Oportun Financial Corp Aktie

Welcome to Oportun Financial Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Dorian Hare, Senior Vice President of Investor Relations. Mr. Hare, you may begin.

Thanks, and hello, everyone. With me to discuss Oportun's first quarter 2026 results are Doug Bland, our Chief Executive Officer; and Paul Appleton, our Interim Chief Financial Officer, Treasurer and Head of Capital Markets. Kate Layton, Oportun's Chief Legal Officer; and Gaurav Rana, our Senior Vice President and General Manager of Lending, will also join for the question-and-answer session.

I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for future operations.

Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended March 31, 2026. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other as required by law.

Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section of our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our first quarter 2026 supplement and the appendix section of the first quarter 2026 earnings presentation, all of which will be available at the Investor Relations section of our website at investor.oportun.com.

In addition, this call is being webcast, and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Doug.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. I'm honored to be speaking with you for the first time as CEO of Oportun. I was drawn to Oportun because it stands out, a technology-driven platform with a critical mission and proven ability to responsibly improve the financial lives of people who are too often overlooked by traditional lenders. I also saw a business known for high-quality customer service, uniquely positioned to seamlessly engage with both English and Spanish-speaking members across its retail, contact center and mobile app.

My initial meetings with team members across the company and with key stakeholders have only reinforced this view. I look forward to working with our team and Board to strengthen the business, build deeper relationships with our members and deliver long-term value for shareholders. I'm optimistic about what we can achieve together.

I joined Oportun on April 20, so I've been in the role for less than three weeks. I'm not going to use my first earnings call to declare a new strategy before I've completed a deeper review. What I can say from my early assessment is that the team has made real progress strengthening the foundation of the business, particularly profitability, liquidity and funding costs, while important work remains to improve through-cycle credit performance and rebuild a durable growth engine. The 2026 plan was already in motion before I arrived, yet based on my review so far, I support reiterating the full year guidance.

I'll now hand it over to Paul for a review of how we are executing against our current strategy and our first quarter financial results. He will also provide our Q2 guidance while updating you on our full year outlook.

Thank you, Doug, and good afternoon, everyone. I'd like to start by updating you on our strategic priorities, which include improving credit outcomes, strengthening business economics and identifying high-quality originations.

Starting with improving credit outcomes. We have remained in a tight credit posture, maintaining an emphasis on returning members amid an uncertain macroeconomic outlook for low and moderate income households. Our annualized net charge-off rate was 12.65% in Q1 at the midpoint of our guidance range. In Q1, the proportion of originations to returning members was 79%, 16 percentage points higher than the 63% recorded in the prior year quarter. Importantly, our Q1 30-plus delinquency rate of 4.5% met the expectations we set on our February earnings call, down 38 basis points sequentially and 18 basis points year-over-year.

We expect the second quarter 30-plus delinquency rate to improve further to a range between 4.1% and 4.2%, which is 22 to 32 basis points lower than 2Q '25 and 30 to 40 basis points lower sequentially than the first quarter. These proof points support our continued confidence that Q1's 12.65% annualized net charge-off rate should be the highest of 2026.

We also mentioned on our February earnings call that a key focus this year is continuing to invest in our credit decisioning capabilities to accelerate model training, deployment and effectiveness. In Q2, we are introducing the latest iteration of our primary underwriting model, V13, which features an enhanced model architecture designed to better capture both long-term and more recent emerging trends. The model also incorporates new alternative data sources to improve predictive power and reduce adverse selection risk.

Turning to business economics. We remain committed to improving on full year 2025 17.5% adjusted ROE and 6.8% GAAP ROE, making progress towards our objective of 20% to 28% GAAP ROE on an annual basis. A key component of this is continuing our expense discipline. During Q1, total OpEx declined 1% year-over-year to $91 million, in line with a substantially flat expectation we set for the full year.

Another important part of our efforts to attain our ROE goal is exploring the launch of risk-based pricing. As discussed on our last earnings call, this effort would reintroduce pricing above 36% for shorter-term loans and higher-risk segments, including some customers we're not able to approve today. We have made good progress with this initiative, including signing a letter of intent with a new bank partner. And as a result, we continue to expect to roll this initiative out in the second half of the year.

Last month, we launched another initiative, a payment protection offering that we expect will provide more certainty for our members and a positive financial contribution to Oportun in future years. Payment protection is an opt-in offering that members can elect during the loan application progress, which provides protection against unforeseen events like involuntary unemployment, death or disability by completely or partially paying off the loan. The offering is currently available to loan applicants in several states and in coordination with our bank partner, we expect to introduce the offering across most of our footprint in the coming months. Due to the phased rollout, we are currently assuming only a modest financial benefit from the payment protection initiative in our 2026 guidance. However, at scale, we see a potential for profit enhancement in future years due to lower credit losses on enrolled loans and fees earned.

Lastly, regarding identifying high-quality originations, in Q1, originations declined by 11%. Now this was in line with our expectations, reflecting typical seasonality and the higher mix of returning borrowers I referenced a moment ago.

We continue to expect to grow originations in the mid-single-digit percentage range this year. Expanding our secured personal loan portfolio secured by members autos remains a key pillar of our responsible growth strategy. Partially offsetting the unsecured personal loan originations decline in Q1, secured personal loan originations grew 12% year-over-year and the secured portfolio grew 30% year-over-year to $233 million. As a result, secured personal loans now represent 9% of our own portfolio, up from 7% last year. Importantly, average losses on secured personal loans continued to run substantially lower than unsecured personal loans in the first quarter.

Turning now to Q1 highlights on Slide 6. We recorded our sixth consecutive quarter of GAAP profitability with net income of $2.3 million and diluted EPS of $0.05 per share. We also generated adjusted net income of $10 million and adjusted EPS of $0.21 per share. Total revenue of $229 million declined by $7.1 million or 3% year-over-year, which again was in line with our expectations and driven by the 11% year-over-year decline in originations I mentioned a moment ago.

Net decrease in fair value was $86 million this quarter due to $85 million in net charge-offs. The net decrease in fair value was $13 million higher than the prior period, which benefited from a favorable $12 million mark-to-market adjustment on loans.

First quarter interest expense was $48 million, down $9 million year-over-year. This improvement reflects recent balance sheet optimization initiatives that I'll share shortly. Net revenue was $95 million, down $11 million year-over-year as the impact of lower total revenue and fair value offset the benefit from lower interest expense. Operating expenses were $91 million, down $1.3 million or 1% year-over-year, reflecting continued cost discipline. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $29 million in the first quarter. This reflects a year-over-year decrease of $4.2 million as lower total revenue and higher net charge-offs more than offset lower interest expense and adjusted operating expense.

Adjusted net income was $10 million, down $8.4 million year-over-year due to lower net revenue, partially offset by lower adjusted operating expense. Adjusted EPS declined year-over-year from $0.40 a share to $0.21 a share. Finally, GAAP net income of $2.3 million was similarly down $7.4 million year-over-year.

Turning now to capital and liquidity, as shown on Slide 9, we continue to strengthen our debt capital structure through continued balance sheet optimization by further reducing higher cost corporate debt, lowering our overall cost of capital and enhancing liquidity. I'm pleased with the progress we made deleveraging, ending the quarter with a 6.8x debt-to-equity ratio. That's down from 7.6x a year ago and materially lower than the peak leverage of 8.7x we reported in 3Q '24.

The improvements achieved since then and through the end of the first quarter include consistent GAAP profitability, a $69 million or 21% increase in shareholders' equity and a $70 million or 30% reduction in our high-cost corporate debt.

Q1 interest expense was $48 million, and that was $9 million or 16% lower than the prior year quarter, supporting our sustained profitability. This was driven by corporate debt repayments as well as actions taken related to our ABS notes and warehouse facilities.

Also supporting our strong liquidity position, our cash flow has enabled us to continue to grow our unrestricted cash balance to $130 million as of the end of 1Q '26, up $25 million from year-end 2025 and up $52 million year-over-year. With this strong cash position, we paid down another $30 million of high-cost corporate debt following the end of the first quarter, lowering our remaining corporate debt principal balance to $135 million. Corporate debt repayments since the facility's October 2024 inception now total $100 million, reducing outstandings from the initial $235 million balance to $135 million, resulting in $15 million in annual run rate expense savings.

On the capital markets side, we completed a $485 million ABS transaction at a 5.32% yield in February. Over the last 12 months, we have issued $1.9 billion in ABS bonds at sub-6% yields, demonstrating our sustained access to capital on favorable terms.

Next, I'd like to turn to our updated guidance as shown on Slide 10. While our member base remains resilient, inflation above Federal Reserve targets, uneven job creation, policy uncertainty and higher gas prices continue to create a cautious environment for low to moderate income consumers. We are particularly monitoring the impact of high fuel prices on our members. And while we have not seen any deterioration in our metrics as a result, we understand the pressure this can place on our customers if higher prices persist. Consequently, our outlook prudently assumes we maintain a tight credit posture through the balance of the year. We remain well positioned to adjust quickly as conditions evolve.

Our outlook for the second quarter is total revenue of $227 million to $232 million, annualized net charge-off rate of 12.2%, plus or minus 15 basis points and adjusted EBITDA of $34 million to $39 million. At the midpoint, our Q2 revenue guidance implies a modest sequential increase from Q1 and a lesser year-over-year decline driven by higher originations from first quarter levels. Our Q2 annualized net charge-off rate midpoint guidance of 12.2% implies 45 basis points of sequential improvement from the first quarter, supported by the favorable 30-plus delinquency trends I discussed earlier.

At the midpoint of $37 million, our Q2 adjusted EBITDA guidance implies strong sequential and a return to year-over-year growth of $5 million or 17%, driven primarily by lower interest expense along with ongoing operating expense discipline.

We are fully reiterating our full year 2026 guidance, including total revenue of $935 million to $955 million, annualized net charge-off rate of 11.9%, plus or minus 50 basis points, adjusted EBITDA of $150 million to $165 million, adjusted net income of $74 million to $82 million and adjusted EPS of $1.50 to $1.65.

Our full year 2026 guidance continues to be underpinned by our expectations for mid-single-digit originations growth, a 1% to 2% decline in average daily principal balance, a reduction in interest expense of at least 10% and substantially flat operating expenses.

Also, our full year annualized net charge-off rate midpoint guidance of 11.9% continues to indicate slight year-over-year improvement. Midpoint growth of 16% in adjusted EPS and 6% in adjusted EBITDA, even amid macro uncertainty for low to moderate income consumers reflects the resilience of both our members and our business model.

Before I turn it back to Doug, let me conclude with a brief summary of our unit economics progress. Although our long-term targets are GAAP targets, I'll reference adjusted metrics because they remove nonrecurring items and better reflect our future run rate.

As shown on Slide 11, we generated 10.5% adjusted ROE during the first quarter. With ramping originations and lower credit losses embedded in our full year guidance, we expect to improve on our first quarter adjusted ROE performance in the balance of the year and outpaced last year's 17.5% adjusted ROE. I'm encouraged by the positive fundamentals we exhibited in Q1, particularly on a year-over-year improvement in cost of funds and operating expense efficiency. Our balance sheet optimization initiatives drove improvement in our cost of funds from 8.2% to -- 7.0%, a level well below our 8.0% target. And expense discipline enabled improvement in our adjusted OpEx ratio from 13.3% to 12.7%, nearing our 12.5% target.

Our North Star remains delivering GAAP ROEs of 20% to 28% annually. We plan to achieve this by driving positive credit outcomes, growing the owned loan portfolio and effectively managing operating expenses. We also intend to continue to drive our debt-to-equity leverage ratio this year towards our 6x target by reducing our debt outstanding and continuing to grow GAAP profitability.

With that, Doug, back over to you.

Thanks, Paul. To close, I'd like to emphasize that while Oportun's foundation is stronger than it was, we need to establish predictable outcomes that result in durable growth. My focus now is on disciplined execution, deeper assessment and coming back to you on our second quarter earnings call with a clearer view of the path forward.

I want to underscore that Oportun's mission to empower members to build a better future will continue. I see a tremendous opportunity to accelerate this mission. It's my focus to partner with our teams to determine ways to accomplish this. I'm energized by what's ahead.

With that, operator, let's open it up for questions.

[Operator Instructions] The first question comes from the line of Brendan McCarthy with Sidoti.

Welcome, Doug. I just wanted to start off on the outlook here. Originations down 11% year-over-year. That makes sense considering your tighter underwriting position. How does the new risk-based pricing initiative fit into the 2026 guidance that calls for a mid-single digit increase for the year?

Thanks, Brendan. Appreciate the question. So when it comes to the risk-based pricing initiative, as I mentioned in my comments, we're making good progress rolling out that program. As you know, for most of Oportun's history, we did price above 36%. But as we reintroduce this pricing regime, we certainly want to be thoughtful about how the glide path and what it looks like. And so for guidance, we've embedded a little bit of benefit in there for 2026, but just a small amount given we do want to test into it and the program is not live yet.

Understood. I appreciate the color there. Looking at interest expense, it looks like you had a pretty steep year-over-year decline. And if you annualize the Q1, it looks like you're trending well under that target for a 10% reduction in interest expense for full year 2026. Do you see room there to boost margins over the course of the year?

Possibly, yes. I see what you're looking at when you look at the run rate there. We're obviously pleased with the progress in paying down the corporate debt. As I mentioned in my comments, right, we're down $100 million from the initial balance of the corporate loan, and that's driving a $15 million annualized interest expense run rate benefit. And as I mentioned in the comments as well, we paid down another $30 million, right, that's included in that $100 million after the end of the quarter. So yes, there may be a bit of opportunity there, especially given some of the ABS execution we've got recently.

That makes sense. And as a follow-up on leverage, Paul, I think you mentioned you're at about 6.8x leverage at this point. You're trending pretty quickly towards your 6.1x target. How can we think about your capital allocation maybe once you reach that target? How might capital allocation change going forward?

Yes. Great question, Brendan. Thank you. Look, the capital allocation priorities we have right now are continuing to invest in profitable growth and paying down the corporate debt, right? The corporate debt, when we pay that down that comes with a certain return, right? We know exactly the expense we're going to save. And the corporate debt does have a high price to it. We're at that 6.8x leverage you mentioned just now. As we said on our last earnings call, we do expect to trend towards that by the end of the year. So for now, I think those are going to be our two continued priorities, and then we can look beyond that once we reach the target.

Next question comes from the line of Alek Labosky with Jefferies.

Welcome, Doug. I was just wondering if you've seen any changes to the demand trends given the high fuel prices. Has this driven more borrowing kind of given cash constraints?

In the first quarter, Alek, we continue to see demand outpace our originations. So certainly continue to be robust demand in the market.

Great. And then just a second question. Just kind of thinking about the current mix of digital versus branch originations. Just wondering if you plan to evaluate any changes moving forward and how we should expect this to kind of trend in the future?

Alex, this is Gaurav here. The trends that we have today will -- you can expect that to continue through the course of the year. As Paul alluded, we're still guiding towards the mid-single-digit growth in originations, and we've lined up our marketing spend to go accordingly to drive that growth.

[Operator Instructions] Next question comes from the line of Brendan McCarthy with Sidoti.

Great. Just a quick follow-up here on the net charge-off guidance. I think hitting the 11.9% midpoint for the full year, it assumes a pretty nice step down in the net charge-off rate to an average of like 11.6% for the rest of the year. I guess how confident are you that you can really hit the midpoint there? What specific credit indicators are you looking for?

Thank you for the follow-up question, Brendan. As you know, the 12.65% net charge-off rate we reported in the first quarter was elevated, but we expected, right? It was the midpoint of our guidance, and we achieved that. And as we mentioned on prior earnings calls, the reason for that spike in the net charge-offs was due to the mix shift that we experienced in the first half of 2025, where new loan originations accounted for a greater share of the mix than they do now.

And so we've shifted to move the mix back to returning borrowers. So that's a positive tailwind for credit. Then you look at the guidance we set for second quarter, right? We're doing that very informed based on what we're seeing in roll rates, late-stage roll rates going into -- that will contribute to the second quarter charge-offs.

Then the last and the third item that we see as a positive trend is the 30-plus day delinquencies I mentioned in the comments, where those are trending lower than the first quarter. So I think all those signs point to a continued improvement. As you no doubt have factored in, right, when you put in the 12.65%, the 12.2% and the 11.9% target for the full year, that does imply we're at the 11% handle for the second half of the year, in line with our sort of 9% to 11% target.

Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Doug Bland, Chief Executive Officer, for closing comments.

Thank you, everyone, for joining today's call. Before we close, I do want to say a special thanks to this team, in particular, Kate, Paul and Gaurav in terms of working through the transition that they've been through is even under best circumstances, never easy and simple. And I think the team has done an excellent job continuing to drive this business, focused on discipline, and you heard the results that they've been able to achieve during this quarter. So I want to thank this team and look forward to working with them as we move forward. We appreciate the continued interest and opportunity by everyone and look forward to speaking with you again soon. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Oportun Financial Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Dorian Hare of Investor Relations. Please go ahead.

Thanks, and hello, everyone. With me to discuss Oportun's fourth quarter 2025 results are Raul Vazquez, Chief Executive Officer; and Paul Appleton, our Interim Chief Financial Officer, Treasurer and Head of Capital Markets.

I'll remind everyone on this call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements.

A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-K filing for the year ended December 31, 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law.

Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available in the Investor Relations section of our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our fourth quarter 2025 financial supplement and the appendix section of the fourth quarter 2025 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com. In addition, this call is being webcast, and an archived version will be available after the call, along with a copy of our prepared remarks.

With that, I will now turn the call over to Raul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our fourth quarter results were strong. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The 4 key headlines from the quarter are sustained GAAP profitability, solid credit performance, ongoing expense discipline and a reduced cost of capital. Let's start with profitability.

We generated $25 million of GAAP net income in 2025, including $3.4 million in the fourth quarter. This capped a year of significantly enhanced profitability for Oportun with full year GAAP net income improving by $104 million and adjusted EPS growing 89%. These results were driven by growth in originations, improved credit performance, balance sheet optimization and disciplined expense management. Turning to credit performance. Our annualized net charge-off rate was 12.3% in Q4 at the better end of the guidance range we provided.

On the expense side, Q4 operating expenses of $84 million came in below the $92 million expectation set last quarter and marked our lowest quarterly spend as a public company. Driven by disciplined expense management, full year 2025 GAAP operating expenses totaled $362 million, a $49 million or 12% reduction from 2024. Finally, our balance sheet optimization initiatives are lowering our cost of capital and positioning us for stronger long-term returns.

Driven by corporate debt repayments as well as actions related to our ABS notes and warehouse facilities, Q4 interest expense, excluding $5.5 million of debt extinguishment costs was $52 million. That was $4.1 million lower than Q3. We also completed a $485 million ABS transaction earlier this month, marking our fourth consecutive issuance with a sub-6% funding cost and a AAA rating on the senior notes. Paul will further detail our balance sheet optimization initiatives and how they factor into our 2026 expectations. With our Q4 and full year 2025 highlights covered, I'll now review how we're executing against our 3 strategic priorities: improving credit outcomes, strengthening business economics and identifying high-quality originations.

Starting with credit outcomes. As we discussed in our second quarter call, the first half of the year included a higher mix of new members than expected, so we shifted originations towards returning members. That adjustment was effective. 74% of second half originations came from returning members, up from 64% in the first half. To further strengthen our risk management approach, we also introduced new early default models focused on new and returning members and added 5 new data sources into our underwriting process. In 2026, a key focus will be upgrading our decisioning infrastructure capabilities to accelerate model training and deployment, thereby enabling us to respond even faster to evolving credit conditions.

Turning to business economics. We continue to make strong progress on efficiency and operating leverage. During full year 2025, our risk-adjusted net interest margin ratio improved 55 basis points year-over-year to 15.8%. As a reminder, that metric includes portfolio yield, net charge-offs, cost of capital and loan-related fair value impacts. Our full year 2025 adjusted OpEx ratio improved 109 basis points year-over-year to 12.7% of our owned portfolio. Together, these improvements drove strong operating leverage, lifting adjusted ROE by almost 1,000 basis points to 17.5%.

I'm also pleased to share that we are advancing a new initiative designed to enhance our unit economics and progress towards 20% to 28% annual GAAP ROEs while expanding access to responsible credit. In partnership with potential new bank sponsors and warehouse providers, we are exploring the reintroduction of risk-based pricing above 36% APRs for select higher-risk segments on shorter-term loans. This creates a meaningful opportunity to extend our mission of financial inclusion by responsibly serving customers that we would otherwise not serve while better aligning pricing and term length with risk in order to improve portfolio returns.

At the same time, we are selectively testing modestly lower APRs for certain higher-quality returning members to maximize lifetime value where competitive dynamics warranted. We are assuming only modest incremental profitability in the second half of 2026 as we roll this initiative out in a disciplined and measured manner. However, if executed successfully, we believe this initiative can drive higher earnings power in 2027 and beyond.

Finally, on identifying high-quality originations, we grew originations by 10% during full year 2025 while maintaining a conservative credit posture. We exceeded our prior expectation for high single-digit percent growth by focusing on members with higher free cash flow and on channels that deliver the strongest results. In full year 2025, loan application growth more than doubled the rate of originations growth, while customer acquisition costs declined 6% to an average of $117, a testament to our strong loan demand, disciplined underwriting and improved cost efficiency.

And expanding our secured personal loans portfolio secured by members' autos remains a key pillar of our responsible growth strategy. SPL originations increased 51% in full year 2025. As a result, our secured portfolio grew 39% year-over-year to $226 million and secured loans now represent 8% of our owned portfolio, up from 6% at year-end 2024. Importantly, secured personal loan losses were more than 600 basis points lower than unsecured personal loans during the year. To continue our strong SPL growth momentum into 2026, we've recently initiated new direct mail campaigns targeted specifically at potential SPL customers who own their vehicles.

By executing against our 3 strategic imperatives: improving credit outcomes, strengthening business economics and identifying high-quality originations, we've driven meaningful operational and profit improvement in 2024 and 2025. We're confident this disciplined framework will continue to support our momentum in 2026. With that, I'd like to now preview our initial 2026 outlook. While our member base remains resilient, inflation above Federal Reserve targets, declining wage growth, uneven job creation and policy uncertainty continue to create a cautious environment for low to moderate income consumers.

Our outlook prudently assumes these conditions persist throughout 2026 alongside our currently tight credit posture. We remain well positioned to adjust quickly as conditions evolve. The guidance for full year 2026 that Paul will soon detail for you is underpinned by mid-single digits originations growth, a 1% to 2% decline in average daily principal balance, revenue growth ranging from flat to a 2% decline, a net charge-off rate range with a midpoint reflecting slight year-over-year improvement, a reduction in interest expense of at least 10% and substantially flat operating expenses. We expect these drivers to result in full year 2026 adjusted EPS growth of 16% at the midpoint of our full year guidance. We also expect higher profitability in the second half than the first as originations ramp under our normal seasonal pattern and loss rates improve.

Now I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance.

Thanks, Raul, and good afternoon, everyone. Turning to Slide 5. We delivered a strong fourth quarter relative to guidance. Identifying high-quality originations enabled us to exceed the top end of our quarterly total revenue guidance by $1.7 million or 1%. Combined with disciplined expense management, this drove strong adjusted EBITDA of $42 million, exceeding the top of our guidance range by $5.5 million or 15%. For full year 2025, we delivered adjusted EPS of $1.36 towards the high end of the $1.30 to $1.40 expectation and achieved GAAP profitability of $25 million, consistent with our full year GAAP profitability commitment.

Turning now to Slide 6. We recorded our fifth consecutive quarter of GAAP profitability with net income of $3.4 million and diluted EPS of $0.07. We also generated adjusted net income of $13 million and adjusted EPS of $0.27. While maintaining credit discipline, fourth quarter originations of $495 million were down 5% year-over-year, primarily due to credit tightening actions. This was modestly better than our prior expectation for a high single-digit decline.

Total revenue of $248 million declined by $3.2 million or 1% year-over-year. This decline was attributable to the absence of $3.8 million of credit card revenue in the prior year quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, a transaction that has been accretive on a cash basis. Net decrease in fair value was $99 million this quarter due primarily to $86 million in net charge-offs. Also included in the decrease in Q4 fair value was $17 million of derivative-related impacts in line with our expectations associated with the acquisition of an Oportun service loan portfolio and the wind-down of a related risk-sharing agreement. The majority, $13 million was noncash. As we discussed on our prior earnings call, these loans were previously held by our bank sponsor, Pathward.

We continue to expect a profitability benefit from the acquisition, driven by lower funding costs associated with owning the portfolio versus the prior arrangement with Pathward. We also expect derivative-related fair value impacts to be muted in the first quarter and following the wind down to no longer affect fair value in future quarters. Partially offsetting the impact of the wind down, sustained lower ABS funding costs drove a favorable $4.9 million mark-to-market adjustment on our loan portfolio. Reported fourth quarter interest expense was $58 million, down $16 million year-over-year. After adjusting for debt repayment-related charges of $17 million in the prior year quarter and $5.5 million in Q4 '25, interest expense declined $4.6 million or 8% year-over-year. This improvement reflects the balance sheet optimization initiatives Raul referenced earlier, which I'll detail momentarily. Net revenue was $90 million, down 3% year-over-year as the impact of lower total revenue and a higher net decrease in fair value offset lower interest expense.

Operating expenses were $84 million, down $5.6 million or 6% year-over-year, better than our $92 million expectation and reflecting continued cost discipline. Our adjusted OpEx ratio reached a record low of 11.6%, marking the first time we've outperformed our 12.5% unit economics target. Importantly, as we work toward meeting our unit economics targets on a GAAP basis, our GAAP OpEx ratio improved to 12%, down from 13.1% in the prior year quarter and also outperformed our target.

Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $42 million in the fourth quarter. This reflected a year-over-year increase of $1.5 million as lower operating expenses and interest expense more than offset higher net charge-offs and lower total revenue. Adjusted net income, which excludes the debt repayment-related charges discussed earlier, was $13 million, down $8.6 million year-over-year, primarily due to the wind down of the Pathward risk-sharing agreement I discussed earlier. Adjusted EPS similarly declined year-over-year from $0.49 to $0.27.

Importantly, GAAP net income before taxes was $6.6 million, up $2.7 million or 68% year-over-year as lower operating expenses more than offset lower net revenue. GAAP net income was $3.4 million and would have been higher absent repayment-related charges and the tax headwinds this quarter. The $5.3 million year-over-year decline in GAAP net income was largely attributable to the tax comparison as this quarter reflected $3.2 million of tax expense versus a $4.8 million benefit in Q4 '24 due to discrete items and R&D credit timing. Diluted EPS of $0.07 declined by $0.13 year-over-year.

Next, I'd like to provide some additional color on our credit performance in Q4. As shown on Slide 7, our Q4 net charge-off rate increased as anticipated, coming in at 12.3% and at the low end of the annualized guidance we provided. As expected, the higher loss pre-July 2022 back book continued to roll off, shrinking to less than 1% of our owned portfolio at year-end. Our 30-plus delinquency rate was 4.9%, up a modest 13 basis points year-over-year. As a forward-looking indicator, this supports our expectation that 1Q '26 will represent the peak quarterly net charge-off rate for the year with moderation beginning in the second quarter.

Turning now to capital and liquidity. As shown on Slide 9, we continue to strengthen our debt capital structure by reducing higher cost corporate debt, lowering our overall cost of capital and enhancing liquidity. First, I'm pleased with the progress we made with deleveraging, ending Q4 '25 at 7.2x debt to equity. That's down from 7.9x a year ago and from the 3Q '24 peak of 8.7x. During 2025, shareholders' equity increased by $36 million or 10% with consistent GAAP profitability supporting continued deleveraging.

Reducing our high-cost corporate debt, which carries a 15% interest rate remains our second highest capital priority after originating high-quality loans and reinvesting in the business. Since the $235 million corporate debt facility was put in place in November 2024, we've reduced the outstanding balance by $70 million or 30%, including $37.5 million or 16% in Q4. These repayments lowered our annualized run rate expense by $10.5 million, generating meaningful and sustainable savings.

During Q4, we increased total committed warehouse capacity from $954 million to $1.14 billion. We also extended the weighted average remaining term of our combined warehouse facilities from 17 months to 25 months and reduced the aggregate weighted average margin by 43 basis points. We achieved this by closing a new $247 million 3-year revolving term committed warehouse facility and improving the terms of our existing facilities.

Following the fourth quarter and earlier this month, as Raul mentioned, we completed a $485 million ABS transaction at a 5.32% weighted average yield. In the last 9 months, we have now raised $1.9 billion in the ABS market at sub -6% yields, demonstrating sustained access to capital on favorable terms. In addition to reducing high-cost corporate debt by $70 million during 2025, we increased our unrestricted cash balance by $46 million or 76%. As of December 31, total cash was $199 million, of which $106 million was unrestricted and $93 million was restricted.

Turning now to our guidance. As shown on Slide 12, our outlook for the first quarter is total revenue of $225 million to $230 million, annualized net charge-off rate of 12.65%, plus or minus 15 basis points and adjusted EBITDA of $25 million to $30 million. At the midpoint, our Q1 revenue guidance implies an $8 million year-over-year decline, reflecting seasonally lower demand during tax season and our continued tight credit posture. Our Q1 annualized net charge-off rate midpoint guidance of 12.65% reflects the impact of first half 2025 originations, which included a higher percentage of new members prior to the tightening actions we implemented in the second half.

We expect first quarter '26 delinquencies to decrease to 4.4% to 4.5%, which would be 20 to 30 basis points lower than 1Q '25 and 40 to 50 basis points lower sequentially than 4Q '25. That anticipated improvement in delinquencies gives us confidence that charge-offs will decrease beginning in the second quarter. Importantly, our implied net charge-off guidance for the remaining 3 quarters of 2026 is approximately 11.65%, which is 100 basis points lower than the first quarter guidance midpoint, reflecting the impact of our tightened underwriting and improved mix.

At the midpoint, our Q1 adjusted EBITDA guidance implies a year-over-year decline of approximately $6 million, less than the expected revenue decline of $8 million, driven by lower operating and interest expense. Our initial full year 2026 guidance includes total revenue of $935 million to $955 million, annualized net charge-off rate of 11.9%, plus or minus 50 basis points, adjusted EBITDA of $150 million to $165 million and adjusted EPS of $1.50 to $1.65.

We expect to lower interest expense by more than 10% in 2026, which supports our adjusted EPS guidance. We are confident in this expectation because the benefits of the balance sheet optimization initiatives completed in 2025 will flow through to our 2026 financials. Midpoint growth of 16% in adjusted EPS and 6% in adjusted EBITDA, even amid macro uncertainty for low to moderate income consumers reflects the resilience of both our members and our business model.

Before I turn it back to Raul, let me briefly review our unit economics progress for full year 2025. Although our long-term targets are GAAP targets, I'll reference adjusted metrics because they remove nonrecurring items and better reflect our future run rate. As shown on Slide 11, we made meaningful progress during the year. Full year 2025 adjusted ROE was 17.5%, nearly a 10% point increase year-over-year, driven primarily by cost reductions and improved credit performance. We expect to build on this progress in 2026.

Our North Star remains delivering GAAP ROE of 20% to 28% annually. We plan to achieve this by reducing annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of our owned portfolio and attaining 10% to 15% annual growth in our owned loan portfolio. We also intend to make substantial progress towards returning to our target 6:1 debt-to-equity leverage ratio this year by reducing our debt outstanding and continuing to grow profitability.

With that, Raul, back over to you.

To close, I'd like to emphasize 3 key points. First, we're pleased with our 2025 results. On a full year basis, we improved GAAP net income by $104 million and grew adjusted EPS by 89%. Second, we expect full year profitability to improve across all metrics in 2026. Although the additional credit tightening implemented in the second half of last year is expected to temper revenue growth in 2026, we still project 10% to 21% adjusted EPS growth per our guidance, improved ROE and higher GAAP profitability year-over-year. And third, we see a compelling long-term opportunity ahead for Oportun.

The progress we've made over the past year in reducing leverage, lowering our cost of capital and strengthening our liquidity enables us to focus squarely on operational execution and profitable, sustainable growth. For 2026, we are assuming only modest incremental profit from the risk-based pricing initiatives discussed earlier as we roll them out prudently. However, if executed successfully, a return to risk-based pricing could enhance earnings growth beginning in 2027 and drive additional progress towards our 20% to 28% GAAP ROE objective over time.

This will be my final earnings call as CEO of Oportun. I will step down as Chief Executive Officer and from the Board by April 3 or earlier if the Board appoints a successor. Following that, will serve as an advisor through July 3 to support a smooth transition. I will continue meeting with investors this quarter and I'm working closely with the Board and management team to ensure an orderly and seamless leadership transition. It has been a privilege to lead Oportun for nearly 14 years and to work alongside such a talented, committed and mission-driven team. I am deeply grateful to our employees, members, partners and shareholders for the trust and support they have shown me throughout this journey. I am confident that Oportun is well positioned for its next chapter with a strong foundation, a clear strategy and a team fully capable of continuing to deliver for our members and shareholders.

With that, operator, let's open up the line for questions.

[Operator Instructions] And the first question comes from the line of Kyle Joseph with Stephens.

Kyle, you may have us on mute. We can't hear you.

The next question will come from the line of David Scharf with Citizens.

This is Zach on for David. Congrats on the strong fourth quarter performance. I wanted to dig in a little bit on the macro side and see if we can get any more color. And also just kind of if you can kind of talk about any of the signs that we might see that might lead to some loosening.

Sure. Sure, Zach. So when we think about the macro, right, we think that the consumer, first of all, is showing a tremendous amount of resilience. So that has us optimistic as we go into the year. From a macro perspective, we certainly know that tax refunds are expected to be bigger this year. So far, our delinquency performance at the beginning of the year makes us feel good about what the path for loss is going to continue to be. So we think that, that's constructive.

On the flip side, right, Q4 GDP growth was a bit lower than expected. Wage growth for the lowest quartile in the country is the lowest, right? They do have the lowest wage growth right now. And then when we think about fuel, because we know fuel prices are something that our customer base is pretty sensitive to, although they are lower year-over-year, in the last month alone, we've seen fuel prices on average in the state of California go up $0.40 a gallon. So that is one of the things that we're going to continue to watch carefully. So I think on the macro side, Zach, there are some puts and takes. And as a consequence, right, we continue to have a conservative credit box until we see things improve.

To your point, in terms of improvement, we'd like to see stronger job growth across the economy. We'd like to see continued GDP growth. We'd like to see a strong finish to the tax season. And then obviously, we want to see the trajectory that we expect for losses to develop. Those are the sorts of things that would require us to -- I'm sorry, that we would be required to see to open up.

The next question comes from the line of Brendan McCarthy with Sidoti.

Just wanted to start off on the net charge-off rate. Obviously, it looks like a temporary step-up in the first quarter, and then you mentioned it will step down in the second quarter and thereafter. Just curious as to what data points you're seeing regarding first payment defaults or the new origination vintages that really give you that confidence that it will step down like that.

Yes. The biggest signal in terms of the losses going down is really what we're seeing in delinquencies. So right now, based on what we're seeing in delinquencies and 30-plus delinquencies specifically, but early delinquencies also look good, Brendan. But on the 30-plus side, we think we're going to end up at 4.4% to 4.5% for Q1. That would be 20 to 30 basis points lower than last year and 40 to 50 basis points lower quarter-over-quarter. So we think that this elevated loss rate for Q1 is really just a product of the higher mix of new customers that we had at the beginning of the year, right?

We've been signaling this bubble. We talked about it in our last 2 earnings calls. So the trajectory of losses is what we expect. If anything, Q4 was on the low end of the guidance that we provided. So we got a lot of confidence when we look at delinquencies going back to your question, looking at the path for delinquencies for Q1 that we will see losses start to come down in Q2 and then certainly in Q3 and Q4. You did see that the implied loss rate for Q2 to Q4 is 11.65%. And again, the confidence really comes from what we're seeing in delinquencies so far this year.

Great. I appreciate the detail there, Raul. And another question here on operating expenses. I think you guided to flat OpEx for 2026 relative to 2025. I'm curious if you can differentiate the Q4 run rate, which would be a little bit lower if you took that and annualized it for 2026. Just wondering what increases are kind of baked into that from the Q4 run rate?

Yes. So I would say from an OpEx perspective, when we look at 2026, there's really 2 things going on. Number one, I'm really proud of the discipline that the team showed throughout all of 2025 and certainly in Q4. And that discipline continues this year. We're going to continue to look for opportunities to reduce OpEx. We're going to continue to stay pretty lean from a headcount perspective. So that part is going to continue, and that's the first part of the OpEx story.

The reason that OpEx looks flat is really the second dimension, which is there are going to be some incremental investments relative to 2025. And we think these are investments that investors are going to be excited about. Number one, we're going to be investing in this return to risk-based pricing, right, specifically pricing over 36%. As a reminder, for people that may be newer to the Oportun story, the bulk of our history, we have pricing over 36%, right? The bulk of my time even as CEO, these last 14 years, we were pricing a part of the portfolio over 36%. So this is not new to us.

This is something we know how to do. It's the same Chief Credit Officer. So in many ways, this is returning to the pricing that we had before. But this is going to require engaging a new bank partner. It's going to require some new development and just some new investment. But again, we're excited about the impact that, that's going to have. Though modest this year, we think it will lead to a bigger impact in 2027 and the years beyond that. So that's one investment.

Number two, secured personal lending continues to be our major focus from a growth perspective. We shared that originations this last year were 51% year-over-year growth in originations for SPL, right? This year, we've said we're going to have kind of mid-single-digit growth in the business. That means growth both in UPL, but more importantly, disproportionate growth rates in SPL. So we continue to invest in that part of the business, Brendan.

And then number three, I just answered Zach's question in terms of what we would need to see to open up the credit box. We are going to see growth in the portfolio this year, in particular -- I'm sorry, growth in originations, in particular, Q2 through Q4, that will not be through opening the credit box. It will be through investing in marketing. So that's another investment that you're seeing. So the net-net of the savings we expect to find plus those 3 investments means relatively flat OpEx for the year.

Understood. I appreciate the color there. And I think that's a key takeaway, your plan to go above that 36% cap. Can you give us a sense of how this might increase your addressable market? And is that plan included in your expectation for mid-single-digit growth in originations for the year?

It is not included in our view for this year. For this year, we're going to take a very methodical, very prudent approach to rolling this out. Again, we know how to do this. This is not new to us. But certainly, right, this is a different environment than a few years ago when we stopped doing this. So we think it is prudent to roll this out in a thoughtful way. Certainly, as we get into '27 and future years, we think there's 2 big benefits here, Brendan.

One is certainly over time, to your point, it should open up some additional market for us. And our ability to price appropriately for that slightly higher risk, right, is going to improve our unit economics and is going to improve the overall profitability of the business. So we're excited about that. What we also used to do, and this is contemplated in our plans is we would price the best part of our portfolio slightly below 36%.

And if someone came back as a returning borrower, they would get the benefit of good performance by having lower pricing. We think not only does that maximize lifetime value because it allows us to go ahead and retain those individuals, but by marketing price points below 36%, it also changes the through-the-door population and the applicant quality that we see so that, that way you see an overall benefit from a credit quality perspective. So we think that part of the business, the pricing below the 36% is also accretive to the business. And that's why we're so excited, although the benefits would be muted this year, we're very excited about this initiative, and I've got a ton of confidence in this leadership team's ability to execute the plan well both this year and in future years.

The next question comes from the line of Hal Goetsch with B. Riley Securities.

Raul, I just want to thank you for your service to the company and to investors. Thank you very much. I think you had a tremendous run there from start-up to a public company. Congratulations. You're going to be missed. And my question is, can you go into a little more detail on the expense reduction? It seems like it was particularly good. And what did you see there that allowed you to do that this quarter? And the follow-up question is, what are the goals for maybe debt -- corporate debt reduction in 2026?

Yes. So let me start, Hal, by saying thank you for the very kind words. Shareholders are in great hands with this leadership team. Like I said, I've got a ton of confidence in them, but I appreciate your kind words. On the OpEx side, I'm going to focus on the full year, right, because the story from a full year perspective was very compelling, right? OpEx was down $49 million or 12% on a year-over-year basis. And really, what we saw were contributions almost across all areas, Hal.

So from a tech and facilities perspective, that's the largest part of our OpEx, that was down $24 million year-over-year or 14%. That's really efficiencies in our technology spend. It's really cutting, right, the size of that group so that way, also some of the charges that come over time with that also decreased, but a lot of good work there. I know the tech team is going to continue to look for opportunities, right, both to get leaner as we continue to use AI and that would be leaner through attrition, just to be clear, but also opportunities to try to figure out if we can lessen the number of contracts or just reduce the expense associated with some of the multiyear contracts that are coming up next year.

On the personnel side, right, we've certainly gotten much leaner as people know, over the years and reduced the size of headcount. So personnel for the year was down about $7 million or 8%. G&A was down $19 million or 36% and then outservicing was also down about $2 million. So really a ton of discipline and focus across all parts of the business. As I was answering the question in terms of OpEx earlier, right, those reductions still gave us an opportunity to self-fund some improvement or some increase in sales and marketing.

So sales and marketing for the year was up $4 million or 5%, right? The bulk of that investment was in the areas that we've talked about throughout the year, both direct mail and a really, really healthy customer referral program that we're very pleased with. So that's really what the picture look like for '25, and we'll seek to do something similar in '26, right? Obviously harder to continue to reduce some of those numbers at the same magnitude, but we'll continue to look for reductions across the areas I just mentioned and then some modest investment in marketing. And then remind me -- I'm sorry, the second part of your question.

What would you have a goal for debt reduction this year after a tremendous last 1.5 years or so?

Yes. So on the debt reduction side, from a capital allocation strategy perspective, our priorities are still, number one, fund profitable growth; number two, pay down the debt, in particular, the 15% interest rate corporate facility. We made a lot of progress last year. We did $70 million in payments last year, including $37.5 million. That does impact GAAP profitability because there are some repayment charges. So our GAAP net income would have been even higher if not for the $5.5 million or so of debt repayment charges in the quarter.

We do have additional payments contemplated in the plan by quarter. We'll certainly talk more about those every time that we have an earnings call, Hal, give you an update on how much did we pay down. But the plan does include that. And in fact, GAAP net income would be even higher this year, if not for some of those debt repayment charges that we have to recognize. So yes, you'll continue to see us pay down that debt as aggressively as possible.

[Operator Instructions]

Okay. There appear to be no further questions. So we want to thank you once again for joining today's call. We appreciate your continued interest in Oportun, and the team looks forward to speaking with you again soon. Thank you, everyone.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

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" Sidoti & Company, LLC

" Jefferies LLC, Research Division

" JPMorgan Chase & Co, Research Division

Greetings, and welcome to the Oportun Financial Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dorian Hair of Investor Relations. Thank you. You may begin.

Thanks, and hello, everyone. With me to discuss Oportun's third quarter 2025 results are Raul Vazquez, Chief Executive Officer; and Paul Appleton, our Treasurer, Head of Capital Markets and Interim Chief Financial Officer.

I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, included projections, adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements.

A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ending September 30, 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law.

Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for the period-to-period comparisons of our core business and which will provide useful information to investors regarding our future financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our third quarter 2025 financial supplement and the appendix section of the third quarter 2025 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com. In addition, this call is being webcast and an archived version will be available after the call, along with a copy of our prepared remarks. With that, I will now turn the call over to Raul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Our third quarter results were strong, marking our fourth consecutive quarter of GAAP profitability. We met or exceeded all of our guidance metrics, reflecting continued operational discipline and strong execution across the business. The 4 key headlines from the quarter are: continued GAAP profitability, improved credit performance, ongoing expense discipline and an enhanced capital structure.

Let's start with profitability. We were GAAP profitable once again in Q3 with net income of $5.2 million, reflecting $35 million of year-over-year improvement. Our ROE was 5%, up 40 percentage points year-over-year. We achieved these results through continued disciplined expense management, improved credit performance and growth in originations. Based on our performance through the first 3 quarters, we remain confident that we'll deliver on our promise of full year 2025 GAAP profitability as we committed to at the start of the year. This includes our expectation to be GAAP profitable in the fourth quarter.

Turning to credit performance. Our annualized net charge-off rate was 11.8%, a modest improvement from 11.9% in the prior year period. Our 30-plus day delinquency rate also improved year-over-year by 44 basis points to 4.7%. On the expense side, we reported $91 million in operating expenses, down 11% year-over-year. That represents our second lowest quarterly expense level since becoming a public company in 2019 and our lowest ever on an adjusted basis. Thanks to our planned reduction of second half 2025 marketing and other expenses, we now expect full year 2025 GAAP operating expenses of approximately $370 million, a $10 million improvement from our prior outlook and a $40 million improvement from 2024.

Finally, we took meaningful steps during and after the quarter to further strengthen our capital structure. We executed ABS financings at weighted average yields below 6% in August and October and proactively repaid higher cost corporate debt. Additionally, we expanded our warehouse financing capacity in October by adding a new facility and modifying an existing one, extending average maturity and reducing our average cost of capital. Our debt-to-equity ratio was 7.1x at the end of Q3, down significantly from the 8.7x peak level in the prior year quarter, and we remain on track toward our target of 6x. With our Q3 highlights covered, I'll now review how we're executing against our 3 strategic priorities. improving credit outcomes, strengthening business economics and identifying high-quality originations.

Starting with credit outcomes. On our last earnings call, we shared that the first half of the year saw a higher mix of new members than expected and that we were recalibrating originations more toward returning members. Our efforts were effective. 70% of Q3 originations went to returning members, up from 64% in the first half. Although our third quarter 30-plus day delinquency rate of 4.7% came down by 44 basis points year-over-year, it was at the higher end of our internal expectations.

Observing this trend, we took additional credit tightening actions during the quarter, which are ongoing. This included leveraging a new early default model to enhance predictiveness in using our bank transaction model to lower loan amounts and enact hard declines where needed. While these actions help protect portfolio quality, they led to slightly lower originations in Q3, and we expect continued impact in Q4 origination levels. Accordingly, we now expect full year 2025 originations growth in the high single-digits percentage range, slightly down from our prior expectation for growth of approximately 10%.

Turning to business economics. We continue to make strong progress on efficiency and operating leverage. Our risk-adjusted net interest margin ratio improved 231 basis points year-over-year to 16.4% -- as a reminder, that metric includes portfolio yield, net charge-offs, cost of capital and loan-related fair value impacts. Our adjusted OpEx ratio improved 133 basis points year-over-year to 12.6% of our own portfolio. That's a new record for cost efficiency and within 8 basis points of our 12.5% target. Together, these improvements drove strong operating leverage, lifting ROE by 40 percentage points year-over-year and sharply increasing adjusted EPS from $0.02 to $0.39.

Finally, on identifying high-quality originations, even as we maintain a conservative credit posture, we grew originations by focusing on members with higher free cash flow and on channels that deliver the strongest results. Q3 originations were $512 million, up 7% year-over-year, marking our fourth consecutive quarter of growth under a disciplined credit approach. Our referral program continues to perform well, driving 25% growth in referral-based originations to $31 million in the quarter. And expanding our secured personal loans portfolio remains a key pillar of our responsible growth strategy. SPL originations increased 22% year-over-year, and our secured portfolio grew 48% year-over-year to $209 million, now 8% of our own portfolio, up from 5% a year ago. Through the first three quarters of this year, secured personal loan losses have run over 500 basis points lower compared to unsecured personal loans. Altogether, these actions reflect our commitment to balancing growth, credit quality and efficiency, an approach that's driving consistent improvement in Oportun's profitability and overall momentum.

With that, I'd like to now preview our updated 2025 outlook. We continue to closely monitor key indicators such as inflation, unemployment, fuel prices and evolving government policies alongside our internal performance metrics. Our members have remained remarkably resilient despite ongoing macro uncertainty and our third quarter results reflect that resilience. With that being the case, our 30-plus day delinquency rate did come in at the high end of our internal expectations, as I mentioned earlier. While we tighten credit accordingly, we do anticipate these trends to result in a slight increase at the midpoint of our full year 2025 annualized net charge-off rate by 20 basis points to 12.1%, reflecting approximately $5 million in higher anticipated losses. This includes a 12.45% annualized net charge-off rate expectation at the midpoint of our guidance for the fourth quarter. We expect this elevated loss rate to be temporary, impacting early 2026 before easing by next year's second quarter as recent tightening actions take hold.

Finally, we've raised our full year adjusted EPS guidance to a range of $1.30 to $1.40 per share, up 4% at the midpoint, reflecting strong year-over-year growth of 81% to 94% -- this increase is driven by continued expense discipline and a lower cost of capital, which together strengthen our profitability outlook for 2025. Oportun itself has become far more resilient with sustained GAAP profitability, improved operating efficiency and a clear path toward our 20% to 28% target ROEs. Looking ahead to 2026, we plan to stay focused on our 3 strategic priorities, which gives us confidence that we'll continue to grow adjusted EPS next year. With that, I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance.

Thanks, Raul, and good afternoon, everyone. Turning to Slide 5. We delivered a strong third quarter, coming in $2 million or 6% above the top end of our adjusted EBITDA guidance, driven by lower operating expense and lower interest expense. In addition, we met guidance for total revenue and net charge-offs and delivered another quarter of strong GAAP and adjusted EPS performance.

Turning now to Slide 6. We continued our momentum with our fourth consecutive quarter of GAAP profitability, generating $5.2 million in net income and diluted EPS of $0.11 per share. This marks our seventh straight quarter of adjusted profitability with adjusted net income of $19 million and adjusted EPS of $0.39 per share. While maintaining credit discipline, originations of $512 million were up 7% year-over-year, slightly below our prior expectations due to the credit tightening actions Raul mentioned a moment ago. Total revenue of $239 million declined by $11 million or 5% year-over-year. This decline was primarily due to the absence of $9 million of credit card revenue in the prior year quarter.

As a reminder, we completed the sale of our credit card portfolio in November of last year, a transaction that has been accretive to our bottom line. Net decrease in fair value was $77 million this quarter, primarily due to $80 million in net charge-offs, which declined 3% from the prior year quarter. In addition, sustained lower ABS funding costs drove a favorable $7 million mark-to-market adjustment on our portfolio. Third quarter interest expense was $57 million, up $1 million year-over-year as sub -3% pandemic era ABS issuances continue to pay down. However, cost of debt was lower sequentially, decreasing from 8.6% in the second quarter to 8.1% in the third quarter, closely aligning with our 8% unit economics target. This improvement reflects the positive impact of recent lower cost ABS issuance, the refinancing of higher cost ABS debt as well as the repayment of corporate debt, which I'll cover more in detail shortly.

Net revenue was $105 million, up 68% year-over-year, driven by improved fair value marks and lower net charge-offs more than offsetting lower total revenue. Operating expenses were $91 million, down 11% from the prior year, reflecting our ongoing cost discipline. Year-to-date, we've reduced operating expenses by $43 million. As Raul mentioned, with additional cost-saving measures identified, we now expect full year 2025 operating expenses to be approximately $370 million, including approximately $92 million in the fourth quarter for a 10% full year reduction from 2024. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $41 million in the third quarter. This reflected a year-over-year increase of $10 million, driven by cost reductions and credit performance improvement.

Adjusted net income was $19 million, up $8 million year-over-year, driven by our reduced operating expenses along with improved credit performance. Adjusted EPS increased sharply year-over-year from $0.02 per share to $0.39 per share, while our adjusted ROE improved 19 percentage points to 20%, which I will discuss further when I review our unit economics progress. GAAP income before taxes of $14 million increased $54 million year-over-year. This was our highest level of pretax income since the first quarter of 2022. I'll note that while our GAAP net income of $5 million increased sharply by $35 million, it was approximately half of what it would have been due to a $5 million unfavorable revision to tax expense from an annual R&D tax credit study. The revision primarily drove our effective tax rate up to 64% compared with 24% in the prior year period. Despite the higher rate, diluted EPS of $0.11 per share also impacted by the tax revision still increased by $0.86 per share year-over-year.

Next, I'd like to provide some additional color on our credit performance in Q3. Our front book of loans originated since July 2022 continues to perform quite well, while our back book of pre-July 2022 loans continues to roll off. As you can see on Slide 7, our more recent credit vintages have generally outperformed their predecessors. And as a result, the losses on our front book 12 months after disbursement are now running approximately 700 basis points or more lower than our back book. Furthermore, you can see our annualized net charge-off rate for the quarter by front book versus back book on Slide 8.

In Q3, the front book had an annualized net charge-off rate of 11.7%, near the 9% to 11% net charge-off range that we target in our unit economics model. The back book continues to decline, representing just 2% of the loan portfolio at quarter end, but accounting for 7% of gross charge-offs. We still expect the back book to further diminish to just 1% of our portfolio by the end of 2025.

Finally, as you can see on Slide 9, our net charge-off rate was 11.8% in the third quarter, which was 7 basis points better than last year's rate. Our Q3 net charge-off dollars declined by 3% year-over-year. While we reduced our 30-plus day delinquency rate year-over-year for the seventh consecutive quarter, it was at the higher end of our internal expectations, as Raul talked about.

Turning now to capital and liquidity. As shown on Slide 11, we've taken significant recent steps to enhance our debt capital structure by reducing debt outstanding and lowering our cost of capital while bolstering our liquidity. We deleveraged during Q3 by reducing our debt-to-equity ratio from 7.3x to 7.1x quarter-over-quarter, supported by GAAP profitability and $99 million in operating cash flow, of which $31 million was used to pay down debt. Our leverage is down markedly from the 8.7x peak level a year ago.

Much of our focus on reducing debt outstanding has been on repaying higher cost corporate debt, which carries a 15% interest rate. We proactively repaid $20 million of corporate loan principal during the third quarter and another $17.5 million following the quarter end. We've now repaid a total of $50 million since the facility's inception in October 2024, reducing the original $235 million balance to $185 million, resulting in an annualized run rate reduction in interest expense of $7.5 million. Since the end of the second quarter, we have continued to demonstrate our ability to consistently access the capital markets at favorable terms.

In August, we issued $538 million in ABS notes at a 5.29% weighted average yield, which was our lowest cost ABS issuance since October 2021. Following the quarter end, we completed another ABS issuing $441 million in notes at a 5.77% weighted average yield. Both transactions achieved a sub -6% funding cost, a AAA rating on their senior notes and freed up warehouse capacity for future originations. Also, following the quarter, we increased our total committed warehouse capacity from $954 million to $1.14 billion, increased the weighted average remaining term of our combined warehouse facilities from 17 months to 25 months and reduced the aggregate weighted average margin across our warehouse facilities by 43 basis points. We did so by closing a new $247 million 3-year revolving term committed warehouse facility and improving the terms of existing facilities.

Following the end of the quarter, we purchased $115 million of the Opportune service loan portfolio held by our bank sponsorship partner, Pathward. We expect some profitability benefit from the acquisition, driven by the lower funding cost of owning the portfolio in comparison to the prior agreement with Pathward. Finally, as of September 30, total cash was $224 million, of which $105 million was unrestricted and $119 million was restricted.

Turning now to our guidance, as shown on Slide 12, our outlook for the fourth quarter is total revenue of $241 million to $246 million, annualized net charge-off rate of 12.45%, plus or minus 15 basis points and adjusted EBITDA of $31 million to $37 -- our Q4 total revenue guidance reflects a $7 million year-over-year decline at the midpoint, largely due to the absence of the prior year period $4 million in credit card revenue. Our Q4 adjusted EBITDA guidance of $34 million at the midpoint also reflects a $7 million year-over-year decline, driven by lower total revenue and higher net charge-offs, partially offset by lower interest expense. Our Q4 annualized net charge-off midpoint guidance at 12.45% reflects 3Q's 30-plus delinquency rate being at the higher end of our expectations. We tightened our credit standards during Q3 and expect this uptick in our net charge-off rate to be temporary. Our revised full year 2025 guidance includes total revenue of $950 million to $955 million, annualized net charge-off rate of 12.1%, plus or minus 10 basis points, adjusted EBITDA of $137 million to $143 million and adjusted EPS of $1.30 to $1.40.

I'll note that our recent credit tightening actions imply a high single-digit year-over-year decline in originations for the fourth quarter. For context, 4Q '24 originations of $522 million were our highest level since 2022. We've maintained the midpoint of our full year revenue guidance at $952.5 million while narrowing the range by $10 million. We've also maintained the midpoint of our adjusted EBITDA guidance at $140 million, reflecting 34% year-over-year growth while narrowing that range by $4 million. We've increased our adjusted EPS midpoint by $0.05 per share or 4%, supported by lower operating expenses and reduced cost of capital. Together, these actions more than offset the impact of slightly higher charge-offs and reinforce the continued strength of our profitability trajectory.

Before I turn it back to Raul, let me conclude with a brief summary of our unit economics progress. While our long-term targets are GAAP targets, I'll use adjusted metrics because they remove nonrecurring items and provide a better sense of our future run rate.

It's clear on Slide 14 that we continue to make significant progress in Q3. Adjusted ROE was 20%, which was a 19 percentage point year-over-year improvement, driven principally by cost reductions and improved credit performance. Our North Star continues to be delivering GAAP ROE of 20% to 28% annually, driven by reduced annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of our own portfolio and attaining annual growth of 10% to 15% in our own loan portfolio. We also intend to return to our 6:1 debt-to-equity leverage ratio by reducing our debt outstanding and continuing to grow GAAP profitability. With that, Raul, back over to you.

Thanks, Paul. To close, I'd like to emphasize 3 key points. First, we're pleased with our third quarter results, achieving GAAP profitability for the fourth consecutive quarter, a GAAP ROE of 5% and adjusted ROE of 20%, both significantly improved from a year ago. Second, we made important progress in strengthening our capital structure, lowering leverage and reducing our cost of capital, improvements that position us well for the years ahead. And third, we're raising our full year adjusted EPS guidance expectations again to a range of $1.30 to $1.40, reflecting strong year-over-year growth of 81% to 94%. We expect to grow our adjusted EPS further in 2026.

Our disciplined execution across credit, efficiency and quality growth has delivered consistent progress over the past 2 years. Oportun is now a more resilient business even amidst ongoing macro uncertainty, supported by our dedicated team and loyal members. We look forward to speaking with you early next year to share our Q4 results and provide our full set of 2026 expectations. With that, operator, let's open up the line for questions.

[Operator Instructions] Our first question comes from the line of Rick Shane with JPMorgan.

Look, the delinquency trends and charge-off trends are apparent and the credit tightening is having the impact as intended. I am curious, you guys have a lot more insight into the behavior of your consumers, whether it's frequency of payment, size of payment, loans that they're taking. Can you share some insights that you're seeing behaviorally beyond just sort of delinquencies and net charge-offs to help us understand what is going on at the consumer level for pluses and minuses?

Yes, Rick, thanks for the question. As you can imagine, people's financial lives are quite complex. I've enjoyed the conversations we've had over the years about things that can go well. For example, there have been years where wage growth has been positive and then certainly the things that are challenging. I think right now, I'll start with kind of what we're doing to try to generate this improvement that we've seen in our trends, right?

One of the things that you've heard us talk about over the last few quarters is really focusing on average loan size. So for example, in Q3, average loan size for our owned portfolio, on the unsecured personal loans, we took average loan size down 5% year-over-year. Even for the secured personal loan portfolio, where we're very pleased with performance. You heard in our comments state that losses year-to-date for secured are 500 basis points better than for unsecured. We're still taking loan sizes down there as well. So loan size was down for the secured personal loans 7% year-over-year, right? So we think that right now in this economy, it's important to try to decrease loan size and really focus on making payments affordable. And that's because though we think that the consumer today continues to be very resilient, there are certainly pressure points, right? The latest inflation rate at 3% year-over-year was the highest year-over-year increase since January.

As you know, we recently found out that for the first time in over a decade, wage growth for the lowest quartile, right, is now below wage growth for the highest quartile of earners in the country. And fuel prices here in California are higher than they were -- modestly higher than they were a month ago, but they are higher than a year ago, right? So right now, we think there's still resilience in the consumer, but there are these points of pressure. There's also the potential impact of the government shutdown, if that continues. So right now, we continue to be focused on having a conservative credit box, decreasing average loan size and really trying to keep our loans as affordable as possible.

Got it. That makes a lot of sense and I think it's pretty consistent with our world view as well.

Our next question comes from the line of Brendan McCarthy with Sidoti.

I just wanted to circle back to the consumer behavior point. I know in Q2 this past quarter, repayments were elevated. Just curious as to how repayments trended in the third quarter.

We're still seeing similar trends of slight repayment rates. Again, we think that really has to do with the fact that we've made our loans smaller, so they're just easier to pay off, Brendan. It's not an area of concern for us right now. And in fact, as you know, right, we're always happy to have loans paid off.

Great. That makes sense. And pivoting to OpEx, I think it's solid to see another -- the expectation for $10 million in OpEx to come out for the rest of the year. Just curious as to what line items you're taking OpEx out of the business.

Yes, there have been several. I'm really pleased with the focus throughout the organization on staying lean and reducing OpEx. So for example, we saw sales and marketing go down about $1 million in the quarter relative to last year. Personnel expenses were down $2 million year-over-year. G&A was also down about $2 million year-over-year. The tech team continues to find efficiencies, continues to find ways to use technology and innovation to lower OpEx. So really across the board, nice efforts throughout the organization.

Understood there. And last question here from me on the net charge-off rate. I know you're looking for a temporary increase. I think you mentioned into the first quarter of 2026, but you're expecting it to kind of come back down perhaps in the second quarter of 2026. What's ultimately backing that expectation there?

Yes, that's a great question. So we talked about some of the tightening that we did in the quarter. And I would point to 2 things that really give us confidence when we think about the shape of the curve. Number one, when we think about the tightening we did in the quarter, the first payment default rates that we saw in Q3, right, those right now look quite good, and they make us feel that the tightening that we did was effective. Second thing was, as we shared during the call, in the first half of the year, we had about 64% of originations going to our returning members. That meant that we had that higher percent of originations in the first half going to new members. We were able to focus more on returning members. So we saw 70% of Q3 originations going to returning members, right? So that makes us feel like the originations are at a better balance. And then finally, to add one more, when we look at the early delinquency trends right now in the business, those also indicate that the impact that we're seeing right now should be in Q4 and Q1, and then we should start to see it come back down in Q2 through Q4 of 2026.

Our next question comes from the line of John Hecht with Jefferies.

Apologize if this -- there's some redundancy. I've been bouncing back and forth between different calls. I'm talking about the -- I'm interested in the characteristics of the secured personal loan customers. Maybe discuss the resell or maybe graduation of this from a different product versus where you're identifying these opportunities in new channels and how that mix looks going into 2026.

Yes. So secured is certainly one of the areas where we've been quite pleased with the growth that we've seen, John. So the secured portfolio now is $209 million. It's up 48% year-over-year. and it represents 8% of our portfolio, and that was 5% last year. One of the things that the team has been able to do is, number one, really focus on how do we present the product during the application flow, how do we make it just a much more efficient experience so that, that way we can increase conversion. So the product teams, the engineering teams and the risk teams have done really good work there.

The marketing team also for the first time this year, started to focus on campaigns that were specific to trying to attract people that would be interested in secured personal loans. Historically, it's been just kind of a side-by-side offer with unsecured. So we were focused on getting unsecured customers and then presenting the opportunity for a larger loan if they owned their car. But now we have dedicated marketing campaigns that really are focused on trying to acquire someone that does own their car -- and those are the types of campaigns that we're really focused on in 2026 as we think about secured personal lending as one of the pillars of growth that we really want to lean into next year and in coming years.

Second question is just the -- you've talked about the delinquencies in the quarter. I'm wondering if you're seeing any changes in roll rates. Is there anything, whether it's at the product level or income cohorts that you're seeing roll rates change in any direction that gives us a perspective on what we should expect going into 2026?

Well, I mean, throughout the year, there are certainly puts and takes in terms of roll rates among different parts of the portfolio, John. But when we think about a very modest increase in this case of just 20 basis points at the midyear for full year guidance, -- it's the sort of thing that we think we've absolutely made adjustments for in the business by looking for reductions in OpEx, right, looking for reductions in marketing spend. So nothing that's really concerning to me at this time.

Okay. And then you guys have done a good job in delevering the balance sheet. I think it was closer to 9. It's now almost back to 7. I know I think your goal is 6. Maybe can -- based on the trajectory of the business and your outlook, when do you hit 6? And when you hit 6, I'm sure you're going to be focused on maintaining a good balance sheet. I guess what -- does that increase any optionality for you at that point in time?

Yes, John, thanks for the question. Yes, we're really pleased with the trajectory in leverage coming down, as you pointed out, from a high of 8.7x third quarter last year to now 7.1x. And even quarter-over-quarter, right, we saw the decrease from 7.3x to 7.1x. And so we expect that trajectory to continue. We haven't guided anyone yet to a number time line as it were for the 6x. But clearly, we're on a good path towards that. So that's kind of the outlook.

And we have reached the end of the question-and-answer session. I would like to turn the floor back to CEO, Raul Vazquez for closing remarks.

We want to thank everyone once again for joining today's call. We appreciate your continued interest in Oportun, and we look forward to speaking to you again at the beginning of next year. Thank you.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Oportun Financial Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Dorian Hare, Senior Vice President of Investor Relations. Please go ahead.

Thanks, and hello, everyone. With me to discuss Oportun's second quarter 2025 results are Raul Vazquez, Chief Executive Officer; and Paul Appleton, our Treasurer, Head of Capital Markets and the Interim Chief Financial Officer.

I'll remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures and plans and objectives of management for our future operations.

Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially are set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including in our upcoming Form 10-Q filing for the quarter ended June 30, 2025.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparison of our core business and which will provide useful information to investors regarding our financial condition and results of operations.

A full list of definitions can be found in our earnings materials available at the Investor Relations section on our website. Non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our second quarter 2025 financial supplement and the appendix section of the second quarter 2025 earnings presentation, all of which are available at the Investor Relations section of our website at investor.oportun.com.

In addition, this call is being webcast, and an archived version will be available after the call, along with a copy of our prepared remarks.

With that, I will now turn the call over to Raul.

Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. Q2 was another strong quarter. GAAP profitability, improved credit metrics and disciplined growth reaffirm that our strategy is working. We also continue to make progress on our long-term ROE and leverage targets, a testament to the strength of our operating model and good execution in Q2.

The 4 key headlines from Q2 are: continued GAAP profitability, improved credit performance, ongoing expense discipline and a strengthening balance sheet.

First, we were GAAP profitable once again in Q2. Net income reached $6.9 million, our third consecutive quarter of GAAP profitability, driven by the $38 million year-over-year improvement. We also generated an ROE of 7%, up 41 percentage points year-over-year. We achieved these results with ongoing expense discipline, improved credit performance and originations growth. We remain on track to achieve GAAP profitability for full year 2025.

Regarding improved credit performance, our annualized net charge-off rate was 11.9%, 41 basis points better than last year's levels. Our 30-plus day delinquency rate also improved year-over-year by 54 basis points to 4.4%. For Q2, we reported $94 million in operating expenses, down 13% year-over-year. We reduced total expenses while increasing our marketing expenditure by $2 million, which drove our originations growth.

Thanks to our diligent expense management, we now expect full year 2025 GAAP operating expenses of approximately $380 million, down $10 million from our prior expectation of $390 million and down $30 million from 2024's level of $410 million. This implies $96.5 million of quarterly OpEx on average during the second half of the year.

Finally, in June, we successfully completed our latest ABS transaction, a $439 million issuance of 2-year revolving fixed rate asset-backed notes. I'm very pleased to note that the transaction was completed at a weighted average yield of 5.67%, a 128 basis point improvement from our prior ABS transaction in January.

And we received a AAA rating on our most senior bonds, a first for Oportun and a testament to how far we have come over the past couple of years. We view this as a very strong outcome for Oportun and a reflection of our progress. While we generally met our Q2 objectives, revenue did outperform slightly due to higher member repayment rates, and Paul will walk you through that.

With the financial highlights covered, let's take a step back and review how we're executing against our 3 strategic priorities: improving credit outcomes, strengthening business economics and identifying high-quality originations.

Regarding improving credit outcomes, we are consistently fine-tuning our models and processes based upon member behavior and trends we observe within the communities that we serve. For example, having successfully used Plaid to access bank transaction data for underwriting for several years now, we recently enhanced our decisioning to utilize Plaid Check, their FCRA compliant consumer report.

Approximately 60% of second quarter loan disbursements utilized bank transaction data. The first half saw a greater mix of new members versus returning members than expected. Given typical credit performance dynamics, this shift is anticipated to result in modestly higher full year losses. As a result, we're recalibrating our originations more towards existing members.

On strengthening business economics, our focus is on continued efficiency gains. During Q2, we improved our risk-adjusted net interest margin year-over-year by 192 basis points to 16.3%. As a reminder, that metric includes portfolio yield, net charge-offs, cost of capital and loan-related fair value impacts.

We also improved our adjusted OpEx ratio year-over-year by 46 basis points to 13.3% of our own portfolio. Both measures contribute meaningfully to the strong operating leverage we delivered this quarter, driving ROE higher by 41 percentage points year-over-year and nearly quadrupling our adjusted EPS.

Finally, we're continuing to identify high-quality originations by reinvesting in marketing and targeting members with higher levels of free cash flow within our conservative credit standards. Q2 originations of $481 million were up 11% year-over-year. That's the third consecutive quarter that we've grown originations under our ongoing conservative credit posture. Supporting this strategy, our loan referral program delivered strong results with originations increasing 127% year-over-year to $34 million during Q2.

We also remained focused on expanding our secured personal loans portfolio, which accounted for 39% of our personal loan originations growth during Q2. As a reminder, during full year 2024, secured personal loan losses ran approximately 500 basis points lower compared to unsecured personal loans. We grew the secured loan portfolio by 58% year-over-year to $195 million or to 7% of our own portfolio. That's up from 5% of our portfolio a year ago.

I'm also pleased to inform you that SPL is now available in 8 states after we launched the product in Nevada and Utah during Q2.

I'd like to now preview our updated 2025 outlook. While we continue to monitor key indicators such as inflation, unemployment, fuel prices and evolving government policies, alongside our internal performance metrics, we have been pleased to observe how resilient our customers have been despite ongoing macro uncertainty. Supported by a more efficient cost structure and improved credit performance, this positions us to remain agile and well prepared as conditions continue to evolve.

While first half results exceeded expectations, we expect higher member repayment rates to result in a lower portfolio yield than previously anticipated, and we now expect a slower decline in our net charge-off rate for the second half. We've responded by recalibrating credit and implementing the additional cost reductions that I just discussed. Incorporating these actions, we are increasing our full year adjusted EPS guidance by 8% at the midpoint, now targeting $1.20 to $1.40 per share, representing strong growth of 67% to 94% versus last year's adjusted EPS levels.

In summary, we are very pleased with our ability to deliver enhanced profitability while offering essential financial services to our hard-working members. We are focused on executing our 3 strategic priorities and ensuring we continue our strong momentum.

With that, I will turn it over to Paul for additional details on our financial and credit performance as well as our guidance.

Thanks, Raul, and good afternoon, everyone. As you can see on Slide 5, we had a solid second quarter, meeting our adjusted EBITDA and annualized net charge-off rate guidance while delivering strong GAAP and adjusted earnings per share.

As shown on Slide 6, we delivered total revenue of $234 million in the second quarter, modestly below our guidance due to higher member repayment rates than anticipated, resulting in a lower loan yield. We achieved our third consecutive quarter of GAAP profitability with $6.9 million in net income and diluted EPS of $0.14 per share. We were also profitable on an adjusted basis for the sixth consecutive quarter with adjusted net income of $15 million and an adjusted EPS of $0.31 per share.

While maintaining credit discipline, originations of $481 million were up 11% year-over-year, in line with our expectations. Sequentially, originations were up 2% from Q1's $469 million. Total revenue of $234 million declined by $16 million or 6% year-over-year. This decline was primarily due to the absence of $10 million of credit card revenue in the prior quarter. As a reminder, we completed the sale of our credit card portfolio in November of last year, which has been accretive to our bottom line.

Furthermore, portfolio yield for the second quarter was 32.8%, a decrease of 106 basis points as compared to 33.9% in the prior year quarter. This was primarily due to a higher rate of loan repayment, whereby remaining loans featured higher origination fees and lower interest rates. Total net change in fair value declined by $70 million this quarter, primarily due to $79 million in net charge-offs.

Furthermore, our improved credit performance and strong demand for our loan assets drove a favorable $9 million mark-to-market adjustment on our portfolio. Second quarter interest expense of $60 million was up $5 million year-over-year as sub 3% pandemic era ABS issuances continue to pay down. Net revenue was $105 million, up 74% year-over-year, driven by improved fair value marks and lower net charge-offs, which more than offset lower total revenue and higher interest expense.

Operating expenses were $94 million, down 13% from the prior year, reflecting our ongoing cost discipline. As Raul mentioned, due to additional cost-saving measures that we've identified, we now expect full year 2025 operating expenses of approximately $380 million, averaging $96.5 million in the second half for a 7% full year reduction from 2024.

Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes was $31 million in the second quarter. This reflected a year-over-year increase of $1 million, driven by cost reductions and credit performance improvement. As a result, our adjusted EBITDA margin reached 13.3%, up 1.2 percentage points year-over-year.

Adjusted net income increased to $15 million, an improvement of $11 million from last year, principally driven by our reduced operating expenses along with improved credit performance. Adjusted EPS increased markedly year-over-year from $0.08 a share to $0.31 a share, while our adjusted ROE improved by 12 percentage points to 16%, which I will detail when I review our unit economics progress in a moment.

Next, I'd like to provide some additional color on our continued credit performance improvement in Q2. Our front book of loans originated since July 2022 continues to perform quite well, while our back book of pre-July 2022 loans continues to roll off. As you can see on Slide 7, our more recent credit vintages have generally outperformed their predecessors. And as a result, the losses on our front book 12 months after disbursement are now running approximately 600 basis points lower than on our back book.

Furthermore, you can see our annualized net charge-off rate for the quarter by front book versus back book on Slide 8. In Q2, the front book had an annualized net charge-off rate of 11.6%, near the 9% to 11% net charge-off range that we target in our unit economics model. The back book continues to decline, representing just 2% of the loan portfolio at quarter end, but accounting for 10% of gross charge-offs. We still expect the back book to further diminish to just 1% of our portfolio by the end of 2025.

Finally, as you can see on Slide 9, our net charge-off rate was 11.9% in the second quarter, which was 41 basis points better than last year's rate. Our Q2 net charge-off dollars declined by 6%, while we reduced our 30-plus day delinquency rate by 54 basis points.

Turning now to capital and liquidity, as shown on Slide 11, we deleveraged by reducing our debt-to-equity ratio from 7.6x to 7.3x quarter-over-quarter, supported by GAAP profitability and $105 million in operating cash flow, of which $55 million was used to pay down debt. We've now reduced leverage by 1.4x from 3Q '24's peak level of 8.7x, over half of what's required to get down to the 6x leverage level we're targeting in our unit economic model.

As we mentioned on our prior call, in late April, we fully satisfied the $12.5 million in mandatory payments that were due by July 31 on our corporate debt facility, completing the payments 3 months ahead of schedule. Consequently, Oportun has no further mandatory corporate debt repayment obligations during the remainder of 2025. That said, we will continue to seek opportunities to reduce leverage while enhancing our liquidity.

As of June 30, total cash was $228 million, of which $97 million was unrestricted and $131 million was restricted. Further bolstering our liquidity was $618 million in available funding capacity under our warehouse lines. Our continued access to the capital markets is well established. We closed on a 2-year $187.5 million committed warehouse facility in April. This transaction increased our total committed warehouse capacity to $954 million with a diversified group of lenders.

Since June 2023, Oportun has raised over $3 billion in diversified financings, including whole loan sales, securitizations and warehouse facilities from fixed income investors and banks.

Furthermore, as Raul mentioned, in June, we issued $439 million in ABS notes at a 5.67% weighted average yield, which freed up warehouse capacity for future originations. The company maintains an exemplary record in the ABS market, having now completed 25 transactions and issued $6.7 billion in notes to date from the Oportun shelf.

Turning now to our guidance, as shown on Slide 12. Our outlook for the third quarter is total revenue of $237 million to $242 million. Annualized net charge-off rate of 11.8%, plus or minus 15 basis points and adjusted EBITDA of $34 million to $39 million. Our Q3 total revenue guidance reflects a $10 million year-over-year decline at the midpoint, which substantially reflects the absence of the prior year period's $9 million in credit card revenue.

Our Q3 adjusted EBITDA guidance of $37 million at the midpoint reflects disciplined expense management, lower net charge-offs and 16% growth over 3Q '24's level of $31 million. We expect our Q3 annualized net charge-off rate to be 11.8% at the midpoint of guidance, down approximately 10 basis points year-over-year and 10 basis points sequentially. Our revised full year 2025 guidance includes total revenue of $945 million to $960 million, annualized net charge-off rate of 11.9%, plus or minus 30 basis points and adjusted EBITDA of between $135 million and $145 million.

We've narrowed our full year revenue guidance range by $10 million by reducing the higher end of the range while maintaining the lower end. This adjustment reflects our second quarter revenue performance, which was modestly below our expectations and a revised assumption for a higher rate of loan repayments.

I'll note that we expect second half year-over-year originations growth in the mid-single digits. This will enable us to grow full year 2025 originations by approximately 10%, a reaffirmation of the expectation we set on the last earnings call.

Our updated full year annualized net charge-off rate expectation stands at 11.9% at the midpoint, 10 basis points better than full year 2024, but 40 basis points above our previous guidance. This reflects higher-than-expected repayment rates, which reduced the denominator in the charge-off calculation and a higher percentage of new member originations in the first half for which we've already adjusted our underwriting.

Given our strong performance in the first half of 2025 and the impact of ongoing cost reduction efforts, we are raising our outlook for adjusted net income and adjusted EPS. We now expect full year adjusted net income of $58 million to $67 million and adjusted EPS of $1.20 to $1.40 per share.

Now before I turn it back to Raul, let me conclude with a brief summary of our unit economics progress. While our long-term targets are GAAP targets, I'll be using adjusted metrics for comparison because they remove nonrecurring items and provide a better sense of our future run rate.

It's clear on Slide 14 that we continue to make significant progress in Q2. Adjusted ROE was 16%, which was 12 percentage points year-over-year improvement. The increase was driven principally by cost reductions and improved credit performance. Our North Star continues to be delivering GAAP ROEs of 20% to 28% annually, driven by reducing annualized net charge-offs to 9% to 11%, lowering operating expenses to 12.5% of our own portfolio and attaining annual growth of 10% to 15% in our own loan portfolio.

We also intend to return to our target 6:1 debt-to-equity leverage ratio over the longer term by reducing our corporate debt outstanding and continuing to increase our GAAP profitability.

Raul, back over to you.

Thanks, Paul. To close, I'd like to emphasize 3 key points. First, we're pleased with our second quarter performance, achieving GAAP profitability for the third consecutive quarter with a GAAP ROE of 7% and an adjusted ROE of 16%, both markedly improved from a year ago.

Second, we're again increasing our full year adjusted EPS guidance expectations. Our adjusted EPS guidance range of $1.20 to $1.40 reflects strong growth over full year 2024 of 67% to 94%.

And third, we're responsibly growing originations, which we expect to eventually result in a return to loan portfolio and revenue growth. We anticipate that this will provide additional operating leverage and our next catalyst for EPS growth. Following our return to adjusted profitability last year and with full year GAAP profitability now in sight for this year, we're seeing clear evidence that our strategy is working.

This progress is a testament to the commitment of our team and the trust of our members. We remain confident in the long-term value we are creating for both our business and our shareholders.

With that, operator, let's open up the line for questions.

[Operator Instructions] Our first question is from Rick Shane with JPMorgan.

First, I'd just like to talk a little bit about what we see going on with the portfolio. So you basically described a scenario where repayments are elevated. That's generally speaking, a good sign. At the same time that has the impact in terms of the NCO rate being higher because of denominator effect. Are you seeing some sort of bifurcation in terms of consumer performance? Is this healthy repayment? Or are you being adversely selected, your best customers are paying off, and your worst customers are extending?

Rick, it's Raul. That's a great question. I wouldn't say it's adverse selection. I think just from a forecasting perspective, what ended up happening was repayment went up a little bit. And to your point, those are customers who are current, right? So that ended up impacting our revenue relative to our forecast. But it's not big enough where we would say that it is indicative of adverse selection. The unfortunate thing is, to your point, it impacts revenue in the way I just described, and then it also impacts the denominator. So that's really what's happening. I think you captured it well, but we're not concerned right now in terms of it being a signal of adverse selection.

And then just, I guess, 2 follow-ups. One is that the adjusted net income, both the high end and the low end of the range comes up. The adjusted EBITDA guidance for '25 stays the same. I'm sure once we get our model updated, we can figure out what's the driver between the 2, but why does adjusted net income come up and adjusted EBITDA does not move?

One of the things that we're finally seeing is we're finally seeing the strong demand for our loans helping with the discount rate. So from a securitization perspective, you heard the good news in terms of the securitization that priced at 5.67% weighted average, a lot of firsts there, including the first AAA-rated tranche. And the price on our debt is one of the inputs into the discount rate. So after some time where the discount rate was working against us that signal of the strong demand and quality of the loans is helping us in terms of the adjusted net income and GAAP net income metrics.

Okay. I would not have figured that out on my own. And that actually ties into my very last question. If I compare the unit economic model from Q1 to Q2, every single input is exactly the same, except for the cost of funds went up in the second quarter. That drove ROA down. Actually, the other thing that happened was leverage came down that impacted ROE in a different way, but we can isolate it to the decline in ROA. Should we expect with the most recent securitization, the cost of funds to start trending lower?

So Rick, I'll bring up one quick point, and then Paul will talk to you about the cost of funds and the securitization. As you know very well, there's seasonality in the business, so it can be a little tricky to compare quarter-over-quarter. That's one of the reasons why on that page, right, Page 14 of our earnings deck, you see us always do the year-over-year comparison. So we were really pleased with the fact that adjusted ROE of 16% was 12 points higher than last year. So just a quick reminder for any of the investors listening in that the year-over-year comparisons are the correct ones, right, the ones that are more relevant, if you will, as opposed to quarter-over-quarter. But I'll go ahead and let Paul talk about the securitization and what's happened in the cost of funds.

Thanks, Raul. Yes. So the increase in cost of funds is driven by, Rick, the low-cost pre-pandemic ABS issuances running off. And that is a more dominant effect even than the low cost of funds we're getting and seeing in the ABS markets now. And that will change in the future. But for now that's what's causing it to go up a little bit. But ultimately, it will come down, assuming we can continue to execute well in the ABS market.

Okay. Helpful. And then I will, in that case, make one suggestion on the slide. You showed the quarter metric to target -- and I hadn't even thought about it thinking about it on a year-over-year basis, might be worth throwing the metric from the year before on a year-over-year basis as well, so we can really see that trend disaggregated the way you do it.

That's a great suggestion. Thank you, Rick. We'll work on putting that in for next quarter. Thank you for the suggestion.

Our next question is from Vincent Caintic with BTIG.

First one, I actually wanted to follow up on Rick's line of questioning around the volumes or the origin -- or I should say, the repayment rates. I was just wondering maybe if you could talk about the competitive environment related to that, if maybe some of these customers are paying off. I'm not sure if that's because you're paying off in cash or if there's others who are refinancing them away. And if you could just talk about the broader environment and maybe where competition might be either strong or weak?

Yes. So from a competitive environment, Vincent, we continue to feel very good about the value proposition that we offer. So as you know, in particular, because our product is very simple, there isn't additional insurance or anything else. We think that the all-in price of our product compares very favorably to some of the other competitors.

We really think what may be happening from a repayment perspective is that as we've taken loan size down, right, repayment behavior has shifted a little bit because it's easier to prepay the loan now relative to, say, even a year ago. So for example, in Q2, our average loan size was down 6% for $200. So that makes it much easier for someone to be able to be in a position, where relative to prior years, where loan sizes were going up on a year-over-year basis, it's just easier to go ahead and pay off the loan.

We've taken a look. We don't see right now any competitor that's paying off our loans. That's certainly one of the things that we looked at as well. So we don't think it's an indication of any sort of a competitive dynamic. We think it's driven primarily by just the fact that we continue to drive loan sizes down.

Okay. That's super helpful. And actually, I mean, that then speaks to good credit trends and hopefully, more customer pipeline in the future if these customers come back. So that's good.

A follow-up question, the origination -- so you gave the origination volume guidance of 10% year-over-year for 2025, and that's great. I guess with the behavior of the higher repayment rates, any help you can provide in terms of how we should think the overall portfolio should be growing in 2025?

In 2025, what we expect is we're going to have mid-single-digit originations growth in the back half of the year. We think that right now, it continues to be prudent for us to really have a conservative posture when it comes to credit. To your point, Vincent, I like the point you made at the very end of your last question, we're really focused on making more loans that are smaller. So in Q2, for example, the number of loans was 187,000, which was up 18% year-over-year. So that's really what we're trying to do, and we think it does indicate that there would be a healthy number of repeat borrowers in the future.

When you look at our presentation and you look at the full year, this would be Slide 13, where we try to show some of the elements of growth math that are also working against us in terms of reported losses, you'll see there that we expect for the full year, we expect the portfolio to decline about 3%.

Okay. Okay. That's super helpful. And then just last one for me. So I think Rick covered the cost of funds question in terms of NIM. But maybe if you could talk about -- so the yield came down this quarter because of the repayment activity. Should we be expecting -- is repayment activity increasing, so we should be expecting the yields on the portfolio to continue to decline? Or is this kind of a good level that we should be focused using going forward?

I would say that we think right now, when we've looked at the forecast, taking into account the repayment behavior, we think that the yield that you're seeing right now is going to be pretty stable.

Our next question is from John Hecht with Jefferies.

Congratulations on another successful quarter, strategic execution. So my first question is just if I look at those loss curves that you showed on the slide and the improvement in performance, I know your long term -- I think your long-term underwriting ranges to a 9% to 11% loss. But if you eradicate the back book, which I guess will mostly happen by the end of this year, given the current trends, are you -- I mean, I assume you'll be in the 9% to 11% range, but it looks like it might even be -- if you just kind of pot out the curves a little below that.

And I'm not asking for any guidance on that, but are you kind of in a position if that's the case, you could maybe loosen up again? Or how do you just think about those opportunities and those kind of offsetting things that you got to think about?

Yes. So right now, we don't think it's the right time to loosen, John, certainly. We are pleased with the progress that we continue to see, in particular, when you compare the curves on a year-over-year basis. So we're happy overall with the credit that we're originating. Again, the tension right now is, as Vincent pointed out, right, we think the right thing to do is just make more loans, right, smaller loans, but make more of them so that, that way we are preparing ourselves for the future growth as those new borrowers become repeat borrowers, as you know, with lower losses and higher loan size. So we think that's the right strategy.

The thing that's a little tricky right now is the mix, the slightly higher mix of new borrowers, which we think is good long term, creates some short-term pressure on losses. And then the declining portfolio continues just from a growth math perspective, right, to create some pressure. But we're focused on improving the overall profitability of the business. So we really like the quarter that we printed, and we like the ability to increase adjusted EPS guidance by $0.10.

Yes. Okay. That's very helpful. And then second question is a question I get a lot of regarding you guys. And that's -- talk about like the kind of mix of either branch or digital originations and what the trends are? And then is any of the immigration policies affecting any of the customer behavior activity just because we've heard at other retail companies that they've seen a changing behavior pattern in terms of just spend, for instance.

Yes. So I'll start with just kind of policies and macro. Right now, we're really pleased with the resilience that we continue to see from our customers, right? You see that in the numbers that we're printing. You see it in the overall performance of the business. And some of that, we think is, to your point, John, going back to the first part of your question, we do have a multichannel business. So in the last update that we gave on the channels, about 1/3 of our originations were coming through the retail channel.

So certainly important at 1/3, slightly lower than what it was a few years ago. We've seen a couple of points of shift, and that shifted primarily to the contact center into our mobile channels. The business was built by design that way so that, that way, people could go ahead and shift to whatever is more convenient for them. So whether it's because people are wearing -- I'm sorry, are working multiple jobs or something else that may be happening in their lives, we feel that the multichannel offering that we have is an advantage in this environment.

Yes. Okay. And then last question is you guys historically did some sales to third parties as a funding mechanism and it drove some revenues as well. The private credit market is fairly active right now. Would you guys think about establishing some of that again to have a portion of your originations move through that channel in the future?

Yes, John, great question. So we do sell a little bit of production to whole loan buyers on a forward flow. But predominantly, the vast, vast majority of originations now are held in warehouses and then securitized in the ABS market, where as we pointed out, we've gotten very good execution recently. We found in the past, whole loan sales are very good for raising cash short term. But over the long term, do we get higher profitability by securitizing the originations versus selling them. So we'll continue to keep all the channels open, right, good diversification that way. But I think for now, we -- you should expect us to continue to access the ABS markets as a predominant funding source where the long-term profitability is at the highest.

Our next question is from Kyle Joseph with Stephens.

Just wanted to hone in on expenses a little bit. I know you guys talked about kind of an incremental $10 million of savings. As we look at kind of where your marketing is year-over-year, still down, but we're starting to look for originations growth. Just trying to think where you're getting those savings and your outlook for marketing expenses, going forward?

Yes. Great question. So in terms of the expenses, as we said in our prepared comments, we expect the expense run rate for the rest of the year to be about $96.5 million each quarter, right? And that reflects some continued expense reduction efforts we're doing, both efficiencies in staffing and non-staff vendor expenses. We're laser-focused on that. We also have higher marketing expenses earmarked for the fourth quarter to support higher-end originations. So think about it as sort of $96.5 million each quarter, which will get you to that lower run rate we've guided to, but a bit more marketing as we go to the end of the year to help drive the originations growth.

And Kyle, when the Q comes out, you'll see some more of the detail. So for example, this year, on a year-over-year basis, our tech and facilities expense was down $4 million. I think that represents both ongoing efficiency gains within our retail area. And then the technology group has done just a great, great job starting to utilize GenAI to be more efficient, starting to look at putting talent in other geographies where we're getting access to good talent, and we like the economics of that. And just as Paul was just indicating, just renegotiating vendor expenses, in particular, as multiyear deals start to expire and we get a chance to either change vendors or be able to renegotiate price.

And then personnel has been one of the areas we've been very focused on. When someone leaves, we try to figure out do we need to replace the person or not? And if so, does it need to be at the same level? And again, geography. So personnel expenses were down $1.5 million year-over-year. And that's giving us the opportunity both to drive improved OpEx ratios and to be able to invest modestly in increased marketing, to your point.

Our next question is from Hal Goetsch with B. Riley Securities.

My question is, I want to know if I heard you right on the number of loans you had in the quarter. I thought you might have said 187,000. It seems a bit high, but I just wanted to just double check that figure for the quarter.

That's correct. I'll double check, make sure I've got the number right. But yes, that's the right number.

Okay. You disclosed it in the Q, and it's like I think last quarter it was $142,000 and a -- [ this is it, it's a lot of numbers ] so that would signify you've got a -- you're going for smaller loans and you're starting out newer borrowers with lower amounts, it makes a lot of sense, right? So could you share with us any of the mix maybe of the origination amount, how much of it was kind of like first-time borrowers or other stuff you can share with that information?

Yes. So on a quarter-over-quarter basis, right, we do know that first quarter is the lowest origination. So it would make sense to have it be up quarter-over-quarter. I'm double checking the number right now in the queue. And I'm sorry, you're right. It's $156,000. My apologies.

Yes. Okay.

Yes. So apologies for that, Hal. But the strategy is correct in terms of how you stated it. We're very focused on smaller loans, right? So continuing to take average loan size down. So average loan size year-over-year was down for both unsecured personal lending and secured personal lending. So we're doing it across all products. And it is with an emphasis of trying to bring in those new borrowers. Those new borrowers within, say, 9 to 12 months then become repeat borrowers, right, that we know have a very good -- they create just really good benefits for the business, as I was mentioning earlier.

Okay. Okay. Terrific. And congratulations on the AAA tranche. I know that's a real important milestone. I think that's terrific. Congratulations on that.

Our next question is from Brendan McCarthy with Sidoti.

I just wanted to start looking at the annualized net charge-off rate. It looks like the NCL on the back book really stepped down sequentially and really from the kind of mid- to low 20% range in recent quarters. Just curious if there was any one-off items there? Or was it a certain vintage rolling off perhaps?

I think just as we're starting to get to the end of life of that now and also just recoveries, the group did a very nice job in recoveries in the quarter. And I think some of those recoveries were in the back book. And in particular, Brendan, those were the things that really impacted that loss number for the back book.

That makes sense. And then looking ahead, you mentioned you're making smaller loans, focusing on repeat borrowers. I guess what might cause the annualized net charge-off rate for full year '25 to maybe come in above that 12% threshold?

Well, certainly, we think that this continues to be a bit of a dynamic environment. I think even if we look at the activity over the last week, right, the revisions on the job numbers were significant. The good news is that the blue-collar job market continues to hold up well. But I found it interesting in just looking at the news that the 3-month average job gains now are about 1/3 of what they were a year ago. So if the economy were to really slow down significantly and start to impact the blue-collar workforce, that could impact our numbers.

I think the impact of tariffs, thankfully, so far has been very muted, relative to the expectations that existed even 3 months ago. At the same time, there continues to be a lot of activity and a lot of announcements about potential tariffs. So if inflation were to kick up, right, if some of those tariffs were to start to have an impact on the economy, those are the sorts of things, Brendan, that we think could impact our numbers. We're focused on the things we can control like more loans, right, and really focusing on smaller amounts. But if you were to ask me a few months from now, what might drive losses higher, I think in all likelihood, it would be macro events.

That makes sense. I know it's difficult to predict the macro, but I wanted to ask a question on operating expenses. I know it's -- there's no guidance for 2026. But at this point, great progress on taking down OpEx for '25. Thinking about '26, do you see further room to take additional costs out of the business? And I obviously assume that marketing spend might increase for 2026, but how can we just think about maybe the OpEx run rate looking ahead?

Yes. So certainly too early for us to give indications about 2026. If you were to look at the unit economic model, we're running at about 13.3% right now on the OpEx ratio, and our target is 12.5% -- so our goal is to continue to make progress and to continue to get closer and closer to those targets on this whole slide and then revisit the targets and figure out if we can establish even higher targets.

But what we're going to want to do as we go into 2026 is to focus on the numerator, continue to renegotiate vendor costs, continue to take a look any time that we've got an opportunity to reduce personnel expenses to reduce those and to really figure out can we continue to leverage GenAI. I think we're really only at the beginning innings of trying to figure out how do we leverage that very powerful technology and then eventually to really grow the portfolio, right, to grow the numerator -- I'm sorry, the denominator as well, so we can start to see leverage on the OpEx. That's really what we want to make progress on in 2026 is to go ahead and get closer to the target of 12.5%.

Our next question is from Gowshi Sri with Singular Research.

Congratulations again. I just wanted to direct my question at the yield management and the competitive dynamics. So with the origination fees increasing for new loans and the overall portfolio yield slightly slipping, does that reflect sort of an intentional trade-off? Are you seeing industry-wide any competitive pressure? Any evidence that the fee-based revenue can structurally offset any declining rate income?

So from a competitive perspective, we're not seeing anyone start to lower origination fees. So that's good, right, because that gives us an opportunity to continue to maintain the origination fee numbers that we have today. Certainly, one of the things that Paul does is to try to optimize advance rates on our securitizations, and that requires at times looking at the balance between origination fee and interest rate.

And in addition to that, Gowshi, the other thing that we try to do is to look at opportunities to reprice portions of the portfolio, right? Every day, we're seeing older loans get paid off, and that gives us an opportunity potentially to talk to that person about a new loan and to look for higher pricing. So those are all the things that we're taking into account and trying to balance in seeking to optimize portfolio yield.

And just my last question. Any behavioral trends post credit card sale now that you have 2 full quarters that have passed since the card portfolio sale, any meaningful changes in the overall customer activity retention or cross-sell rates among the former cardholder cohort?

No, we're not seeing anything meaningful there. The credit card decision, as you know, has been accretive to the P&L, and it's given us a chance to focus on our 3 core products.

There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

I'd like to thank everyone once again for joining today's call. We appreciate your continued interest in Oportun, and we look forward to speaking with you again soon.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.