PGY 10-K & 10-Q changes, risk factors and insider trading

We are a rapidly growing company with a relatively limited operating history,company, which may result in increased risks, uncertainties, expenses and difficulties, and it may be difficult to evaluate our future prospects.

We were founded in 2016 and have experienced rapid growth in recent years in the markets we serve and we plan to continue to expand our product offerings and in existing and new markets. Our limited operating history may make it difficult to make accurate predictions about our future performance. Assessing our business and future prospects may also be difficult because of the risks and difficulties we face.

We have grown rapidly over the last several years, and our recent revenue and FRLPC growth rate and financial performance may not be indicative of our future performance. Our revenue and other income was $1,032.2$1,301.4 million and $812.1$1,032.2 million for the years ended December 31, 20242025 and December 31, 2023,2024, respectively, representing a 27%26% growth rate. For the years ended December 31, 20242025 and December 31, 2023,2024, we generated net income (loss) attributable to shareholders of $401.4$81.4 million and $128.4$(401.4) million, respectively, and Adjusted EBITDA of positive $210.4$371.0 million and negative $82.0$210.4 million, respectively. The Adjusted EBITDA increase for the year ended December 31, 20242025 as compared to the prior year period reflects the impact of (i) FRLPC improvement initiatives we implemented in 2024,2025, and (ii) disciplined cost management to improve operating efficiency and reduce vendor-related expenses in 2024.2025. We intend to continue to make investments to support our business growth and those investments along with the potential for more challenging macroeconomic conditions could negatively impact our net income (loss) attributable to shareholders and Adjusted EBITDA.

Over the last several years, we have experienced rapid growth in our business and the number of employees and independent contractors, and we may continue to experience growth in the future. This rapid growth has placed, and may continue to place, significant demands on our management, processes, systems and operational, technological and financial resources. Our ability to manage our growth effectively, integrate new employees, independent contractors and technologies into our existing business and attract new Partners and maintain relationships with existing Partners will require us to continue to retain, attract, train, motivate and manage employees and independent contractors and expand our operational, technological and financial infrastructure. For example, in 2024, we underwent a reduction in workforce affecting more than 20% of our workforce across both the United States and Israel, as compared to our headcount as of December 31, 2023. We incurred a severance-related charge of approximately $3.1 million, consisting primarily of one-time separation payments, in the first and second quarters of 2024. This reduction in workforce was undertaken in response to rapid growth in recent years to enable us to streamline our operations in the current market environment and achieve our near- to medium-term priorities.

We may need to undertake additional workforce reductions or restructuring activities in the future. If we do, we will incur expenses associated with the separation with those employees. We may also incur additional expenses due to events associated with the reduction in workforce, for example, the reduction in workforce may have a future impact on other areas of our liabilities and obligations, which could result in losses in future periods. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition would be adversely affected. Furthermore, any reduction in workforce may be disruptive to our operations. For example, our workforce reduction could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations and reduced employee morale. If employees who were not affected by the reduction in workforce seek alternative employment, this could result in unplanned additional expense to ensure adequate resourcing or harm our productivity. Any workforce reduction could also harm our ability to attract and retain qualified management, sales and marketing personnel who are critical to our business. Any failure to attract or retain qualified personnel could adversely affect our business.

Our business and the performance of Financing Vehicles may be adversely affected by economic conditions and other factors that we cannot control. These factors include interest rates, rising inflation, the instability of the banking system, acts of war (including the ongoing war in Israel and the ongoing Russia-Ukraine conflict),war, supply chain disruptions, labor shortages, the wind-down of stimulus programs, unemployment rates, conditions in the housing market, immigration policies, government shutdowns, trade wars or other impacts of tariffs and delays in tax refunds, as well as events such as natural disasters, terrorism, catastrophes, and pandemics (such as COVID-19).pandemics.

Uncertainty and negative trends in general economic conditions, including significant tightening of credit markets, historically have created a difficult operating environment for us, our Partners and their respective customers, and our asset investors. Many factors, including factors that are beyond our control, may impact our results of operations or financial condition and our overall success by affecting our access to capital. Challenges our Partners may face with low demand for their financial products or willingness or capacity of their customers to make payment on obligations, or the returns on other assets, may affect the success of the Financing Vehicles. For example, the personal loans acquired from our Partners are, for the most part, unsecured, and our Partners’ customers may not prioritize repayment of those loans in an economic downcycle. These factors include interest rates, rising inflation, supply chain disruptions, labor shortages, weakening exchange rates, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war (including the ongoing warconflict in Israelthe Middle East and the ongoing Russia-UkraineRussia Ukraine conflict), terrorism, catastrophes and pandemics. We face a heightened level of interest rate risk at times when the U.S. Federal Reserve Board (the “FRB”) reverses its quantitative easing program and/or increases interest rates in an effort to reduce the level of inflation in the U.S. economy.

Although the current conflict in Israel has not materially impacted our business or operations as of the date of this Annual Report, its persistence and potential escalation continue to create uncertainty, with possible long-term consequences including heightened regional instability, energy market disruptions, and adverse effects on macroeconomic conditions and financial markets. For more information, see “—Conditions in Israel and relations between Israel and other countries could adversely affect our business, including current uncertainty and instability resulting from the war between Israel and various terrorist organizations, as well as other regional hostilities.”

Furthermore, beginning in March 2022, and continuing through 2023, the U.S. Federal Reserve Board announced several increases in the federal funds rate, in an effort to reduce elevated levels of inflation and a tight labor market. These interest rate increases have led to a tighter market for credit, leading to reduced access to capital and negatively impacting our revenue b. IncreasedHigh interest rates could unfavorably impact demand for all refinancing loan activities and reduce demand across personal loans and home loans, including, but not limited to, any variable-rate loan products, as well as adversely impact the spending levels of borrowers and their ability and willingness to borrow money. The growth of the personal lending market has benefited from historically low interest rates and higher interest rates could slow the growth of this market and our growth could be negatively impacted. Higher interest rates often lead to higher payment obligations, which may reduce the ability of borrowers to remain current on their loan obligations and therefore, lead to increased delinquencies, defaults, customer bankruptcies, charge-offs, and decreasing recoveries, all of which could have a material adverse effect on our business. Any impact to investor returns may lead to an adverse impact on our ability to raise capital which could negatively impact earnings. If the risk-free rate of return increases, investor demand for risk assets, such as consumer credit, may be impacted, which may constrain our ability to raise new funding for loan originations and have a negative impact on our results of operations. While we continue to raise new funding, the cost of capital can be expected to increase in higher interest rate environments. In addition, major medical expenses, divorce, death or other issues that affect borrowers could affect a borrower’s willingness or ability to make payments on their loans. If borrowers default on loans, the cost to service these loans may also increase without a corresponding increase in fees and the value of the loans held by our funds and financing vehicles could decline. Higher default rates by these borrowers may lead to lower demand by Partners, which would adversely affect our business, financial condition and results of operations. Any sustained decline in demand for investment in loans (including through our funds or financing vehicles) or any increase in delinquencies, defaults or foreclosures that result from economic downturns, may adversely affect our business, financial condition and results of operations.

InWhile addition,inflationary the United Statespressure has recentlyeased experiencedrecently, historically high levels of inflation. According to the U.S. Department of Labor, the annual inflation rate for the United States has ranged from approximately 9.1% for June 2022 to 6.5% in December of 2022, dropping to 3% in January 2025. Risingrising inflation may adversely impact the ability of borrowers to service their debt, which could lead to deterioration of the credit performance of loans and impact investor returns, and therefore may result in lower demand from investors for assets generated on our platform and lead to constraints on our ability to fund new volume origination. In addition, rising inflation may increase our operating costs, including employee compensation and general corporate expenses, which could reduce cash flow and operating income. Although we have not experienced material impacts to our business performance from inflationary pressure, our business may be materially impacted in the future.

We have incurred U.S. GAAP net losses, and we may not be able to achieveremain profitability in the future.

For the years ended December 31, 20242025 and 2023,2024, we incurred U.S. generally accepted accounting principles (“U.S. GAAP”) net income (losses) of $401.4$81.4 million and $128.4$(401.4) million, respectively. We intend to continue to develop and improve our proprietary technology, attract and develop business relationships with new and existing partners, expand our product offerings supported by our AI technology, and otherwise continue to grow our business. Revenue and related fee revenue less production costs growth and cost savings may not keep pace with our continued investments. Failure to increase revenue and FRLPC, maintain cost levels sufficiently to keep pace with our investments, or material fair value losses associated with our investments in risk retention assets could prevent us from generating GAAP net income in the future. If we are unable to successfully address these risks and challenges as we encounter them, our business, financial condition and results of operations could be adversely affected.

During the first half of 2023, the banking industry experienced significant turmoil and disruption. For instance, after the failure of Silicon Valley Bank (“SVB”) and Signature Bank, the Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (the “FDIC”) elected to step up and insure that depositors would have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception. At the time, the Company had a banking relationship with SVB, in the form of an operating account, the Company’s SVB Revolving Credit Facility and the Company’s Receivables Facility. Ultimately, the Company was able to access all of its funds with SVB. Despite our proactive measures and the measures taken by the United States federal government, theThe uncertainty in the markets regarding the stability of regional banks and the safety of deposits creates a risk that similar events in the future may have a material adverse effect on our liquidity and financial condition if our ability, and the ability of our Partners, vendors, and other third parties, to access funds at their respective financial institutions and our ability to transfer cash, cash equivalents and investments to another large institutional bank are impaired. Further, events such as theseuncertainty may make equity or debt financing more difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if at all; difficulties obtaining equity or debt financing could have a material adverse effect on our financial condition, as well as our ability to continue to grow our operations.

Our business, financial condition and results of operations could be adversely affected as a result of an unexpected failure of a vendor, bank or other third party service provider that presents concentration risks to us or our Partners. Our business, financial condition and results of operations could be adversely affected as a result of an unexpected failure of a vendor, bank or other third party service provider that presents concentration risks to us or our Partners.

We, as well as our Partners, are dependent on a number of third party service providers for our core business and operations, such as our data providers, technology service providers, financial institutions, and other third party service providers. Although our risk with SVB was fully mitigated, SVB’s recent failure highlights the risk that the failure of other financial institutions, or other third party service providers, could have a material impact on our business, financial condition and results of operations. If a third party on which we or our Partners depends fails to supply the required services, we may not be able to replace those services in a timely manner, on favorable terms, or at all. If we are unable to adequately diversify or otherwise mitigate such concentration risks and such risks come to pass, we could be subject to reduced revenues, increased expenses, or an inability to recover assets which could have a material adverse effect on our financial condition, results of operations, and cash flows.

We have entered into several types of agreements with each of our Partners. Our commercial arrangements with these Partners are generally nonexclusive and are based on the type of asset class. For example, we enter into purchase agreements with our Partners, which provide the Financing Vehicles with the opportunity to acquire assets by the Partner assisted by our AI technology, that have a typical duration of one to three years with the option to extend for additional periods. The Financing Vehicles are not required to acquire specific types or amounts of assets from our Partners under such agreements. In addition, there are servicing agreements with our Partners or third parties covering the assets originated by such Partners that typically last for the life of the asset. As it relates to any specific asset, these servicing agreements require us to continue to use the Partner or their preferred third party that originated the asset for the life of such asset. See “—A disruption or failure in services provided by third parties could materially and adversely affect our business.” In addition, even during the term of our arrangement, our Partner could choose to reduce the volume of loans or other assets facilitated with the assistance of our AI technology or increase the volume that it chooses to fund and retain on its own balance sheet. We or any of our Partners may terminate our arrangement for various reasons, which may include material breaches and change in control, subject to payment of a termination fee in some cases, and Partners could decide to stop working with us, have disputes with us, ask to modify their commercial or legal terms in a manner disadvantageous to us or enter into exclusive or more favorable relationships with our competitors. In addition, capital and leverage requirements applicable to our Partners that are banks or other financial institutions subject to such requirements could result in decreased demand for our products. Further, our Partners’ respective regulators may require that they terminate or otherwise limit their business with us, or impose regulatory pressure limiting their ability to do business with us. We are a service provider to Partners, and due to some of our Partners being regulated by federal and/or state regulators, including the FDIC, we are subject to audit by such Partners in accordance with the relevant guidance related to management of vendors. We are also subject to the examination and enforcement authority of certain of those regulators, including the FDIC under the Bank Service Company Act. If any of our Partners were to stop working with us, suspend, limit or cease their operations or otherwise terminate or modify adversely to us their relationship with us, the number of financial products originated by our Partners with the assistance of our AI technology could decrease and our business, financial condition and results of operations could be adversely affected.

We have relied upon the securitization market andmarket, committed asset-backed facilitiesfacilities, and forward flow agreements to provide a significant portion of the capital needed to purchase Partner assets evaluated and selected using our AI. The ability of the Financing Vehicles to provide funding at competitive rates, or at all, is essential to our business. Our ability to raise capital from asset investors for Financing Vehicles (including our ability to enter into and renew forward flow arrangements with third-party investors who establish such Financing Vehicles) depends on a number of factors, including certain factors that are outside our control. Certain factors, such as the performance of the equity and bond markets and the asset allocation rules or investment policies to which such asset investors are then subject, could inhibit or restrict the ability of asset investors to make investments in Financing Vehicles or the asset classes in which Financing Vehicles invest.

An inability to access the securitization market, or a significant reduction in (1) liquidity in the secondary market for securitization transactions, (2) the continued acceptance of our prefunded securitization model, or (3) access to the funding market at all could have an adverse impact on the funding component of our product and, by extension, our financial position and results of operations. In addition, an inability to enter into new or maintain existing forward flow agreements, or a significant reduction in access to the funding market at all could have an adverse impact on the funding component of our product and, by extension, our financial position and results of operations.

Currently, the majority of our Partners’ asset originations facilitated with the assistance of our AI technology are unsecured personal loans, point-of-sale auto loans and point-of-sale in the U.S. market. The market for unsecured personal loans has grown rapidly in recent years, and it is unclear to what extent such a market will continue to grow, if at all. A wide variety of factors could impact the market for unsecured personal loans, including macroeconomic conditions such as rising interest rates, rising inflation and changes in monetary policy, competition, regulatory developments and changes in consumer credit activity. For example, FICO has recently changed its methodology in calculating credit scores in a manner that potentially penalizes borrowers who take out personal loans to pay off or consolidate credit card debt. This change could negatively affect the overall demand for unsecured personal loans. The personal lending market has also benefited from historically low interest rates, as our Partners’ customers are attracted to relatively low borrowing costs.

Our success will depend, in part, on the continued growth of the unsecured personal loan market and auto loan market and point-of-sale market in the U.S., and if these markets do not further grow, or grows more slowly than we expect, our business, financial condition and results of operations could be adversely affected.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new products and services, invest in loans and securities, including risk retention investments, enhance our AI technology, scale and improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity, debt, secured borrowings, including repurchase agreements, or convertible debt financings to secure additional funds. As of the date of this Annual Report on Form 10-K, we had outstanding $160 million of 6.125% exchangeable senior notes due in October 2029 (the “2029 Notes”). Upon exchange of the 2029 Notes, we have the option to pay or deliver, as the case may be, cash, our Class A Ordinary Shares or a combination thereof. If we raise additional funds by issuing equity securities or securities convertible into equity securities, our shareholders may experience dilution. Debt financing, such as secured or unsecured borrowings, including repurchase agreements, credit facilities or corporate bonds, may involve covenants restricting our operations or our ability to incur additional debt. Debt financing may also require “negative pledge” or security arrangements including, but not limited to, cash collateral agreements that restrict the availability of cash held as collateral which is the case for amounts we may borrow in the future under our existing credit agreement and other facilities. In addition, future equity financing or replacement or refinancing of any debt financings or secured borrowings, including repurchase agreements, may not be available on terms favorable to us or our shareholders, or at all.

In conjunction with this update, the CFPB also announced changes to its supervision and examination manual for evaluating UDAAPs. The updated examination manual notes that discrimination may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid and that harm is not outweighed by countervailing benefits to consumers. The Equal Credit Opportunity Act and the Fair Credit Reporting Act require creditors to provide consumers with the reasons for denial of credit or other adverse action, and providing such reasons can be more difficult given the complexity of certain AI technology. In addition, the Federal Trade Commission (“FTC”) has brought enforcement actions related to the use of AI and automated credit analysis in circumstances where the FTC has determined that the use of such tools is insufficiently transparent to consumers. Our inability to enable our Partners and their customers to comply with the requirements of existing laws or new interpretations of existing laws, or new regulatory rulemaking that restricts the use of AI technology in consumer credit underwriting or other markets, could adversely affect our business, financial condition, and results of operations. We may also be obligated to indemnify Partners or pay substantial settlement costs in connection with any such claim or litigation related to the use of our AI technology and automated credit analysis, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our AI technology could be costly and time consuming and divert the attention of our management and key personnel from our business operations. The CFPB has, at times, taken expansive views of its authority to regulate consumer financial services, including non-bank providers of consumer financial products and services, creating uncertainty as to how the agency’s actions or the actions of any other new government agency could adversely affect our business, financial condition and results of operations.

We are dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, process, transmittransmit. store and storeotherwise process large amounts of sensitive information, including personal information, credit information and other sensitive data of our Partners’ customers and other consumers providing their data to a Partner, and, as a result, we and the third parties upon which we rely face a variety of evolving threats that could cause security incidents. We also have arrangements in place with certain of our third-party vendors that require us to share consumer information. We rely on third parties to assist in our operations, and as a result, we manage a number of third-party vendors that may have access to our computer networks and sensitive or confidential information. In addition, many of those third parties turn to subcontractors or rely on their own service providers in outsourcing some of their responsibilities. As a result, our information technology systems, including the functions of third parties that are involved or have access to those systems, are large and complex, with many points of entry and access. Our ability to monitor third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place. If our third-party service providers experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.

While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed nature of our information technology systems, and the large amounts of sensitive information stored on those systems make such systems potentially vulnerable to unintentional or malicious, internal and external attacks. Vulnerabilities may be exploited from inadvertent or intentional actions of our employees, independent contractors, third-party service providers, Partners, asset investors or by malicious third parties that may result in actual or attempted unauthorized access, mishandling or misuse of information, computer viruses or malware, cyberattacks that could lead to unauthorized persons obtaining confidential information, destruction of data, disruption or deterioration of service, sabotaged or damaged systems, as well as distributed denial of service attacks, data breaches and other infiltration, exfiltration or other similar events. Additional cybersecurity threats include, but are not limited to, credential harvesting, account takeovers, server malfunctions, software or hardware failures, software errors, adware, attacks enhanced or facilitated by AI, natural disasters, terrorism, war and telecommunication and electrical failures and other similar threats. Cyberattacks are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, credential stuffings, social engineering (including through deep fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), supply chain attacks and other means to affect service reliability and threaten the confidentiality, integrity and availability of information and systems. In particular, severe ransomware attacks are becoming increasingly prevalent and can lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive information and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.

There have been and continue to be legal and regulatory developments that affect the short-term rental and long-term rental of single-family rental properties and buying and selling real estate. Private groups, such as homeowners, landlords, and condominium and neighborhood associations, have adopted contracts or regulations that purport to ban or otherwise restrict single-family rental properties, and third-party lease agreements between landlords and tenants, home insurance policies, and mortgages may prevent or restrict the ability of our customers to list their spaces. These groups and others cite concerns around affordable housing, among other issues, and some state and local governments have implemented or considered implementing rules, ordinances, or regulations governing the short-term or long-term rental of properties. Legislation in other regions also could have a material impact on the way short-term and long-term rentals are regulated. Such regulations include ordinances that restrict or ban our SFR Partners from short-term rentals, long-term rentals, set annual caps on the number of days customers can lease their homes, require customers to register with the municipality or city, or require customers to obtain permission before offering short-term rentals. Macroeconomic pressures and public policy concerns could also lead to new laws and regulations, or interpretations of existing laws and regulations, or widespread enforcement actions that limit the ability of our customers to lease their single-family residences. IfOn laws,January regulations,20, rules,2026, President Trump signed an executive order, "Stopping Wall Street from Competing with Main Street Homebuyers," aimed at restricting large institutional investors from purchasing single-family homes. The order directs federal agencies to stop facilitating, insuring, or agreementsguaranteeing significantlysales of these homes to institutional buyers to increase homeownership opportunities. This executive order, along with any future legislation, could restrict or discourage our customers in certain jurisdictions from leasingentering their properties, it could have an adverse effect on ourinto SFR operations.arrangements.

Our Class A Ordinary Shares are entitled to one vote per share, and our Class B Ordinary Shares are entitled to 10 votes per share. On June 22, 2022, the Founders, and any person or entity that, through contract, proxy or operation of law, irrevocably delegated the sole and exclusive right to vote the Class B Ordinary Shares held by such person or entity to a Founder (“Permitted Class B Owners”), received all of the Class B Ordinary Shares that were issued and outstanding. By virtue of their holdings of Class B Ordinary Shares, the Founders, in the aggregate, hold approximately 65.8%61.1% of our voting power. In addition, the Founders hold Pagaya Options which, if exercised in full and assuming no dilution of their holdings, would result in the Founders’ holding, in the aggregate, approximately 83.6%81.7% of our voting power. This percentage may increase if additional shares or derivative securities are issued to our Founders in the form of equity compensation. All outstanding Class B Ordinary Shares held by a Founder and any Permitted Class B Owners will automatically be converted into an equal number of Class A Ordinary Shares (and therefore will have one rather than 10 votes per share) on the earliest to occur of (i) (A) (1) such Founder’s employment as our officer being terminated not for cause, (2) such Founder resigning as our officer, (3) death or Permanent Disability (as defined in the Pagaya Articles) of such Founder or such Founder’s bankruptcy; provided, however, that if such Founder or such Permitted Class B Owner validly provides for the transfer of some or all of his, her or its Class B Ordinary Shares to one or more of the other Founders or Permitted Class B Owners affiliated with one or more of the other Founders in the event of death or Permanent Disability, then such Class B Ordinary Shares that are transferred to another Founder or Permitted Class B Owner affiliated with one or more of the other Founders shall remain Class B Ordinary Shares and shall not convert into an equal number of Class A Ordinary Shares or (4) the appointment of a receiver, trustee or similar official in bankruptcy or similar proceeding with respect to a Founder or his Class B Ordinary Shares and (B) such Founder no longer serving on the Pagaya Board; (ii) 90 days after such Founder is terminated for cause, subject to certain exceptions, or (iii) the earliest to occur of (A) such time as the Founders and their permitted transferees first collectively hold less than a specified percentage of our total issued and outstanding ordinary share capital – 9%8% as of the date of this Annual Report, which percentage will be reduced to 8% following the 2025 annual meeting of shareholders and further reduced to 7.5% following the 2026 annual meeting of shareholders, and (B) the 15th anniversary of the EJFA Closing. See Exhibit 4.9 to this Annual Report for further discussion of the terms of the Pagaya Articles, including the circumstances under which a Founder’s Class B Ordinary Shares will convert into Class A Ordinary Shares. Accordingly, except with respect to the limited matters as to which Israeli corporate law requires approval by a majority of votes cast by shareholders other than controlling shareholders, and although such Founders are not parties to any voting agreement (other than the Pagaya Voting Agreement) or similar arrangement and are free to act independently of one another and without coordination or collaboration, such Founders will collectively effectively control all matters submitted to the our shareholders for the foreseeable future, including the election of directors, amendments of our organizational documents, compensation matters, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.

We and our Partners may not always have been, and may not always be, in compliance with these and other applicable statutes, regulations, rules and other laws. Compliance with these requirements is costly, time-consuming and limits our operational flexibility. Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate consumer financial services in ways that make it more difficult or costly for us to operate our AI technology and offer related services or facilitate the allocation of obligations from our Partners. These laws also are often subject to changes that could severely limit the operations of our business model. For example, in 2019, a bill was introduced in the U.S. Senate that would create a notional cap of the lesser of 15% Annual Percentage Rate (“APR”) or the maximum rate permitted by the state in which the consumer resides. Although such a bill may never be enacted into law, if such a bill were to be enacted, it would greatly restrict the number of loans that could be placed through our network. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to financial institutions also could impact the manner in which we conduct our business. The regulatory environment in which financial institutions operate has become increasingly complex, and following the financial crisis that began in 2008, supervisory efforts to enforce relevant laws, regulations and policies have become more intense. Additionally, states are increasingly introducing and, in some cases, passing laws that restrict interest rates and APRs on loans similar to the assets acquired by the Financing Vehicles. For example, California has enacted a “mini-CFPB,” which increases its oversight over partnership relationships and strengthens state consumer protection authority of state regulators to police debt collections and unfair, deceptive or abusive acts and practices. Additionally, voter referenda have been introduced and, in some cases, passed restrictions on interest rates and/or APRs. If such legislation or bills were to be adopted, or state or federal regulators seek to restrict regulated financial institutions such as our Partners from engaging in business with us in certain ways, our Partners’ ability to originate assets in certain states, and the ability of Financing Vehicles to purchase such assets, could be greatly reduced, and as a result, our business, financial condition and results of operations would be adversely affected.

We, our Partners, vendors, and other service providers, receive, collect, use, disclose, transmit, store and storeotherwise process a large volume of personally identifiable information and other sensitive data relating to individuals, such as our Partners’ customers, asset investors and our employees. Our use, receipt, and other processing of data in our business subjects us to numerous state, federal and foreign laws and regulations, addressing privacy, cybersecurity, data protection, and the receipt, storing, sharing, use, transfer, disclosure, protection, and processing of certain types of data, including, for example, the GLBA, Children’s Online Privacy Protection Act, Personal Information Protection and Electronic Documents Act, CAN-SPAM, TCPA, FCRA, FTC Act, and the CCPA. These laws, rules, and regulations evolve frequently and their scope may continually change, through new legislation, amendments to existing legislation, and changes in interpretation or enforcement, and may be inconsistent from one jurisdiction to another.

As another example, the CCPA applies to personal data of consumers, business representatives, and employees who are California residents and requires businesses to provide specific disclosures to California consumers and honor requests of consumers to exercise certain data privacy rights, including, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request correction of such personal information, the right to request deletion of such personal information, and the right to opt out of certain disclosures of personal information. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties of up to $7,500 per intentional violation. Some observers have noted the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential liability and adversely affect our business. For example, the CCPA has encouraged “copycat” or other similar laws to be considered and proposed in other states across the country, such as in Virginia, Colorado, Connecticut, New Hampshire, Illinois, Nebraska, and Utah. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act (the “CDPA”), and on July 8, 2021, Colorado enacted the Colorado Privacy Act (the “CPA”), comprehensive privacy statutes that became effective on January 1, 2023 and July 1, 2023, respectively, and share similarities with the CCPA, CPRA, and legislation proposed in other states.

The CCPA, CPRA, CDPA, CPA and other changesChanges in laws or regulations relating to privacy, cybersecurity, data protection, and information security, particularly any new or modified laws or regulations, or changes to the interpretation or enforcement of laws or regulations like the GLBA, that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer, or disclosure, could greatly increase the cost of providing our network, require significant changes to our operations, or even prevent us from providing our network in jurisdictions in which we currently operate and in which we may operate in the future. CertainMoreover, otherthe stateU.S.Congress lawshas impose similar privacy obligationsconsidered, and we also expect that more states may enact legislation similar toin the CCPA,future CPRA,will CDPAlikely andconsider, CPA,various whichproposals providefor consumersadditional withcomprehensive newnational privacy rights and increase thedata privacy and security obligations of entities handling certain personal information of such consumers. The CCPA has prompted a number of proposals for new federal and state-level privacycybersecurity legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions, and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and could result in increased compliance costs and/or changes in business practices and policies. In addition, some jurisdictions, such as New York, Massachusetts, and Nevada have enacted more generalized data security laws that apply to certain data that we process. We cannot yet fully determine the impact these or future laws, rules, regulations, and industry standards may have on our business or operations. Any such laws, rules, regulations, and industry standards may be inconsistent among different jurisdictions, subject to differing interpretations, or may conflict with our current or future practices. Additionally, our Partners’ customers may be subject to differing privacy laws, rules, and legislation, which may mean that they require us to be bound by varying contractual requirements applicable to certain other jurisdictions. Adherence to such contractual requirements may impact our receipt, use, processing, storage, sharing, disclosure and disclosureother processing of various types of information including financial information and other personal information, and may mean we become bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters that may further change as laws, rules, and regulations evolve. Complying with these requirements and changing our policies and practices may be onerous and costly, and we may not be able to respond quickly or effectively to regulatory, legislative and other developments. These changes may in turn impair our ability to offer our existing or planned products and services and/or increase our cost of doing business.

Additionally, we have incurred, and may continue to incur, significant expenses in an effort to comply with privacy, cybersecurity, data protection, and information security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. In particular, with laws and regulations such as the FCRA, GLBA, CCPA, CDPA, CPACCPA and potentially other laws and regulations that may be proposed or amended, imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so.

As our business grows, we must also remain compliant with privacy and data security laws from other jurisdictions outside of the United States and Israel, including the European Union’s General Data Protection Regulation (“EU GDPR”) and the United Kingdom’s GDPR (“UK GDPR”). The EU GDPR and the UK GDPR govern the collection, use, disclosure, transfer or other processing of personal data of persons located in the European Economic Area (the “EEA”) and the United Kingdom and the data practices of companies operating in the EEA and the United Kingdom, respectively. Among other things, the EU GDPR and the UK GDPR impose requirements regarding the security of personal data and notification of data processing obligations to competent national data protection authorities, provide for lawful bases on which personal data can be processed, provide for an expansive definition of personal data and require changes to informed consent practices. In addition, the EU GDPR and the UK GDPR provide for heightened scrutiny of transfers of personal data from the EEA and the United Kingdom, to the United States and other jurisdictions that local regulators do not recognize as having “adequate” data protection laws, and impose substantial fines for breaches and violations (up to the greater of €20 million under the EU GDPR, £17.5 million under the UK GDPR or, in each case, 4% of an enterprise’s consolidated annual worldwide gross revenue). The EU GDPR and the UK GDPR also confer a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations. While the UK GDPR currently imposes substantially the same obligations as the GDPR, the UK GDPR will not automatically incorporate changes to the GDPR going forward. Moreover, the UK Data (Use and Access) Act, which makes several modifications to the UK GDPR, received Royal Assent in June 2025, with implementation beginning in August 2025. Such modifications deviate from the GDPR and permit further deviations in the form of regulatory guidance or secondary legislation, which creates a risk of divergent parallel regimes and related uncertainty, along with the potential for increased compliance costs and risks for affected businesses.

To the extent this oversight or regulation negatively impacts our Partners, our business, financial condition, and results of operations could be adversely affected because, among other matters, our Partners could have less capacity to purchase products and services from us, could decide to avoid or abandon certain lines of business, or could seek to pass on increased costs to us by re-negotiating their agreements with us. Additional regulation, examination, and oversight of us could require us to modify the manner in which we contract with or provide products and services to our Partners, require us to invest additional time and resources to comply with such oversight and regulations, or limit our ability to update our existing products and services, or require us to develop new ones. Any of these events, if realized, could adversely affect our business, financial condition, and results of operations. The heightened enforcement environment includes a recent initiative by the Department of Justice Civil Rights Division, the CFPB and bank regulators to focus on “digital redlining” resulting from purportedly biased underwriting algorithms.

As we increase and scale our business, we may engage with business partners and third-party intermediaries to market our solutions and obtain necessary permits, licenses and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, Partners, asset investors and agents, even if we do not authorize such activities.

The extent to which other courts will apply the Second Circuit’s Madden decision remains subject to clarification. For example, the Colorado Administrator of the Colorado Uniform Consumer Credit Code (the “UCCC”), reached a settlement with respect to complaints against two online lending platforms, including with respect to the role of partners and sale of assets to investors. The complaints included, among other claims, allegations, grounded in the Second Circuit’s Madden decision, that the rates and fees for certain loans could not be enforced lawfully by non-bank purchasers of bank-originated loans. Under the settlement, these banks and non-Partners committed to, among other things, limit the APR on loans to Colorado consumers to 36% and to take other actions to ensure that the banks were in fact the true lenders. The nonbanks also agreed to obtain and maintain a Colorado lending license. In Colorado, this settlement should provide a helpful model for what constitutes an acceptable Partnership model. However, the settlement may also invite other states to initiate their own actions, and set their own regulatory standards through enforcement.

It is unclear whether the current presidential administration will appoint consumer-oriented regulators at federal agencies such as the CFPB, Federal Trade Commission, the OCC and the FDIC or if the government’s focus on enforcement of federal consumer protection laws is expected to increase or decrease. It is possible that these regulators could promulgate rulemakings and bring enforcement actions that materially impact our business and the business of our bank partners. If future regulatory or legislative restrictions or prohibitions are imposed that affect our ability to offer certain of our products or that require us to make significant changes to our business practices, and if we are unable to develop compliant alternatives with acceptable returns, these restrictions or prohibitions could have a material adverse effect on our business. If the CFPB, or another regulator, were to issue a consent decree or other similar order against us, this could also directly or indirectly affect our results of operations. If future regulatory or legislative restrictions or prohibitions are imposed that affect our ability to offer certain of our products or that require us to make significant changes to our business practices, and if we are unable to develop compliant alternatives with acceptable returns, these restrictions or prohibitions could have a material adverse effect on our business. If the CFPB were to pursue an enforcement action against us or one or more of our Partners, this could also directly or indirectly adversely affect our business, financial condition and results of operations.

We are incorporated under the laws of the State of Israel, and one of our major corporate offices and certain of our facilities, including a significant portion of our research and development are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region directly affect our business and operations and could materially and adversely affect our ability to continue to operate from Israel. Since the State of Israel was established in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Terrorism and violence within Israel or the outbreak of conflicts between Israel and its neighbors, including the Palestinians, Iran, and terrorist organizations operating in the region, may adversely affect our business, operations, or personnel. Most recently, onOn October 7, 2023, Hamas, a terrorist organization primarily based in the Gaza StripStrip, launched a series of attacks on Israel. As a result of such attacks,result, on October 8, 2023, Israel officially declared a state of war.war, Israelleading calledto upa large-scale military response and the call-up of substantial numbers of reservistsreservists, andincluding respondedCompany withemployees. extensive aerial attacks and a broad ground attack on terrorist targets in Gaza. The hostilities continued untilWhile a ceasefire between the sidesframework took effect in mid-Januaryearly 2025, butregional therehostilities involving Hezbollah in Lebanon and the Houthi movement in Yemen have persisted. Most recently, on February 28, 2026, the security situation escalated significantly with the commencement of a major military conflict involving the United States, the State of Israel, and Iran. This situation has led to the declaration of a nationwide state of emergency in Israel, the closure of regional airspace, and retaliatory strikes impacting multiple nations in the Middle East. While we maintain significant research and development activities in Israel, a prolonged mobilization of the regional technical workforce for military service or direct damage to Israeli facilities could disrupt our ability to maintain and enhance our AI technology . Furthermore, the intensity and duration of this active conflict are difficult to predict. These events may be intertwined with wider macroeconomic indicators of a deterioration of Israel’s economic and political standing, or a reduction in global investor appetite for risk assets, which may have an adverse effect on our ability to effectively conduct our business.Although the current conflict in Israel has not materially impacted our business or operations as of the date of this Annual Report, the conflict is norapidly certaintyevolving and developing and it is not possible to predict its long-term consequences, which could include further regional instability, geopolitical shifts and adverse effects on trade between Israel and its trading partners, macroeconomic conditions, security conditions and financial markets. Any escalation and expansion of this conflict could have a negative impact on both global and regional conditions and may adversely affect our business, financial condition and results of operations. Additionally, in the event that thisour ceasefirefacilities willare damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of our facilities, our ability to continue our operations could be sustained.materially adversely affected.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of property damage and certain direct and indirect damages that are caused by terrorist attacks or acts of war, such coverage would likely be limited, may not be applicable to our business (either due to the geographic location of our offices or the type of business that we operate) and may not reinstate our loss of revenue or economic losses more generally. Furthermore, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages, or whether such coverage would be timely provided. Any losses or damages incurred by us as a result of the current conflict in Israel, or any similar conflicts in the future, could have a material adverse effect on our business, financial condition and results of operations.

In addition, many of our employees in Israel, including executive officers, may be called upon to perform several days of military reserve duty until they reach the age of 40 (and in some cases, depending on their military duties up to the age of 45 or even 49) and, in emergency circumstances, could be called to immediate and unlimited active duty (subject to approval by the Israeli government). Since the October 7, 2023 attacks on Israel, certain of our employees based in Israel have been called in as reservists at various times and for various periods. ItOn isFebruary possible28, that2026, therea will be additionalsignificant military reserveconflict dutycommenced call-upsinvolving the United States, the State of Israel, and Iran, significantly escalating regional hostilities. This situation has led to the declaration of a nationwide state of emergency in Israel, the closure of regional airspace, and retaliatory missile strikes impacting multiple nations in the future.Middle East. In immediate response, management transitioned all Israel-based employees to a full work-from-home protocol to prioritize their safety and well-being. Although our operations and business have not been materially impacted by these call-ups,events as of the date of this report, our operations could be disrupted by such call-ups or additional call-ups, particularlyand ifdirect suchdamage call-ups include the call-up of members ofto our management, given the current shortage of talentfacilities in IsraelTel dueAviv could severely disrupt our ability to the recent acceleration of activity in startups, especially in the technology space.operate. Such disruption could materially and adversely affect our business, financial condition and results of operations.

As a still relatively new public company that qualifies as a foreign private issuer, weWe have incurred, and will continue to incur, significant legal, accounting, and other expenses that we did not incur as a private company. See “—Our management team has limited experience managing a public company.” The costs relate to public company reporting obligations under the Securities Act or the Exchange Act, regulations regarding corporate governance practices, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules of the SEC, the listing requirements of the Nasdaq, and other applicable securities rules and regulations that impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.

We are required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404") so that our management can certify as to the effectiveness of our internal controls over financial reporting. Likewise, our independent registered public accounting firm will beis required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we ceaseceased to be an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012 (the "JOBS Act"). AtThis such time, our independent registered public accounting firm may issue aattestation report that is adverseincluded if a material weakness is identified.herein.

The following discussion and analysis should be read in conjunction with the section titled “Key Components of Statements of Operations” of this Annual Report and our consolidated financial statements and the related notes contained elsewhere in this Annual Report. This discussion and analysis may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in “Item 1A.—Risk Factors” of this Annual Report.

Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the results of operations for the year ended December 31, 20232024 in comparison to the year ended December 31, 20222023 have been omitted. For such omitted discussions, refer to Pagaya’s Operating Results included in the Annual Report on Form 10-K filed with the SEC on AprilMarch 25,12, 2024.2025.

Foreign Private Issuer ExemptionsStatus

WeThe areCompany technicallywas previously classified as a “foreign private issuer” (“FPI”) under U.S.SEC Securitiesrules; andhowever, Exchangeas Commissionof rules.June 30, 2025, the Company determined that it no longer satisfied the criteria to be an FPI. Consequently, we arewill subjectbe required to comply with all of the reportingprovisions requirementsapplicable to a U.S. domestic issuer under the Exchange ActAct. applicableThere toare foreignno privatematerial issuers.adjustments That said,required as previouslya disclosedresult onof Januarythis 16,adjustment 2024,since we have decided to voluntarily file on U.S. domestic issuer forms with the SEC beginning in 2024. Since thenthen, the Company has been filing its quarterly reports on Form 10-Q, current reports on Form 8-K, and its annual reports on Form 10-K, and will no longer report on forms 20-F and 6-K.10-K. In addition, the Company intendshas tobeen complycomplying with Regulation FD and the SEC’s proxy rules, andwith the Company'sexception of the “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Beginning on January 1, 2026, our officers, directors, and 10%principal shareholders willare nowsubject alsoto beginthe reporting“short-swing” onprofit Formsrecovery 3,provisions 4of Section 16 of the Exchange Act with respect to their purchases and 5,sales asof applicable.the Ordinary Shares.

Capital markets execution and contract fees are primarily earned from investors. Multiple funding channels are utilized to enable the purchase of network assets from our Partners, such as asset backed securitizations.securitizations and forward flow arrangements. Capital markets execution fees are primarily earned from the market pricing of ABS transactionstransactions, as well as upon the execution of forward flow transactions, while contract fees are management, performance and similar fees.

We expect economic cycles to affect our financial performance and related metrics. Macroeconomic conditions, including persistent inflation, elevated interest rates, supply chain constraints, geopolitical tensions, climate-related disruptions, and evolving global conflicts, may affect consumer demand for financial products, our Partners’ ability to generate and convert customer application volume, and the availability and cost of funding from investors through our Financing Vehicles. TheWhile wargeopolitical ininstability Israel and Gaza, which escalated following the October 7, 2023, attacks by a terrorist organization primarily basedpersists in the GazaMiddle StripEast remainsand Eastern Europe, these conditions have transitioned into a period of fragile stabilization and market normalization as of early 2026. Following the implementation of a ceasefire framework in the Middle East in late 2025 and the long-term reorientation of global trade routes, the immediate systemic risk to energy prices and supply chains has moderated. However, the ongoing conflict between Israel, the U.S., and Iran that erupted on February 28, 2026, creates significant uncertainty. This escalation could trigger volatility in global energy prices and financial markets, which may increase our cost of capital or diminish investor appetite for risk assets. Management is actively monitoring the situation for systemic risks and has implemented immediate remote-work protocols for our Tel Aviv-based team to maintain business continuity while prioritizing employee safety. We will continue to evaluate our operational protocols as the security landscape evolves. Although these regional dynamics remain a source of uncertainty. While the conflict has not materially disrupted our operations to date, its potential to intensify or expand, coupled with related instability in the Middle East, could adversely impact regional and global economic conditions, energy prices, and investor confidence. Such developments may increase volatility in financial markets, elevate operating costs, or constrain funding availability, potentially affecting our business, financial condition, results of operations, and prospects. We continue to monitor the situation closely, though no significant direct impact has been observed as of the date of this Report. The Russia-Ukraine conflict, ongoing since February 2022, persists with no clear resolution as of early 2025. Whileuncertainty, we have not experienced material impacts on our business from this conflict, prolonged hostilities or further escalation, such as expanded sanctions, disruptions to energy markets, or broader economic fallout, could exacerbate global inflationary pressures and supply chain challenges. These factors may indirectly influence consumer credit demand, investor appetite for risk assets, and our Network Volume. We assess this risk as manageable but remain vigilant given its potential to contribute to wider economic disruptions. Macroeconomic pressures, including sustained high interest rates and inflation, continue to shape our operating environment. Central banks, including the Federal Reserve, have maintained elevated rates into 2025early 2026 to combat inflationary trends, increasing borrowing costs and potentially straining borrowers’ ability to service debt. This could lead to higher delinquencies, defaults, and charge-offs, reducing investor returns and dampening demand for assets generated on our platform. Inflation, though moderating from its 2022-2023 peak, remains above historical norms, driving up operating costs such as employee compensation, financing expenses, and technology investments. These pressures have been partially offset by operational efficiencies and growth in application volume from our Partners, supporting net growth in Network Volume despite a higher cost of capital. Global supply chain disruptions, exacerbated by geopolitical tensions and extreme weather events linked to climate change, continue to challenge economic stability. These disruptions may indirectly affect our Partners’ ability to serve customers and could increase costs across our network. Meanwhile, the elevated risk-free rate environment has shifted investor preferences, with some favoring safer assets over consumer credit. While our ability to raise funding remains intact, the cost of capital has risen, necessitating adjustments in conversion ratios to meet investor return expectations. Strong Partner application volume has mitigated this impact, sustaining Network Volume growth through 2024 and into early 2025. Adverse developments in the financial sector, such as regional bank stresses, liquidity concerns, or prolonged U.S. federal debt ceiling debates, could further complicate our operating landscape. In 2024, isolated bank failures and downgrades sparked temporary market volatility, though our direct exposure remains limited. Should these events escalate into systemic liquidity issues, they could impair our Partners’ and counterparties’ ability to meet obligations, disrupt funding flows, or destabilize financial markets, adversely affecting our performance. Similarly, ongoing trade tensions, particularly between the U.S. and China, and potential tariff escalations could introduce additional uncertainty, though we have not yet seen significant effects on our operations. Economic downturns or prolonged uncertainty may pressure the performance of assets acquired by Financing Vehicles from our network. However, these conditions also provide valuable data to refine our AI technology, enhancing our ability to adapt to shifting market dynamics and deliver value to Partners and investors. Historical events like the COVID-19 pandemic and the current inflationary period have underscored the resilience of our platform, validating its outcomes even amid volatility. For a detailed discussion of uncertainties and other factors that could impact our operating results, see the “Item 1A.—Risk Factors” section in this Annual Report.

We believe the Network Volume metric to be a suitablehelpful proxyindicator for our overall scale and reach, as we generate revenue primarily on the basis of Network Volume. In addition, Network Volume directly influences Fee Revenue Less Production Cost (FRLPC), a key non-GAAP measure we use to assess operational efficiency. WeWhile maintaining a focus on profitable growth, which may result in a different targeted volume mix, we believe the growth in Network Volume highlights the scalability of our business, which, in turn, affects our operational leverage and profitability. Network Volume is primarily driven by our relationships with our Partners and SFR Partners. We believe that Network Volume has benefited from continuous improvements to our proprietary technology, enabling our network to more effectively identify assets for acquisition by the Financing Vehicles, thereby providing additional investment opportunities to investors. As a result, when viewed in combination with financial profitability metrics, the expansion of Network Volume provides insights into the effectiveness of our business strategies and the ability to leverage operational efficiencies across different asset classes. Network Volume is comprised of assets across several asset classes, including personal loans, auto loans, residential real estate, and point-of-sale receivables.

Network AI fees. Network AI fees can be further broken down into two fee streams: AI integration fees and capital markets execution fees. We earn AI integration fees for the creation and delivery of the assets that comprise our Network Volume. Multiple funding channels are used to enable the purchase of network assets from our Partners, such as ABS, pass-throughABS and forward flow transactions.arrangements. Capital markets execution fees are earned when a pre-funded, Pagaya-sponsored ABS vehicle is sold by underwriters.underwriters, as well as upon the execution of forward flow transactions.

Contract fees. Contract fees primarily include administration and management fees, and performance fees. Administration and management fees are contracted upon the establishment of Financing Vehicles and these fees are earned as the Financing Vehicles purchase loans and as the Company provides services over their remaining lives.lives, Performanceexcept for the portion of management fees that are earnedrecognized whenat certainthe Financing Vehicles exceed contractual return hurdles and a significant reversalpoint in thetime amountbased ofon cumulativecontract revenue recognized is not expected to occur.terms.

Other Income (Expense),Expenses, Net

Other Income (expense),expenses, net primarily consists of changesinterest expenses from borrowings, change in the fair value of warrant liabilities and other non-recurring items, including credit-related impairment losses on investments in loans and securities.items.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests in our consolidated statements of operations is a result of our investments in certain of our consolidated variable interest entities (‘‘VIEs’’) and consists of the portion of the net income of these consolidated entities that is not attributable to us.

Total revenue and other income, increased by $220.2$269.1 million, or 27%,26%, to $1,301.4 million for the year ended December 31, 2025 from $1,032.2 million for the year ended December 31, 2024 from $812.1 million for the year ended December 31, 2023.2024. The increase was primarily driven by an increase in revenue from fees,fees and interest income, partially offset by decreasesan increase in interest income and investment income.loss, net.

Revenue from fees increased by $231.7$256.8 million, or 30%,26%, to $1,261.3 million for the year ended December 31, 2025 from $1,004.6 million for the year ended December 31, 2024 from $772.8 million for the year ended December 31, 2023.2024. The increase was primarily due to a $220.1$215.2 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, from $696.0 million for the year ended December 31, 2023 to $916.1 million for the year ended December 31, 2024.2024 to $1,131.3 million for the year ended December 31, 2025. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 17%9% from $8.3 billion for the year ended December 31, 2023 to $9.7 billion for the year ended December 31, 2024.2024 to $10.5 billion for the year ended December 31, 2025. These increases were partially offset by a slight decrease in capital markets execution fees earned from our ABS and forward flow transactions during the year ended December 31, 2024.2025. Contract fees, comprised of administration and management fees, performances fees, and servicing fees, increased by $41.6 million from $88.5 million for the year ended December 31, 2024 to $130.0 million for the year ended December 31, 2025. This increase was due to higher net asset values of assets held by ABS Financing Vehicles driven by continued business growth, and an increase in performance fees, as the prior period included a reversal of performance fees.

Interest income decreasedincreased by $6.5$16.1 million, or 17%,50%, to $48.4 million for the year ended December 31, 2025 from $32.3 million for the year ended December 31, 2024 from $38.7 million for the year ended December 31, 2023.2024. The decreaseincrease in interest income was directly related to our risk retention holdings and related securities held in our consolidated VIEs as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Income (Loss) Attributable to Noncontrolling Interests.” The decreaseincrease in interest income was primarily the result of changes in structure and composition of theasset investments in loans and securities portfolio, and lower interest income on our cash balances.portfolio.

Investment incomeloss decreasedincreased by $5.1$3.8 million to a loss of $4.6$8.4 million for the year ended December 31, 2024,2025, reflecting an unfavorableimpairment impactrecorded from the change in valuation ofon certain proprietary investments.

Production costs increased by $88.7$151.5 million, or 17%,25%, to $749.2 million for the year ended December 31, 2025 from $597.7 million for the year ended December 31, 2024 from $508.9 million for the year ended December 31, 2023.2024. This increase was predominantly due to increasesan increase in the Network Volume andattributable to abusiness lessergrowth extentin addition to the composition of the asset classes that make up our Network Volume, as well as new Partners onboarded to our network.Volume.

Technology, data and product development costs infor the year ended December 31, 20242025 increaseddecreased $2.2$1.4 million, or 3%,2%, compared to the same period in 2023.2024. ExcludingThis $1.2 million contributions from Theorem in the current period, technology, data and product development costs increased $1.0 million, the increasedecrease was primarily driven by a $9.2$3.7 million increasedecrease in softwarecompensation depreciation expense, including a $0.8 million increase in impairment charge for capitalized software development costs, and a $1.8 million increase in overhead allocation and other miscellaneous costs,expenses, partially offset by a $10.2$1.9 million decreaseincrease in personnel-relatedamortization of intangible assets and a $1.0 million increased in cloud server expenses.

During the year ended December 31, 20242025 and 2023,2024, we capitalized $23.0$16.1 million and $26.5$23.0 million of software development costs, respectively. DepreciationAmortization expense, including impairment charges, for capitalized software development costs was $26.5$23.9 million and $17.2$26.5 million for the year ended December 31, 20242025 and 2023,2024, respectively.

General and administrative costs infor the year ended December 31, 20242025 increaseddecreased by $37.4$81.2 million, or 18%,34%, compared to the same period in 2023.2024. ExcludingThe $1.6decrease million contribution from Theorem, general and administrative costs increased $35.8 million,was primarily driven by a $38.7$32.4 million increase inlower loss from loan purchases andpurchases, a $11.9 million increase in consulting expenses, partially offset by a $4.1$28.9 million decrease in acquisition-relatedtransaction expenses,costs charged to general and administrative costs, and a $4.9$15.8 million decrease in personnel-relatedcompensation costsexpenses, andincluding ashare-based $3.9 million decrease in insurance expenses.compensation.

Income Tax (Benefit) Expense

Net loss attributable to noncontrolling interests in the year ended December 31, 20242025 decreased by $24.0$34.3 million, or 35%,77%, compared to the same period in 2023.2024. The decrease was driven by the net loss generated by our consolidated VIEs associated with our risk retention holdings. This amount represented the portion of net loss of the consolidated VIEs held by other investors in the VIE for which we had no economic rights. This amount was not attributable to Pagaya, but rather to the noncontrolling interest holders. For the year ended December 31, 2024, the net loss attributable to noncontrolling interests reported interest incomeresult of $5.6a million generated from risk retention holdings offset by thelower credit-related impairment loss of $50.1$33.3 million on the same risk retention holdings. For further information, see “—Total Revenue and Other Income” and “—OtherGains Incomeand (Expenselosses), net.on Investments in Loans and Securities.”

To supplement our consolidated financial statements prepared and presented in accordance with U.S. GAAP, we use the non-GAAP financial measures FRLPC, FRLPC as percentage of Network Volume (FRLPC %), Adjusted Net Income (Loss) and Adjusted EBITDA to provide investors with additional information about our financial performance and to enhance the overall understanding of the results of operations by highlighting the results from ongoing operations and the underlying profitability of our business. We are presenting these non-GAAP financial measures because we believe they provide an additional tool for investors to use in comparing our core financial performance over multiple periods with the performance of other companies.

To address these limitations, we provide a reconciliation of FRLPC, FRLPC %, Adjusted Net Income (Loss) and Adjusted EBITDA to the most directly comparable U.S. GAAP measure. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view FRLPC, FRLPC %, Adjusted Net Income (Loss) and Adjusted EBITDA in conjunction with their respective related U.S. GAAP financial measures.

FRLPC, FRLPC %, Adjusted Net Income (Loss) and Adjusted EBITDA

The risks described under theItem heading1A, “Risk FactorsFactors,” in ourthe 2025 Annual Report on Form 10-K for the year ended December 31, 2025 could materially and adversely affect our business, financial condition, results of operations, cash flows, future prospects, and the trading price of our Class A Ordinary Shares. The risks and uncertainties described therein are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that adversely affect our business.

You should carefully read and consider such risks, together with all of the other information in ourthe 2025 Annual Report on Form 10-K for the year ended December 31, 2025,10-K, in this Quarterly Report on Form 10-Q (including the disclosures in theItem section titled2, “Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations,” and in our unaudited condensed consolidated financial statements and the related notes thereto), and in the other documents that we file with the SEC.

There have been no material changes from the risk factors previously disclosed under theItem heading1A, “Risk FactorsFactors,” in ourthe 2025 Annual Report on Form 10-K for the year ended December 31, 2025.10-K.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and our audited annual consolidated financial statements as of and for the yearsyear ended December 31, 2025 and 2024,2025, and the related notes included in our Annual Report on Form 10-K filed with the SEC on March 2, 2026, and as amended on April 30, 2026 and June 1, 2026 (collectively, the “our2025 Annual Report on Form 10-K”). Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of ourthe 2025 Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. In this section “we,” “us,” “our” and “Pagaya” refer to Pagaya Technologies Ltd.

We have built, and we are continuing to scale, a leading AI and data network for the benefit of financial services and other service providers, their customers, and investors. Services providers integrated in our network, which we refer to as our ‘‘Partners,’’ range from high-growth financial technology companies to incumbent banks and financial institutions. We believe Partners benefit from our network to extend financial products to their customers, in turn helping those customers fulfill their financial needs. These assets originated by Partners with the assistance of Pagaya’s AI technology are eligible to be acquired by Financing Vehicles: (i) investment funds managed or advised by Pagaya or one of its affiliates, (ii) asset backed securitization (“ABS”) vehicles sponsored or administered by Pagaya or one of its affiliates, (iii) special purpose vehicles established by third-party investors to facilitate the purchase of assets under forward flow agreements and (iv) other similar vehicles (“Financing Vehicles”).

Pagaya’s revenues are primarily derived from Network Volume. We define Network Volume as the gross dollar value of assets originated by our Partners with the assistance of our artificial intelligence (“AI”) technology1. We generate revenue from network AI fees, contract fees, interest income and investment income. Revenue from fees is comprised of network AI fees and contract fees. Network AI fees can be further broken down into two fee streams, including AI integration fees and capital markets 1 Our proprietary technology uses machine learning models as a subset of artificial intelligence that go through extensive testing, validation, and governance processes before they can be used or modified. The machine learning models are static and do not have the ability to self-correct, self-improve, and/or learn over time. Any change to the models requires human intervention, testing, validation, and governance approvals before a change can be made.

execution fees. We primarily earn AI integration fees for the creation and delivery of the assets that comprise our Network Volume.

Additionally, we earn interest income from our investments in loans and securities, including risk retention holdings and additional investments we may make in our sponsored asset backed securitizations, and from our corporate cash balancesbalances. andWe earn investment income associated with our ownership interests in certain Financinginvestment Vehiclesfund where Pagaya is the Registered Investment Advisor (“RIA”) and other proprietary investments.

We incur costs when Network Volume is acquired by the Financing Vehicles. These costs, which we refer to as ‘‘Production Costs,’’ compensate our Partners for acquiring and originating assets. Accordingly, the amount and growth of our Production Costs are highly correlated to Network Volume. An important operating metric to evaluate the success of our economic model, therefore, is FRLPC, or feeFee revenueRevenue lessLess Production Costs. FRLPC is a not calculated in accordance with generally accepted accounting principles in the U.S. ("“GAAP"”). See the section below entitled "“Reconciliation of Non-GAAP Financial Measures"” for a description and reconciliation of this measure to the most directly comparable GAAP measure.

Additionally, we have built what we believe to be a leading data science and AI organization that has enabled us to assist our Partners as they make decisions to extend credit to consumers. Excluding Production Costs, headcount, technology overhead and research and development expenses represent the most significant portion of our expenses.

We devote significant time to, and have a team that focuses on, onboarding and managing Partners to our network. We believe that our success in adding new Partners to our network is driven by our distinctive value proposition: driving significant revenue uplift to our Partners at limited incremental cost or credit risk to the Partner. Our success adding new Partners has contributed to our overall Network Volume growth and driven our ability to rapidly scale new asset classes.classes and products.

We believe our historical growth has been significantly influenced by improvements to our AI technology, which are in turn driven both by the deepening of our proprietary data network and the strengthening of our AI technology. As our existing Partners grow their usage of our network, new Partners join our network, and as we expand our network into new asset classes,classes and products, the value of our data asset increases. Our technology improvements thus benefit from a flywheel effect that is characteristic of AI technology, in that improvements are derived from a continually increasing base of training data for our technology. We have found, and we expect to continue to experience, that more data leads to more efficient pricing and greater Network Volume. Since inception, we have evaluated more than $3.9$4.2 trillion in application volume.

Regardless of market conditions, the availability and pricing of funding from investors is critical to our growth. We have diversified our investor network and will continue to seek to further diversify our investor base. For the threesix months ended MarchJune 31,30, 2026 and 2025, our top 5 investors collectively accounted for approximately 59%44% and 39%,52%, respectively, of our total funding.

Geopolitical instability persists in the Middle East and Eastern Europe. The ongoing conflict between Israel, the U.S., and Iran that erupted in February 2026 has resulted in volatility and disruption of global energy and financial markets, which has increased our cost of capital and may diminish investor appetite for risk assets. Management is actively monitoring the situation for systemic risks and has implemented remote-work protocols for our Tel Aviv-based team to maintain business continuity while prioritizing employee safety. We will continue to evaluate our operational protocols as the security landscape evolves. Although these regional dynamics remain a source of uncertainty, to date we have not experienced material impacts on our business from this conflict. Prolonged hostilities or further escalation of this conflict could exacerbate disruptions to the global energy and financial markets, global inflationary pressures, and supply chain challenges, all of which could adversely affect consumer credit demand, investor appetite for risk assets, and our Network Volume.

Macroeconomic pressures, including sustained high interest rates and inflation, continue to shape our operating environment. Central banks, including the Federal Reserve, have maintained elevated rates into early 2026 to combat inflationary trends, increasing borrowing costs and potentially straining borrowers’ ability to service debt. This could lead to higher delinquencies, defaults, and charge-offs, reducing investor returns and dampening demand for assets generated on our platform. Inflation, though moderating from its 2022-2023 peak, remains above historical norms, driving up operating costs such as employee compensation, financing expenses, and technology investments. Meanwhile, the elevated risk-free rate environment has shifted investor preferences, with some favoring safer assets over consumer credit. While our ability to raise funding remains intact, the cost of capital has risen, necessitating adjustments in conversion ratios to meet investor return expectations. Adverse developments in the financial sector, such as regional bank stresses, liquidity concerns, or prolonged U.S. federal debt ceiling debates, could further complicate our operating landscape. Should these events escalate into systemic liquidity issues, they could impair our Partners’ and counterparties’ ability to meet obligations, disrupt funding flows, or destabilize financial markets, adversely affecting our performance. Similarly, ongoing trade tensions, particularly between the U.S. and China, and potential tariff escalations could introduce additional uncertainty. Economic downturns or prolonged uncertainty may pressure the performance of assets acquired by Financing Vehicles from our network. However, these conditions also provide valuable data to refine our AI technology, enhancing our ability to adapt to shifting market dynamics and deliver value to Partners and investors.

We collect and analyze operating and financial data of our business to assess our performance, formulate financial projections and make strategic decisions. In addition to total revenues, net operating income (loss),income, other measures under U.S. GAAP, and certain non-GAAP financial measures (see the discussionsection andbelow reconciliation herein titledentitled “Reconciliation of Non-GAAP Financial Measures”), we consider Network Volume to be a key operating metric we use to evaluate our business. The following table sets forth our Network Volume for the three and six months ended MarchJune 31,30, 2026 and 2025.2025:

We believe thethat Network Volume metric to beis a helpful indicator for our overall scale and reach, as we generate revenue primarily on the basis of Network Volume. In addition, Network Volume directly influences Fee Revenue Less Production Cost (FRLPC), a key non-GAAP measure we use to assess operational efficiency. While maintaining a focus on profitable growth, which may result in a different targeted volume mix, we believe the growth in Network Volume highlights the scalability of our business, which, in turn, affects our operational leverage and profitability. Network Volume is primarily driven by our relationships with our Partners. We believe Network Volume has benefited from continuous improvements to our proprietary technology, enabling our network to more effectively identify assets for acquisition by the Financing Vehicles, thereby providing additional investment opportunities to investors. As a result, when viewed in combination with financial profitability metrics, the expansion of Network Volume provides insights into the effectiveness of our business strategies and the ability to leverage operational efficiencies across different asset classes. Network Volume is comprised of assets across several asset classes, including personal loans, auto loans, and point-of-sale receivables.

Network AI fees. Network AI fees can be further broken down into two fee streams: AI integration fees and capital markets execution fees. We earn AI integration fees for the creation and delivery of the assets that comprise our Network Volume. Multiple funding channels are used to enable the purchase of network assets from our Partners, such as ABS and forward flow arrangements. Capital markets execution fees are earned whenfrom athe pre-funded,market Pagaya-sponsoredpricing of ABS vehicle is sold by underwriters,transactions, as well as upon the execution of forward flow transactions.

Contract fees. Contract fees primarily include administration and management fees, and performance fees. Administration and management fees are contracted upon the establishment of FinancingABS Vehiclestrusts and theseinvestment funds. These fees are earned as the FinancingABS Vehicletrusts purchase loans and as the Company provides services to the ABS trusts and investment funds over their remaining lives,lives. exceptPerformance fees are earned if certain Financing Vehicles exceed contractual return hurdles for investors and a significant reversal in the portionamount managementof feescumulative that arerevenue recognized atis thenot pointexpected into time based on contract terms.occur.

We also earn interest income from our investments in loans and securities, including risk retention holdings and additional investments we may make in our sponsored asset backed securitizations, and our corporate cash balancesbalances. andWe earn investment income associated with our ownership interests in certain Financinginvestment Vehiclesfunds where we are the RIA and other proprietary investments.

Production Costs are primarily comprised of expenses incurred when Network Volume is transferred from Partners into Financing Vehicles, as our Partners are responsible for marketing and customer interaction and facilitating the flow of additional application flow. Accordingly, the amount and growth of our Production Costs are highly correlated to Network Volume. Additionally, but to a lesser extent, Production Costs also include expenses incurred to renovate single-family rental properties.

Technology, data and product development expenses primarily comprise costs associated with the maintenance and ongoing development of our network and AI technology, including personnel,salaries and personnel-related costs, allocated costs,overhead, and other development-related expenses. Technology, data and product development costs, net of amounts capitalized in accordance with U.S. GAAP, are expensed as incurred. The capitalizedCapitalized internal-use software is amortized on a straight-line method over the estimated useful lifelife, inwhich technology,averages datathree and product development costs.years. We have invested and believe continued investments in technology, data and product development are important to achieving our strategic objectives.

General and administrative expenses primarily comprise salaries and personnel-related costs for our executives, finance, legal and other administrative functions, insurance costs, professional fees for external legal, accounting and other professional services and allocated overhead costs. General and administrative expenses are expensed as incurred.

Gains and (losses) on investments in loans and securities primarily reflects changes in fair value that management identifies as credit losses or reversals of previously recognized credit losses, including remeasurements of instrumentsinvestments accounted for under the fair value optionoption, and any gain or loss realized upon sale or termination of such instruments. As of the end of each reporting period, management reviews each available for sale security where the fair value is less than the amortized cost to determine whether any portion of the decline in fair value is due to a credit loss and/or whether or not we intend to sell or will be required to sell such security before recovery of its amortized cost basis. The portion of any declinerecovery (or recoverydecline) in fair value which management identifies as a credit loss (or a reversal of previously recognized credit loss) is recognized as lossgain (or gainloss) on investments in loans and securities.

Other expenses, net primarily consists of interest expenses from borrowings, allowance for doubtful accounts, changes in the fair value of warrant liabilitiesliabilities, and other non-recurring items.

Gains and (Losses) from Extinguishment of Debt

Gains and (losses) from extinguishment of debt represents the difference between the reacquisition price and the net carrying amount of theany retired debt. These amounts include gains from debt repurchases at a discount and losses related to early payment penalties and the write-off of unamortized deferred issuance costs and original issue discounts. Such amounts are recognized in the unaudited condensed consolidated statements of income upon the settlement of the underlying obligations.

Income Tax (Benefit) Expense

We account for taxes on income in accordance with ASC 740, “Income Taxes” (“ASC 740”). We are eligible for certain tax benefits in Israel underas a Preferred Technological Enterprise (“PTE”), where income is generally subject to a 12% tax rate unless subject to Pillar Two taxation. Following Israel’s adoption of the LawOECD forPillar Two framework and the Encouragementintroduction of Capitala InvestmentsQualified orDomestic theMinimum InvestmentTop-Up LawTax at(“QDMTT”) in late 2025, we became subject to a reducedminimum corporate tax rate of 12%.15%. Accordingly, as we generate taxable income in Israel, our effective tax rate is expected to be lower than the standardstatutory corporate tax rate for Israeli companies,companies whichof is23%, 23%.but subject to the 15% minimum corporate tax rate. Our taxable income generated in the United States or derived from other sources in Israel which is not eligible for tax benefits will be subject to the regular corporate tax rate in their respective tax jurisdictions.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests in ourthe unaudited condensed consolidated statements of income is a result of our investments in certain of our consolidated variable interest entities (‘‘VIEs’’) and consists of the portion of the net incomeloss of these consolidated entities that is not attributable to us.

Comparison of Three Months Ended MarchJune 31,30, 2026 and 2025

Total revenue and other income, increased by $28.0$60.6 million, or 10%,19%, to $317.9$387.0 million for the three months ended MarchJune 31,30, 20262026, fromcompared $290.0to $326.4 million for the three months ended MarchJune 31,30, 2025. The increase was primarily driven by an increase in revenue from fees and interest income.

Revenue from fees for the three months ended MarchJune 31,30, 2026 increased by $16.3$47.9 million, or 6%,15%, to $299.0$365.6 million, compared to $317.7 million for the samethree periodmonths inended June 30, 2025. The increase was primarily due to a $15.4$32.5 million increase in Network AI fees, comprised of AI integration fees and capital markets execution fees, fromto $251.5$318.4 million for the three months ended MarchJune 31,30, 20252026 tofrom $266.9$285.9 million for the three months ended MarchJune 31,30, 2026.2025. The increase in Network AI fees was primarily driven by improved economics in AI integration fees earned from certain Partners, as well as the growth in Network Volume, which increased by 9.3%33% fromto $2.4$3.5 billion for the three months ended MarchJune 31,30, 20252026 tofrom $2.6 billion for the three months ended MarchJune 31,30, 2026.2025. Contract fees, comprised of administration and management fees, performances fees, and servicing fees, increased by $1.0$15.5 million fromto $31.2$47.2 million for the three months ended MarchJune 31,30, 20252026 tofrom $32.1$31.8 million for the three months ended MarchJune 31,30, 2026,2025, reflecting an increase in the assets held by securitization vehicles driven by continued business growth.

Interest income for the three months ended June 30, 2026 increased by $10.0$11.5 million, or 130%,107%, to $17.7$22.2 million compared to $10.7 million for the three months ended MarchJune 31, 2026 from $7.7 million for the three months ended March 31,30, 2025. The increase in interest income was directly related to our investments in loans and securities, including risk retention holdings and related securities held in our consolidated VIEsVIEs, as well as certain risk retention holdings held directly by our consolidated subsidiaries. For further information, see “—Net Loss Attributable to Noncontrolling Interests.” The increase in interest income was primarily the result of a higher average balance in investments in loans and securities, as well as changes in the structure and composition of our asset portfolio.portfolio toward a greater proportion of cash-yielding senior note tranches of our sponsored securitization transactions.

Investment incomeloss increasedfor the three months ended June 30, 2026 decreased by $1.7$1.3 million to $1.3$0.8 million, compared to $2.1 million for the three months ended MarchJune 31,30, 2026,2025, reflecting a favorableless unfavorable impact from the change in valuation of certain proprietary investments.

Production costs for the three months ended June 30, 2026 increased by $10.5$27.3 million, or 6%,14%, to $177.6$218.7 million, compared to $191.5 million for the three months ended MarchJune 31, 2026 from $167.1 million for the three months ended March 31,30, 2025. ThisThe increase was due to an increasegrowth in the Network Volume, which increased by 9.3%33% fromto $2.4$3.5 billion for the three months ended MarchJune 31,30, 20252026 tofrom $2.6 billion for the three months ended MarchJune 31,30, 2026,2025, attributable to continued business growth as well as shifts in addition to the composition of the asset classes thatand makeproducts upcomprising our Network Volume.

Technology, data and product development costs for the three months ended MarchJune 31,30, 2026 decreased $3.5by $1.1 million, or 18%,6%, to $17.3 million, compared to $18.5 million for the samethree periodmonths inended June 30, 2025. The decrease was driven by a $3.2$3.3 million decrease in depreciation expenses ,expenses, net of capitalization (as explained below), and a $0.4 million decrease in consultant expenses.. The reduction in depreciation expense was primarily due to an increase in the estimated useful liveslife of certain internal-use software.software effective January 1, 2026. This decrease was partially offset by a $1.4 million increase in compensation expenses primarily driven by the appreciation of the Israeli Shekel against the U.S. Dollar.

During the three months ended MarchJune 31,30, 2026 and 2025, we capitalized $3.6$3.9 million and $4.5$4.0 million of software development costs, respectively. Depreciation expense, including impairment charges for capitalized software development costsexpense was $2.2$2.6 million and $6.2$5.9 million during the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Sales and marketing costs for the three months ended MarchJune 31,30, 2026 increaseddecreased by $1.5$9.6 million, or 49%, to $10.1 million, compared to $19.7 million for the samethree periodmonths inended June 30, 2025. The increasedecrease was primarily driven by a $0.8$10.1 million increasedecrease in compensation expenses, including shared-based compensation, andwhich was partially offset by a $0.3 million increase in amortization of intangible assets.

General and administrative costs for the three months ended MarchJune 31,30, 2026 decreased by $12.9$5.3 million, or 28%,13%, to $35.1 million, compared to $40.3 million for the samethree periodmonths ended June 30, 2025. Excluding the impact of one-time item of $2.4 million in 2025,the primarilyprior drivenyear period, general and administrative expenses decreased by a $6.4$2.8 million lowerdue loss from loan purchases andto a $5.1$2.2 million decrease in share-based compensation expenses,and includinga share-based$0.4 compensation.million decrease in miscellaneous expenses.

Losses on investments in loans and securities for the three months ended MarchJune 31,30, 2026 increased $9.0by million$28.1 million, or 197% to $42.3 million, compared to $14.3 million for the samethree periodmonths inended June 30, 2025. The increase was primarily due to a $13.7 million increase in net losses from the redemption of certain investments. This increase was partially offsetdriven by aan $4.2 million decreaseincrease in credit-related impairment losses on ABS securities. Of the credit-related impairment loss in the current period, $0.5$4.3 million is attributable to the noncontrolling interests in certain VIEs and accordingly,accordingly does not impact net income attributable to Pagaya shareholders.

Other expense, net for the three months ended MarchJune 31,30, 2026 decreasedincreased $3.2by million$2.8 million, or 14%, to $23.0 million, compared to $20.2 million for the samethree periodmonths inended June 30, 2025. The decreaseincrease resultedwas fromprimarily driven by a $5.3$3.5 million favorableof fluctuationa inreserve against certain assets during the faircurrent value of warrant liabilityperiod and a $1.6 million decrease in interest expense from borrowings, partially offset by the absence of a $3.2$2.2 million favorable impactadjustment we had inon the prior year from the change in fair value of contingent liability associated with the Theorem acquisition recorded in the prior year period. These increases were partially offset by lower interest expenses of Theorem.$3.4 million.

Gains and (Losses) from Extinguishment of Debt

Gain from extinguishment of debt for the three months ended June 30, 2026 was related$0.7 million, compared to thea $7.4loss of $0.5 million for the three months ended June 30, 2025. The $0.7 million gain resulted from the repurchase of $3.8 million of the outstanding 2030 Notes at a price equal to 87.3%78.5% of the principal amount.amount during the current period.

Income Tax Expense (Benefit) Expense

Income tax benefit for the three months ended June 30, 2026 was $1.1 million, compared to income tax expense increasedof $5.7$5.0 million for the three months ended MarchJune 31, 2026, compared to the same period in30, 2025. The increasechange was primarily attributable to a favorable change in uncertain tax positions,positions including a decrease duringand the threeutilization monthsof endednet Marchoperating 31,loss 2025, compared an increase during the three months ended March 31, 2026.carryforwards.

Net loss attributable to noncontrolling interests for the three months ended MarchJune 31,30, 2026 decreasedincreased $4.9by $2.8 million to $2.9 million, compared to $0.1 million for the samethree periodmonths inended June 30, 2025. The decreaseincrease was driven by the net loss generated by our consolidated VIEs associated with ourinvestments riskin retentionasset holdings.backed securitizations. This amount represented the net loss of the consolidated VIEs held by other investors in the VIEVIEs for which we hadhave no economic rights. This amount was primarily driven by a $5.2$4.3 million decrease inof credit-related impairment losslosses onin the riskcurrent retention holdings, partially offset by a $0.4 million decrease in net income generated by consolidated VIEs.period. For further information regarding credit-related impairment losses, see “—Total Revenue and Other Income” and “—Gains and (Losses) on Investments in Loans and Securities.”