net cash flow 12.54 % 12.51 % 12.23 % 12.58 % 12.16 % 12.52 % 12.39 % 11.97 % Less: Discount rate multiplied by average life (8.79) % (9.27) % (8.80) % (9.34) % (10.17) % (11.09) % (10.61) % (10.66) % Gross fair value premium (discount) as a percentage of loan principal balance 3.75 % 3.23 % 3.43 % 3.24 % 1.99 % 1.43 % 1.78 % 1.31 % Discount Rate 7.92 % 8.33 % 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 cards receivable portfolio and was classified as held-for-sale on June 30, 2024. On September 24, 2024, we entered into a definitive agreement to sell the credit cards receivable portfolio and completed the sale on November 12, 2024. As such, the credit card receivable portfolio has been excluded starting June 30, 2024. All prior periods presented in the table above include the fair value components of the credit cards receivable 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. 50 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 our net income, adjusted to eliminate the effect of certain items as described below. We believe that Adjusted EBITDA is an important measure because it allows management, investors and our Board to evaluate and compare 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 our 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. 51 Components of Fair Value Mark-to-Market Adjustment (in thousands) Year Ended December 31, 2024 2023 Fair value mark-to-market adjustment on loans receivable at fair value (1) $ (1,706) $ (18,180) Fair value mark-to-market adjustment on asset-backed notes (72,089) (99,951) Fair value mark-to-market adjustment on derivatives 4,464 8,583 Total fair value mark-to-market adjustment $ (69,331) $ (109,548) (1) The fair value mark-to-market adjustment on Loans Receivable at Fair Value includes the fair value mark-to-market adjustment of $(33.7) million related to the credit card receivables portfolio reclassified to held for sale. See Note 5 , Loans Held for Sale and Loans Sold in the Notes to the Condensed Financial Statements 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 years ended December 31, 2024 and 2023 : Year Ended December 31, Adjusted EBITDA (in thousands) 2024 2023 (1) Net income (loss) $ (78,682) $ (179,951) Adjustments: Income tax benefit (36,495) (73,702) Interest on corporate financing 51,135 51,781 Depreciation and amortization 52,186 54,879 Stock-based compensation expense 13,053 17,997 Workforce optimization expenses 3,067 22,485 Other non-recurring charges 30,952 15,524 Fair value mark-to-market adjustment 69,331 109,548 Adjusted EBITDA $ 104,547 $ 18,561 (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 value for the year ended December 31, 2023 for Adjusted EBITDA shown in the table above has been revised and presented on a comparable basis, prior to these revisions the value would have been $1.7 million. 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. 52 The following table presents a reconciliation of net income (loss) to Adjusted Net Income for the years ended December 31, 2024 and 2023 : Year Ended December 31, Adjusted Net Income Loss (in thousands) 2024 2023 (1) Net income (loss) $ (78,682) $ (179,951) Adjustments: Income tax benefit (36,495) (73,702) Stock-based compensation expense 13,053 17,997 Workforce optimization expenses 3,067 22,485 Other non-recurring charges 30,952 15,524 Net decrease in fair value of credit cards receivable 36,177 — Mark-to-market adjustment on asset-backed notes 72,089 99,951 Adjusted income (loss) before taxes 40,161 (97,696) Normalized income tax expense 10,843 (26,378) Adjusted Net Income (Loss) $ 29,318 $ (71,318) Income tax rate (2) 27.0 % 27.0 % (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 value for the year ended December 31, 2023 for Adjusted Net Income (Loss) shown in the table above has been revised and presented on a comparable basis, prior to these revisions the value would have been $(124.1) million. (2) Income tax rates for the years ended December 31, 2024 and December 31, 2023, are based on a normalized statutory rate. Adjusted Earnings (Loss) Per Share (“Adjusted EPS”) Adjusted Earnings (Loss) Per Share is a non-GAAP financial measure that allows management, investors, and our Board to evaluate the operating results, operating trends, and profitability of the business in relation to diluted adjusted weighted-average shares outstanding. The following table presents a reconciliation of Diluted EPS to Diluted Adjusted EPS for the years ended December 31, 2024 and 2023. For the reconciliation of net income to Adjusted Net Income (Loss), see the immediately preceding table “Adjusted Net Income (Loss).” Year Ended December 31, (in thousands, except share and per share data) 2024 2023 (1) Diluted earnings (loss) per share $ (1.95) $ (4.88) Adjusted EPS Adjusted Net Income (Loss) $ 29,318 $ (71,318) Basic weighted-average common shares outstanding 40,356,025 36,875,950 Weighted average effect of dilutive securities: Stock options — — Restricted stock units 500,705 — Diluted adjusted weighted-average common shares outstanding 40,856,730 36,875,950 Adjusted Earnings (Loss) Per Share $ 0.72 $ (1.93) (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 value for the year ended December 31, 2023 for Adjusted EPS shown in the table above has been revised and presented on a comparable basis, prior to these revisions the value would have been $(3.37). 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 for the years ended December 31, 2024 and 2023. For the reconciliation of net income to Adjusted Net Income (Loss), see the immediately preceding table “Adjusted Net Income (Loss).” As of or for the Year Ended December 31, (in thousands) 2024 2023 (1) Return on Equity (20.8) % (37.8) % Adjusted Return on Equity Adjusted Net Income $ 29,318 $ (71,318) Average stockholders ’ equity $ 379,107 $ 476,002 Adjusted Return on Equity 7.7 % (15.0) % 53 (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 value for the year ended December 31, 2023 for Adjusted Return on Equity shown in the table above has been revised and presented on a comparable basis, prior to these revisions the values would have been (26.1)%. 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, Operating Expense to Adjusted Operating Expense and Operating Expense Ratio to Adjusted Operating Expense Ratio for the years ended December 31, 2024 and 2023 : As of or for the Year Ended December 31, (in thousands) 2024 2023 (1) Operating Efficiency 41.0 % 50.6 % Adjusted Operating Efficiency Total revenue $ 1,001,775 $ 1,056,919 Total operating expense 410,381 534,319 Stock-based compensation expense (13,053) (17,997) Workforce optimization expenses (3,067) (22,485) Other non-recurring charges (12,921) (14,409) Total adjusted operating expenses $ 381,340 $ 479,428 Adjusted Operating Efficiency 38.1 % 45.4 % Average Daily Principal Balance $ 2,766,634 $ 2,992,592 Operating Expense Ratio 14.8 % 17.9 % Adjusted Operating Expense Ratio 13.8 % 16.0 % (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 value for the year ended December 31, 2023 shown in the table above has been revised and presented on a comparable basis, prior to these revisions the value would have been 42.7%. 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 structured 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. Elevated and fluctuating 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, and 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. The following table summarizes our total liquidity reserves: 54 As of or for the Year Ended December 31, 2024 (in thousands) Total capacity Amount borrowed/utilized Remaining available capacity Cash and cash equivalents $ 59,968 N/A $ 59,968 Restricted cash 154,657 N/A 154,657 Secured financing 766,130 539,204 226,926 Structured and Whole loan forward flow agreements (1) 589,177 544,422 44,755 Total liquidity $ 1,569,932 $ 1,083,626 $ 486,306 (1) During the period, $10.8 million of the allocated capacity was unsold and relinquished. The remaining unsold amount was removed from the total available capacity of $600.0 million, reducing the overall capacity to $589.2 million. Cash and cash flows The following table summarizes our cash and cash equivalents, restricted cash and cash flows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 Cash, cash equivalents and restricted cash $ 214,625 $ 206,016 Cash provided by (used in) Operating activities 393,522 392,765 Investing activities (193,689) (286,181) Financing activities (191,224) (104,385) Our cash is held for working capital purposes and originating loans. Our restricted cash principally 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 $393.5 million and $392.8 million for the years ended December 31, 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, 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 $0.8 million increase in our net cash provided by operating activities is primarily driven by a $101.3 million decrease in our net loss, and a $42.6 million increase attributed to changes in our deferred tax assets as a result of our year-end tax provision. These were partially offset by a $128.4 million decline in our fair value mark to market adjustment , $9.4 million decline in origination fees for loans receivable at fair value and $5.6 million lower stock compensation, for the current year compared to prior year, respectively. Investing Activities Our net cash used in investing activities was $193.7 million and $286.2 million for the years ended December 31, 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 primarily due to $54.5 million lower loan disbursements, $50.4 million in higher loan sales primarily due to the proceeds received from the sale of our credit cards receivable portfolio, and $12.1 million lower capitalization of system development costs , which were partially offset by a $25.1 million decrease in repayments of loan principal for the year ended December 31, 2024, compared to the year ended December 31, 2023. Financing Activities Our net cash used in financing activities was $191.2 million and $104.4 million for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, net cash used in financing activities was primarily driven by amortization payments on our Series 2021-A, Series 2021-B, Series 2021-C, Series 2022-A, Series 2022-2 and Series 2022-3 asset-backed notes at fair value; and Series 2024-1 and Series 2024-2 asset-backed notes, and our other asset-backed borrowings and repayments of borrowings on our PLW Facility, PLW II Facility, CCW and Acquisition and Corporate Financing facilities, partially offset by borrowings under our asset-backed borrowings at amortized cost. For the year ended December 31, 2023, net cash used in financing activities was primarily driven by principal payments on our Acquisition Financing facility, our Series 2019-A, Series 2021-A, Series 2022-2 and Series 2022-3 asset-backed notes, and repayments on our PLW facility, partially offset by borrowings under our PLW facility, Corporate Financing, and our asset-backed borrowings at amortized cost. Sources of Funds Debt and Available Credit 55 Asset-Backed Securitizations As of December 31, 2024, we had $1.6 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 of the Notes to the Consolidated Financial Statements included elsewhere in this report. Our ability to utilize our asset-backed securitizations as described herein is subject to compliance with various requirements including eligibility criteria for the loan collateral and covenants and other requirements. As of December 31, 2024, we were in compliance with all covenants and requirements of all our asset-backed notes. Secured Financings As of December 31, 2024 , we had Secured Financings with warehouse lines of $766.1 million in the aggregate with undrawn capacity of $226.9 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. On September 24, 2024, we further amended the Credit Card Warehouse facility and reduced the commitment amount from $80.0 million to $60.0 million. On November 10, 2024, the Credit Card Warehouse facility was terminated. 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. On August 5, 2024, in connection with the closing of the PLW II Facility, Oportun PLW II Trust, a subsidiary of the Company, entered into a loan and security agreement with certain lenders from time to time party thereto, and Wilmington Trust, National Association as collateral agent, administrative agent, paying agent, securities intermediary and depositary bank. The PLW II Facility has a three year term and a borrowing capacity of $245.2 million. Borrowings under the loan and security agreement accrue interest at a rate equal to Term SOFR plus a weighted average spread of 3.08%. The advance rate for the PLW II Facility is 95.0%, subject to certain triggers that could lower the advance rate to 92.0%. On November 1, 2024, the PLW II Facility was amended t o increase the borrowing capacity to $337.1 million (the “PLW II Amendment”). Under the PLW II Amendment, borrowings will accrue interest at a rate equal to Term SOFR plus a weighted average spread of 3.07%. On September 20, 2024, Oportun PLW Trust, a subsidiary of the Company, Wilmington Trust, National Association as collateral agent, administrative agent, paying agent, securities intermediary and depositary bank and certain lenders from time to time party thereto, entered into an amendment to the Loan and Security Agreement, dated as of September 8, 2021, and other related documents, under the PLW Facility. Following the amendment, the PLW Facility has a two-year term and had a borrowing capacity of $306.45 million. Borrowings under the PLW Facility loan and security agreement accrued interest at a rate equal to Term SOFR plus a weighted average spread of 3.40%. The advance rate for the PLW Facility is 95.0%, subject to certain triggers that could lower the advance rate to 92.0%. On November 22, 2024, the PLW Facility was further amended to increase the borrowing capacity to approximately $429.0 million (the “PLW Amendment”). Under the PLW Amendment, borrowings will accrue interest at a rate equal to Term SOFR plus a weighted average spread of 3.35%. Asset-Backed Borrowings at Amortized Cost On August 29, 2024, we announced the issuance of $223.3 million of Series 2024-2 asset-backed notes secured by a pool of our unsecured and secured personal installment loans (the "2024-2 Securitization"). The 2024-2 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 8.22% per annum and weighted average coupon of 8.07% per annum. On February 13, 2024, we announced the issuance of $199.5 million of Series 2024-1 asset-backed notes 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 had a commitment to sell up to $400.0 million of our personal loan originations over twelve months. 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 year ended December 31, 2024 , we transferred loans receivable totaling $192.7 million. On June 16, 2023, we entered into a forward flow whole loan sale agreement with an 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 56 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 year ended December 31, 2024 , we transferred loans receivable totaling $151.0 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. On November 14, 2024 (the "Term Loan Closing"), the Acquisition Financing was terminated and the associated outstanding loan balance was repaid in full. Corporate Financing On September 14, 2022, we entered into a Credit Agreement with certain funds associated with Neuberger Berman Specialty Finance (“Neuberger”) as lenders, and Wilmington Trust, National Association, as administrative agent and collateral agent to borrow $150.0 million through a senior secured term loan (the “Original Credit Agreement” and the “Original Term Loan”). The Original Term Loan bore interest, payable in cash, at an amount equal to 1-month term SOFR plus 9.00%. The Original Term Loan was scheduled to mature on September 14, 2026, and was not subject to amortization. Certain prepayments of the Original Term Loan were subject to a prepayment premium. The obligations under the Original Credit Agreement were secured by our assets and certain of our subsidiaries guaranteeing the Original Term Loan, including pledges of the equity interests of certain subsidiaries that were directly or indirectly owned by us, subject to customary exceptions. On March 10, 2023 we upsized and amended the Original Credit Agreement to be able to borrow up to an additional $75.0 million (the “Amended Credit Agreement”). At closing and as part of the Incremental Tranche A-1 Loans, we borrowed $20.8 million and borrowed an additional $4.2 million in Incremental Tranche A-2 loans on March 27, 2023. Under the Second 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 Original Term Loan then bore 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 to the Second Amended Credit Agreement (the “Third Amended Credit Agreement”), 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 Amended Credit Agreement required principal payments equal to 100% of the net cash proceeds of any future issuance of indebtedness junior in priority to the obligations under the Original Credit Agreement, as amended. On November 14, 2024, the Original Credit Agreement, as amended, was terminated and the associated outstanding Original Term Loan was repaid in full, in connection with the Refinancing Credit Agreement disclosed below . On October 23, 2024, we entered into a Credit Agreement with certain affiliates of Neuberger and McLaren Harbor LLC as lenders, and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent, pursuant to which we borrowed $235 million through a senior secured term loan (the “Refinancing Credit Agreement” and the “Refinancing Term Loan”). The Refinancing Term Loan bears interest at (a) a cash rate of 12.50% per annum plus (b) an amount payable in cash or in kind, at our option, equal to 2.50% and is scheduled to mature on November 14, 2028. On November 14, 2024, we repaid in full the Original Credit Agreement, as amended. Certain prepayments under the Refinancing Agreement are subject to a prepayment premium. The obligations under the Refinancing Credit Agreement are secured by our assets and certain of subsidiaries guaranteeing the loan, including pledges of the equity interests of certain subsidiaries that are directly or indirectly owned by us, subject to customary exceptions. The Refinancing Credit Agreement contains several financial covenants; these covenants are included together with other customary affirmative and negative covenants (including reporting requirements), representations and warranties and events of default . As of December 31, 2024, we were in compliance with all covenants and requirements on our outstanding debt and available credit. For more information regarding our Secured Financings and Acquisition Financing and Corporate Financing, see Note 8, Borrowings of the Notes to the Consolidated Financial Statements included elsewhere in this report. Other Loan Sales During 2024 , 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 twelve months ended December 31, 2024, we sold approximately $78.5 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 Consolidated Financial Statements included elsewhere in this report. Whole Loan Sales 57 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, through December 2025, to sell a minimum of $2.0 million of our unsecured loan originations each month, with an option to sell up to $4.2 million each month, subject to certain eligibility criteria. The agreement is scheduled to expire in December 2025. In November 2023, we entered into a forward flow whole loan sale agreement with an institutional investor, under which we expect to sell approximately $100 million of our secured and unsecured personal loans in fiscal year 2025, subject to certain eligibility criteria. This agreement is scheduled to expire in November 2026. The originations of loans sold and held for sale during the year ended December 31, 2024 were $119.6 million. For further information on the whole loan sale transactions, see Note 5, Loans Held for Sale and Loans Sold of the Notes to the Consolidated Financial Statements included elsewhere in this report. Bank Partnership Program and Servicing Agreement We entered into a bank partnership program with 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 Financings, 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 Consolidated Financial Statements 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, 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 consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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. While our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies , in our Notes to the Consolidated Financial Statements included elsewhere in this report, we believe the following critical accounting policies affect the more significant estimates, assumptions and judgments we use to prepare our consolidated financial statements. Fair Value of Loans Held for Investment We elected the fair value option for our loans receivable held for investment. We primarily use a discounted cash flow model to estimate fair value based on the present value of estimated future cash flows. This model uses inputs that are not observable but reflect our best estimates of the assumptions a market participant would use to calculate fair value. The following describes the primary inputs that require significant judgment: • Remaining Cumulative Charge-offs - Remaining cumulative charge-offs are estimates of the principal payments that will not be repaid over the life of a loan held for investment. Remaining cumulative loss expectations are adjusted to reflect the expected principal recoveries on charged-off loans. Remaining cumulative loss expectations are primarily based on the historical performance of our loans but also incorporate adjustments based on our expectations of future credit performance and are quantified by the remaining cumulative charge-off rate. • Remaining Cumulative Prepayments - Remaining cumulative prepayments are estimates of the principal payments that will be repaid earlier than contractually required over the life of a loan held for investment. Remaining cumulative prepayment rates are primarily based on the historical performance of our loans but also incorporate adjustments based on our expectations of future borrower behavior and refinancings through our Good Customer Program. For credit card receivables, we estimate the principal payment rate which is the amount of principal we expect to get repaid each month. • Average Life - Average life is the time weighted average of the estimated principal payments divided by the principal balance at the 58 measurement date. The timing of estimated principal payments is impacted by scheduled amortization of loans, charge-offs, and prepayments. • Discount Rates - The discount rates applied to the expected cash flows of loans held for investment reflect our estimates of the rates of return that investors would require when investing in financial instruments with similar risk and return characteristics. Discount rates are based on our estimate of the rate of return likely to be received on new loans. Discount rates for aged loans are adjusted to reflect the market relationship between interest rates and remaining time to maturity. We developed an internal model to estimate the fair value of loans receivable held for investment. To generate future expected cash flows, the model combines receivable characteristics with assumptions about borrower behavior based on our historical loan performance. These cash flows are then discounted using a required rate of return that management estimates would be used by a market participant. We test the fair value model by comparing modeled cash flows to historical loan performance to ensure that the model is complete, accurate and reasonable for our use. In addition, we engage a third party to create an independent fair value estimate for the Loans Receivable at Fair Value, which provides a set of fair value marks using the Company’s historical loan performance data and whole loan sale prices to develop independent forecasts of borrower behavior. As discussed above, our fair value model uses inputs that are not observable but reflect our best estimates of the assumptions a market participant would use to calculate fair value. For a summary of how these inputs have changed over the last eight quarters since January 1, 2021, refer to Fair Value Estimate Methodology for Loans Receivable at Fair Value in Item 7. " Management's Discussion and Analysis of Financial Condition and Results of Operations ". Recently Issued Accounting Pronouncements See Note 2, Summary of Significant Accounting Policies , of the Notes to the Consolidated Financial Statements included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a "Smaller Reporting Company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. 59