OPORTUN FINANCIAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

An index of our MD&A follows:

Topic

   Forward-Looking Statements                                                      18
   Overview                                                                        19

   Key Financial and Operating Metrics                                             21
   Historical Credit Performance                                                   23
   Results of Operations                                                           25
   Fair Value Estimate Methodology for Loans Receivable at Fair Value              30
   Non-GAAP Financial Measures                                                     31
   Liquidity and Capital Resources                                                 34
   Critical Accounting Policies and Significant Judgments and Estimates            36
   Recently Issued Accounting Pronouncements                                       36



You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and the related notes and other financial information
included elsewhere in this report and the audited consolidated financial
statements and the related notes and the discussion under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the fiscal year ended December 31, 2021 included in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission, on March
1, 2022. Some of the information contained in this discussion and analysis,
including information with respect to our plans and strategy for our business,
includes forward-looking statements that involve risks and uncertainties. You
should review the "Risk Factors" section of this report for a discussion of
important factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in
the following discussion and analysis.

Forward-looking statements

This report contains forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), concerning our business, operations and
financial performance and condition, as well as our plans, objectives and
expectations for our business operations and financial performance and
condition. Any statements contained herein that are not statements of historical
facts are forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "aim," "anticipate," "assume,"
"believe," "contemplate," "continue," "could," "due," "estimate," "expect,"
"goal," "intend," "may," "objective," "plan," "predict," "potential,"
"positioned," "seek," "should," "target," "will," "would," and other similar
expressions that are predictions of or indicate future events and future trends,
or the negative of these terms or other comparable terminology, although not all
forward-looking statements contain these words. These forward-looking statements
include, but are not limited to, statements about:

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

• our ability to manage our net charge rates;

•the successful integration of Hello Digit, Inc. (“Digit”) with our business;

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

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

•our expectations regarding our costs and seasonality;

•our ability to successfully build our brand and protect our reputation from negative publicity;

• our ability to expand our digital origination capabilities and increase the volume of loans originated through our digital channels;

• our ability to increase the effectiveness of our marketing efforts;

• our ability to increase our market share in existing markets or in any new markets we may enter;

•our ability to continue to expand our demographic target;

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

•our ability to successfully manage our interest rate differential relative to our cost of capital;

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

•our plans and our ability to successfully maintain our diversified financing strategy, including warehousing facilities, loan sales and securitization transactions;

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•our ability to manage the risk of fraud;

• our expectations regarding the adequacy of our cash to meet our operating and cash expenses;

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

• our ability to effectively secure and maintain the confidentiality of information provided and used in our systems;

• our ability to compete successfully with companies that are currently present or may enter in the future in the markets in which we operate;

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

•the impact of macroeconomic conditions on our business, including the impact of the COVID-19 pandemic;

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

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


Forward-looking statements are based on our management's current expectations,
estimates, forecasts, and projections about our business and the industry in
which we operate and on our management's beliefs and assumptions. In addition,
statements that "we believe" and similar statements reflect our beliefs and
opinions on the relevant subject. These statements are based upon information
available to us as of the date of this Quarterly Report on Form 10-Q, and while
we believe such information forms a reasonable basis for such statements, such
information may be limited or incomplete, and our statements should not be read
to indicate we have conducted exhaustive inquiry into, or review of, all
potentially available relevant information. We anticipate that subsequent events
and developments may cause our views to change. Forward-looking statements do
not guarantee future performance or development and involve known and unknown
risks, uncertainties, and other factors that are in some cases beyond our
control. Factors that may cause actual results to differ materially from current
expectations include, among other things, those listed under the heading "Risk
Factors" and elsewhere in this report. We also operate in a rapidly changing
environment and new risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of all factors on
our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in, or implied
by, any forward-looking statements. As a result, any or all of our
forward-looking statements in this report may turn out to be inaccurate.
Furthermore, if the forward-looking statements prove to be inaccurate, the
inaccuracy may be material.

You should read this report with the understanding that our actual future results, levels of activity, performance and achievements may differ materially from what we expect.

These forward-looking statements speak only as of the date of this report.
Except as required by law, we assume no obligation to update or revise these
forward-looking statements for any reason, even if new information becomes
available in the future. We qualify all of our forward-looking statements by
these cautionary statements.

Insight

We are a financial technology company and digital banking platform driven by our
mission to provide inclusive, affordable financial services that empower our
members to build a better future. By intentionally designing our products with
our members in mind, we are focused on realizing our vision to deliver a
complete set of financial solutions that meet the needs of hardworking people,
from borrowing and banking to savings, investing and more. We 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 16-year lending history, we have extended more than $13.0 billion in
responsible credit through more than 5.2 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.

With our recent acquisition of Hello Digit, Inc. ("Digit"), we believe we now
have a strong competitive advantage over other fintechs and neobanks. As a
combined company, we can now offer access to a comprehensive suite of digital
banking products, offered either directly or through partners, including
lending, savings and investing powered by A.I. and tailored to each member's
goals.

Our financial products allow us to meet our members where they are and assist
them with their overall financial health, resulting in opportunities to present
multiple relevant products to our members. Our credit products include personal
loans, secured personal loans and credit cards. Our digital banking products
include digital banking, automated savings, long-term investing and retirement
savings. Consumers are able to become members and access our products through
our digital banking app-the Digit app-and the Oportun.com website, which are our
primary channels for onboarding and serving members. Our personal loan products
are also available over the phone or through over 500 retail locations, which
includes 284 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 March 31, 2022, for all active loans
in our portfolio and at time of disbursement, the weighted average term and APR
at origination was 35 months and 32.3%, respectively. The average loan size for
loans we originated during the three months ended March 31, 2022 was $3,893. Our
loans do not have prepayment penalties or balloon payments, and typically range
in size from $300 to $11,000 with terms of 6 to 61 months. Generally, loan
payments are structured on a bi-weekly or semi-monthly basis to coincide with
our members'
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receipt of their income. As part of our underwriting process, we verify income
for all applicants and only approve loans that meet our ability-to-pay criteria.
As of March 31, 2022, we originate unsecured personal loans in 12 states through
state licenses and in 27 through our partnership with MetaBank, N.A.

Secured Personal Loans - In April 2020, we launched a personal installment loan
product secured by an automobile, which we refer to as secured personal loans.
Our secured personal loans range in size from $2,525 to $20,000 with terms
ranging from 21 to 64 months. The average loan size for secured personal loans
we originated during the three months ended March 31, 2022 was $8,394. As of
March 31, 2022, for all active loans in our portfolio and at time of
disbursement, the weighted average term and APR at origination was 47 months and
29.1%, respectively. As part of our underwriting process, we evaluate the
collateral value of the vehicle, verify income for all applicants and only
approve loans that meet our ability-to-pay criteria. Our secured personal loans
are currently offered in California, Texas and Florida. in April 2022 we
launched our secured personal loans in Arizona and we are in the process of
considering expansion into other states.

Credit Cards - We launched Oportun® Visa® Credit Card, issued by WebBank, Member
FDIC, in December 2019, and offer credit cards in 45 states as of March 31,
2022. Credit lines on our credit cards range in size from $300 to $3,000 with an
APR between 24.9% to 29.9%. The average APR of the outstanding credit card
receivables was 29.8% as of March 31, 2022. The average credit line for credit
cards activated during the three months ended March 31, 2022 was $944.

Digital banking products

Digit Savings - Our Digit Savings product is designed to understand a member's
cash flows and save a calculated amount on a regular basis to effortlessly
achieve savings goals. Digit's savings product utilizes machine learning to
analyze a member's transaction activity and build forecasts of the member's
future cash flows to make small, frequent savings decisions according to the
member's financial goals in a personalized manner. Members integrate their
existing bank accounts into the platform or they can make Digit their primary
banking relationship through a bank partner. After one year using the automated
savings product, members have been able to increase their liquid savings by
approximately 50%. Since 2015 Digit has helped members save more than $7.6
billion and pay down more than $330.0 million in debt. The funds in these saving
accounts are owned by Digit members and are not the assets of the Company.
Therefore, these funds are not included in the Condensed Consolidated Balance
Sheets (Unaudited).

Digit Direct - Our Digit Direct product offers a full checking account, through
a bank partner, that intelligently organizes and budgets a member's money across
bills, savings, and spending. The bank account with a brain™, Digit Direct
leverages the same A.I. engine used for our savings product to automatically
identify and organize recurring bills and guides spending to ensure members'
savings goals are met, and that members know exactly what they can safely spend.
This is on top of what members can expect from a traditional checking account,
including a physical and virtual debit card to use for purchases and ATM
withdrawals and checks.

Digit Investing and Digit Retirement - Our Digit investment and retirement
products are a longer-term savings solution via an A.I.-driven portfolio
allocation into low-cost investments based upon risk-tolerance. Our long-term
investment solutions automatically allocates our members' savings into low-cost
risk-adjusted portfolios held in brokerage accounts or tax-advantaged IRAs.
Since 2020, our members have invested $45 million into long-term goals through
low-cost ETF portfolios. The investment products include a general investing
account and a retirement account for our members' longer term goals, utilizing
smart recommendations to invest savings in risk-adjusted portfolios.

Ready as a service

Beyond our core direct-to-consumer lending business, we believe that we can
leverage our proprietary credit scoring and underwriting model to partner with
other consumer brands and expand our member base. With our Lending as a Service
model, our partner markets loans and enters borrower applications into our
system and Oportun underwrites, originates, and services the loans. Our first
Lending as a Service strategic partner was DolEx Dollar Express, Inc. ("DolEx")
with an initial launch in December 2020. In October of 2021, we launched another
Lending as a Service partnership with Barri Financial Group in select locations.
In January 2022, we announced our first all-digital Lending as a Service
partnership with Sezzle, a leading provider of Buy Now Pay Later ("BNPL")
financing options. When deployed, Oportun will be available as a checkout
option, through Sezzle, for larger purchases of goods and services on a BNPL
basis, which we believe will allow us to reach more new members.

Capital market financing

To fund our growth at a low and efficient cost, we have built a diversified and
well-established capital markets funding program, which allows us to partially
hedge our exposure to rising interest rates or credit spreads by locking in our
interest expense for up to three years. Over the past eight years, we have
executed 17 bond offerings in the asset-backed securities market, the last 14 of
which include tranches that have been rated investment grade. We issued two- and
three-year fixed rate bonds which have provided us committed capital to fund
future loan originations at a fixed Cost of Debt. Through March 4, 2022, we were
also party to a whole loan sale program whereby we sold a percentage of our
loans to a third-party financial institution. We allowed the whole loan sale
program agreement to expire on its own terms. In March 2022, we participated in
a securitization and sold loans through the issuance of amortizing asset-backed
notes secured by a pool of our unsecured and secured personal installment loans.
We also sold our share of the residual interest in the pool. The sold loans had
an aggregate unpaid principal balance of approximately $227.6 million. In
addition to possible future whole loan or structured loan sales, we also have a
$600.0 million Personal Loan Warehouse facility with a term through September
2024 and a $150.0 million Credit Card Warehouse facility with a term through
December, 2023 which also helps to fund our receivables growth.

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Acquiring digits

On December 22, 2021, we acquired Digit and it became our wholly-owned
subsidiary. Digit is a digital banking platform that provides automated savings,
banking and investing tools. With Digit, members can keep and integrate their
existing bank accounts into the platform, or with Digit, they can make Oportun
their primary banking relationship by opening new accounts via a bank partner.
By acquiring Digit, we further expanded our A.I. and digital capabilities and
added additional service offerings to provide members a comprehensive suite of
digital banking products, either directly or through our partners. The total
consideration we provided for Digit was approximately $205.3 million, comprised
of $73.2 million in equity and $132.1 million in cash. The cash consideration
was funded with a $116.0 million Acquisition Financing facility.

Retail Network Optimization

During the first quarter of 2021, pursuant to our retail network optimization
plan we closed 136 retail locations and reduced a portion of the employee
workforce who managed and operated these retail locations. In addition, for the
three months ended March 31, 2021, we incurred $6.2 million in expenses related
to the retail location closures and $1.6 million related to severance and
benefits related to the store closures which represented all severance and
benefits related costs to be incurred in connection with the retail network
optimization plan. The income statement impact for the three months ended March
31, 2021 was $7.8 million and was recorded through General, administrative and
other on the Condensed Consolidated Statements of Operations (Unaudited). During
the first quarter of 2022, we made the decision to close an additional 27 retail
locations in April 2022 and reduce a portion of the workforce who manage and
operate these retail locations. In the first quarter of 2022, we incurred $0.2
million in expenses related to these additional retail location closures and
estimate remaining expenses of $1.5 million to be recognized in the second
quarter of 2022. In addition we have also recognized $0.4 million related to
severance and benefits related to the store closures in the first quarter of
2022 which represents all severance and benefit related costs to be incurred as
a result of the additional store closures. The income statement impact of $0.6
million was recorded through General, administrative and other on the Condensed
Consolidated Statements of Operations (Unaudited) for the three months ended
March 31, 2022.

Main financial and operational indicators

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

                                                    As of or for the Three Months
                                                           Ended March 31,
(in thousands of dollars)                              2022                 2021
Key Financial and Operating Metrics
Members (1)                                           1,676,754            643,967
Products (1)                                          1,757,339            643,967
Aggregate Originations                          $       800,115        $   335,239

30+ Day Delinquency Rate                                    4.5   %            3.0  %
Annualized Net Charge-Off Rate                              8.6   %            8.6  %
Return on Equity                                           29.5   %            2.6  %
Adjusted Return on Equity                                  34.1   %           10.6  %

Other Useful Metrics

Managed Principal Balance at End of Period      $     2,842,943        $ 1,832,556
Owned Principal Balance at End of Period        $     2,353,981        $ 1,591,789
Average Daily Principal Balance                 $     2,412,997        $ 

1,624,753


(1) The 643,967 Members and Products reported as of March 31, 2021 reflect our
previously defined and disclosed "Active Customer" metric. Products presented as
of March 31, 2021 represents one product per member as we did not have members
with multiple products at that time. Effective January 1, 2022, Active Customers
is no longer a Key Financial and Operating Metric. See the definition of Members
and Products in the Glossary at the end of Part II.

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

Members

Reflecting our acquisition of Digit and its users, we define Members as
borrowers with an outstanding or successfully paid off loan, originated by us or
under a bank partnership program that we service, or individuals who have been
approved for a credit card issued under a bank partnership program. Members also
include individuals who have signed-up to use or are using any of our Digit
Savings, Digit Direct, Digit Investing and/or Digit Retirement products. We view
Members as an indication of growth of our business and our ability to establish
long term relationships with the users of our products. Member growth is
generally an indicator of future revenue, but is not directly correlated with
revenues, since not all Members who sign up for one of our products fully
utilize or continue to use our products.

Members were 1.7 million as of March 31, 2022, and include members acquired in
connection with the acquisition of Digit on December 22, 2021. Active Customers
were 0.6 million as of March 31, 2021. Effective January 1, 2022, Active
Customers is no longer a Key Financial and Operating Metric and the year over
year change is not directly comparable due to the difference in the metric.
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Some products

Products refers to the aggregate number of personal loans and/or credit card
accounts that our Members have had or been approved for that have been
originated by us or through one of our bank partners. Products also include the
aggregate number of digital banking products we offer as a result of our
acquisition of Digit, including Digit Savings, Digit Direct, Digit Investing and
Digit Retirement, that our Members use or have signed-up to use. We view
Products as an indicator of the effectiveness of our member acquisition efforts
and multiproduct adoption.

Products from March 31, 2022 were 1.8 million.

Aggregated origins

Aggregate Originations increased to $800.1 million for the three months ended
March 31, 2022 from $335.2 million for the three months ended March 31, 2021,
representing a 138.7% increase. The increase is primarily driven by an increase
in the number of loans originated. We originated 228,728 and 114,670 loans for
the three months ended March 31, 2022 and 2021, respectively. The increase is
primarily driven by an increased number of applications due to higher demand.
Aggregate Originations for the three months ended March 31, 2021 were lower due
to tightened underwriting practices as a result of the pandemic.

Delinquency rate over 30 days

Our 30+ Day Delinquency Rate was 4.5% and 3.0% as of March 31, 2022 and 2021,
respectively. The increase reflects the higher mix of first-time borrowers and
the return to pre-pandemic underwriting criteria later in 2021. However, had we
not sold $227.6 million of loans, or approximately 8.8% of our owned portfolio,
at the end of the quarter, the 30+ Day Delinquency Rate would be 4.1%, as
compared to 3.9% as of December 31, 2021.

Annualized net imputation rate

Annualized Net Charge-Off Rate for the three months ended March 31, 2022 and
2021 remained relatively flat at 8.6%. Net charge-offs remained flat due to the
overall improvement in the economy, as well as the effectiveness of our
A.I.-driven underwriting models, collections tools and payment options that have
helped our borrowers manage through the pandemic.

Return on equity and adjusted return on equity

For the three months ended March 31, 2022 and 2021, Return on Equity was 29.5%
and 2.6%, respectively and Adjusted Return on Equity was 34.1% and 10.6%
respectively. The increases in Return on Equity and Adjusted Return on Equity
were primarily due to higher net income. Net income was higher due to increased
interest rates reducing the prices of our asset-backed notes which led to a net
increase in fair value. For a reconciliation of Return on Equity to Adjusted
Return on Equity, see "Non-GAAP Financial Measures."

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Historical credit performance

Our A.I.-driven credit models enable us to originate loans with low and stable
loss rates. Our Annualized Net Charge-off Rate ranged between 7% and 9% from
2011 to 2019 and was 9.8% in 2020, a modest variance above this range during the
pandemic. Due to credit tightening in response to the COVID-19 pandemic and
government stimulus payments our Annualized Net Charge-Off Rate decreased to
6.8% in 2021. However, we anticipate this rate will return to levels consistent
with performance in pre-pandemic years. Consistent with our charge-off policy,
we evaluate our loan portfolio and charge a loan off at the earlier of when the
loan is determined to be uncollectible or when loans are 120 days contractually
past due or 180 days contractually past due in the case of credit cards.

                    [[Image Removed: oprt-20220331_g1.jpg]]

*Figures shown reflect cumulative amounts for the three months ended March, 31stfor the fiscal year indicated.

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

The below chart and table shows our net lifetime loan loss rate for each annual
vintage of our personal loan product since we began lending in 2006, excluding
loans originated from July 2017 to August 2020 under a loan program for
borrowers who did not meet the qualifications for our core loan origination
program. 100% of those loans were sold pursuant to a whole loan sale agreement.
We were able to stabilize cumulative net loan losses after the financial crisis
that started in 2008. We even achieved a net lifetime loan loss rate of 5.5%
during the peak of the recession in 2009. The evolution of our credit models has
allowed us to increase our average loan size and commensurately extend our
average loan terms. Cumulative net lifetime loan losses for the 2015, 2016,
2017, and 2018 vintages increased partially due to the delay in tax refunds in
2017 and 2019, the impact of natural disasters such as Hurricane Harvey, and the
longer duration of the loans. The 2018 and 2019 vintages are increasing due to
the COVID-19 pandemic.




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                    [[Image Removed: oprt-20220331_g2.jpg]]
                                                                                                                  Year of Origination
                            2007         2008         2009           2010           2011          2012          2013          2014          2015          2016          2017           2018           2019            2020           2021
Dollar weighted
average original
term for vintage in
months                      9.3          9.9          10.2           11.7           12.3          14.5          16.4          19.1          22.3          24.2          26.3           29.0           30.0            32.0           33.3
Net lifetime loan
losses as of March
31, 2022 as a
percentage of
original principal
balance                     7.7%         8.9%         5.5%           6.4%           6.2%          5.6%          5.6%          6.1%          7.1%          8.0%          8.2%          10.0%          10.3%*          5.4%*          0.0%*
Outstanding
principal balance as
of March 31, 2022 as
a percentage of
original amount
disbursed                    -%           -%           -%             -%             -%            -%            -%            -%            -%            -%           0.1%           0.9%           9.4%           40.6%          89.0%

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

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Operating results

The following tables and related discussion set forth our Condensed Consolidated
Statements of Operations (Unaudited) for each of the three months ended March
31, 2022 and 2021.

                                                          Three Months Ended March 31,
(in thousands of dollars)                                     2022                   2021
Revenue
Interest income                                    $       192,237                $ 127,191
Non-interest income                                         22,483                    8,122
Total revenue                                              214,720                  135,313
Less:
 Interest expense                                           13,677                   13,504

Total net increase (decrease) in fair value                  3,971                  (11,568)
Net revenue                                                205,014                  110,241
Operating expenses:
Technology and facilities                                   49,189                   32,924
Sales and marketing                                         34,541                   23,893
Personnel                                                   35,926                   26,827
Outsourcing and professional fees                           14,327          

12,625

General, administrative and other                           13,361                    9,997
Total operating expenses                                   147,344                  106,266
Income before taxes                                         57,670                    3,975
Income tax expense                                          12,007                      956
Net income                                         $        45,663                $   3,019



Total revenue
                                                                   Three Months Ended
                                                                        March 31,                           Period-to-period Change
(in thousands, except percentages)                               2022               2021                      $                       %
Revenue
Interest income                                              $ 192,237          $ 127,191          $              65,046             51.1  %
Non-interest income                                             22,483              8,122                         14,361            176.8  %
Total revenue                                                $ 214,720          $ 135,313          $              79,407             58.7  %
Percentage of total revenue:
Interest income                                                   89.5  %            94.0  %
Non-interest income                                               10.5  %             6.0  %
Total revenue                                                    100.0  %           100.0  %



Interest income. Total interest income increased by $65.0 million, or 51.1%,
from $127.2 million for the three months ended March 31, 2021 to $192.2 million
for the three months ended March 31, 2022. The increase is primarily
attributable to growth in our Average Daily Principal Balance from $1.6 billion
for the three months ended March 31, 2021 to $2.4 billion for the three months
ended March 31, 2022, an increase of 48.5%. The increase is due to growth in our
portfolio as a result of higher application volume due to increased demand and
due to first quarter 2021 originations being depressed as a result of the
COVID-19 pandemic. Interest income was also favorably impacted by an increase in
portfolio yield of 55 basis points in the three months ended March 31, 2022
compared to the three months ended March 31, 2021 due to growth in originations
to new members who generally receive higher APRs than returning members.

Non-interest income. Total non-interest income increased by $14.4 million, or
176.8%, from $8.1 million for the three months ended March 31, 2021 to $22.5
million for the three months ended March 31, 2022. This increase is primarily
due to $9.3 million attributable to Digit subscription income, $1.6 million of
increased fees related to our credit card portfolio, $1.2 million increase
related to MetaBank, N.A. documentation fees, $0.9 million increase in servicing
revenue and increased gain on loans sold of $0.8 million under our whole loan
sale programs due to an increase in loans sold resulting from higher origination
volume.

See Note 2, Summary of Significant Accounting Policies, and Note 13,

Revenue, notes to the condensed consolidated financial statements (unaudited) included elsewhere in this report for further discussion of our interest revenue, non-interest revenue and revenue.

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Interest expense
                                                                  Three Months Ended
                                                                       March 31,                             Period-to-period Change
(in thousands, except percentages)                              2022              2021                          $                           %
Interest expense                                             $ 13,677          $ 13,504          $                173                      1.3  %
Percentage of total revenue                                       6.4  %           10.0  %
Cost of Debt                                                      2.6  %            3.9  %
Leverage as a percentage of Average Daily Principal
Balance                                                          89.5  %           87.0  %



Interest expense. Interest expense increased by $0.2 million, or 1.3%, from
$13.5 million for the three months ended March 31, 2021 to $13.7 million for the
three months ended March 31, 2022. We financed approximately 89.5% of our loans
receivable through debt for the three months ended March 31, 2022, as compared
to 87.0% for the three months ended March 31, 2021, and our Average Daily Debt
Balance increased from $1.4 billion to $2.2 billion for the three months ended
March 31, 2022, an increase of 52.7%. We have continued to improve our Cost of
Debt as we have been able to refinance at lower interest rates and increase the
size of our securitizations. In 2022, we expect our interest expense to increase
as we borrow to fund our portfolio growth and interest rates increase.

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

Total net increase (decrease) in fair value

Net increase (decrease) in fair value reflects changes in fair value of loans
receivable held for investment and asset-backed notes on an aggregate basis and
is based on a number of factors, including benchmark interest rates, credit
spreads, remaining cumulative charge-offs and borrower payment rates. Increases
in the fair value of loans increase Net Revenue. Conversely, decreases in the
fair value of loans decrease Net Revenue. Increases in the fair value of
asset-backed notes decrease Net Revenue. Decreases in the fair value of
asset-backed notes increase Net Revenue. We also have derivative instruments
related to our bank partnership program with MetaBank, N.A. Changes in the fair
value of the derivative instrument are reflected in the total fair value
mark-to-market adjustment below.
                                                                    Three 

Months ended

                                                                         March 31,                        Period-to-period Change
(in thousands, except percentages)                                2022               2021                     $                    %
Fair value mark-to-market adjustment:
Fair value mark-to-market adjustment on Loans                 $ (16,937)         $  21,562          $          (38,499)                *
Receivable at Fair Value
Fair value mark-to-market adjustment on asset-backed             58,271              1,524                      56,747                 *

Remarks

Fair value mark-to-market adjustment on derivatives                (393)                 -                        (393)                *
Total fair value mark-to-market adjustment                       40,941             23,086                      17,855                 *
Charge-offs, net of recoveries on loans receivable at           (51,350)           (34,608)                    (16,742)                *
fair value
Net settlements on derivative instruments                        (1,477)                69                      (1,546)                *
Cumulative mark on loans sold in structured loan sale            15,857                  -                      15,857                 *
Total net increase (decrease) in fair value                   $   3,971          $ (11,453)         $           15,424                 *
Percentage of total revenue:
Fair value mark-to-market adjustment                               19.1  %            17.0  %
Charge-offs, net of recoveries on loans receivable at             (23.9) %           (25.6) %
fair value
Total net increase (decrease) in fair value                        (4.8) %            (8.6) %
Discount rate                                                      6.76  %            6.65  %
Remaining cumulative charge-offs                                  10.37  %            8.60  %
Average life in years                                              0.85               0.78


* Not meaningful

Net increase (decrease) in fair value. Net increase in fair value for the three
months ended March 31, 2022 was $4.0 million. This amount represents a total
fair value mark-to-market increase of $40.9 million on Loans Receivable at Fair
Value and asset-backed notes, and $51.4 million of charge-offs, net of
recoveries on Loans Receivable at Fair Value. The total fair value
mark-to-market adjustment consists of a $16.9 million mark-to-market reduction
on Loans Receivable at Fair Value due to (a) an increase in remaining cumulative
charge-offs from 9.60% as of December 31, 2021 to 10.37% as of March 31, 2022,
(b) a decrease in average life from 0.86 years as of December 31, 2021 to 0.85
years as of March 31, 2022, partially offset by (c) a decrease in the discount
rate from 6.94% as of December 31, 2021 to 6.76% as of March 31, 2022. The $58.3
million mark-to-market adjustment on asset-backed notes is due to rising rates
and widening asset-backed securitization spreads. The total net increase
(decrease) in fair value also includes a $15.9 million adjustment related to the
cumulative mark on the loans sold as part of the structured loan sale completed
in the first quarter of 2022. In 2022, we expect to continue to see volatility
in the fair value as a result of macro economic conditions.

                                       26
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Charges, net of recoveries

                                                                     Three 

Months ended

                                                                          March 31,                          Period-to-period Change
(in thousands, except percentages)                                2022                 2021                     $                    %

Total charge-offs, net of recoveries                         $    51,350          $    34,608          $         16,742             48.4  %
Average Daily Principal Balance                              $ 2,412,997          $ 1,624,753          $        788,244             48.5  %
Annualized Net Charge-Off Rate                                       8.6  %               8.6  %



Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate remained flat
at 8.6% for the three months ended March 31, 2022 and 2021, respectively,
primarily due to the overall improvement in the economy, the impact of stimulus
payments to consumers as well as the effectiveness of our A.I.-driven
underwriting models, collections tools and payment options that have helped our
borrowers manage through the pandemic; partially offset by growth in new loan
originations leading to higher charge-offs. Consistent with our charge-off
policy, we evaluate our loan portfolio and charge a loan off at the earlier of
when the loan is determined to be uncollectible or when loans are 120 days
contractually past due or 180 days contractually past due in the case of credit
cards.

Operating expenses

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

Technology and facilities

Technology and facilities expense is the largest segment of our operating
expenses, representing the costs required to build our A.I.-enabled digital
platform, and consisting of three components. The first component comprises
costs associated with our technology, engineering, information security,
cybersecurity, platform development, maintenance, and end user services,
including fees for software licenses, consulting, legal and other services as a
result of our efforts to grow our business, as well as personnel expenses. The
second includes rent for retail and corporate locations, utilities, insurance,
telephony costs, property taxes, equipment rental expenses, licenses and fees
and depreciation and amortization. Lastly, the third category includes all
software licenses, subscriptions, and technology service costs to support our
corporate operations, excluding sales and marketing.

                                                                  Three 

Months ended

                                                                       March 31,                          Period-to-period Change
(in thousands, except percentages)                              2022              2021                      $                       %
Technology and facilities                                    $ 49,189          $ 32,924          $              16,265             49.4  %
Percentage of total revenue                                      22.9  %           24.3  %



Technology and facilities. Technology and facilities expense increased by $16.3
million, or 49.4%, from $32.9 million for the three months ended March 31, 2021
to $49.2 million for the three months ended March 31, 2022. The increase is
primarily due to $6.8 million of service costs related to higher usage of
software and cloud services, a $6.4 million increase in salaries and benefits
due to the increase in headcount, $3.0 million in usage of India off-shoring
services and other temporary contractors to supplement staffing related to new
product investment and $2.0 million of increased depreciation commensurate with
growth in internally developed software. These increases were partially offset
by $1.5 million lower expense due to higher capitalization of internally
developed software in 2022 compared to 2021 and $1.1 million lower office rent
associated with retail locations that were closed in early 2021.

Sales and Marketing

Sales and marketing expense consists of two components and represents the costs
to acquire our customers. The first component is comprised of the expense to
acquire a customer through various paid marketing channels including direct
mail, digital marketing and brand marketing. The second component is comprised
of the costs associated with our telesales, lead generation and retail
operations, including personnel expenses, but excluding costs associated with
retail locations.
                                                                  Three Months Ended
                                                                       March 31,                          Period-to-period Change
(in thousands, except percentages and CAC)                      2022              2021                      $                       %
Sales and marketing                                          $ 34,541          $ 23,893          $              10,648             44.6  %
Percentage of total revenue                                      16.1  %           17.7  %
Customer Acquisition Cost (CAC)                              $    151          $    208          $                 (57)           (27.4) %



Sales and marketing. Sales and marketing expense to acquire our customers
increased by $10.6 million, or 44.6%, from $23.9 million for the three months
ended March 31, 2021 to $34.5 million for the three months ended March 31, 2022.
To grow our Aggregate Originations, we increased our investment in marketing
initiatives by $9.8 million across various marketing channels, including direct
mail, digital advertising, lead aggregators and our referral programs. As a
result of our increased number of loans originated during the three months ended
March 31, 2022, our CAC decreased by 27.4%, from $208 the three months ended
March 31, 2021 to $151 for the three months ended March 31, 2022.

                                       27
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Staff

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

Months ended

                                                                       March 31,                          Period-to-period Change
(in thousands, except percentages)                              2022              2021                       $                       %
Personnel                                                    $ 35,926          $ 26,827          $         9,099                    33.9  %
Percentage of total revenue                                      16.7  %           19.8  %



Personnel. Personnel expense increased by $9.1 million, or 33.9%, from $26.8
million for the three months ended March 31, 2021 to $35.9 million for the three
months ended March 31, 2022, primarily driven by a $9.1 million increase in
compensation expense due to a 41.5% increase in U.S. headcount.

Outsourcing and professional fees

Outsourcing and professional fees consist of costs for various third-party
service providers and contact center operations, primarily for the sales,
customer service, collections and store operation functions. Our contact centers
located in Mexico and our third-party contact centers located in Colombia,
Jamaica and the Philippines provide support for the business including
application processing, verification, customer service and collections. We
utilize third parties to operate the contact centers in Colombia, Jamaica and
the Philippines and include the costs in outsourcing and professional fees.
Professional fees also include the cost of legal and audit services, credit
reports, recruiting, cash transportation, collection services and fees and
consultant expenses. Direct loan origination expenses related to application
processing are expensed when incurred. In addition, outsourcing and professional
fees include any financing expenses, including legal and underwriting fees,
related to our asset-backed notes.
                                                                  Three 

Months ended

                                                                       March 31,                          Period-to-period Change
(in thousands, except percentages)                              2022              2021                       $                       %
Outsourcing and professional fees                            $ 14,327          $ 12,625          $         1,702                    13.5  %
Percentage of total revenue                                       6.7  %            9.3  %



Outsourcing and professional fees. Outsourcing and professional fees increased
by $1.7 million, or 13.5%, from $12.6 million for the three months ended March
31, 2021 to $14.3 million for the three months ended March 31, 2022. The
increase is primarily attributable to $2.3 million of higher professional
service costs related to credit card and bank partnership programs and $2.1
million increase in credit report expense due to higher application volume.
These increases were partially offset by a $3.2 million decrease in debt
financing fees and expenses incurred in March 2021 related to an asset-backed
securitization that were not present in the three months ended March 31, 2022.
General, administrative and other
General, administrative and other expense includes non-compensation expenses for
employees, who are not a part of the technology and sales and marketing
organization, which include travel, lodging, meal expenses, political and
charitable contributions, office supplies, printing and shipping. Also included
are franchise taxes, bank fees, foreign currency gains and losses, transaction
gains and losses, debit card expenses, litigation reserve, expenses associated
with our retail network optimization plan and acquisition and integration
related expenses in connection with the Digit acquisition.

                                                                   Three 

Months ended

                                                                        March 31,                          Period-to-period Change
(in thousands, except percentages)                                2022              2021                      $                       %
General, administrative and other                             $  13,361          $ 9,997          $         3,364                    33.7  %
Percentage of total revenue                                         6.2  %           7.4  %



General, administrative and other. General, administrative and other expense
increased by $3.4 million, or 33.7%, from $10.0 million for the three months
ended March 31, 2021 to $13.4 million for the three months ended March 31, 2022,
primarily due to $7.3 million of transaction and integration related expenses as
a result of the Digit acquisition and $4.0 million increase in postage and
printing expenses, travel expenses and other general and administrative expenses
due to new products and services and the continuing growth of the business.
These increases were partially offset by a $7.6 million decrease in retail
network optimization expenses incurred in the three months ended March 31, 2022
compared to March 31, 2021. In the first quarter of 2022, we incurred $0.2
million in expenses related to the retail location closures and estimate
remaining expenses of $1.5 million to be recognized in the second quarter of
2022.

Income taxes

Income taxes consist of U.S. federal, state and foreign income taxes, if any.
For the three months ended March 31, 2022 and 2021, we recognized tax expense
attributable to U.S. federal, state and foreign income taxes.
                                       28
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                                                                  Three 

Months ended

                                                                       March 31,                          Period-to-period Change
(in thousands, except percentages)                                2022              2021                    $                        %
Income tax expense                                           $    12,007          $ 956          $              11,051           1,156.0  %
Percentage of total revenue                                          5.6  %         0.7  %
Effective tax rate                                                  20.8  %        24.1  %



Income tax expense. Income tax expense increased by $11.1 million or 1,156.0%,
from $1.0 million for the three months ended March 31, 2021 to $12.0 million for
the three months ended March 31, 2022, primarily as a result of higher pretax
income for the three months ended March 31, 2022.

See note 2, Summary of significant accounting policies and note 14,

Income Taxes, notes to the condensed (unaudited) consolidated financial statements included elsewhere in this report for further discussion of our income taxes.

                                       29
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Fair value estimation methodology for loans receivable at fair value

Summary

Fair value is an electable option under GAAP to account for any financial
instruments, including loans receivable and debt. It differs from amortized cost
accounting in that loans receivable and debt are recorded on the balance sheet
at fair value rather than on a cost basis. Under the fair value option credit
losses are recognized through income as they are incurred rather than through
the establishment of an allowance and provision for losses. The fair value of
instruments under this election is updated at the end of each reporting period,
with changes since the prior reporting period reflected in the Condensed
Consolidated Statements of Operations (Unaudited) as net increase (decrease) in
fair value which impacts Net Revenue. Changes in interest rates, credit spreads,
realized and projected credit losses and cash flow timing will lead to changes
in fair value and therefore impact earnings. These changes in the fair value of
the Loans Receivable at Fair Value may be partially offset by changes in the
fair value of the asset-backed notes, depending upon the relative duration of
the instruments.

Fair value estimation 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 repayment rate for our credit card receivables);

• Remaining cumulative charges; and

•Discount rate.


Portfolio yield is the expected interest and fees collected from the loans as an
annualized percentage of outstanding principal balance. Portfolio yield is based
upon (a) the contractual interest rate, reduced by expected delinquencies and
interest charge-offs and (b) late fees, net of late fee charge-offs based upon
expected delinquencies. Origination fees are not included in portfolio yield
since they are generally capitalized as part of the loan's principal balance at
origination.

Average life is the time-weighted average of expected principal payments divided
by outstanding principal balance. The timing of principal payments is based upon
the contractual amortization of loans, adjusted for the impact of prepayments,
Good Customer Program refinances, and charge-offs.

Prepayments are the expected remaining cumulative principal payments that will
be repaid earlier than contractually required over the life of the loan, divided
by the outstanding principal balance. For credit card receivables we estimate
principal payment rates which are the expected amount and timing of principal
payments over the life of the receivable.

Remaining cumulative charges are the expected net principal charges over the remaining life of the loans, divided by the outstanding principal balance.

Discount rate is the sum of the interest rate and the credit spread. The
interest rate is based upon the interpolated LIBOR/swap curve rate that
corresponds to the average life. The credit spread is based upon the credit
spread implied by the loan purchase price at the time loans are sold, updated
for observable changes in the fixed income markets, which serve as a proxy for
how a potential loan buyer would adjust their yield requirements relative to the
originally agreed price.

Our internal valuation committee includes members from our risk, legal, finance,
capital markets and operations departments and provides governance and oversight
over the fair value pricing and related financial statement disclosures.
Additionally, this committee provides a challenge of the assumptions used and
outputs of the model, including the appropriateness of such measures and
periodically reviews the methodology and process to determine the fair value
pricing. Any significant changes to the process must be approved by the
committee.

It is also possible to estimate the fair value of our loans using a simplified
calculation. The table below illustrates a simplified calculation to aid
investors in understanding how fair value may be estimated using the last five
quarters:

• By subtracting the management fees from the weighted average yield of the portfolio over the remaining life of the loans to calculate the net yield of the portfolio;

•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 charges from the net portfolio return to calculate the net cash flow;

• Subtracting the product of the discount rate and the average life from the net cash flow to calculate the gross fair value premium as a percentage of the loan principal balance; and

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

                                       30
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The table below reflects the application of this methodology for the five
quarters since January 1, 2021, on loans held for investment. The data for the
three months ended March 31, 2022 and December 31, 2021 in the table below
represents all of our credit products. The data for the three months ended
September 30, 2021 in the table below represents our secured and unsecured loan
portfolio. For prior quarters, the data in the table below represents only our
unsecured personal loan portfolio which was the primary driver of fair value
during those periods.

                                                                                                     Three Months Ended
                                                         Mar 31,
                                                          2022              Dec 31, 2021             Sep 30, 2021             Jun 30, 2021             Mar 31, 2021
Weighted average portfolio yield over the                 30.15  %                 30.14  %                 30.35  %                 30.28  %                 30.25  %
remaining life of the loans
Less: Servicing fee                                       (5.00) %                 (5.00) %                 (5.00) %                 (5.00) %                 (5.00) %
Net portfolio yield                                       25.15  %                 25.14  %                 25.35  %                 25.28  %                 25.25  %
Multiplied by: Weighted average life in years             0.847                    0.859                    0.761                    0.769                    0.778
Pre-loss cash flow                                        21.30  %                 21.60  %                 19.29  %                 19.43  %                 19.64  %
Less: Remaining cumulative charge-offs                   (10.37) %                 (9.60) %                 (7.53) %                 (7.59) %                 (8.60) %
Net cash flow                                             10.93  %                 12.00  %                 11.76  %                 11.84  %                 11.04  %
Less: Discount rate multiplied by average life            (5.73) %                 (5.96) %                 (4.96) %                 (5.03) %                 (5.17) %
Gross fair value premium as a percentage of loan           5.21  %                  6.04  %                  6.80  %                  6.81  %                  5.87  %
principal balance
Less: Accrued interest and fees as a percentage           (1.09) %                 (1.03) %                 (0.90) %                 (0.87) %                 (0.92) %
of loan principal balance
Fair value premium as a percentage of loan                 4.12  %                  5.01  %                  5.90  %                  5.94  %                  4.95  %
principal balance
Discount Rate                                              6.76  %                  6.94  %                  6.52  %                  6.54  %                  6.65  %


The illustrative table included above is designed to help investors understand the impact of our choice 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, Adjusted EPS, Adjusted Operating
Efficiency and Adjusted Return on Equity, can provide useful measures for
period-to-period comparisons of our core business and useful information to
investors and others in understanding and evaluating our operating results.
However, non-GAAP financial measures are not calculated in accordance with
United States generally accepted accounting principles, or GAAP, and should not
be considered as an alternative to any measures of financial performance
calculated and presented in accordance with GAAP. There are limitations related
to the use of these non-GAAP financial measures versus their most directly
comparable GAAP measures, which include the following:

“Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure.

“These measures do not take into account 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 which may represent a reduction in the cash available to us.

Reconciliations of non-GAAP measures to GAAP measures are provided below.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as our net income,
adjusted to eliminate the effect of certain items as described below. We believe
that Adjusted EBITDA is an important measure because it allows management,
investors and our Board to evaluate and compare our operating results, including
our return on capital and operating efficiencies, from period-to-period by
making the adjustments described below. In addition, it provides a useful
measure for period-to-period comparisons of our business, as it removes the
effect of taxes, certain non-cash items, variable charges and timing
differences.

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

•We believe it is useful to exclude the impact of depreciation and amortization and stock-based compensation expense as these are non-cash expenses.

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

                                       31
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operations.

•We also reverse origination fees for Loans Receivable at Fair Value, net. We
recognize the full amount of any origination fees as revenue at the time of loan
disbursement in advance of our collection of origination fees through principal
payments. As a result, we believe it is beneficial to exclude the uncollected
portion of such origination fees, because such amounts do not represent cash
that we received.

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


Components of Fair Value Mark-to-Market Adjustment (in                   Three Months Ended March 31,
thousands)                                                                 2022                2021

Fair value adjustment to market value on loans receivable at fair value

                                                                  $  (16,937)         $  21,562
Fair value mark-to-market adjustment on asset-backed notes                 58,271              1,524
Fair value mark-to-market adjustment on derivatives                          (393)               (46)
Total fair value mark-to-market adjustment                             $   

40,941 $23,040

The following table presents a reconciliation of net income and adjusted EBITDA for the three months ended March 31, 2022 and 2021:

                                                                          Three Months Ended March 31,
Adjusted EBITDA (in thousands)                                               2022                  2021
Net income                                                            $        45,663          $   3,019
Adjustments:

Income tax expense                                                             12,007                956

Depreciation and amortization                                                   7,312              5,332
Stock-based compensation expense                                                6,773              5,088
Litigation reserve                                                                300                  -
Retail network optimization expenses, net                                         210              7,799

Acquisition and integration related expenses                                    7,287                  -
Origination fees for loans receivable at fair value, net                       (4,685)            (1,422)
Fair value mark-to-market adjustment                                          (40,941)           (23,040)
Adjusted EBITDA                                                       $        33,926          $  (2,268)

Adjusted net income

We define Adjusted Net Income as our net income, adjusted to exclude income tax
expense, stock-based compensation expenses and certain non-recurring charges. We
believe that Adjusted Net Income is an important measure of operating
performance because it allows management, investors, and our Board to evaluate
and compare our operating results, including our return on capital and operating
efficiencies, from period to period.

•We believe it is useful to exclude the impact of income tax expense, as presented, as historically it has included irregular tax items that do not reflect our current business activities. Classes.

•We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses related to a litigation provision, our distribution network optimization plan and expenses related to acquisitions and integration, as these elements do not reflect ongoing business operations.

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

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

The following table provides a reconciliation of net earnings to adjusted net earnings for the three months ended March 31, 2022 and 2021:

                                       32
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                                                         Three Months Ended March 31,
Adjusted Net Income (in thousands)                      2022                        2021
Net income                                        $      45,663                  $  3,019
Adjustments:

Income tax expense                                       12,007                       956

Stock-based compensation expense                          6,773             

5,088

Litigation reserve                                          300                         -
Retail network optimization expenses, net                   210             

7,799

Acquisition and integration related expenses              7,287                         -
Adjusted income before taxes                             72,240                    16,862
Normalized income tax expense                            19,505                     4,620
Adjusted Net Income                               $      52,735                  $ 12,242
Income tax rate (1)                                        27.0   %                  27.4  %

(1) Tax rate for the three months ended March 31, 2022 and 2021 is based on a normalized legal rate.

Adjusted earnings per share (“Adjusted EPS”)

Adjusted Earnings Per Share is a non-GAAP financial measure that allows
management, investors and our Board to evaluate the operating results, operating
trends and profitability of the business in relation to diluted adjusted
weighted-average shares outstanding post initial public offering. In addition,
it provides a useful measure for period-to-period comparisons of our business,
as it considers the effect of conversion of all convertible preferred shares as
of the beginning of each annual period.

The following table presents a reconciliation of diluted EPS to Adjusted EPS for
the three months ended March 31, 2022 and 2021. For the reconciliation of net
income to Adjusted Net Income, see the immediately preceding table "Adjusted Net
Income."

                                                                             Three Months Ended March 31,
(in thousands, except share and per share data)                               2022                   2021
Diluted earnings per share                                             $          1.37          $       0.10
Adjusted EPS
Adjusted Net Income                                                    $        52,735          $     12,242

Basic weighted-average common shares outstanding                            32,216,641            27,770,063

Weighted average effect of dilutive securities:
Stock options                                                                  733,503             1,274,818
Restricted stock units                                                         372,990               575,153

Diluted adjusted weighted-average common shares outstanding                 33,323,134            29,620,034
Adjusted Earnings Per Share                                            $    

1.58 $0.41

Adjusted return on equity

We define Adjusted Return on Equity as annualized Adjusted Net Income divided by
average stockholders' equity. Average stockholders' equity is an average of the
beginning and ending stockholders' equity balance for each period. We believe
Adjusted Return on Equity is an important measure because it allows management,
investors and our Board to evaluate the profitability of the business in
relation to equity and how well we generate income from the equity available.

The following table presents a reconciliation of Return on Equity to Adjusted
Return on Equity as of and for the three months ended March 31, 2022 and 2021.
For the reconciliation of net income to Adjusted Net Income, see the immediately
preceding table "Adjusted Net Income."

                                                                          

As of or for the three months ended

                                                                                       March 31,
(in thousands)                                                                  2022                 2021
Return on Equity                                                                 29.5    %             2.6  %
Adjusted Return on Equity
Adjusted Net Income                                                       $    52,735            $  12,242
Average stockholders' equity                                              $   626,909            $ 469,180
Adjusted Return on Equity                                                        34.1    %            10.6  %



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Adjusted operational efficiency

We define Adjusted Operating Efficiency as total operating expenses adjusted to
exclude stock-based compensation expense and certain non-recurring charges such
as expenses associated with a litigation reserve, our retail network
optimization plan and acquisition and integration related expenses divided by
total revenue. We believe Adjusted Operating Efficiency is an important measure
because it allows management, investors and our Board to evaluate how efficient
we are at managing costs relative to revenue.

The following table provides a reconciliation between operating efficiency and adjusted operating efficiency for the three months ended March 31, 2022 and 2021:

                                                                     As of 

or for the three months ended

                                                                                  March 31,
(in thousands)                                                             2022                 2021
Operating Efficiency                                                        68.6    %            78.5  %
Adjusted Operating Efficiency
Total revenue                                                            214,720              135,313

Total operating expense                                                  147,344              106,266

Stock-based compensation expense                                          (6,773)              (5,088)
Litigation reserve                                                          (300)                   -
Retail network optimization expenses, net                                   (210)              (7,799)

Acquisition and integration related expenses                              (7,287)                   -
Total adjusted operating expenses                                    $   132,774            $  93,379
Adjusted Operating Efficiency                                               61.8    %            69.0  %


Cash and capital resources

To date, we fund the majority of our operating liquidity and operating needs
through a combination of cash flows from operations, securitizations, secured
borrowings and whole loan sales. We may utilize these or other sources in the
future. Our material cash requirements relate to funding our lending activities,
our debt service obligations, our operating expenses, and investments in the
long-term growth of the company.

During the three months ended March 31, 2022, available liquidity increased
primarily due to increased borrowing capacity under Secured Financings,
partially offset by a decrease in cash and cash equivalents. We generally target
liquidity levels to support at least twelve months of our expected net cash
outflows, including new originations, without access to new debt financing
transactions or other capital markets activity. Inflation, rising interest
rates, credit trends and other macroeconomic conditions could continue to have
an impact on market volatility which could adversely impact our business,
liquidity, and capital resources. Future decreases in cash flows from operations
resulting from delinquencies, defaults, losses, would decrease the cash
available for the capital uses described above. We may incur additional
indebtedness or issue equity in order to meet our capital spending and liquidity
requirements, as well as to fund growth opportunities that we may pursue.

Cash and cash flow

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

                                                       Three Months Ended March 31,
(in thousands)                                             2022             

2021

Cash, cash equivalents and restricted cash      $       170,558                $ 183,181
Cash provided by (used in)
Operating activities                                     38,565                   18,156
Investing activities                                   (122,496)                   8,987
Financing activities                                     61,529                  (12,552)


Our cash is held for working capital and lending purposes. Our restricted cash represents collections held in our securitizations and is currently applied after month end to pay interest expense and settle any amount due to the buyer of the entire loan together with any excess amount returned to us.

Operational activities

Our net cash provided by operating activities was $38.6 million and $18.2
million for the three months ended March 31, 2022 and 2021, respectively. Cash
flows from operating activities primarily include net income or losses adjusted
for (i) non-cash items included in net income or loss, including depreciation
and amortization expense, fair value adjustments, net, origination fees for
loans at fair value, net, gain on loan sales, stock-based compensation expense
and deferred tax provision, net, (ii) originations of loans sold and held for
sale, and proceeds from sale of loans and (iii) changes in the balances of
operating assets and liabilities, which can vary significantly in the normal
course of business due to the amount and timing of various payments.

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Investing activities

Our net cash provided by (used in) investing activities was $(122.5) million and
$9.0 million for the three months ended March 31, 2022 and 2021, respectively.
Our investing activities consist primarily of loan originations and loan
repayments. Our net cash provided by (used in) investing activities for the
three months ended March 31, 2022, includes $245.0 million of proceeds related
to a structured loan sale. We invest in purchases of property and equipment and
incur system development costs. Purchases of property and equipment, and
capitalization of system development costs may vary from period to period due to
the timing of the expansion of our operations, the addition of employee
headcount and the development cycles of our system development. The change in
our net cash provided by (used in) investing activities is due to disbursements
on originations of loans increasing by $444.0 million while repayments of loan
principal increased by $72.7 million for the three months ended March 31, 2022
compared to the three months ended March 31, 2021.

Fundraising activities

Our net cash provided by (used in) financing activities was $61.5 million and
$(12.6) million for the three months ended March 31, 2022 and 2021,
respectively. For the three months ended March 31, 2022, net cash provided by
financing activities was primarily driven by the borrowings under our Secured
Financing facilities, partially offset by repayments of borrowings on our
Secured Financing facilities and scheduled amortization payments on our
Acquisition Financing facility. For the three months ended March 31, 2021, net
cash used in financing activities was primarily driven by the redemption of our
Series 2018-A asset-backed notes and repayments on our Secured Financing
facility. The issuance of our Series 2021-A asset-backed notes securitization
was the primary source of funds for the redemption and repayments.

Sources of Funds

Debt and Available Credit

Asset-Backed Securitizations

  As of March 31, 2022, we had $1.59 billion of outstanding asset-backed notes.
Our securitizations utilize special purpose entities (SPEs) which are also
variable interest entities (VIEs). For VIEs where we have determined we are the
primary beneficiary, the financial results of the VIE are consolidated in our
financial statements. For VIEs where we have determined we are not the primary
beneficiary, the financial results of the VIE are not consolidated in our
financial statements. For more information regarding our VIEs and asset-backed
securitizations, see Note 4,   Variable Interest Entities   and Note 9,

Borrowing, respectively, from the notes to the condensed (unaudited) consolidated financial statements included elsewhere in this report.

Our ability to utilize our asset-backed securitization facilities as described
herein is subject to compliance with various requirements including eligibility
criteria for the loan collateral and covenants and other requirements. As of
March 31, 2022, we were in compliance with all covenants and requirements of all
our asset-backed notes.

Secured Financings

As of March 31, 2022, we had Secured Financing facilities with warehouse lines
of $750.0 million in the aggregate with undrawn capacity of $273.0 million. Our
ability to utilize our Secured Financing facilities as described herein is
subject to compliance with various requirements, including eligibility criteria
for collateral, concentration limits for our collateral pool, and covenants and
other requirements.

Acquisition Financing

On December 20, 2021, Oportun RF, LLC, a wholly-owned subsidiary of the Company
issued a $116.0 million asset-backed floating rate variable funding note, and an
asset-backed residual certificate, both of which are secured by certain residual
cash flows from the Company's securitizations and guaranteed by Oportun, Inc.
The note was used to fund the cash consideration paid for the acquisition of
Digit and bears interest at a rate of one-month LIBOR plus 8.00%. The
Acquisition Financing is structured to pay down based on an amortization
schedule, with a final payment in October 2024.

As of March 31, 2022, we were in compliance with all covenants and requirements
per the Secured Financing facilities and Acquisition Financing. For more
information regarding our Secured Financing facilities and Acquisition
Financing, see Note 9,   Borrowings   of the Notes to the Condensed Consolidated
Financial Statements (Unaudited) included elsewhere in this report.

Structured loan sales

In March 2022, we participated in a securitization and sold loans through the
issuance of amortizing asset-backed notes secured by a pool of our unsecured and
secured personal installment loans. We also sold our share of the residual
interest in the pool. The sold loans had an aggregate unpaid principal balance
of approximately $227.6 million. For further information on the whole loan sale
transactions, see Note 5,   Loans Held for Sale and Loans Sold   of the Notes to
the Condensed Consolidated Financial Statements (Unaudited) included elsewhere
in this report.

Whole loan sales

By March 4, 2022, the Company had committed to sell to a third-party institutional investor 10% of its unsecured loans meeting certain eligibility criteria, and an additional 5% subject to certain eligibility criteria and minimum and maximum volumes. The company

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chose not to renew the arrangement and allowed the agreement to expire on its
terms on March 4, 2022. The originations of loans sold and held for sale during
the three months ended March 31, 2022 was $48.7 million. For further information
on the whole loan sale transactions, see Note 5,   Loans Held for Sale and Loans
Sold   of the Notes to the Condensed Consolidated Financial Statements
(Unaudited) included elsewhere in this report.

Banking partnership program and service agreement

We entered into a bank partnership program with MetaBank, N.A. on August 11,
2020. In accordance with the agreements underlying the bank partnership program,
Oportun has a commitment to purchase an increasing percentage of program loans
originated by MetaBank based on thresholds specified in the agreements. Lending
under the partnership was launched in August of 2021.

Contractual obligations and commitments

The material cash requirements for our contractual and other obligations
primarily include those related our outstanding borrowings under our
asset-backed notes, Acquisition Financing and Secured Financing, corporate and
retail leases, and purchase commitments for technology used in the business. See
Note 9,   Borrowings   and Note 16,   Leases, Commitments and Contingencies 

of

the notes to the condensed (unaudited) 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. In a rising interest rate environment, our ability to issue
additional equity or incur debt may be impaired and our borrowing costs may
increase. If we raise additional funds through the issuance of additional debt,
the agreements governing such debt could contain covenants that would restrict
our operations and such debt would rank senior to shares of our common stock.
The sale of equity may result in dilution to our stockholders and those
securities may have rights senior to those of our common stock. We may require
additional capital beyond our currently anticipated amounts and additional
capital may not be available on reasonable terms, or at all.

Critical Accounting Policies and Significant Judgments and Estimates

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these condensed
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue, expenses and
the related disclosures. In accordance with GAAP, we base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies from
those disclosed in our Annual Report on Form 10-K dated December 31, 2021, filed
with the Securities and Exchange Commission on March 1, 2022 ("2021 Form 10-K"),
under the heading Management's Discussion and Analysis of Financial Condition
and Results of Operations. For additional information about our critical
accounting policies and estimates, see the disclosure included in our 2021 Form
10-K.

Recently published accounting pronouncements

See Note 2 of the Notes to the Condensed Consolidated Financial Statements (unaudited) included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.

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