OPRT - NASDAQ

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.