HIGH CREDIT: Management report and analysis of financial position and operating results (Form 10-Q)

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The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand our
business, our results of operations and our financial condition. The MD&A is
provided as a supplement to, and should be read in conjunction with our
unaudited condensed consolidated financial statements and the related notes and
other financial information included elsewhere in this Quarterly Report on Form
10-Q.
Some of the information contained in this discussion and analysis, including
information with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. You should
review the "Note About Forward-Looking Statements" section of this Quarterly
Report on Form 10-Q for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis. We generally refer to loans, customers and other information and data
associated with each of our brands (Rise, Elastic and Today Card) as Elevate's
loans, customers, information and data, irrespective of whether Elevate directly
originates the credit to the customer or whether such credit is originated by a
third party.
OVERVIEW
We provide online credit solutions to consumers in the US who are not
well-served by traditional bank products and who are looking for better options
than payday loans, title loans, pawn and storefront installment loans. Non-prime
consumers now represent a larger market than prime consumers but are riskier to
underwrite and serve with traditional approaches. We're succeeding at it - and
doing it responsibly - with best-in-class advanced technology and proprietary
risk analytics honed by serving more than 2.6 million customers with $9.2
billion in credit. Our current online credit products, Rise, Elastic and Today
Card, reflect our mission to provide customers with access to competitively
priced credit and services while helping them build a brighter financial future
with credit building and financial wellness features. We call this mission "Good
Today, Better Tomorrow."
Prior to June 29, 2020, we provided services in the United Kingdom ("UK")
through our wholly-owned subsidiary, Elevate Credit International Limited
("ECIL") under the brand name 'Sunny.' During the year ended December 31, 2018,
ECIL began to receive an increased number of customer complaints initiated by
claims management companies ("CMCs") related to the affordability assessment of
certain loans. The CMCs' campaign against the high cost lending industry
increased significantly during the third and fourth quarters of 2018 and
continued through 2019 and into the first half of 2020, resulting in a
significant increase in affordability claims against all companies in the
industry over this period. The Financial Conduct Authority ("FCA"), a regulator
in the UK financial services industry, began regulating the CMCs in April 2019
in order to ensure that the methods used by the CMCs are in the best interests
of the consumer and the industry. Separately, the FCA asked all industry
participants to review their lending practices to ensure that such companies are
using an appropriate affordability and creditworthiness analysis. However, there
continued to be a lack of clarity within the regulatory environment in the UK.
This lack of clarity, coupled with the ongoing impact of the Coronavirus Disease
2019 ("COVID-19") on the UK market for Sunny, led the ECIL board of directors to
place ECIL into administration under the UK Insolvency Act 1986 and appoint
insolvency practitioners from KPMG LLP to take control and management of the UK
business. As a result, we have deconsolidated ECIL and are presenting its
results as discontinued operations.
We earn revenues on the Rise installment loans, on the Rise and Elastic lines of
credit and on the Today Card credit card product. Our revenue primarily consists
of finance charges and line of credit fees. Finance charges are driven by our
average loan balances outstanding and by the average annual percentage rate
("APR") associated with those outstanding loan balances. We calculate our
average loan balances by taking a simple daily average of the ending loan
balances outstanding for each period. Line of credit fees are recognized when
they are assessed and recorded to revenue over the life of the loan. We present
certain key metrics and other information on a "combined" basis to reflect
information related to loans originated by us and by our bank partners that
license our brands, Republic Bank, FinWise Bank and Capital Community Bank
("CCB"), as well as loans originated by third-party lenders pursuant to CSO
programs, which loans originated through CSO programs are not recorded on our
balance sheet in accordance with US GAAP. See "-Key Financial and Operating
Metrics" and "-Non-GAAP Financial Measures."
We use our working capital, funds provided by third-party lenders pursuant to
CSO programs and our credit facility with Victory Park Management, LLC ("VPC"
and the "VPC Facility") to fund the loans we directly make to our Rise customers
and provide working capital. The VPC Facility has a maximum total borrowing
amount available of $200 million at June 30, 2021. See "-Liquidity and Capital
Resources-Debt facilities."



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We also license our Rise installment loan brand to two banks. FinWise Bank
originates Rise installment loans in 17 states. This bank initially provides all
of the funding, retains 4% of the balances of all of the loans originated and
sells the remaining 96% loan participation in those Rise installment loans to a
third-party SPV, EF SPV, Ltd. ("EF SPV"). These loan participation purchases are
funded through a separate financing facility (the "EF SPV Facility"), effective
February 1, 2019, and through cash flows from operations generated by EF SPV.
The EF SPV Facility has a maximum total borrowing amount available of $250
million. We do not own EF SPV, but we have a credit default protection agreement
with EF SPV whereby we provide credit protection to the investors in EF SPV
against Rise loan losses in return for a credit premium. Elevate is required to
consolidate EF SPV as a variable interest entity ("VIE") under US GAAP and the
condensed consolidated financial statements include revenue, losses and loans
receivable related to the 96% of the Rise installment loans originated by
FinWise Bank and sold to EF SPV.
Beginning in the third quarter of 2020, we also license our Rise installment
loan brand to an additional bank, CCB, which originates Rise installment loans
in three different states than FinWise Bank. Similar to the relationship with
FinWise Bank, CCB initially provides all of the funding, retains 5% of the
balances of all of the loans originated and sells the remaining 95% loan
participation in those Rise installment loans to a third-party SPV, EC SPV, Ltd.
("EC SPV"). These loan participation purchases are funded through a separate
financing facility (the "EC SPV Facility"), and through cash flows from
operations generated by EC SPV. The EC SPV Facility has a maximum total
borrowing amount available of $100 million. We do not own EC SPV, but we have a
credit default protection agreement with EC SPV whereby we provide credit
protection to the investors in EC SPV against Rise loan losses in return for a
credit premium. Elevate is required to consolidate EC SPV as a VIE under US GAAP
and the condensed consolidated financial statements include revenue, losses and
loans receivable related to the 95% of the Rise installment loans originated by
CCB and sold to EC SPV.
The Elastic line of credit product is originated by a third-party lender,
Republic Bank, which initially provides all of the funding for that product.
Republic Bank retains 10% of the balances of all loans originated and sells a
90% loan participation in the Elastic lines of credit. An SPV structure was
implemented such that the loan participations are sold by Republic Bank to
Elastic SPV, Ltd. ("Elastic SPV") and Elastic SPV receives its funding from VPC
in a separate financing facility (the "ESPV Facility"), which was finalized on
July 13, 2015. We do not own Elastic SPV, but we have a credit default
protection agreement with Elastic SPV whereby we provide credit protection to
the investors in Elastic SPV against Elastic loan losses in return for a credit
premium. Per the terms of this agreement, under US GAAP, we are the primary
beneficiary of Elastic SPV and are required to consolidate the financial results
of Elastic SPV as a VIE in our condensed consolidated financial statements. The
ESPV Facility has a maximum total borrowing amount available of $350 million at
June 30, 2021. See "-Liquidity and Capital Resources-Debt facilities."
Today Card is a credit card product designed to meet the spending needs of
non-prime consumers by offering a prime customer experience. Today Card is
originated by CCB under the licensed MasterCard brand, and a 95% participation
interest in the credit card receivable is sold to us. As the lowest APR product
in our portfolio, Today Card allows us to serve a broader spectrum of non-prime
Americans. During 2020, the Today Card experienced significant growth in its
portfolio size despite the pandemic due to the success of our direct mail
campaigns, the primary marketing channel for acquiring new Today Card customers.
We followed a specific growth plan beginning in 2020 to grow the product while
monitoring customer responses and credit quality. Customer response to the Today
Card is very strong, as we continue to see extremely high response rates, high
customer engagement, and positive customer satisfaction scores.
Our management assesses our financial performance and future strategic goals
through key metrics based primarily on the following three themes:
•Revenue growth.   Key metrics related to revenue growth that we monitor by
product include the ending and average combined loan balances outstanding, the
effective APR of our product loan portfolios, the total dollar value of loans
originated, the number of new customer loans made, the ending number of customer
loans outstanding and the related customer acquisition costs ("CAC") associated
with each new customer loan made. We include CAC as a key metric when analyzing
revenue growth (rather than as a key metric within margin expansion).
•Stable credit quality.  Since the time they were managing our US legacy
products, our management team has maintained stable credit quality across the
loan portfolio they were managing. Additionally, in the periods covered in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, we have improved our credit quality and lowered our credit losses.
The credit quality metrics we monitor include net charge-offs as a percentage of
revenues, the combined loan loss reserve as a percentage of outstanding combined
loans, total provision for loan losses as a percentage of revenues and the
percentage of past due combined loans receivable - principal.



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•Margin expansion.  We aim to manage our business to achieve a long-term
operating margin of 20%. While our operating margins may exceed 20% in certain
years, such as in 2020 when we incurred lower levels of direct marketing expense
and materially lower credit losses due to a lack of customer demand for loans
resulting from the effects of COVID-19, we do not expect our operating margin to
increase beyond that level over the long-term, as we intend to pass on any
improvements over our targeted margins to our customers in the form of lower
APRs. We believe this is a critical component of our responsible lending
platform and over time will also help us continue to attract new customers and
retain existing customers.
Impact of COVID-19
The COVID-19 pandemic and related restrictive measures taken by governments,
businesses and individuals caused unprecedented uncertainty, volatility and
disruption in financial markets and in governmental, commercial and consumer
activity in the United States, including the markets that we serve. As the
restrictive measures have been eased in certain geographic locations during late
2020 and the first half of 2021, the U.S. economy has begun to recover, and with
the availability and distribution of a COVID-19 vaccine, we anticipate continued
improvements in commercial and consumer activity and the U.S. economy. While
positive signs exist, we recognize that certain of our customers are
experiencing varying degrees of financial distress, which may continue,
especially if new COVID-19 variant infections increase and new economic
restrictions are mandated.
The portfolio of loan products we and the bank originators provide has
experienced significantly decreased demand and application volume for both new
and former customers since the COVID-19 pandemic began, largely because of the
effects of monetary stimulus provided by the US government reducing demand for
loan products. While we have experienced an increase in new customer loans in
the first half of 2021 compared to a year ago, these events since the COVID-19
pandemic began are resulting in a material decrease in revenues compared to a
year ago. While we have increased our marketing campaigns to acquire new
customer loans during the first half of 2021, our overall loan origination
volumes during the first half of 2021 were still below our historical
origination volumes due to continued reduction in loan demand for our products.
While customer loan demand increased sequentially in the second quarter of 2021
and we believe that customer loan demand for our products will continue to
increase during the third quarter, given the uncertainty surrounding the
COVID-19 pandemic, we are currently unable to determine if the demand will
continue and allow our loan products to return to their prior historical levels.
In response to the COVID-19 pandemic, we, along with the banks we support, have
also expanded our payment flexibility tools to provide payment assistance
programs to certain customers who meet the program's qualifications. These tools
include a deferral of payments for an initial period of 30 to 60 days, which we
may extend for an additional 30 days, for generally a maximum of 180 days on a
cumulative basis. The customer will return to their normal payment schedule
after the end of the deferral period with the extension of their maturity date
equivalent to their deferral period not to generally exceed an additional 180
days. For Rise installment loans, finance charges continue to accrue at a lower
effective APR over the expected extended term of the loan considering the
deferral periods provided. For Elastic lines of credit, no fees accrue during
the payment deferral period. As a result, the average APR of our products
decreased due to the impact of the COVID-19 pandemic and the payment assistance
tools that have been implemented. As the economy continues to recover and
customers find financial stability, we've seen a decrease in the number of
customers in an active payment flexibility program. As of June 30, 2021, 2.3% of
customers with loan balances outstanding have been provided relief through our
COVID-19 payment deferral programs for a total of $9.2 million in loans with
deferred payments. This is a marked decrease in the volume of customers in an
active payment deferral program and compares to $34.6 million in loans with
deferred payments, or 8.7% of customers, as of December 31, 2020. We are also
seeing that customers generally are meeting their scheduled payments once they
exit the payment deferral program as our past due delinquency rate is 7% at
June 30, 2021 and has remained relatively flat over the past year.
Both we and the bank originators are closely monitoring the key credit quality
indicators such as payment defaults, continued payment deferrals, and line of
credit utilization. While we initially anticipated that the COVID-19 pandemic
would have a negative impact on our credit quality, instead the monetary
stimulus programs provided by the US government to our customer base have
generally allowed customers to continue making payments on their loans. At the
beginning of the pandemic, we expected an increase in net charge-offs as
compared to prior periods. However, the historically low net charge-offs as a
percentage of revenue that we experienced in the second half of 2020 has
continued into the first half of 2021. With the increased volume of new customer
loans expected to be originated during the second half of 2021, we expect a
return of net charge-offs to our targeted range of 45-55% of revenue. Further,
we believe that the allowance for loan losses is adequate to absorb the losses
inherent in the portfolio as of June 30, 2021, including loans that are part of
the payment assistance tools.
As COVID-19 has continued to impact our office locations, our employee base is
working in a hybrid remote environment in which employees may choose to remain
remote or return to the office on a limited basis. We have sought to ensure our
employees feel secure in their jobs, have flexibility in their work location and
have the resources they need to stay safe and healthy. As an 100% online lending
solutions provider, our technology and underwriting platform has continued to
serve our customers and the bank originators that we support without any
material interruption in services.



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COVID-19 has had a significant adverse impact on our business, and while
uncertainty still exists, we believe we are well-positioned to operate
effectively through the present economic environment and expect continued loan
portfolio growth and strong credit quality through the remainder of the year. We
will continue assessing our minimum cash and liquidity requirement, monitoring
our debt covenant compliance and implementing measures to ensure that our cash
and liquidity position is maintained through the current economic cycle. We
continue to monitor the impact of COVID-19 closely, as well as any effects that
may result from the Coronavirus Aid, Relief, and Economic Security ("CARES") Act
and the American Rescue Plan Act ("ARP Act"), and any further economic relief,
stimulus payments or legislation by the federal government.
KEY FINANCIAL AND OPERATING METRICS
As discussed above, we regularly monitor a number of metrics in order to measure
our current performance and project our future performance. These metrics aid us
in developing and refining our growth strategies and in making strategic
decisions.
Certain of our metrics are non-GAAP financial measures. We believe that such
metrics are useful in period-to-period comparisons of our core business.
However, non-GAAP financial measures are not an alternative to any measure of
financial performance calculated and presented in accordance with US GAAP. See
"-Non-GAAP Financial Measures" for a reconciliation of our non-GAAP measures to
US GAAP.
Revenues

                                                             As of and for the three months ended         As of and for the six months ended
                                                                           June 30,                                    June 30,
Revenue metrics (dollars in thousands, except as
noted)                                                             2021                  2020                  2021                  2020
Revenues                                                     $     84,540            $  117,991          $    174,273            $  280,458
Period-over-period change in revenue                                  (28)   %              (22) %                (38)   %              (10) %
Ending combined loans receivable - principal(1)              $    399,320            $  413,728               399,320               413,728

Combined average of loans receivable – principal (1) (2) $ 355,980

          $  466,694               367,365               524,932
Total combined loans originated - principal                  $    210,401            $   84,502               343,914               321,398
Average customer loan balance (in dollars)(3)                $      1,827            $    1,862                 1,827                 1,862
Number of new customer loans                                       38,986                 2,815                52,876                38,565
Ending number of combined loans outstanding                       218,543               222,244               218,543               222,244
Customer acquisition costs (in dollars)                      $        271            $      122                   283                   293
Effective APR of combined loan portfolio                               94    %              101  %                 95    %              107  %


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(1)Combined loans receivable is defined as loans owned by us and consolidated
VIEs plus loans originated and owned by third-party lenders pursuant to our CSO
programs. See "-Non-GAAP Financial Measures" for more information and for a
reconciliation of Combined loans receivable to Loans receivable, net, the most
directly comparable financial measure calculated in accordance with US GAAP.
(2)Average combined loans receivable - principal is calculated using an average
of daily Combined loans receivable - principal balances.
(3)Average customer loan balance is an average of all three products and is
calculated for each product by dividing the ending Combined loans receivable -
principal by the number of loans outstanding at period end.
Revenues.   Our revenues are composed of Rise finance charges, Rise CSO fees
(which are fees we receive from customers who obtain a loan through the CSO
program for the credit services, including the loan guaranty, we provide),
revenues earned on the Elastic line of credit, and finance charges and fee
revenues from the Today Card credit card product. See "-Components of our
Results of Operations-Revenues."
Ending and average combined loans receivable - principal.   We calculate the
average combined loans receivable - principal by taking a simple daily average
of the ending combined loans receivable - principal for each period. Key metrics
that drive the ending and average combined loans receivable - principal include
the amount of loans originated in a period and the average customer loan
balance. All loan balance metrics include only the 90% participation in the
related Elastic line of credit advances (we exclude the 10% held by Republic
Bank), the 96% participation in FinWise Bank originated Rise installment loans
and the 95% participation in CCB originated Rise installment loans and the 95%
participation in the CCB originated Today Card credit card receivables, but
include the full loan balances on CSO loans, which are not presented on our
Condensed Consolidated Balance Sheets.



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Total combined loans originated - principal.  The amount of loans originated in
a period is driven primarily by loans to new customers as well as new loans to
prior customers, including refinancing of existing loans to customers in good
standing.
Average customer loan balance and effective APR of combined loan portfolio. 

the

average loan amount and its related APR are based on the product and the
underlying credit quality of the customer. Generally, better credit quality
customers are offered higher loan amounts at lower APRs. Additionally, new
customers have more potential risk of loss than prior or existing customers due
to lack of payment history and the potential for fraud. As a result, newer
customers typically will have lower loan amounts and higher APRs to compensate
for that additional risk of loss. The effective APR is calculated based on the
actual amount of finance charges generated from a customer loan divided by the
average outstanding balance for the loan and can be lower than the stated APR on
the loan due to waived finance charges and other reasons. For example, a Rise
customer may receive a $2,000 installment loan with a term of 24 months and a
stated rate of 180%. In this example, the customer's monthly installment loan
payment would be $310.86. As the customer can prepay the loan balance at any
time with no additional fees or early payment penalty, the customer pays the
loan in full in month eight. The customer's loan earns interest of $2,337.81
over the eight-month period and has an average outstanding balance of $1,948.17.
The effective APR for this loan is 180% over the eight-month period calculated
as follows:
($2,337.81 interest earned / $1,948.17 average balance outstanding)
x 12 months per year = 180%
        8 months
In addition, as an example for Elastic, if a customer makes a $2,500 draw on the
customer's line of credit and this draw required bi-weekly minimum payments of
5% (equivalent to 20 bi-weekly payments), and if all minimum payments are made,
the draw would earn finance charges of $1,148. The effective APR for the line of
credit in this example is 109% over the payment period and is calculated as
follows:
($1,148.00 fees earned / $1,369.05 average balance outstanding) x 26 bi-weekly periods per year = 109%
        20 payments
The actual total revenue we realize on a loan portfolio is also impacted by the
amount of prepayments and charged-off customer loans in the portfolio. For a
single loan, on average, we typically expect to realize approximately 60% of the
revenues that we would otherwise realize if the loan were to fully amortize at
the stated APR. From the Rise example above, if we waived $400 of interest for
this customer, the effective APR for this loan would decrease to 149%.
Number of new customer loans.  We define a new customer loan as the first loan
or advance made to a customer for each of our products (so a customer receiving
a Rise installment loan and then at a later date taking their first cash advance
on an Elastic line of credit would be counted twice). The number of new customer
loans is subject to seasonal fluctuations. New customer acquisition is typically
slowest during the first six months of each calendar year, primarily in the
first quarter, compared to the latter half of the year, as our existing and
prospective customers usually receive tax refunds during this period and, thus,
have less of a need for loans from us. Further, many customers will use their
tax refunds to prepay all or a portion of their loan balance during this period,
so our overall loan portfolio typically decreases during the first quarter of
the calendar year. Overall loan portfolio growth and the number of new customer
loans tends to accelerate during the summer months (typically June and July), at
the beginning of the school year (typically late August to early September) and
during the winter holidays (typically late November to early December).
Customer acquisition costs.  A key expense metric we monitor related to loan
growth is our CAC. This metric is the amount of direct marketing costs incurred
during a period divided by the number of new customer loans originated during
that same period. New loans to former customers are not included in our
calculation of CAC (except to the extent they receive a loan through a different
product) as we believe we incur no material direct marketing costs to make
additional loans to a prior customer through the same product.



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The following tables summarize the evolution of customer loans by product for the three and six months ended. June 30, 2021 and 2020.

                                                                    Three Months Ended June 30, 2021
                                                 Rise                    Elastic                 Today
                                                                        (Lines of
                                         (Installment Loans)             Credit)             (Credit Card)             Total
Beginning number of combined
loans outstanding                               91,508                     90,021                  12,802              194,331
New customer loans originated                   27,704                      6,339                   4,943               38,986
Former customer loans originated                14,909                        132                       -               15,041
Attrition                                      (25,337)                    (4,214)                   (264)             (29,815)
Ending number of combined loans
outstanding                                    108,784                     92,278                  17,481              218,543
Customer acquisition cost               $          294               $        332          $           64          $       271
Average customer loan balance           $        2,122               $      1,599          $        1,199          $     1,827



                                                                    Three Months Ended June 30, 2020
                                                 Rise                    Elastic                 Today
                                                                        (Lines of
                                         (Installment Loans)             Credit)             (Credit Card)             Total
Beginning number of combined
loans outstanding                              142,633                    134,240                   4,613              281,486
New customer loans originated                      627                        292                   1,896                2,815
Former customer loans originated                 7,593                          9                       -                7,602
Attrition                                      (43,728)                   (25,988)                     57              (69,659)
Ending number of combined loans
outstanding                                    107,125                    108,553                   6,566              222,244
Customer acquisition cost               $          306               $        375          $           22          $       122
Average customer loan balance           $        2,249               $      1,518          $        1,231          $     1,862



                                                                      Six Months Ended June 30, 2021
                                              Rise                    Elastic                    Today
                                          (Installment
                                             Loans)              (Lines of Credit)           (Credit Card)              Total
Beginning number of combined
loans outstanding                             103,940                     100,105                   10,803              214,848
New customer loans originated                  36,360                       9,191                    7,325               52,876
Former customer loans originated               27,765                         226                        -               27,991
Attrition                                     (59,281)                    (17,244)                    (647)             (77,172)
Ending number of combined loans
outstanding                                   108,784                      92,278                   17,481              218,543
Customer acquisition cost               $         302          $              376          $            70          $       283



                                                                      Six Months Ended June 30, 2020
                                              Rise                    Elastic                    Today                  Total
                                          (Installment
                                             Loans)              (Lines of Credit)           (Credit Card)              Total
Beginning number of combined
loans outstanding                             152,435                     146,317                    3,207              301,959
New customer loans originated                  25,040                      10,057                    3,468               38,565
Former customer loans originated               24,149                         140                        -               24,289
Attrition                                     (94,499)                    (47,961)                    (109)            (142,569)
Ending number of combined loans
outstanding                                   107,125                     108,553                    6,566              222,244
Customer acquisition cost               $         309          $              335          $            62          $       293





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Recent trends.  Our revenues for the three months ended June 30, 2021 totaled
$84.5 million, a decrease of 28% versus the three months ended June 30, 2020.
Additionally, our revenues for the six months ended June 30, 2021 totaled $174.3
million, down 38% versus the prior year. Both the Rise and Elastic products
experienced a year-over-year decline in revenues of 41% and 34%, respectively,
which were attributable to reductions in loan origination volume and lower
effective APRs for the loan portfolio due to the economic crisis created by the
COVID-19 pandemic beginning in March 2020, which resulted in substantial
government assistance to our potential customers that lowered demand for our
products. This decline in revenue was partially offset by a year-over-year
increase in revenues for the Today Card product, which has more than doubled its
average principal balance outstanding year-over year. We believe Today Card
balances increased over the past year despite the impact of COVID-19 due to the
nature of the product (credit card versus installment loan or line of credit),
the lower APR of the product (effective APR of 29% in the second quarter of 2021
compared to Rise at 100% and Elastic at 95%) as customers receiving stimulus
payments would be more apt to pay down more expensive forms of credit, and the
added convenience of having a credit card for online purchases of day-to-day
items such as groceries or clothing (whereas the primary usage of a Rise
installment loan or Elastic line of credit is for emergency financial needs such
as a medical deductible or automobile repair).
Additionally, the portfolio of loan products we and the bank originators provide
has experienced significantly decreased loan demand for both new and former
customers since the COVID-19 pandemic began, including the effects of monetary
stimulus provided by the US government reducing demand for loan products. While
we have experienced an increase in new customer loans compared to a year ago,
these events since the COVID-19 pandemic began are resulting in a material
decrease in revenues compared to a year ago. We and the bank originators
experienced softer demand for the loan products during the first quarter of 2021
due to continued government stimulus programs but experienced strong origination
volume, similar to historical origination levels, during the second quarter of
2021, particularly May and June 2021. We anticipate continued strong demand for
the loan products for the remainder of the year. Rise and Elastic principal loan
balances at June 30, 2021 totaled $230.8 million and $147.6 million,
respectively, down roughly $10.1 million and $17.2 million, respectively, from a
year ago. Conversely, Today Card principal loan balances at June 30, 2021
totaled $21.0 million, up $12.9 million from a year ago.
Our CAC was higher in the second quarter of 2021 at $271 as compared to the
second quarter of 2020 at $122, with the second quarter of 2020 not reflective
of our historical CAC due to the significant reduction in marketing activity and
new loan originations due to the COVID-19 pandemic. The second quarter 2021 loan
volume is being sourced from all our marketing channels including direct mail,
strategic partners and digital. We've seen a marked improvement in loan volume
from our strategic partners channel where we have improved our technology and
risk capabilities to interface with the strategic partners via our application
programming interface (APIs) that we developed within our new technology
platform ("Blueprint") which allow us to more efficiently acquire new customers
within our targeted CAC range. We believe our CAC in future quarters will
continue to remain within or below our target range of $250 to $300 as we
continue to optimize the efficiency of our marketing channels and continue to
grow the Today Card which successfully generated new customers at a sub-$100
CAC.
Credit quality
                                                 As of and for the three months ended         As of and for the six months ended
                                                               June 30,                                    June 30,
Credit quality metrics (dollars in
thousands)                                             2021                  2020                  2021                  2020
Net charge-offs(1)                               $     26,063            $   58,643          $     56,953            $  141,450
Additional provision for loan losses(1)                 1,162               (17,166)               (8,758)              (21,398)
Provision for loan losses                        $     27,225            $   41,477          $     48,195            $  120,052
Past due combined loans receivable -
principal as a percentage of combined
loans receivable - principal(2)                             7    %                5  %                  7    %                5  %
Net charge-offs as a percentage of
revenues(1)                                                31    %               50  %                 33    %               50  %
Total provision for loan losses as a
percentage of revenues                                     32    %               35  %                 28    %               43  %
Combined loan loss reserve(3)                    $     40,321            $   60,594          $     40,321            $   60,594
Combined loan loss reserve as a percentage
of combined loans receivable(3)(4)                         10    %               14  %                 10    %               14  %


_________

(1)Net charge-offs and additional provision for loan losses are not financial
measures prepared in accordance with US GAAP. Net charge-offs include the amount
of principal and accrued interest on loans that are more than 60 days past due
(Rise and Elastic) or 120 days past due (Today Card), or sooner if we receive
notice that the loan will not be collected, such as a bankruptcy notice or
identified fraud, offset by any recoveries. Additional provision for loan losses
is the amount of provision for loan losses needed for a particular period to
adjust the combined loan loss reserve to the appropriate level in accordance
with our underlying loan loss reserve methodology. See "-Non-GAAP Financial
Measures" for more information and for a reconciliation to Provision for loan
losses, the most directly comparable financial measure calculated in accordance
with US GAAP.



                                       48
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(2)Combined loans receivable is defined as loans owned by us and consolidated
VIEs plus loans originated and owned by third-party lenders pursuant to our CSO
programs. See "-Non-GAAP Financial Measures" for more information and for a
reconciliation of Combined loans receivable to Loans receivable, net, the most
directly comparable financial measure calculated in accordance with US GAAP.
(3)Combined loan loss reserve is defined as the loan loss reserve for loans
originated and owned by us plus the loan loss reserve for loans owned by
third-party lenders and guaranteed by us. See "-Non-GAAP Financial Measures" for
more information and for a reconciliation of Combined loan loss reserve to
Allowance for loan losses, the most directly comparable financial measure
calculated in accordance with US GAAP.
(4)Combined loan loss reserve as a percentage of combined loans receivable is
determined using period-end balances.

Net principal charge-offs as a percentage of
average combined loans receivable - principal                First              Second               Third              Fourth
(1)(2)(3)                                                   Quarter             Quarter             Quarter             Quarter
2021                                                          6%                  5%                  N/A                 N/A
2020                                                          11%                 10%                 4%                  5%
2019                                                          13%                 10%                 10%                 12%


_________
(1)Net principal charge-offs is comprised of gross principal charge-offs less
recoveries.
(2)Average combined loans receivable - principal is calculated using an average
of daily Combined loans receivable - principal balances during each quarter.
(3)Combined loans receivable is defined as loans owned by us and consolidated
VIEs plus loans originated and owned by third-party lenders pursuant to our CSO
programs. See "-Non-GAAP Financial Measures" for more information and for a
reconciliation of Combined loans receivable to Loans receivable, net, the most
directly comparable financial measure calculated in accordance with US GAAP.
The above chart reflects generally the positive impact COVID-19 has had on
credit quality. Due to the lack of new customer loan demand, our implementation
of payment assistance tools, and government stimulus payments received by our
customers, net principal charge-offs as a percentage of average combined loans
receivable-principal for the second quarter of 2021 is half of the second
quarter of 2020. As loan originations to new customers return to historical
levels pre-pandemic, we expect this quarterly loss ratio to also return to
historical levels.
In reviewing the credit quality of our loan portfolio, we break out our total
provision for loan losses that is presented on our statement of operations under
US GAAP into two separate items-net charge-offs and additional provision for
loan losses. Net charge-offs are indicative of the credit quality of our
underlying portfolio, while additional provision for loan losses is subject to
more fluctuation based on loan portfolio growth, recent credit quality trends
and the effect of normal seasonality on our business. The additional provision
for loan losses is the amount needed to adjust the combined loan loss reserve to
the appropriate amount at the end of each month based on our loan loss reserve
methodology.
Net charge-offs.  Net charge-offs comprise gross charge-offs offset by
recoveries on prior charge-offs. Gross charge-offs include the amount of
principal and accrued interest on loans that are more than 60 days past due
(Rise and Elastic) or 120 days (Today Card), or sooner if we receive notice that
the loan will not be collected, such as a bankruptcy notice or identified fraud.
Any payments received on loans that have been charged off are recorded as
recoveries and reduce the total amount of gross charge-offs. Recoveries are
typically less than 10% of the amount charged off, and thus, we do not view
recoveries as a key credit quality metric.
Net charge-offs as a percentage of revenues can vary based on several factors,
such as whether or not we experience significant growth or lower the APR of our
products. Additionally, although a more seasoned portfolio will typically result
in lower net charge-offs as a percentage of revenues, we do not intend to drive
down this ratio significantly below our historical ratios and would instead seek
to offer our existing products to a broader new customer base to drive
additional revenues.
Net charge-offs as a percentage of average combined loans receivable-principal
allow us to determine credit quality and evaluate loss experience trends across
our loan portfolio.
Additional provision for loan losses.  Additional provision for loan losses is
the amount of provision for loan losses needed for a particular period to adjust
the combined loan loss reserve to the appropriate level in accordance with our
underlying loan loss reserve methodology.



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Additional provision for loan losses relates to an increase in future inherent
losses in the loan portfolio as determined by our loan loss reserve methodology.
This increase could be due to a combination of factors such as an increase in
the size of the loan portfolio or a worsening of credit quality or increase in
past due loans. It is also possible for the additional provision for loan losses
for a period to be a negative amount, which would reduce the amount of the
combined loan loss reserve needed (due to a decrease in the loan portfolio or
improvement in credit quality). The amount of additional provision for loan
losses is seasonal in nature, mirroring the seasonality of our new customer
acquisition and overall loan portfolio growth, as discussed above. The combined
loan loss reserve typically decreases during the first quarter or first half of
the calendar year due to a decrease in the loan portfolio from year end. Then,
as the rate of growth for the loan portfolio starts to increase during the
second half of the year, additional provision for loan losses is typically
needed to increase the reserve for future losses associated with the loan
growth. Because of this, our provision for loan losses can vary significantly
throughout the year without a significant change in the credit quality of our
portfolio.
The following provides an example of the application of our loan loss reserve
methodology and the break-out of the provision for loan losses between the
portion associated with replenishing the reserve due to net charge-offs and the
amount related to the additional provision for loan losses. If the beginning
combined loan loss reserve were $25 million, and we incurred $10 million of net
charge-offs during the period and the ending combined loan loss reserve needed
to be $30 million according to our loan loss reserve methodology, our total
provision for loan losses would be $15 million, comprising $10 million in net
charge-offs (provision needed to replenish the combined loan loss reserve) plus
$5 million of additional provision related to an increase in future inherent
losses in the loan portfolio identified by our loan loss reserve methodology.
Example (dollars in thousands)
Beginning combined loan loss reserve                         $ 25,000
Less: Net charge-offs                                         (10,000)
Provision for loan losses:
Provision for net charge-offs                    10,000
Additional provision for loan losses              5,000
Total provision for loan losses                                15,000
Ending combined loan loss reserve balance                    $ 30,000



Loan loss reserve methodology.  Our loan loss reserve methodology is calculated
separately for each product and, in the case of Rise loans originated under the
state lending model (including CSO program loans), is calculated separately
based on the state in which each customer resides to account for varying state
license requirements that affect the amount of the loan offered, repayment terms
and other factors. For each product, loss factors are calculated based on the
delinquency status of customer loan balances: current, 1 to 30 days past due, 31
to 60 days past due or 61-120 past due (for Today Card only). These loss factors
for loans in each delinquency status are based on average historical loss rates
by product (or state) associated with each of these three delinquency
categories. Hence, another key credit quality metric we monitor is the
percentage of past due combined loans receivable - principal, as an increase in
past due loans will cause an increase in our combined loan loss reserve and
related additional provision for loan losses to increase the reserve. For
customers that are not past due, we further stratify these loans into loss rates
by payment number, as a new customer that is about to make a first loan payment
has a significantly higher risk of loss than a customer who has successfully
made ten payments on an existing loan with us. Based on this methodology, during
the past two years we have seen our combined loan loss reserve as a percentage
of combined loans receivable fluctuate between approximately 10% and 14%
depending on the overall mix of new, former and past due customer loans.
Recent trends.  Total loan loss provision for the three and six months ended
June 30, 2021 was 32% and 28% of revenues, respectively, which was below our
targeted range of 45% to 55%, and below the 35% and 43% in the respective prior
year periods. Net charge-offs as a percentage of revenues for the three and six
months ended June 30, 2021 were 31% and 33%, respectively, compared to 50% in
both the respective prior year periods. While we initially anticipated that the
COVID-19 pandemic would have a negative impact on our credit quality, instead
the large quantity of monetary stimulus provided by the US government to our
customer base has generally allowed customers to continue making payments on
their loans. However, this has also caused weaker customer demand for additional
loans resulting in lower overall loan balances and revenues. We continue to
monitor the portfolio during the economic recovery resulting from COVID-19 and
continue to adjust our underwriting and credit policies to mitigate any
potential negative impacts. In the near-term we expect that net charge-offs as a
percentage of revenues will continue to trend lower than our targeted range of
45% to 55% of revenue. In the long-term (post-COVID-19) as loan demand returns
and the loan portfolio grows, we expect to continue to manage our total loan
loss provision as a percentage of revenues to continue to remain within our
targeted range of approximately 45% to 55% of revenue.



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The combined loan loss reserve as a percentage of combined loans receivable
totaled 10% and 14% as of June 30, 2021 and June 30, 2020, respectively. This
year-over-year decrease reflects the continued strong credit performance of the
portfolio. Past due loan balances at June 30, 2021 were 7% of total combined
loans receivable - principal, up from 5% from a year ago but have remained
relatively flat over the past year, which is attributable to the COVID-19
payment flexibility tools. We are continuing to see that customers are meeting
their scheduled payments once they exit the payment deferral program as
evidenced by our low delinquency rate as of June 30, 2021 which has decreased
slightly over the past year. We anticipate the combined loan loss reserve as a
percentage of combined loans receivable will move toward historic norms as we
continue to grow our loan portfolio during the second half of 2021.
We also look at Rise and Elastic principal loan charge-offs (including both
credit and fraud losses) by loan vintage as a percentage of combined loans
originated - principal. As the below table shows, our cumulative principal loan
charge-offs for Rise and Elastic through June 30, 2021 for each annual vintage
since the 2013 vintage are generally under 30% and continue to generally trend
at or slightly below our 25% to 30% long-term targeted range. During 2019, we
implemented new fraud tools that have helped lower fraud losses for the 2019
vintage and rolled out our next generation of credit models during the second
quarter of 2019 and continued refining the models during the third and fourth
quarters of 2019. Our payment deferral programs have also assisted in reducing
losses in our 2019 and 2020 vintages coupled with a lower volume of new loan
originations in our 2020 vintage. The 2019 and 2020 vintages are both performing
better than the 2017 and 2018 vintages. While still very early, we would expect
the 2021 vintage to be higher than the 2020 given the increased volume of new
customer loans expected to be originated this year and a return of net
charge-offs to our targeted range of 45-55% of revenue. It is also possible that
the cumulative loss rates on all vintages will increase and may exceed our
recent historical cumulative loss experience due to the economic impact of a
prolonged crisis resulting from the COVID-19 pandemic.
[[Image Removed: elvt-20210630_g2.jpg]]
_________
1) The 2020 and 2021 vintages are not yet fully mature from a loss perspective.
2) UK included in the 2013 to 2017 vintages only.



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We also look at Today Card principal loan charge-offs (including both credit and
fraud losses) by account vintage as a percentage of account principal
originations. As the below table shows, our cumulative principal credit card
charge-offs through June 30, 2021 for the 2020 annual vintage is under 6%. Our
2021 annual vintage also is trending in line with the 2020 vintage. Our 2018 and
2019 vintages are considered to be test vintages and were comprised of limited
originations volume and not reflective of our current underwriting standards.
[[Image Removed: elvt-20210630_g3.jpg]]


























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Margins

                                                   Three Months Ended June 30,                   Six Months Ended June 30,
Margin metrics (dollars in thousands)                2021                 2020                  2021                     2020
Revenues                                       $     84,540           $  117,991          $    174,273               $  280,458
Net charge-offs(1)                                  (26,063)             (58,643)              (56,953)                (141,450)
Additional provision for loan losses(1)              (1,162)              17,166                 8,758                   21,398
Direct marketing costs                              (10,564)                (344)              (14,947)                 (11,313)
Other cost of sales                                  (2,905)              (1,607)               (4,952)                  (4,277)
Gross profit                                         43,846               74,563               106,179                  144,816
Operating expenses                                  (38,606)             (36,498)              (76,200)                 (78,855)
Operating income                               $      5,240           $   38,065          $     29,979               $   65,961
As a percentage of revenues:
Net charge-offs                                          31   %               50  %                 33   %                   50  %
Additional provision for loan losses                      1                  (15)                   (5)                      (8)
Direct marketing costs                                   12                    -                     9                        4
Other cost of sales                                       3                    1                     3                        2
Gross margin                                             52                   63                    61                       52
Operating expenses                                       46                   31                    44                       28
Operating margin                                          6   %               32  %                 17   %                   24  %


_________
(1)Non-GAAP measure. See "-Non-GAAP Financial Measures-Net charge-offs and
additional provision for loan losses."
Gross margin is calculated as revenues minus cost of sales, or gross profit,
expressed as a percentage of revenues, and operating margin is calculated as
operating income expressed as a percentage of revenues. Due to the negative
impact of COVID-19 on our loan balances and revenue, we are monitoring our
profit margins closely. Long-term, we intend to continue to manage the business
to a targeted 20% operating margin.
Recent operating margin trends.  For the three months ended June 30, 2021, our
operating margin was 6%, which was a decrease from 32% in the prior year period.
For the six months ended June 30, 2021, our operating margin was 17%, which was
also a decrease from 24% in the prior year period. These margin decreases were
primarily driven by decreased revenue as a result of lower average combined
loans receivable-principle, lower effective APRs earned on the loan portfolio,
and increased direct marketing and origination expenses as we grow our loan
portfolio and acquire new customers.
Our operating expense metrics have been negatively impacted by the COVID-19
pandemic and its impact on loan balances and revenue. We expect our expense
metrics to continue to be negatively impacted in the short term as we continue
to focus on growth to increase our new customer loan volume and grow our overall
loan portfolio. However, management will continue to look for opportunities to
reduce our expenses to help offset the increased loan origination and direct
marketing expenses as we continue to experience lower revenues as a result of
the COVID-19 pandemic.
NON-GAAP FINANCIAL MEASURES
We believe that the inclusion of the following non-GAAP financial measures in
this Quarterly Report on Form 10-Q can provide a useful measure for
period-to-period comparisons of our core business, provide transparency and
useful information to investors and others in understanding and evaluating our
operating results, and enable investors to better compare our operating
performance with the operating performance of our competitors. Management uses
these non-GAAP financial measures frequently in its decision-making because they
provide supplemental information that facilitates internal comparisons to the
historical operating performance of prior periods and give an additional
indication of our core operating performance. However, non-GAAP financial
measures are not a measure calculated in accordance with US generally accepted
accounting principles, or US GAAP, and should not be considered an alternative
to any measures of financial performance calculated and presented in accordance
with US GAAP. Other companies may calculate these non-GAAP financial measures
differently than we do.



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Adjusted Earnings
There was no difference between reported net income (loss) from continuing
operations and Adjusted earnings for the second quarter and first half of 2021.
Adjusted earnings for the three and six months ended June 30, 2020 represent our
net income (loss) from continuing operations adjusted to exclude:
•Contingent loss related to a legal matter
•Cumulative tax effect of adjustments
Adjusted diluted earnings (loss) per share is Adjusted earnings divided by
Diluted weighted average shares outstanding.
The following table presents a reconciliation of net income (loss) from
continuing operations and diluted earnings (loss) per share to Adjusted earnings
and Adjusted diluted earnings (loss) per share, which excludes the impact of the
contingent loss for each of the periods indicated:
                                                 Three Months Ended June 30,                 Six Months Ended June 30,
(Dollars in thousands except per
share amounts)                                    2021                  2020                 2021                 2020
Net income (loss) from continuing
operations                                  $       (3,045)         $   

16,093 $ 9,671 $ 24,015

Impact of contingent loss related to
a legal matter                                           -               1,422                     -               5,685
Cumulative tax effect of adjustments                     -                (395)                    -              (1,580)
Adjusted earnings (loss)                    $       (3,045)         $   

17 120 $ 9,671 $ 28,120

Diluted earnings (loss) per share -
continuing operations                       $        (0.09)         $     

0.38 $ 0.27 $ 0.56

Impact of contingent loss related to
a legal matter                                           -                0.03                     -                0.13
Cumulative tax effect of adjustments                     -               (0.01)                    -               (0.04)
Adjusted diluted earnings (loss) per
share                                       $        (0.09)         $     

0.40 $ 0.27 $ 0.65


Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents our net income (loss) from continuing operations,
adjusted to exclude:
•Net interest expense primarily associated with notes payable under the VPC
Facility, ESPV Facility, EF SPV Facility and EC SPV Facility used to fund the
loan portfolios;
•Share-based compensation;
•Depreciation and amortization expense on fixed assets and intangible assets;
•Gains and losses from dispositions or a contingent loss related to a legal
matter included in non-operating (income) loss; and
•Income taxes.
Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.
Management believes that Adjusted EBITDA and Adjusted EBITDA margin are useful
supplemental measures to assist management and investors in analyzing the
operating performance of the business and provide greater transparency into the
results of operations of our core business.
Adjusted EBITDA and Adjusted EBITDA margin should not be considered as
alternatives to net income (loss) from continuing operations or any other
performance measure derived in accordance with US GAAP. Our use of Adjusted
EBITDA and Adjusted EBITDA margin has limitations as an analytical tool, and you
should not consider it in isolation or as a substitute for analysis of our
results as reported under US GAAP. Some of these limitations are:
•Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future, and Adjusted
EBITDA does not reflect expected cash capital expenditure requirements for such
replacements or for new capital assets;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs; and



                                       54
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•Adjusted EBITDA does not reflect interest associated with notes payable used
for funding the loan portfolios, for other corporate purposes or tax payments
that may represent a reduction in cash available to us.
The following table presents a reconciliation of net income (loss) from
continuing operations to Adjusted EBITDA and Adjusted EBITDA margin for each of
the periods indicated:
                                                   Three Months Ended June 30,                 Six Months Ended June 30,
(Dollars in thousands)                              2021                  2020                  2021                 2020
Net income (loss) from continuing
operations                                    $      (3,045)          $   16,093          $      9,671           $   24,015
Adjustments:
Net interest expense                                  8,567               12,177                17,353               25,833
Share-based compensation                              1,787                2,599                 3,389                5,347

Depreciation and amortization                         4,552                4,529                 9,795                8,825

Non-operating (income) loss                            (510)               1,422                  (717)               5,685
Income tax expense                                      228                8,373                 3,672               10,428
Adjusted EBITDA                               $      11,579           $   45,193          $     43,163           $   80,133
Adjusted EBITDA margin                                 13.7   %             38.3  %               24.8   %             28.6  %


Free cash flow
Free cash flow ("FCF") represents our net cash provided by continuing operating
activities, adjusted to include:
•Net charge-offs - combined principal loans; and
•Capital expenditures.
The following table presents a reconciliation of net cash provided by continuing
operating activities to FCF for each of the periods indicated:
                                                                            Six Months Ended June 30,
(Dollars in thousands)                                                      2021                  2020

Net cash provided by continuing operating activities(1)               $      66,687          $    131,244
Adjustments:
Net charge-offs - combined principal loans                                  (41,745)             (108,532)
Capital expenditures                                                         (7,563)               (9,508)
FCF                                                                   $      17,379          $     13,204


 _________
(1)Net cash provided by continuing operating activities includes net charge-offs
- combined finance charges.
Net charge-offs and additional provision for loan losses
We break out our total provision for loan losses into two separate items-first,
the amount related to net charge-offs, and second, the additional provision for
loan losses needed to adjust the combined loan loss reserve to the appropriate
amount at the end of each month based on our loan loss provision methodology. We
believe this presentation provides more detail related to the components of our
total provision for loan losses when analyzing the gross margin of our business.
Net charge-offs.  Net charge-offs comprise gross charge-offs offset by
recoveries on prior charge-offs. Gross charge-offs include the amount of
principal and accrued interest on loans that are more than 60 days past due
(Rise and Elastic) or 120 days (Today Card), or sooner if we receive notice that
the loan will not be collected, such as a bankruptcy notice or identified fraud.
Any payments received on loans that have been charged off are recorded as
recoveries and reduce total gross charge-offs.
Additional provision for loan losses.  Additional provision for loan losses is
the amount of provision for loan losses needed for a particular period to adjust
the combined loan loss reserve to the appropriate level in accordance with our
underlying loan loss reserve methodology.



                                       55
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                                                 Three Months Ended June 30,                 Six Months Ended June 30,
(Dollars in thousands)                            2021                  2020                  2021                 2020

Net charge-offs                             $       26,063          $   58,643          $      56,953          $  141,450
Additional provision for loan losses                 1,162             (17,166)                (8,758)            (21,398)
Provision for loan losses                   $       27,225          $   41,477          $      48,195          $  120,052


Combined loan information
The Elastic line of credit product is originated by a third-party lender,
Republic Bank, which initially provides all of the funding for that product.
Republic Bank retains 10% of the balances of all of the loans originated and
sells a 90% loan participation in the Elastic lines of credit to a third-party
SPV, Elastic SPV, Ltd. Elevate is required to consolidate Elastic SPV, Ltd. as a
VIE under US GAAP and the condensed consolidated financial statements include
revenue, losses and loans receivable related to the 90% of Elastic lines of
credit originated by Republic Bank and sold to Elastic SPV.
Beginning in the fourth quarter of 2018, we started licensing our Rise
installment loan brand to a third-party lender, FinWise Bank, which originates
Rise installment loans in 17 states. FinWise Bank retains 4% of the balances of
all the loans originated and sells a 96% participation to a third-party SPV, EF
SPV, Ltd. We do not own EF SPV, but we are required to consolidate EF SPV as a
VIE under US GAAP and the condensed consolidated financial statements include
revenue, losses and loans receivable related to the 96% of Rise installment
loans originated by FinWise Bank and sold to EF SPV.
Beginning in 2018, we started licensing the Today Card brand and our
underwriting services and platform to launch a credit card product originated by
CCB, which initially provides all of the funding for that product. CCB retains
5% of the credit card receivable balance of all the receivables originated and
sells a 95% participation in the Today Card credit card receivables to us. The
Today Card program was expanded beginning in 2020.
Beginning in the third quarter of 2020, we also license our Rise installment
loan brand to an additional bank, CCB, which originates Rise installment loans
in three different states than FinWise Bank. Similar to the relationship with
FinWise Bank, CCB retains 5% of the balances of all of the loans originated and
sells the remaining 95% loan participation in those Rise installment loans to EC
SPV. We do not own EC SPV, but we are required to consolidate EC SPV as a VIE
under US GAAP and the condensed consolidated financial statements include
revenue, losses and loans receivable related to the 95% of the Rise installment
loans originated by CCB and sold to EC SPV.
The information presented in the tables below on a combined basis are non-GAAP
measures based on a combined portfolio of loans, which includes the total amount
of outstanding loans receivable that we own and that are on our balance sheets
plus outstanding loans receivable originated and owned by third parties that we
guarantee pursuant to CSO programs in which we participate. See "-Basis of
Presentation and Critical Accounting Policies-Allowance and liability for
estimated losses on consumer loans" and "-Basis of Presentation and Critical
Accounting Policies-Liability for estimated losses on credit service
organization loans."
We believe these non-GAAP measures provide investors with important information
needed to evaluate the magnitude of potential loan losses and the opportunity
for revenue performance of the combined loan portfolio on an aggregate basis. We
also believe that the comparison of the combined amounts from period to period
is more meaningful than comparing only the amounts reflected on our balance
sheet since both revenues and cost of sales as reflected in our financial
statements are impacted by the aggregate amount of loans we own and those CSO
loans we guarantee.
Our use of total combined loans and fees receivable has limitations as an
analytical tool, and you should not consider it in isolation or as a substitute
for analysis of our results as reported under US GAAP. Some of these limitations
are:
•Rise CSO loans are originated and owned by a third-party lender and
•Rise CSO loans are funded by a third-party lender and are not part of the VPC
Facility.
As of each of the period ends indicated, the following table presents a
reconciliation of:
•Loans receivable, net, Company owned (which reconciles to our Condensed
Consolidated Balance Sheets included elsewhere in this Quarterly Report on Form
10-Q);
•Loans receivable, net, guaranteed by the Company (as disclosed in Note 3 of our
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q);
•Combined loans receivable (which we use as a non-GAAP measure); and
•Combined loan loss reserve (which we use as a non-GAAP measure).




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                                                                           2020                                             2021
(Dollars in thousands)                              June 30           September 30          December 31          March 31           June 30

Company Owned Loans:
Loans receivable - principal, current,
company owned                                     $ 387,939          $    

346,380 $ 372,320 $ 331,251 $ 372,068
Loans receivable – principal, past due, business property

                                        18,917                21,354              25,563             21,678             27,231
Loans receivable - principal, total,
company owned                                       406,856               367,734             397,883            352,929            399,299
Loans receivable - finance charges, company
owned                                                25,606                24,117              25,348             21,393             19,157
Loans receivable - company owned                    432,462               391,851             423,231            374,322            418,456
Allowance for loan losses on loans
receivable, company owned                           (59,438)              (49,909)            (48,399)           (39,037)           (40,314)
Loans receivable, net, company owned              $ 373,024          $    341,942          $  374,832          $ 335,285          $ 378,142
Third Party Loans Guaranteed by the
Company:
Loans receivable - principal, current,
guaranteed by company                             $   6,755          $      

9,129 $ 1,795 $ 145 $ 17
Loans receivable – principal, past due, company guaranteed

                                   117                   314                 144                 15                  4
Loans receivable - principal, total,
guaranteed by company(1)                              6,872                 9,443               1,939                160                 21
Loans receivable - finance charges,
guaranteed by company(2)                                550                   679                 299                 22                  4
Loans receivable - guaranteed by company              7,422                10,122               2,238                182                 25
Liability for losses on loans receivable,
guaranteed by company                                (1,156)               (1,421)               (680)              (122)                (7)
Loans receivable, net, guaranteed by
company(2)                                        $   6,266          $      8,701          $    1,558          $      60          $      18
Combined Loans Receivable(3):
Combined loans receivable - principal,
current                                           $ 394,694          $    

355,509 $ 374,115 $ 331,396 $ 372,085
Combined loans receivable – principal, past due

                                                  19,034                21,668              25,707             21,693             27,235
Combined loans receivable - principal               413,728               377,177             399,822            353,089            399,320
Combined loans receivable - finance charges          26,156                24,796              25,647             21,415             19,161
Combined loans receivable                         $ 439,884          $    401,973          $  425,469          $ 374,504          $ 418,481
Combined Loan Loss Reserve(3):
Allowance for loan losses on loans
receivable, company owned                         $ (59,438)         $    

(49,909) $ (48,399) $ (39,037) $ (40,314)
Liability for losses on loans receivable, guaranteed by the company

                                (1,156)               (1,421)               (680)              (122)                (7)
Combined loan loss reserve                        $ (60,594)         $    

(51,330) $ (49,079) $ (39,159) $ (40,321)
Combined loans receivable – principal, past due (3)

                                            $  19,034          $     

21 668 $ 25,707 $ 21,693 $ 27,235
Combined loans receivable – principal (3) $ 413,728 $ 377,177 $ 399,822 $ 353,089 $ 399,320
Percentage overdue (1)

                                    5  %                  6  %                6  %               6  %               7  %
Combined loan loss reserve as a percentage
of combined loans receivable(3)(4)                       14  %                 13  %               12  %              10  %              10  %
Allowance for loan losses as a percentage
of loans receivable - company owned                      14  %                 13  %               11  %              10  %              10  %


_________

(1)Represents loans originated by third-party lenders through the CSO programs,
which are not included in our condensed consolidated financial statements.
(2)Represents finance charges earned by third-party lenders through the CSO
programs, which are not included in our condensed consolidated financial
statements.
(3)Non-GAAP measure
(4)Combined loan loss reserve as a percentage of combined loans receivable is
determined using period-end balances.





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COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenues
Our revenues are composed of Rise finance charges and CSO fees (inclusive of
finance charges attributable to the participation in Rise installment loans
originated by FinWise Bank and CCB), cash advance fees attributable to the
participation in Elastic lines of credit that we consolidate, finance charges
and fee revenues related to the Today Card credit card product, and marketing
and licensing fees received from third-party lenders related to the Rise, Rise
CSO, Elastic, and Today Card products. See "-Overview" above for further
information on the structure of Elastic.
Cost of sales
Provision for loan losses.  Provision for loan losses consists of amounts
charged against income during the period related to net charge-offs and the
additional provision for loan losses needed to adjust the loan loss reserve to
the appropriate amount at the end of each month based on our loan loss
methodology.
Direct marketing costs.  Direct marketing costs consist of online marketing
costs such as sponsored search and advertising on social networking sites, and
other marketing costs such as purchased television and radio advertising and
direct mail print advertising. In addition, direct marketing cost includes
affiliate costs paid to marketers in exchange for referrals of potential
customers. All direct marketing costs are expensed as incurred.
Other cost of sales.  Other cost of sales includes data verification costs
associated with the underwriting of potential customers and automated clearing
house ("ACH") transaction costs associated with customer loan funding and
payments.
Operating expenses
Operating expenses consist of compensation and benefits, professional services,
selling and marketing, occupancy and equipment, depreciation and amortization as
well as other miscellaneous expenses.
Compensation and benefits.  Salaries and personnel-related costs, including
benefits, bonuses and share-based compensation expense, comprise a majority of
our operating expenses and these costs are driven by our number of employees.
Professional services.  These operating expenses include costs associated with
legal, accounting and auditing, recruiting and outsourced customer support and
collections.
Selling and marketing.  Selling and marketing costs include costs associated
with the use of agencies that perform creative services and monitor and measure
the performance of the various marketing channels. Selling and marketing costs
also include the production costs associated with media advertisements that are
expensed as incurred over the licensing or production period. These expenses do
not include direct marketing costs incurred to acquire customers, which
comprises CAC.
Occupancy and equipment.  Occupancy and equipment include rent expense on our
leased facilities, as well as telephony and web hosting expenses.
Depreciation and amortization.  We capitalize all acquisitions of property and
equipment of $500 or greater as well as certain software development costs.
Costs incurred in the preliminary stages of software development are expensed.
Costs incurred thereafter, including external direct costs of materials and
services as well as payroll and payroll-related costs, are capitalized.
Post-development costs are expensed. Depreciation is computed using the
straight-line method over the estimated useful lives of the depreciable assets.
Other expense
Net interest expense.  Net interest expense primarily includes the interest
expense associated with the VPC Facility that funds the Rise installment loans,
the ESPV Facility related to the Elastic lines of credit and related Elastic SPV
entity, and the EF SPV and EC SPV Facilities that fund Rise installment loans
originated by FinWise Bank and CCB, respectively. Interest expense also includes
any amortization of deferred debt issuance cost and prepayment penalties
incurred associated with the debt facilities.



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