ONLINE RESOURCES CORP

On September 25, 2012, the Company amended its senior secured credit facilities through February 21, 2013. The Company has an agreement with Bank of America which finances its senior secured notes (“2007 Notes”). The prior agreement provided a $12.0 million revolver (“Revolver”) under which the Company could secure up to $10.0 million in letters of credit. Available credit under the Revolver had been reduced by approximately $10 million as a result of letters of credit the bank has issued. Under the amended agreement the Revolver will be reduced to $5.0 million upon the expiration of the current letter of credit in the 4th quarter of 2012. The Company made principal payments of $9.0 million and $14.5 million on the 2007 Notes in the nine months ended September 30, 2012 and 2011, respectively, reducing the outstanding principal to $11.3 million as of September 30, 2012. The Company will make periodic principal payments until the 2007 Notes are due in 2013 as noted in the table below.

The Company’s effective tax rate was 20.3% and 48.3% for the three months ended September 30, 2012 and 2011, respectively and 35.4% and 38.5% for the nine months ended September 30, 2012 and 2011, respectively. The year over year change in the effective tax rate relates to permanent differences, state taxes, the impact of an adjustment to recognize the benefit of certain state tax net operating losses of approximately $0.7 million and a stock based compensation adjustment of approximately $0.2 million relating to the difference between the expected deduction from stock based compensation which is based upon the fair value of the award at the date of issuance and the actual deduction taken which is based upon the fair value of the award at the time the award is exercised or vests. During the three months ended September 30, 2012, the Company recorded an adjustment to recognize the benefit of certain state tax net operating losses that should have been recognized in prior years. The Company has determined that the impact of this adjustment is not material to the financial statements for the three and nine months ended September 30, 2012.

Costs of Revenues. Costs of revenues encompass the direct expenses associated with providing our services. These expenses include telecommunications, payment processing, systems operations, customer service, implementation and professional services work. Costs of revenues increased $0.5 million, or 2%, to $21.7 million for the three months ended September 30, 2012 due to an increase in employee compensation of $0.3 million, an increase in amortization of internally developed software of $0.2 million, an increase in data communication costs of $0.2 million, an increase in consulting costs of $0.2 million and an increase in partnership commissions of $0.1 million offset by a decrease in interchange fees of $0.2 million.

Income Tax Provision. We recognized tax expense for the three months ended September 30, 2012, as a result of $3.0 million of income before income taxes generated during the third quarter of 2012. The difference between our effective tax rate and the federal statutory rate is primarily due to permanent differences, state taxes, the impact of an adjustment to recognize the benefit of certain state tax net operating losses of approximately $0.7 million and a stock based compensation adjustment of approximately $0.1 million relating to the difference between the expected deduction from stock based compensation which is based upon the fair value of the award at the date of issuance and the actual deduction taken which is based upon the fair value of the award at the time the award is exercised or vests.

On February 21, 2013, the Company’s senior secured credit facility will mature. Bank of America, the Administrative Agent, acting on behalf of the lenders, has advised the Company that it does not plan to renew or extend our credit facility. As a result, the Company will be required to pay in full all outstanding amounts under the credit facility. In addition, in connection with the Company’s appeal of the judgment handed down in the litigation brought against the Company by Mr. Lawlor, the Company was required to post security with the court in the form of an irrevocable standby letter of credit in an amount not exceeding $8,446,143 (as discussed in Note 12 – Commitments & Contingencies). Bank of America issued this letter of credit under the credit facility. As a result of the fact that Bank of America will not renew the credit facility, it is anticipated that Mr. Lawlor will call on the letter of credit and Bank of America will be required to pay the full amount of the letter of credit to the court as cash security for the appeal. In that event, the Company will be required to repay such amount, in addition to all other amounts outstanding under the credit facility, on February 21, 2013. This will result in the Company having to use existing cash to repay the bank unless the Company is successful in replacing the credit facility. The Company believes that it will have sufficient cash on hand on February 21, 2013 to pay all amounts owed under the credit facility and to continue its operations in the ordinary course of business. As a result, the Company does not believe the non-renewal of the credit facility will have a material adverse effect on the Company.