Oportun Financial Corp 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the stockholders and the Board of Directors of Oportun Financial Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Oportun Financial Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Loans Receivable at Fair Value — Refer to Notes 2 and 15 to the financial statements Critical Audit Matter Description The Company’s loans receivable at fair value were at $2,387 million as of December 31, 2021. The loans receivable at fair value were valued as Level 3 financial instruments. Level 3 financial instruments are valued utilizing pricing inputs that are unobservable and significant to the entire fair value measurement. The Company estimates the fair value of the Level 3 loans receivable using a discounted cash flow model based on estimated future cash flows, which considers various inputs that require significant judgment. The model uses inputs that are not observable and inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. We identified loans receivable at fair value as a critical audit matter because of the subjective process in determining significant inputs, assumptions, and judgments used to estimate the fair value. Auditing management’s assessment of loans receivable at fair value involved exercising subjective and complex judgments, required specialized skills and knowledge, and required an increased extent of audit effort, including obtaining audit evidence of the data sources used to estimate fair value and understanding the assumptions applied and the nature of significant inputs utilized. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the valuation of loans receivable at fair value included the following, among others: • We tested the effectiveness of management’s controls covering the overall estimate and the review of the accuracy and completeness of the underlying loan data utilized in the model calculations. • We subjected the significant unobservable inputs to sensitivity analyses to evaluate changes in the fair value that would result from changes in the assumptions. • We tested the accuracy and completeness of the significant unobservable inputs used in the valuation of loans receivable at fair value by detail testing the segmentation of the portfolio and underlying payment history and historical performance of the loans. • With the assistance of our fair value specialists, we developed independent estimates of the loans receivable at fair value and compared our estimates to the Company’s estimates. • We performed a retrospective review of management’s ability to accurately estimate the loans receivable at fair value by comparing modeled monthly cash flows to actual past performance. 60 Business Combination — Refer to Note 6 to the financial statements Critical Audit Matter Description The Company completed the acquisition of Hello Digit, Inc. for $205.3 million on December 22, 2021. The Company accounted for the acquisition under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The final valuation of assets and liabilities recognized as of the acquisition date included approximately $84 million of acquired intangible assets and $104 million of goodwill with total net assets acquired of $17 million. Of the identified intangible assets acquired, the most significant were the developed technology of $48.5 million and the member relationship intangible assets of $34.5 million. Management, with the assistance of a valuation specialist, estimated the fair value of developed technology and member relationship intangible assets using the income approach, which determines the fair value as the present value of forecasted future cash flows. The determination of fair value of the assets involves significant estimates and assumptions related to forecasted future cash flows and the selection of the discount rate. Given the nature of future expected cash flows and the discount rate utilized in the process to determine the fair value of developed technology and member relationship intangible assets, performing audit procedures to evaluate the reasonableness of these future expected cash flows and the discount rate assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the valuation of developed technology and member relationship intangible assets from the Hello Digit, Inc. acquisition including the following, among others: • We tested the effectiveness of the controls over the Company’s valuation process, including controls over future expected cash flows and the discount rate. • We evaluated the reasonableness of the future expected cash flows utilized in determining fair values of developed technology and member relationship intangible assets, tested the accuracy and completeness of significant data underlying those future expected cash flows and assumptions, and made inquiries of management regarding the basis for their key judgments. • With the assistance of our fair value specialists, we evaluated the methodologies and calculations used by management to determine the fair value of developed technology and member relationship intangible assets by: ▪ Evaluating the reasonableness of the valuation techniques utilized by management’s third-party valuation specialists to value the identified intangibles. ▪ Testing the mathematical accuracy of the valuation model and calculations. ▪ Testing certain valuation assumptions, including the discount rate, by evaluating management’s underlying source information and evaluating such estimates for reasonableness. /s/ Deloitte & Touche LLP San Francisco, CA March 1, 2022 We have served as the Company's auditor since 2010. 61 OPORTUN FINANCIAL CORPORATION Consolidated Balance Sheets (in thousands, except share and per share data) December 31, 2021 2020 Assets Cash and cash equivalents $ 130,959 $ 136,187 Restricted cash 62,001 32,403 Loans receivable at fair value 2,386,807 1,696,526 Interest and fees receivable, net 20,916 15,426 Capitalized software and other intangibles, net 131,181 27,483 Goodwill 104,014 — Right of use assets - operating 38,403 46,820 Other assets 72,344 54,206 Total assets $ 2,946,625 $ 2,009,051 Liabilities and stockholders' equity Liabilities Secured financing $ 393,889 $ 246,385 Asset-backed notes at fair value 1,651,706 1,167,309 Acquisition financing 114,092 — Lease liabilities 47,699 49,684 Other liabilities 135,358 79,045 Total liabilities 2,342,744 1,542,423 Stockholders' equity Common stock, $ 0.0001 par value - 1,000,000,000 shares authorized at December 31, 2021 and December 31, 2020; 32,276,419 shares issued and 32,004,396 shares outstanding at December 31, 2021; 27,951,286 shares issued and 27,679,263 shares outstanding at December 31, 2020 6 6 Common stock, additional paid-in capital 526,338 436,499 Retained earnings 83,846 36,432 Treasury stock at cost, 272,023 and 272,023 shares at December 31, 2021 and December 31, 2020 ( 6,309 ) ( 6,309 ) Total stockholders’ equity 603,881 466,628 Total liabilities and stockholders' equity $ 2,946,625 $ 2,009,051 See Notes to the Consolidated Financial Statements. 62 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Operations (in thousands, except share and per share data) Year Ended December 31, 2021 2020 Revenue Interest income $ 575,839 $ 545,466 Non-interest income 50,943 38,268 Total revenue 626,782 583,734 Less: Interest expense 47,669 58,368 Net decrease in fair value ( 48,632 ) ( 190,306 ) Net revenue 530,481 335,060 Operating expenses: Technology and facilities 139,564 129,795 Sales and marketing 116,882 89,375 Personnel 115,833 106,446 Outsourcing and professional fees 57,931 47,067 General, administrative and other 37,480 20,471 Total operating expenses 467,690 393,154 Income (loss) before taxes 62,791 ( 58,094 ) Income tax expense (benefit) 15,377 ( 13,012 ) Net income (loss) $ 47,414 $ ( 45,082 ) Net income (loss) attributable to common stockholders $ 47,414 $ ( 45,082 ) Share data: Earnings (loss) per share: Basic $ 1.68 $ ( 1.65 ) Diluted $ 1.56 $ ( 1.65 ) Weighted average common shares outstanding: Basic 28,191,610 27,333,271 Diluted 30,323,194 27,333,271 See Notes to the Consolidated Financial Statements. 63 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) For the Years Ended December 31, 2021 and 2020 Convertible Preferred and Common Stock Warrants Common Stock Shares Par Value Shares Par Value Additional Paid-in Capital Retained Earnings Treasury Stock Total Stockholders' Equity Balance – January 1, 2021 — $ — 27,679,263 $ 6 $ 436,499 $ 36,432 $ ( 6,309 ) $ 466,628 Issuance of common stock upon exercise of stock options — — 240,047 — 3,272 — — 3,272 Stock-based compensation expense — — — — 19,888 — — 19,888 Vesting of restricted stock units, net of shares withheld — — 562,904 — ( 6,502 ) — — ( 6,502 ) Issuance of equity on business acquisition — — 3,522,182 — 73,181 — — 73,181 Net income — — — — — 47,414 — 47,414 Balance – December 31, 2021 — $ — 32,004,396 $ 6 $ 526,338 $ 83,846 $ ( 6,309 ) $ 603,881 Balance – January 1, 2020 23,512 $ 63 27,003,157 $ 6 $ 418,299 $ 76,679 $ ( 6,119 ) $ 488,928 Issuance of common stock upon exercise of stock options — — 58,722 — 216 — — 216 Stock-based compensation expense — — — — 19,488 — — 19,488 Issuance of common stock upon exercise of warrants ( 23,512 ) ( 63 ) 10,972 — 253 — ( 190 ) — Vesting of restricted stock units, net of shares withheld — — 606,412 — ( 1,757 ) — — ( 1,757 ) Cumulative effect of adoption of ASU 2019-05 — — — — — 4,835 — 4,835 Net loss — — — — — ( 45,082 ) — ( 45,082 ) Balance – December 31, 2020 — $ — 27,679,263 $ 6 $ 436,499 $ 36,432 $ ( 6,309 ) $ 466,628 See Notes to the Consolidated Financial Statements. 64 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Cash Flow (in thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities Net income (loss) $ 47,414 $ ( 45,082 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 27,112 20,220 Fair value adjustment, net 48,632 190,306 Origination fees for loans receivable at fair value, net ( 15,836 ) ( 900 ) Gain on loan sales ( 26,750 ) ( 20,308 ) Stock-based compensation expense 18,857 19,488 Deferred tax provision, net 16,451 ( 14,464 ) Other, net 30,567 18,001 Originations of loans sold and held for sale ( 214,598 ) ( 188,521 ) Proceeds from sale of loans 242,015 208,385 Changes in operating assets and liabilities: Interest and fee receivable, net ( 8,231 ) ( 4,010 ) Other assets ( 23,913 ) ( 9,926 ) Other liabilities 21,727 ( 20,320 ) Net cash provided by operating activities 163,447 152,869 Cash flows from investing activities Originations of loans ( 1,842,211 ) ( 1,011,845 ) Repayments of loan principal 1,107,850 1,054,821 Capitalization of system development costs ( 26,477 ) ( 21,772 ) Acquisition of Digit, net of acquirer's cash received ( 111,652 ) — Other, net ( 12,296 ) ( 4,825 ) Net cash provided by (used in) investing activities ( 884,786 ) 16,379 Cash flows from financing activities Borrowings under secured financing 1,291,795 469,000 Borrowings under asset-backed notes and acquisition financing 1,479,332 40,244 Payments of secured financing ( 1,144,996 ) ( 284,006 ) Repayment of asset-backed notes ( 875,007 ) ( 360,001 ) Other, net ( 2,183 ) ( 495 ) Net payments related to stock-based activities ( 3,232 ) ( 1,541 ) Net cash provided by (used in) financing activities 745,709 ( 136,799 ) Net increase in cash and cash equivalents and restricted cash 24,370 32,449 Cash and cash equivalents and restricted cash, beginning of period 168,590 136,141 Cash and cash equivalents and restricted cash, end of period $ 192,960 $ 168,590 Supplemental disclosure of cash flow information Cash and cash equivalents $ 130,959 $ 136,187 Restricted cash 62,001 32,403 Total cash and cash equivalents and restricted cash $ 192,960 $ 168,590 Cash paid for income taxes, net of refunds $ 3,884 $ 2,829 Cash paid for interest $ 46,831 $ 57,140 Cash paid for amounts included in the measurement of operating lease liabilities $ 17,603 $ 16,244 Supplemental disclosures of non-cash investing and financing activities Right of use assets obtained in exchange for operating lease obligations $ 12,392 $ 8,826 Net issuance of stock related to Digit acquisition $ 73,181 $ — Non-cash investment in capitalized assets $ 2,103 $ 550 Non-cash financing activities $ 33 $ — See Notes to the Consolidated Financial Statements. 65 OPORTUN FINANCIAL CORPORATION Notes to the Consolidated Financial Statements December 31, 2021 1. Organization and Description of Business Oportun is a financial technology company and digital banking platform driven by its mission to provide inclusive, affordable financial services that empower its members to build a better future. Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the "Company") takes a holistic approach to serving its members and view it as the Company's purpose to responsibly meet their current capital needs, help grow its members' financial profiles, increase their financial awareness and put them on a path to a financially healthy life. With its acquisition of Hello Digit, Inc. ("Digit") on December 22, 2021, the Company can now offer access to a comprehensive suite of digital banking products, offered either directly or through partners, including lending, savings and investing powered by A.I. and tailored to each member's goals to make achieving financial health automated. The Company's credit products include personal loans, secured personal loans and credit cards. Our digital banking products include digital banking, automated savings, long-term investing and retirement savings. The Company is headquartered in San Carlos, California. The Company has been certified by the United States Department of the Treasury as a Community Development Financial Institution ("CDFI") since 2009. Segments Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer and the Company's Chief Financial Officer are collectively considered to be the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s operations constitute a single reportable segment. 2. Summary of Significant Accounting Policies Basis of Presentation ‑ The Company meets the SEC's definition of a "Smaller Reporting Company”, and therefore qualifies for the SEC's reduced disclosure requirements for smaller reporting companies. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Use of Estimates ‑ The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates and assumptions. Business Combinations - The Company accounts for business combinations using the acquisition method of accounting which requires the fair values of the assets acquired and the liabilities assumed to be recognized in the consolidated financial statements. Assets acquired and liabilities assumed in a business combination are recognized at their estimated fair value as of the acquisition date. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset or liability. The excess purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period, with the corresponding offset to goodwill. Acquisition-related costs, such as legal and consulting fees, are recognized separately from the business combination and are expensed as incurred. Consolidation and Variable Interest Entities ‑ The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s policy is to consolidate the financial statements of entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or variable interest entity ("VIE") and if the accounting guidance requires consolidation. VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The Company determines whether it has a controlling financial interest in a VIE by considering whether its involvement with the VIE is significant and whether it is the primary beneficiary of the VIE based on the following: • The Company has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; • The aggregate indirect and direct variable interests held by us have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; an • Qualitative and quantitative factors regarding the nature, size, and form of the Company’s involvement with the VIE. 66 Foreign Currency Re-measurement ‑ The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are re-measured into U.S. dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are re-measured at historical rates. Revenue and expenses are re-measured at average exchange rates in effect during each period. Foreign currency gains and losses from re-measurement and transaction gains and losses are recorded as general, administrative and other expense in the Consolidated Statements of Operations. Concentration of Credit Risk ‑ Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable at fair value. As of December 31, 2021, 49 %, 27 %, 7 % and 6 % of the owned principal balance related to borrowers from California, Texas, Florida and Illinois, respectively. Owned principal balance related to borrowers from each of the remaining states of operation continues to be at or below 3 %. As of December 31, 2020, 56 %, 26 %, 5 % and 5 % of the owned principal balance related to borrowers from California, Texas, Illinois and Florida, respectively, and the owned principal balance related to borrowers from each of the remaining states was at or below 3 %. Cash and Cash Equivalents ‑ Cash and cash equivalents consist of unrestricted cash balances and short-term, liquid investments with a maturity date of three months or less at the time of purchase. Digit's savings platform connects to members’ checking accounts and analyzes their income and spending patterns to find amounts that can safely be set aside towards savings goals. Digit calculates these amounts by identifying upcoming bills and regular spending habits to ensure optimal amounts are flagged for savings and transferred to savings accounts. The funds in these saving accounts are owned by Digit members and are not the assets of the Company. Therefore, these funds are not included in the Consolidated Balance Sheets. Restricted Cash ‑ Restricted cash represents cash held at a financial institution as part of the collateral for the Company’s Secured Financing, asset-backed notes and loans designated for sale. Loans Receivable at Fair Value ‑ The Company elected the fair value option for all loans receivable held for investment. Under fair value accounting, direct loan origination fees are taken into income immediately and direct loan origination costs are expensed in the period the loan originates. In addition, the Company recognizes annual fees on credit card receivables into income immediately upon activation of the credit card by the credit card holder and subsequent annual fees when billed upon the anniversary of the credit card account. Loans are charged off at the earlier of when loans are determined to be uncollectible or when loans are 120 days contractually past due, or 180 days contractually past due in the case of credit cards. Recoveries are recorded when cash is received on loans that had been previously charged off. The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as remaining cumulative charge-offs, remaining cumulative prepayments or principal payment rates for our credit card receivables, average life and discount rate. The Company re-evaluates the fair value of loans receivable at the close of each measurement period. Changes in fair value are recorded in "Net decrease in fair value" in the Consolidated Statements of Operations in the period of the fair value changes. Fair Value Measurements ‑ The Company follows applicable guidance that establishes a fair value measurement framework, provides a single definition of fair value and requires expanded disclosure summarizing fair value measurements. Such guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. Fair value guidance establishes a three-level hierarchy for inputs used in measuring the fair value of a financial asset or financial liability. • Level 1 financial instruments are valued based on unadjusted quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date. • Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. • Level 3 financial instruments are valued using pricing inputs that are unobservable and reflect the Company’s own assumptions that market participants would use in pricing the asset or liability. Loans Held for Sale ‑ Loans held for sale are recorded at the lower of cost or fair value, until the loans are sold. Loans held for sale are sold within four days of origination. Cost of loans held for sale is inclusive of unpaid principal plus net deferred origination costs. Derivatives - Derivative financial instruments are recognized as either assets or liabilities in the consolidated balance sheet at fair value. Changes in fair value and settlements of derivative instruments are reflected in earnings as a component of "net decrease in fair value" in the Consolidated Statements of Operations. The Company does not use derivative instruments for trading or speculative purposes. Based on the agreements entered into with MetaBank, N.A., for all loans originated and retained by MetaBank, MetaBank receives a fixed interest rate. Oportun bears the risk of credit loss and has the benefit of any excess interest proceeds after satisfying various obligations under the agreements. Goodwill ‑ Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The Company performs impairment testing for goodwill annually or more frequently if an event or change in circumstances indicates that goodwill may be impaired. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the Company concludes the fair value is less than its carrying value a quantitative test is performed. The Company performs a quantitative goodwill impairment test by determining the fair value of the reporting unit and comparing it to the carrying value of the reporting unit. If the fair 67 value of the reporting unit is greater than the reporting unit's fair value, then the carrying value of the reporting unit is deemed to be recoverable. If the carrying value of the reporting unit is greater than the reporting unit's fair value, goodwill is impaired and written down to the reporting unit's fair value. Intangible Assets other than Goodwill - At the time intangible assets are initially recognized, a determination is made with regard to each asset as it relates to its useful life. We have determined that each of our intangible assets has a finite useful life with the exception of certain trade names, which we have determined have indefinite lives. Intangible assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives. Intangible assets with a finite useful life are presented net of accumulated amortization on the Consolidated Balance Sheets. The Company reviews the intangible assets with finite useful lives for impairment at least annually and whenever changes in circumstances indicate their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future cash flows is less than the carrying value of the respective asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value. For indefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets. If the fair value is less than the carrying value, an impairment loss will be recognized in an amount equal to the difference and the indefinite life classification will be evaluated to determine whether such classification remains appropriate. Fixed Assets ‑ Fixed assets are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which is generally three years for computer and office equipment and furniture and fixtures, and three to five years for purchased software, vehicles and leasehold improvements. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss, if any, is included in the Consolidated Statements of Operations. Maintenance and repairs are charged to the Consolidated Statements of Operations as incurred. The Company does not own any buildings or real estate. The Company enters into term leases for its corporate offices, call center and store locations. Leasehold improvements are capitalized and depreciated over the lesser of their physical life or lease term of the building. Systems Development Costs ‑ The Company capitalizes software developed or acquired for internal use, and these costs are included in Capitalized software and other intangibles, net on the Consolidated Balance Sheets. The Company has internally developed its proprietary Web-based technology platform, which consists of application processing, credit scoring, loan accounting, servicing and collections, debit card processing, data and analytics and digital banking services. The Company capitalizes its costs to develop software when preliminary development efforts are successfully completed; management has authorized and committed project funding; and it is probable the project will be completed and the software will be used as intended. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. When the software developed for internal use has reached its technological feasibility, such costs are amortized on a straight-line basis over the estimated useful life of the assets, which is generally three years . Costs incurred for upgrades and enhancements that are expected to result in additional functionality are capitalized and amortized over the estimated useful life of the upgrades. The Company acquired developed technology with its acquisition of Digit. Developed technology is included in capitalized software. Such costs are amortized on a straight-line basis over the estimated useful life of the assets, which was determined to be seven years. Impairment ‑ The Company reviews long-lived assets, including fixed assets, right of use assets and system development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The Company determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired for the years ended December 31, 2021 and 2020, except as disclosed in Note 7 , Capitalized Software , Other Intangible s and Goodwill . Asset-Backed Notes at Fair Value ‑ The Company elected the fair value option to account for all asset-backed notes. The Company calculates the fair value of the asset-backed notes using independent pricing services and broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures. The Company re-evaluates the fair value of the asset-backed notes at the close of each measurement period. Changes in fair value are recorded in Net decrease in fair value in the Consolidated Statements of Operations in the period of the fair value changes. Acquisition Financing ‑ The Acquisition Financing is an asset-backed note carried at amortized cost. The Company reports issuance costs associated with the financing on its balance sheet as a direct reduction in the carrying amount of the note, and they are amortized over the life of the note using the effective interest method. The Acquisition Financing was used to fund the cash component of the purchase price for the Digit acquisition and, as a result, the interest payments are recorded to General, administrative and other in the Consolidated Statements of Operations. 68 Revenue Recognition ‑ The Company’s primary sources of revenue consist of interest and non-interest income. Interest Income Interest income includes interest and fees on loans. Generally, the Company’s loans require semi-monthly or biweekly borrower payments of interest and principal. Fees on loans include billed late fees offset by charged-off fees and provision for uncollectible fees. The Company charges borrowers a late fee if a scheduled installment payment becomes delinquent. Depending on the loan, late fees are assessed when the loan is eight to 16 days delinquent. Late fees are recognized when they are billed. When a loan is charged off, uncollected late fees are also written off. For Loans Receivable at Fair Value, interest income includes (i) billed interest and late fees, plus (ii) origination fees recognized at loan disbursement, less (iii) charged-off interest and late fees, less (iv) provision for uncollectible interest and late fees. Additionally, direct loan origination expenses are recognized in operating expenses as incurred. For Loans Receivable at Fair Value, loan origination fees and costs are recognized when incurred. Interest income on our personal loan receivables is recognized based upon the amount the Company expects to collect from its borrowers. When a loan becomes delinquent for a period of 90 days or more, interest income continues to be recorded until the loan is charged off. Delinquent loans are charged off at month-end during the month it becomes 120 days’ delinquent. For personal loans receivable, the Company mitigates the risk of income recorded for loans that are delinquent for 90 days or more by establishing a 100% provision and the provision for uncollectible interest and late fees is offset against interest income. Previously accrued and unpaid interest is also charged off in the month the Company receives a notification of bankruptcy, a judgment or mediated agreement by the court, or loss of life, unless there is evidence that the principal and interest are collectible. Interest income on our credit card receivables is recognized on the current balance on the account, inclusive of outstanding principal balance plus previously unpaid interest and fees, at the end of the monthly billing cycle. Delinquent credit card accounts, including unpaid interest and fees are charged off at month-end during the month they become 180 days contractually past due. Non-Interest Income Non-interest income includes gain on loan sales, servicing fees, debit card income, sublease income and other income. Gain on Loan Sales ‑ The Company recognizes a gain on sale from the difference between the proceeds received from the purchaser and the carrying value of the loans on the Company’s books. The Company sells a certain percentage of new loans twice weekly. A transfer of a financial asset, a group of financial assets, or a participating interest in a financial asset is accounted for as a sale if all of the following conditions are met: • The financial assets are isolated from the transferor and its consolidated affiliates as well as its creditors. • The transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets. • The transferor does not maintain effective control of the transferred assets. For the years ended December 31, 2021 and 2020 all of the Company's loan sales met the requirements for sale treatment. The Company records the gain on the sale of a loan at the sale date in an amount equal to the proceeds received less outstanding principal, accrued interest, late fees and net deferred origination costs. Servicing Fees ‑ The Company retains servicing rights on sold loans. Servicing fees comprise the 5.0 % per annum servicing fee based upon the average daily principal balance of loans sold that the Company earns for servicing loans sold to a third-party financial institution. The servicing fee compensates the Company for the costs incurred in servicing the loans, including providing customer services, receiving borrower payments and performing appropriate collection activities. Management believes the fee approximates a market rate and accordingly has not recognized a servicing asset or liability. Documentation Fees - MetaBank, N.A. pays the Company on a monthly basis documentation fees as compensation for its role in facilitation of loan originations by MetaBank. The documentation fees are equivalent to loan origination fees charged by MetaBank to its borrowers. Documentation fees to which the Company expects to be entitled are variable consideration because loan volume originated over the contractual term is not known at the contract’s inception. The transaction fee is determined each time a loan is issued based on that loan’s initial principal amount and is recognized when performance is complete and upon the successful origination of a borrower's loan. Debit card income is the revenue from interchange fees when borrowers use our reloadable debit card for purchases as well as the associated card user fees. Sublease income is the rental income from subleasing a portion of our headquarters. Other income includes marketing incentives paid directly to us by the merchant clearing company based on transaction volumes, subscription revenue on our digital banking products, interest earned on cash and cash equivalents and restricted cash, and gain (loss) on asset sales. Interest expense ‑ Interest expense consists of interest expense associated with the Company’s asset-backed notes and Secured Financing, and it includes origination costs as well as fees for the unused portion of the Secured Financing facility. The Company elected the fair value option for all asset-backed notes. Accordingly, all origination costs for such asset-backed notes at fair value are expensed as incurred. 69 Income Taxes ‑ The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company evaluates uncertain tax positions by reviewing against applicable tax law all positions taken by the Company with respect to tax years for which the statute of limitations is still open. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company recognizes interest and penalties related to the liability for unrecognized tax benefits, if any, as a component of the Income tax expense line in the accompanying Consolidated Statements of Operations. Stock-Based Compensation ‑ The Company accounts for stock-based employee awards based on the fair value of the award which is measured at grant date. Accordingly, stock-based compensation cost is recognized in operating expenses in the Consolidated Statements of Operations over the requisite service period. The fair value of stock options granted or modified is estimated using the Black-Scholes option pricing model. The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the award grant date. The Company granted restricted stock units ("RSUs") to employees that vest upon the satisfaction of time-based criterion of up to four years and previously some included a performance criterion, a liquidity event in connection with an initial public offering or a change in control. These RSUs were not considered vested until both criteria were met and provided that the participant was in continuous service on the vesting date. Compensation cost for awards with performance criteria, measured on the grant date, was recognized when both the service and performance conditions were probable of being achieved. For grants and awards with just a service condition, the Company recognizes stock-based compensation expenses using the straight-line basis over the requisite service period net of forfeitures. For grants and awards with both service and performance conditions, the Company recognizes expenses using the accelerated attribution method. As a result of shares vesting as part of the Company's stock-based plans shares are surrendered to the Company to satisfy the tax withholding obligations and the Company pays the associated payroll taxes and the shares go back to the plan for future use. Treasury Stock ‑ Treasury stock is reported at cost, and no gain or loss is recorded on stock repurchase transactions. Repurchased shares are held as treasury stock until they are retired or re-issued. The Company did no t retire or re-issue any treasury stock for the years ended December 31, 2021 and 2020. Basic and Diluted Earnings per Share ‑ Basic earnings per share is computed by dividing net income per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. The Company computes earnings per share using the two-class method required for participating securities. The Company considers all series of convertible preferred stock to be participating securities due to their noncumulative dividend rights. As such, net income allocated to these participating securities which includes participation rights in undistributed earnings, are subtracted from net income to determine total undistributed net income to be allocated to common stockholders. All participating securities are excluded from basic weighted-average common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised. It is computed by dividing net income attributable to common stockholders by the weighted-average common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method or the two-class method, whichever is more dilutive. Recently Adopted Accounting Standards Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this ASU effective January 1, 2021 with no impact on its consolidated financial statements and disclosures. 70 3. Earnings (Loss) per Share Basic and diluted earnings (loss) per share are calculated as follows: Year Ended December 31, (in thousands, except share and per share data) 2021 2020 Net income (loss) $ 47,414 $ ( 45,082 ) Net income (loss) attributable to common stockholders $ 47,414 $ ( 45,082 ) Basic weighted-average common shares outstanding 28,191,610 27,333,271 Weighted average effect of dilutive securities: Stock options 1,375,915 — Restricted stock units 755,669 — Diluted weighted-average common shares outstanding 30,323,194 27,333,271 Earnings (loss) per share: Basic $ 1.68 $ ( 1.65 ) Diluted $ 1.56 $ ( 1.65 ) The following common share equivalent securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented: Year Ended December 31, 2021 2020 Stock options 2,038,022 4,369,664 Restricted stock units 19,073 2,280,829 Warrants — 10,400 Total anti-dilutive common share equivalents 2,057,095 6,660,893 4. Variable Interest Entities As part of the Company’s overall funding strategy, the Company transfers a pool of designated loans receivable to wholly owned special-purpose subsidiaries, ("VIEs") to collateralize certain asset-backed financing transactions. The Company has determined that it is the primary beneficiary of these VIEs because it has the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Such power arises from the Company’s contractual right to service the loans receivable securing the VIEs’ asset-backed debt obligations. The Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the VIEs because it retains the residual interest of each asset-backed financing transaction either in the form of an asset-backed certificate or as an uncertificated residual interest. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its consolidated financial statements. Each VIE issues a series of asset-backed securities that are supported by the cash flows arising from the loans receivable securing such debt. Cash inflows arising from such loans receivable are distributed monthly to the transaction’s noteholders and related service providers in accordance with the transaction’s contractual priority of payments. The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets. The Company retains the most subordinated economic interest in each financing transaction through its ownership of the respective residual interest in each VIE. The Company has no obligation to repurchase loans receivable that initially satisfied the financing transaction’s eligibility criteria but subsequently became delinquent or defaulted loans receivable. 71 The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s consolidated balance sheets: December 31, (in thousands) 2021 2020 Consolidated VIE assets Restricted cash $ 41,803 $ 23,726 Loans receivable at fair value 2,267,205 1,580,061 Interest and fee receivable 19,869 14,191 Total VIE assets 2,328,877 1,617,978 Consolidated VIE liabilities Secured financing (1) 398,000 246,994 Asset-backed notes at fair value 1,651,706 1,167,309 Acquisition financing (1) 116,000 — Total VIE liabilities $ 2,165,706 $ 1,414,303 (1) Amounts exclude deferred financing costs. See Note 9, Borrowings for additional information. 5. Loans Held for Sale Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor, which agreement was amended in March 2021 in which the term of the current agreement is set to expire on March 4, 2022. Pursuant to the agreement, the Company sells at least 10 % of its personal loan originations, with an option to sell an additional 5 %, subject to certain eligibility criteria and minimum and maximum volumes. In addition, from July 2017 to August 2020, the Company was party to a separate whole loan sale arrangement with an institutional investor providing for a commitment to sell 100 % of the Company’s loans originated under its loan program for borrowers who do not meet the qualifications of the Company's core loan origination program. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on August 5, 2020. The originations of loans sold and held for sale during the year ended December 31, 2021 was $ 214.6 million and the Company recorded a gain on sale of $ 26.8 million and servicing revenue of $ 13.3 million. The originations of loans sold and held for sale during the year ended December 31, 2020 was $ 188.5 million and the Company recorded a gain on sale of $ 20.3 million and servicing revenue of $ 15.3 million. 6. Acquisition On December 22, 2021, the Company completed its acquisition of Digit. Digit is a digital banking platform that provides automated savings, investing and banking tools. Digit members can keep and integrate their existing bank accounts into the platform, or they can make Digit their primary banking relationship by opening new accounts via Digit’s bank partner. By acquiring Digit, Oportun has further expanded its A.I. and digital banking capabilities, adding to its services to provide consumers a holistic offering built to address their financial needs. The total consideration the Company provided for Digit was approximately $ 205.3 million, comprised of $ 73.2 million in equity and $ 132.1 million in cash, subject to customary adjustments. The Company acquired 100 % of the voting interests of Digit. December 31, (in thousands) 2021 Fair value of Oportun common stock issued to Digit stockholders (1) $ 73,181 Cash paid to common and preferred stockholders, warrant holders, and vested option holders (2) 132,151 Total purchase consideration (3) $ 205,332 ( 1) The fair value is based on 3,522,182 shares of Company common stock at $ 20.72 per share, which represents the mid-point of the trading price of Oportun shares on December 22, 2021. The mid-point was used because the transaction closed during the trading day. $ 0.2 million relates to replacement restricted stock units awarded to Digit unvested option holders. (2) $ 1.3 million of the cash paid is being held in escrow as security for purpose of securing any amounts payable by the selling parties on account of indemnification obligations, purchase price adjustments, and other amounts payable under the merger agreement. (3) The total consideration as reported herein differs from the amounts previously disclosed due to changes in the underlying value of the stock between the date of the definitive agreement and the closing of the acquisition. The number of shares of Company common stock comprising the stock portion of the consideration was determined using the stock price as of the signing of the definitive agreement. The acquisition has been accounted for as a business combination. The purchase consideration was allocated to the tangible and intangible assets and liabilities acquired and assumed as of the acquisition date, with the excess recorded to goodwill as shown below. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this Annual Report on Form 10-K and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date: 72 December 22, (in thousands) 2021 Goodwill $ 104,014 Acquired intangible assets 35,300 Developed technology 48,500 Cash and cash equivalents 20,499 Other assets acquired and liabilities assumed, net ( 2,981 ) Total purchase consideration $ 205,332 The goodwill of $ 104.0 million arising from the acquisition consists largely of revenue synergies expected from combining the operations of the Company and Digit. The goodwill is not deductible for U.S. federal income tax purposes. The Company recognized acquisition and integration related costs of approximately $ 10.6 million in the year ended December 31, 2021 which are included in the General, administrative and other expense in the Consolidated Statements of Operations. The table below summarizes the acquired intangible assets and developed technology, with estimated useful lives, as of the acquisition date: Estimated fair values (in thousands) Estimated useful life (years) Member relationships $ 34,500 7.0 Trade name 800 3.0 Developed technology 48,500 7.0 Total acquired intangibles and developed technology $ 83,800 The fair values of the acquired intangibles and developed technology were determined using the following methodologies: We valued the developed technology using the multi-period excess earnings method under the income approach. Member relationships were valued using the with-and-without method under the income approach. Trade names were valued by applying the relief-from-royalty method under the income approach. The acquired intangibles and developed technology have a total weighted average amortization period of 7.0 years. The unaudited pro forma information does not necessarily reflect the actual results of operations of the combined entities that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma information reflects certain adjustments that were directly attributable to the acquisition of Digit, including additional depreciation and amortization adjustments for the fair value of the assets acquired and liabilities assumed. The pro forma net loss for the year ended December 31, 2021 was adjusted to exclude nonrecurring acquisition-related costs of $ 29.7 million. The pro forma net loss for the year ended December 31, 2020 was adjusted to include nonrecurring acquisition-related costs of $ 29.7 million. Below is the unaudited pro forma financial information of the combined results of operations of the Company and Digit as if the acquisition occurred on January 1, 2020. December 31, (in thousands) 2021 2020 Total revenues $ 666,158 $ 623,973 Net income (loss) attributable to shareholders $ 33,971 $ ( 99,109 ) For the year ended December 31, 2021, total net revenue of $ 0.9 million from the Digit acquisition is included in the Company’s Consolidated Statements of Operations. 7. Capitalized Software, Other Intangibles and Goodwill Capitalized software, net consists of the following: December 31, (in thousands) 2021 2020 Capitalized software, net: System development costs $ 84,550 $ 55,943 Acquired developed technology 48,500 — Less: Accumulated amortization ( 45,433 ) ( 28,524 ) Total capitalized software, net $ 87,617 $ 27,419 73 Capitalized software, net Amortization of system development costs for years ended December 31, 2021 and 2020 was $ 16.7 million and $ 10.8 million, respectively. Amortization of acquired developed technology for the year ended December 31, 2021 was $ 0.2 million and reflects 10 days of expense after the acquisition of Digit. There was no amortization for acquired developed technology for the year ended December 31, 2020. System development costs capitalized in the years ended December 31, 2021 and 2020 were $ 28.6 million and $ 21.7 million, respectively. Acquired developed technology was $ 48.5 million and is related to the acquisition of Digit on December 22, 2021. In November 2020, the Company decided to cease originating direct auto loans used to purchase a vehicle. Accordingly, the Company recorded an impairment charge of $ 1.8 million related to system development costs and $ 1.9 million related to fixed assets. The impairment loss was included in Technology and facilities on the Consolidated Statements of Operations for the year ended December 31, 2020. Intangible Assets The gross carrying amount and accumulated amortization, in total and by major intangible asset class are as follows: December 31, 2021 (in thousands, except years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Member relationships $ 34,500 $ ( 135 ) $ 34,365 Trademarks 6,364 ( 7 ) 6,356 Other 3,000 ( 157 ) 2,843 Total $ 43,864 $ ( 300 ) $ 43,564 December 31, 2020 (in thousands, except years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trademarks $ 64 $ — $ 64 Total $ 64 $ — $ 64 Amortization of intangible assets for the year ended December 31, 2021 was $ 0.3 million. There were no intangible assets subject to amortization for the year ended December 31, 2020. Expected future amortization expense for intangible assets as of December 31, 2021 is as follows: (in thousands) Fiscal Years 2022 $ 7,929 2023 7,929 2024 7,778 2025 4,929 Thereafter 14,637 Total $ 43,200 Goodwill The table below presents changes to the carrying amount of goodwill: (in thousands) December 31, 2020 Goodwill Acquired December 31, 2021 Goodwill $ — $ 104,014 $ 104,014 The goodwill acquired during the twelve months ended December 31, 2021 is associated with the acquisition of Digit. There was no impairment for the periods presented. 74 8. Other Assets Other assets consist of the following: December 31, (in thousands) 2021 2020 Fixed assets Computer and office equipment $ 13,658 $ 11,182 Furniture and fixtures 8,553 11,072 Purchased software 2,073 1,992 Leasehold improvements 19,816 29,543 Total cost 44,100 53,789 Less: Accumulated depreciation ( 34,185 ) ( 37,939 ) Total fixed assets, net $ 9,915 $ 15,850 Other assets Loans Held for Sale $ 491 $ 1,158 Prepaid expenses 25,355 17,241 Deferred tax assets 3,923 1,716 Current tax assets 13,330 7,457 Other 19,330 10,784 Total other assets $ 72,344 $ 54,206 Fixed Assets Depreciation and amortization expense for the years ended December 31, 2021 and 2020 was $ 9.4 million and $ 9.4 million, respectively. 9. Borrowings The following table presents information regarding the Company's Secured Financing facilities: December 31, 2021 Variable Interest Entity Current Balance Commitment Amount Maturity Date Interest Rate (in thousands) Oportun CCW Trust (1)(2) $ 40,108 $ 150,000 December 1, 2023 Variable (1) Oportun PLW Trust 353,781 600,000 September 1, 2024 LIBOR (minimum of 0.00 % ) + 2.17 % Total secured financing $ 393,889 $ 750,000 (1) The interest rate on the Secured Financing - CCW facility is LIBOR (minimum of 1.00 %) plus 6.00 % on the first $ 18.8 million of principal outstanding and LIBOR (minimum of 0.00 %) plus 3.41 % on the remaining outstanding principal balance. (2) The Credit Card Warehouse has an aggregate borrowing capacity of up to $ 150.0 million; comprised of $ 75.0 million committed purchase amount and $ 75.0 million uncommitted purchase amount. December 31, 2020 Variable Interest Entity Current Balance Commitment Amount Maturity Date Interest Rate (in thousands) Oportun Funding V, LLC $ 246,385 $ 400,000 October 1, 2021 LIBOR (minimum of 0.00 % ) + 2.45 % 75 The Company elected the fair value option for all asset-backed notes issued on or after January 1, 2018. The following table presents information regarding asset-backed notes: December 31, 2021 Variable Interest Entity Initial note amount issued (a) Initial collateral balance (b) Current balance (a) Current collateral balance (b) Weighted average interest rate (c) Original revolving period (in thousands) Asset-backed notes recorded at fair value: Oportun Issuance Trust (Series 2021-C) $ 500,000 $ 512,762 $ 497,774 $ 525,436 2.48 % 3 years Oportun Issuance Trust (Series 2021-B) 500,000 512,759 498,487 521,174 2.05 % 3 years Oportun Funding XIV, LLC (Series 2021-A) 375,000 383,632 374,363 391,325 1.79 % 2 years Oportun Funding XIII, LLC (Series 2019-A) 279,412 294,118 281,082 299,310 3.46 % 3 years Total asset-backed notes recorded at fair value $ 1,654,412 $ 1,703,271 $ 1,651,706 $ 1,737,245 December 31, 2020 Variable Interest Entity Initial note amount issued (a) Initial collateral balance (b) Current balance (a) Current collateral balance (b) Weighted average interest rate (c) Original revolving period (in thousands) Asset-backed notes recorded at fair value: Oportun Funding XIII, LLC (Series 2019-A) $ 279,412 $ 294,118 $ 283,299 $ 299,237 3.46 % 3 years Oportun Funding XII, LLC (Series 2018-D) 175,002 184,213 178,182 187,570 4.50 % 3 years Oportun Funding X, LLC (Series 2018-C) 275,000 289,474 279,171 294,710 4.39 % 3 years Oportun Funding IX, LLC (Series 2018-B) 225,001 236,854 226,653 241,237 4.18 % 3 years Oportun Funding VIII, LLC (Series 2018-A) 200,004 222,229 200,004 226,242 3.83 % 3 years Total asset-backed notes recorded at fair value: $ 1,154,419 $ 1,226,888 $ 1,167,309 $ 1,248,996 (a) Initial note amount issued includes notes retained by the Company as applicable. The current balances are measured at fair value for asset-backed notes recorded at fair value. (b) Includes the unpaid principal balance of loans receivable, cash, cash equivalents and restricted cash pledged by the Company. (c) Weighted average interest rate excludes notes retained by the Company. The following table presents information regarding the Company's Acquisition Financing: December 31, 2021 Variable Interest Entity Current Balance Original Balance Maturity Date Interest Rate (in thousands) Oportun RF, LLC $ 114,092 $ 116,000 October 01, 2024 LIBOR (minimum of 0.00 %) + 8.00 % On March 8, 2021, the Company redeemed all $ 200.0 million of outstanding Series 2018-A Notes, plus accrued and unpaid interest, and announced the issuance of $ 375.0 million of two-year fixed-rate asset-backed notes by Oportun Funding XIV, LLC, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured personal installment loans (the “2021-A Securitization”). The 2021-A Securitization included four classes of fixed-rate notes: Class A, Class B, Class C and Class D notes, which were priced with a weighted average interest rate of 1.79 % per annum. The proceeds from this securitization were used to fund the redemption of 2018-A and paid down our Secured Financing facility. On April 8, 2021, the Company redeemed all $ 225.0 million of outstanding Series 2018-B Notes, plus the accrued and unpaid interest. The redemption price was funded by drawing upon our Secured Financing facility and using unrestricted cash. On May 10, 2021, the Company announced the issuance of $ 500.0 million of three-year fixed-rate asset-backed notes by Oportun Issuance Trust 2021-B, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured and secured personal installment loans (the "2021-B Securitization"). The 2021-B Securitization included four classes of fixed-rate notes: Class A, Class B, Class C and Class D notes, which were priced with a weighted average fixed interest rate of 2.05 % per annum. On July 8, 2021, the Company redeemed all $ 275.0 million of outstanding Series 2018-C Notes, plus the accrued and unpaid interest. The redemption was funded by drawing upon the Company's VFN facility, utilizing funds from the Company's 2021-B securitization transaction and using unrestricted cash. On September 8, 2021, the Company closed on a Personal Loan Warehouse facility ("PLW"). In connection with the PLW facility, the Company's wholly-owned subsidiary Oportun PLW Trust entered into a Loan and Security Agreement to borrow up to $ 600.0 million committed through September 2024. Borrowings under the PLW facility accrue interest at a rate equal to one-month LIBOR plus a spread of 2.17 %. On 76 September 8, 2021, the Company's wholly-owned subsidiary, Oportun Funding V, LLC, as issuer under the Variable Funding Note Warehouse ("VFN") facility, terminated the VFN facility. Final payment was made on the VFN facility in the amount of $ 219.0 million, plus the accrued and unpaid interest, which is the amount sufficient to satisfy and discharge Oportun Funding V, LLC's obligations under the VFN facility notes and the indenture. The final payment was funded by drawing upon the Company's PLW facility. Also on September 8, 2021, the Company redeemed all $ 175.0 million of outstanding Series 2018-D Notes, plus the accrued and unpaid interest. The redemption was funded by drawing upon the Company's Personal Loan Warehouse facility. On October 28, 2021, the Company announced the issuance of $ 500.0 million of three-year fixed-rate asset-backed notes by Oportun Issuance Trust 2021-C, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured and secured personal installment loans (the "2021-C Securitization"). The 2021-C Securitization included four classes of fixed-rate notes: Class A, Class B, Class C and Class D notes, which were priced with a weighted average fixed interest rate of 2.48 % per annum. On December 20, 2021, the Company closed on a $ 150.0 million Credit Card Warehouse facility ("CCW") secured by credit card receivables. In connection with the CCW Facility, our wholly-owned subsidiary Oportun CCW Trust issued two-year variable funding asset-backed notes pursuant to the Indenture dated December 20, 2021. The interest rate is LIBOR, with a floor of 1.00 %, plus 6.00 % on the first $ 18.8 million of principal outstanding and LIBOR, with a floor of 0.00 %, plus 3.41 % on the remaining outstanding principal balance. On December 20, 2021, Oportun RF, LLC, a wholly-owned subsidiary of the Company issued a $ 116.0 million asset-backed floating rate variable funding note (the "Acquisition Financing"), and an asset-backed residual certificate, both of which are secured by certain residual cash flows from the Company's securitizations and guaranteed by Oportun, Inc. The note and the certificate were issued pursuant to the Indenture dated as of December 20, 2021. The note was used to fund the cash consideration paid for the acquisition of Digit and bears interest at a rate of one-month LIBOR plus 8.00 %. The Acquisition Financing is structured to pay down based on an amortization schedule, with a final payment in October 2024. As of December 31, 2021 and 2020, the Company was in compliance with all covenants and requirements of the Secured Financing facilities, Acquisition Financing note and asset-backed notes. 10. Other Liabilities Other liabilities consist of the following: December 31, (in thousands) 2021 2020 Accounts payable $ 8,343 $ 1,819 Accrued compensation 36,417 32,681 Accrued expenses 36,464 17,830 Accrued interest 3,276 3,430 Amount due to whole loan buyer 14,062 6,781 Deferred tax liabilities 28,424 10,557 Current tax liabilities and other 8,372 5,947 Total other liabilities $ 135,358 $ 79,045 11. Stockholders' Equity Preferred Stock - The Board has the authority, without further action by the Company's stockholders, to issue up to 100,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the Board. There were no shares of undesignated preferred stock issued or outstanding as of December 31, 2021 or 2020. Common Stock - As of December 31, 2021 and 2020, the Company was authorized to issue 1,000,000,000 shares of common stock with a par value of $ 0.0001 per share. As of December 31, 2021, 32,276,419 and 32,004,396 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2020, 27,951,286 and 27,679,263 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. Warrants - On June 9, 2020, 10,972 shares of common stock were issued in connection with the cashless exercise of the outstanding common stock warrants. No warrants were outstanding as of December 31, 2021 or 2020. 77 12. Equity Compensation and Other Benefits 2019 Equity Incentive Plan We currently have one stockholder-approved plan from which we can issue stock-based awards, which was approved by our stockholders in fiscal year 2019 (the "2019 Plan"). The 2019 Plan became effective on September 25, 2019 and replaced the Amended and Restated 2005 Stock Option / Stock Issuance Plan and the 2015 Stock Option/Stock Issuance Plan (collectively, the “Previous Plans”). The Previous Plans solely exist to satisfy outstanding options previously granted under those plans. The 2019 Plan provides for the grant of incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based awards, and other awards (collectively, "awards"). ISOs may be granted only to the Company's employees, including officers, and the employees of its affiliates. All other awards may be granted to the employees, including officers, non-employee directors and consultants and the employees and consultants of the Company's affiliates. The maximum number of shares of our common stock that may be issued under the 2019 Plan will not exceed 8,733,812 shares, of which, 1,576,892 were available for future awards as of December 31, 2021. The number of shares of the Company's common stock reserved for issuance under its 2019 Plan will automatically increase on January 1 of each year for the remaining term of the plan, by 5 % of the total number of shares of its common stock outstanding on December 31 of the immediately preceding calendar year, or a lesser number of shares determined by the Board prior to the applicable January 1st. The shares available for issuance increased by 1,383,963 shares, on January 1, 2021, pursuant to the automatic share reserve increase provision. 2019 Employee Stock Purchase Plan In September 2019, the Board adopted, and stockholders approved, the Company's 2019 Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective on September 25, 2019. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward the Company's success and that of its affiliates. The ESPP includes two components. One component is designed to allow eligible U.S. employees to purchase common stock in a manner that may qualify for favorable tax treatment under Section 423 of the Code. In addition, purchase rights may be granted under a component that does not qualify for such favorable tax treatment when necessary or appropriate to permit participation by eligible employees who are foreign nationals or employed outside of the United States while complying with applicable foreign laws. The maximum aggregate number of shares of common stock that may be issued under the ESPP is 1,273,009 shares and as of December 31, 2021, no shares have been issued under the ESPP. The number of shares of the Company's common stock reserved for issuance under its ESPP will automatically increase on January 1 of each calendar year for the remaining term of the plan by the lesser of (1) 1 % of the total number of shares of its capital stock outstanding on December 31 of the preceding calendar year, (2) 726,186 shares, and (3) a number of shares determined by the Board. The shares available for issuance increased by 276,792 shares, on January 1, 2021, pursuant to the automatic share reserve increase provision. Generally, all regular employees, including executive officers, employed by the Company or by any of its designated affiliates, will be eligible to participate in the ESPP and may contribute, normally through payroll deductions, up to 15 % of their earnings (as defined in the ESPP) for the purchase of common stock under the ESPP. Unless otherwise determined by the Board, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85 % of the fair market value of a share of the Company's common stock on the first date of an offering or (b) 85 % of the fair market value of a share of the common stock on the date of purchase. 2021 Inducement Equity Incentive Plan Effective December 30, 2021, the Company adopted the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”), pursuant to which the Company reserved 655,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The maximum number of shares of our common stock that may be issued under the 2021 Inducement Plan will not exceed 655,000 shares, of which, 269,732 were available for future awards as of December 31, 2021. The 2021 Inducement Plan was approved by the Company’s Board without stockholder approval in accordance with such rule. Stock Options The term of an option may not exceed 10 years as determined by the Board, and each option generally vests over a four-year period with 25 % vesting on the first anniversary date of the grant and 1/36th of the remaining amount vesting at monthly intervals thereafter. Option holders are allowed to exercise unvested options to acquire restricted shares. Upon termination of employment, option holders have a period of up to three months in which to exercise any remaining vested options. The Company has the right to repurchase at the original purchase price any unvested but issued common shares upon termination of service. Unexercised options granted to participants who separate from the Company are forfeited and returned to the pool of stock options available for grant. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. 78 The fair value of stock option grants was estimated with the following assumptions: Year Ended December 31, 2021 2020 Expected volatility (employee) 62.5 % 50.7 % Risk-free interest rate (employee) 0.9 % 0.7 % Expected term (employee, in years) 6.1 6.1 Expected dividend — % — % These assumptions are defined as follows: • Expected Volatility ‑ Since the Company does not have enough trading history to use the volatility of its own common stock, the option’s expected volatility is estimated based on historical volatility of a peer group’s common stock. • Risk-Free Interest Rate‑ The risk-free interest rate is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. • Expected Term ‑ The option’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. • Expected Dividend - The Company has no plans to pay dividends. Stock Option Activity - A summary of the Company's stock option activity under the 2005 Plan, the 2015 Plan, and the 2019 Plan at December 31, 2021 is as follows: (in thousands, except share and per share data) Options Outstanding Options Weighted-Average Exercise Price Weighted Average Remaining Life (in years) Aggregate Intrinsic Value Balance – January 1, 2021 4,391,725 14.61 5.43 $ 26,059 Options granted 260,792 21.23 Options exercised ( 240,047 ) 13.63 Options canceled ( 97,084 ) 25.75 Options forfeited ( 127,531 ) 20.98 Balance – December 31, 2021 4,187,855 14.63 4.59 $ 27,011 Options vested and expected to vest - December 31, 2021 4,187,855 14.63 4.59 $ 27,011 Options vested and exercisable - December 31, 2021 3,437,729 13.48 3.79 $ 26,315 Information on stock options granted, exercised and vested is as follows: Year Ended December 31, (in thousands, except per share data) 2021 2020 Weighted average fair value per share of options granted $ 12.11 $ 9.10 Cash received from options exercised, net 3,272 216 Aggregate intrinsic value of options exercised 2,380 622 Fair value of shares vested 4,974 5,710 As of December 31, 2021 and 2020, the Company’s total unrecognized compensation cost related to nonvested stock-based option awards granted to employees was, $ 6.9 million and $ 9.5 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.2 years and 2.6 years, respectively. Restricted Stock Units The Company’s restricted stock units ("RSUs") vest upon the satisfaction of time-based criterion of up to four years . In most cases, the service-based requirement will be satisfied in installments as follows: 25 % of the total number of RSUs awarded will have the service-based requirement satisfied during the month in which the 12-month anniversary of the vesting commencement date occurs, and thereafter 1/16th of the total award in a series of 12 successive equal quarterly installments or 1/4th of the total award in a series of three successive equal annual installments following the first anniversary of the initial service vest date. Stock-based compensation cost for RSUs is measured based on the fair market value of the Company’s common stock on the date of grant. 79 As part of the merger consideration for the Digit acquisition, 501,906 shares of the Company’s restricted stock units were issued to certain Digit employees to replace the outstanding unvested stock options that were previously issued to the employees of Digit. The RSUs are subject to the same service-based requirements as the historical stock option grants. The Company awarded an additional 650,460 RSUs to certain Digit employees that vest upon satisfaction of time-based criterion of up to four years. For grants with a one -year vesting term, 50 % will vest on the six-month anniversary of the vesting commencement date with the balance vesting in two successive equal quarterly installments thereafter. For grants with a two -year vesting term, 25 % will vest on the six-month anniversary of the vesting commencement date with the balance vesting in six equal quarterly installments thereafter or 50 % will vest on the twelve-month anniversary of the vesting commencement date with the balance vesting in four successive equal quarterly installments thereafter. For grants with a three -year vesting term, 16.667 % will vest on the six-month anniversary of the vesting commencement date, with the balance vesting in ten successive equal quarterly installments thereafter. For grants with four -year vesting term, 12.5 % will vest on the six-month anniversary of the vesting commencement date, with the balance vesting in 14 successive equal quarterly installments thereafter. A summary of the Company’s RSU activity under the 2015 Plan, 2019 Plan and 2021 Inducement Plan for the year ended December 31, 2021 is as follows: RSU Outstanding Weighted Average Grant-Date Fair Value Balance – January 1, 2021 2,702,472 18.82 Granted 1,837,662 20.95 Vested (1) ( 862,708 ) 20.64 Forfeited ( 323,093 ) 19.19 Balance – December 31, 2021 3,354,333 19.48 Expected to vest after December 31, 2021 3,354,333 19.48 (1) The Company allows its Board of Directors to defer all or a portion of monetary remuneration paid to the Director. As of December 31, 2021, there were 10,120 restricted stock units vested for which the holders elected to defer delivery of the Company's shares. As of December 31, 2021 and 2020, the Company's total unrecognized compensation cost related to nonvested restricted stock unit awards granted to employees was, $ 54.1 million and $ 37.2 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.6 years and 2.9 years, respectively. Stock-based Compensation - Total stock-based compensation expense included in the Consolidated Statements of Operations, net of amounts capitalized to system development costs is as follows: Year Ended December 31, (in thousands of dollars) 2021 2020 Technology and facilities $ 2,844 $ 3,697 Sales and marketing 125 129 Personnel 15,888 15,662 Total stock-based compensation (1) $ 18,857 $ 19,488 (1) Amounts shown are net of $ 1.0 million and $ 1.0 million of capitalized stock-based compensation for the year ended December 31, 2021 and 2020, respectively. Cash flows from the tax shortfalls or benefits for tax deductions resulting from the exercise of stock options in comparison to the compensation expense recorded for those options are required to be classified as cash from financing activities. The total income tax expense (benefit) recognized in the income statement for share-based compensation arrangements was $( 0.2 ) million and $ 2.6 million for the years ended December 31, 2021 and 2020, respectively. Retirement Plan The Company maintains a 401(k) Plan, which enables employees to make pre-tax or post-tax deferral contributions to the participating employees account. Employees may contribute a portion of their pay up to the annual amount as set periodically by the Internal Revenue Service. The Company provides for an employer 401(k) contribution match of up to 4 % of an employee’s eligible compensation. The total amount contributed by the Company for the years ended December 31, 2021 and 2020 was $ 3.7 million and $ 2.9 million, respectively. All employee and employer contributions will be invested according to participants’ individual elections. The Company remits employee contributions to plan with each bi-weekly payroll. 13. Revenue 80 Interest Income - Total interest income included in the Consolidated Statements of Operations is as follows: Year Ended December 31, (in thousands) 2021 2020 Interest income Interest on loans $ 566,155 $ 538,544 Fees on loans 9,684 6,922 Total interest income $ 575,839 $ 545,466 Non-interest Income - Total non-interest income included in the Consolidated Statements of Operations is as follows: Year Ended December 31, (in thousands) 2021 2020 Non-interest income Gain on loan sales $ 26,750 $ 20,308 Servicing fees 13,253 15,264 Other income 10,940 2,696 Total non-interest income $ 50,943 $ 38,268 14. Income Taxes The following are the domestic and foreign components of the Company’s income before taxes: Year Ended December 31, (in thousands) 2021 2020 Domestic $ 61,087 $ ( 58,405 ) Foreign 1,704 311 Income (loss) before taxes $ 62,791 $ ( 58,094 ) The provision for income taxes consisted of the following: Year Ended December 31, (in thousands) 2021 2020 Current Federal $ ( 1,394 ) $ ( 1,547 ) State $ ( 516 ) $ 2,207 Foreign $ 836 $ 792 Total current $ ( 1,074 ) $ 1,452 Deferred Federal 11,005 ( 7,426 ) State 5,372 ( 6,885 ) Foreign 74 ( 153 ) Total deferred $ 16,451 $ ( 14,464 ) Total provision (benefit) for income taxes $ 15,377 $ ( 13,012 ) Income tax expense (benefit) was $ 15.4 million and $( 13.0 ) million for the years ended December 31, 2021 and 2020, which represents an effective tax rate of 24.5 % and 22.4 %, respectively. 81 A reconciliation of income tax expense with the amount computed by applying the statutory U.S. federal income tax rates to income before provision for income taxes is as follows: Year Ended December 31, (in thousands) 2021 2020 Income tax expense (benefit) computed at U.S. federal statutory rate $ 13,186 $ ( 12,200 ) State tax 4,646 ( 4,097 ) Foreign rate differential 552 573 Federal tax credits ( 1,962 ) ( 1,795 ) Share based compensation expense ( 353 ) 2,525 Change in unrecognized tax benefit reserves 853 1,993 Net operating loss carryback tax rate differential ( 172 ) ( 1,532 ) Return to provision adjustment ( 2,812 ) ( 277 ) US Base Erosion Anti-Abuse Tax (BEAT) — 1,333 Nondeductible acquisition costs 1,458 — Other ( 19 ) 465 Income tax expense $ 15,377 $ ( 13,012 ) Effective tax rate 24.5 % 22.4 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The primary components of the Company’s net deferred tax assets and liabilities are composed of the following: December 31, (in thousands) 2021 2020 Deferred tax assets: Accrued expenses and reserves $ 3,356 $ 4,007 Leases 12,859 13,427 Share-based compensation 7,410 6,824 Depreciation and amortization — 1,967 Fair value adjustment - Bonds Payable — 2,372 CARES Act payroll taxes 536 1,001 Net operating loss & credit carryforward 23,916 1,537 Total deferred tax assets $ 48,077 $ 31,135 Valuation allowance $ — $ — Deferred tax liabilities: System development costs $ ( 22,323 ) $ ( 7,482 ) Right of use assets ( 10,353 ) ( 12,653 ) Depreciation and amortization ( 7,112 ) — Fair value adjustment - Loans Receivable ( 30,718 ) ( 19,748 ) Fair value adjustment - Bonds Payable ( 1,838 ) — Other ( 234 ) ( 93 ) Total deferred tax liabilities ( 72,578 ) ( 39,976 ) Net deferred taxes $ ( 24,501 ) $ ( 8,841 ) As provided for in the Tax Cuts and Jobs Act of 2017, our historical earnings were subject to the one-time transition tax and can now be repatriated to the U.S. with a de minimis tax cost. The Company continues to assert that both its historical and current earnings in its foreign subsidiaries are permanently reinvested and therefore no deferred taxes have been provided. On December 22, 2021, the Company completed the acquisition of Digit, in which Digit became a wholly-owned subsidiary of the Company, triggering an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended. This transaction was considered a stock acquisition for tax purposes. On the transaction date, Digit estimated a $ 92.1 million federal net operating loss carryforward, all of which is available to offset future taxable income during the carryforward periods based on limitations under IRC Section 382. The Company also acquired state NOLs of $ 76.1 million. The Company has not recorded a valuation allowance as it believes that it is more likely than not that the deferred tax assets acquired will be realized. 82 As of December 31, 2021, the Company had federal net operating loss carryforwards of $ 91.0 million, of which $ 16.6 million expires beginning in 2034 and $ 74.4 million carries forward indefinitely. Additionally, the Company had state net operating loss carryforwards of $ 84.3 million which are set to begin expiring in 2031. As of December 31, 2021, the Company had California research and development tax credit carryforwards of $ 1.6 million, which are not subject to expiration. The following table summarizes the activity related to the unrecognized tax benefits: Year Ended December 31, (in thousands) 2021 2020 Balance as of January 1, $ 3,927 $ 1,933 Increases related to current year tax positions 680 563 Decreases related to current year tax positions — — Increases related to prior year tax positions 638 1,431 Decreases related to prior year tax positions ( 75 ) — Balance as of December 31, $ 5,170 $ 3,927 Interest and penalties related to the Company’s unrecognized tax benefits accrued as of December 31, 2021 and 2020 were $ 0.4 million and $ 0.3 million, respectively. The Company’s policy is to recognize interest and penalties associated with income taxes in income tax expense. The Company expects to release $ 0.4 million of uncertain tax positions within the next twelve months due to the expiration of various statute of limitations at the end of 2022. The total amount of unrecognized tax benefits, net of associated deferred tax benefit, that would impact the effective tax rate, if recognized, is $ 3.3 million. Due to the net operating loss carryforwards, the Company’s United States federal and significant state returns are open to examination by the Internal Revenue Service and state jurisdictions for years ended December 31, 2012 and 2013, respectively, and forward. For Mexico, all tax years ended December 31, 2016 and forward remain open for examination by the Mexico taxing authorities. For India, all tax years remain open for examination by the India taxing authorities. 15. Fair Value of Financial Instruments Financial Instruments at Fair Value The Company elected the fair value option for all loans receivable held for investment ("Fair Value Loans"), and for all asset-backed notes (the "Fair Value Notes"). Loans that the Company designates for sale will continue to be accounted for as held for sale and recorded at the lower of cost or fair value until the loans receivable are sold. In connection with Oportun's agreement with Metabank, N.A., the Company recognizes a derivative instrument related to excess interest proceeds it expects to receive on loans retained by Metabank. Based on the agreement entered into with MetaBank, for all loans originated and retained by MetaBank, MetaBank receives a fixed interest rate. Oportun bears the risk of credit loss and has the benefit of any excess interest proceeds after satisfying various obligations under the agreement. The balance of the derivative instrument is not considered in the tables below as the balance is considered immaterial as of December 31, 2021. The table below compares the fair value of loans receivable and asset-backed notes to their contractual balances as of the dates shown: December 31, 2021 December 31, 2020 (in thousands) Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value Assets Loans receivable $ 2,272,864 $ 2,386,807 $ 1,639,626 $ 1,696,526 Liabilities Asset-backed notes $ 1,654,412 $ 1,651,706 $ 1,154,419 $ 1,167,309 The Company calculates the fair value of the Fair Value Notes using independent pricing services and broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures. 83 The Company primarily uses a discounted cash flow model to estimate the fair value of Level 3 instruments based on the present value of estimated future cash flows. This model uses inputs that are inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. The following tables present quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for Loans Receivable at Fair Value. December 31, 2021 December 31, 2020 Minimum Maximum Weighted Average (3) Minimum Maximum Weighted Average (3) Remaining cumulative charge-offs (1) 6.75 % 51.86 % 9.60 % 7.83 % 61.26 % 10.03 % Remaining cumulative prepayments (1)(2) — % 44.25 % 32.47 % — % 38.92 % 31.11 % Principal payment rate (1)(2) — — 18.07 % — — — Average life (years) 0.22 1.51 0.86 0.17 1.29 0.80 Discount rate 6.90 8.35 6.94 % — — 6.85 % (1) Figure disclosed as a percentage of outstanding principal balance. (2) Remaining cumulative prepayments are estimated to calculate fair value on the unsecured and secured loan receivables and principal payment rates are estimated on the credit card receivables. (3) Unobservable inputs were weighted by outstanding principal balance, which are grouped by risk (type of borrower, original loan maturity terms) . Fair value adjustments related to financial instruments where the fair value option has been elected are recorded through earnings for the years ended December 31, 2021 and 2020. Certain unobservable inputs may (in isolation) have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. When multiple inputs are used within the valuation techniques for loans, a change in one input in a certain direction may be offset by an opposite change from another input. The Company developed an internal model to estimate the fair value of the Fair Value Loans. To generate future expected cash flows, the model combines receivable characteristics with assumptions about borrower behavior based on the Company’s historical loan performance. These cash flows are then discounted using a required rate of return that management estimates would be used by a market participant. The Company tested the unsecured personal loan fair value model by comparing modeled cash flows to historical loan performance to ensure that the model was complete, accurate and reasonable for the Company’s use. The Company also engaged a third party to create an independent fair value estimate for the Fair Value Loans, which provides a set of fair value marks using the Company’s historical loan performance data and whole loan sale prices to develop independent forecasts of borrower behavior. Their model generates expected cash flows which were then aggregated and compared to the Company’s actual cash flows within an acceptable range. The Company's internal valuation committee provides governance and oversight over the fair value pricing calculations and related financial statement disclosures. Additionally, this committee provides a challenge of the assumptions used and outputs of the model, including the appropriateness of such measures and periodically reviews the methodology and process to determine the fair value pricing. Any significant changes to the process must be approved by the committee. The table below presents a reconciliation of loans receivable at fair value on a recurring basis using significant unobservable inputs: December 31, (in thousands) 2021 2020 Balance – beginning of period $ 1,696,526 $ 1,882,088 Adjustment upon adoption of ASU 2019-05 — 43,323 Principal disbursements 2,052,280 1,215,872 Principal payments from borrowers ( 1,276,058 ) ( 1,230,729 ) Gross charge-offs ( 142,985 ) ( 188,480 ) Net increase (decrease) in fair value 57,044 ( 25,548 ) Balance ‑ end of period $ 2,386,807 $ 1,696,526 As of December 31, 2021, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 3.5 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 20.7 million. As of December 31, 2020, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 2.3 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 14.8 million. 84 Financial Instruments Disclosed But Not Carried at Fair Value The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy: December 31, 2021 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 130,959 $ 130,959 $ 130,959 $ — $ — Restricted cash 62,001 62,001 62,001 — — Loans held for sale (Note 5) 491 547 — — 547 Liabilities Accounts payable 8,343 8,343 8,343 — — Secured financing (Note 9) 398,000 396,081 — 396,081 — Acquisition financing (Note 9) 116,000 116,000 — 116,000 — December 31, 2020 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 136,187 $ 136,187 $ 136,187 $ — $ — Restricted cash 32,403 32,403 32,403 — — Loans held for sale (Note 5) 1,158 1,158 — — 1,158 Liabilities Accounts payable 1,819 1,819 1,819 — — Secured financing (Note 9) 246,994 245,077 — 245,077 — The Company uses the following methods and assumptions to estimate fair value: • Cash, cash equivalents, restricted cash and accounts payable ‑ The carrying values of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash and accounts payable, approximate Level 1 fair values of these financial instruments due to their short-term nature. • Loans held for sale ‑ The fair values of loans held for sale are based on a negotiated agreement with the purchaser. • Secured Financing and Acquisition Financing ‑ The fair value of the Secured financing - PLW has been calculated using discount rates based on the yields of comparable debt securities, which is a Level 2 input measure. As of December 31, 2021, the fair value of the Secured financing - CCW and the Acquisition Financing was par, because they were issued in December. There were no transfers in or out of Level 3 assets and liabilities for the years ended December 31, 2021 and 2020. 16. Leases, Commitments and Contingencies Leases - The Company’s leases are primarily for real property consisting of retail locations and office space and have remaining lease terms of 10 years or less. As a result of the retail network optimization plan, for the year ended December 31, 2021, we incurred $ 12.8 million in expenses related to retail location closures. $ 5.2 million of the expenses related to the retail location closures for the year ended December 31, 2021 relate to the accelerated amortization of right-of-use assets and the renegotiation of lease liabilities. The initial retail network optimization plan was substantially completed in the third quarter of 2021. Most of the Company’s existing lease arrangements are classified as operating leases. At the inception of a contract, the Company determines if the contract is or contains a lease. At the commencement date of a lease, the Company recognizes a lease liability equal to the present value of the lease payments and a right-of-use asset representing the Company's right to use the underlying asset for the duration of the lease term. The Company’s leases include options to extend or terminate the arrangement at the end of the original lease term. The Company generally does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. Variable lease payments and short-term lease costs were deemed immaterial. The Company’s leases do not provide an explicit rate. The Company uses its contractual borrowing rate to determine lease discount rates. 85 As of December 31, 2021, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows: (in thousands) Operating Leases Lease expense 2022 $ 14,927 2023 13,214 2024 11,142 2025 9,238 2026 3,387 Thereafter 706 Total lease payments 52,614 Imputed interest ( 4,030 ) Total leases $ 48,584 Sublease income 2022 $ ( 896 ) 2023 and thereafter — Total lease payments ( 896 ) Imputed interest 11 Total sublease income $ ( 885 ) Net lease liabilities $ 47,699 Weighted average remaining lease term 3.9 years Weighted average discount rate 4.01 % As of December 31, 2020, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows: (in thousands) Operating Leases Lease expense 2021 $ 15,788 2022 12,967 2023 10,881 2024 9,069 2025 6,989 Thereafter 1,641 Total lease payments 57,335 Imputed interest ( 5,247 ) Total leases $ 52,088 Sublease income 2021 $ ( 1,594 ) 2022 ( 896 ) 2023 and thereafter — Total lease payments ( 2,490 ) Imputed interest 86 Total sublease income $ ( 2,404 ) Net lease liabilities $ 49,684 Weighted average remaining lease term 4.3 years Weighted average discount rate 4.42 % Rental expenses under operating leases for the years ended December 31, 2021 and 2020 were $ 24.3 million and $ 20.8 million, respectively. Purchase Commitment ‑ The Company has commitments to purchase information technology and communication services in the ordinary course of business, with various terms through 2023. These amounts are not reflective of the Company’s entire anticipated purchases under the related agreements; rather, they are determined based on the non-cancelable amounts to which the Company is contractually obligated. The Company’s purchase obligations are $ 20.6 million in 2022, $ 12.9 million in 2023, $ 4.1 million in 2024, $ 1.4 million in 2025, and $ 0.0 million in 2026 and thereafter. 86 Credit Card Program and Servicing Agreement ‑ On February 5, 2021, the Company entered into a Receivables Retention Facility Agreement, a Servicing Agreement and other related documents with WebBank, providing it with additional funding to expand its credit card product (the "Retention Facility"). Under the Retention Facility agreements, WebBank originated, funded and retained credit card receivables up to $ 25.0 million, and further amended to temporarily increase the maximum size of the Retention Facility to $ 38.5 million. The Company purchased any excess receivables originated above the maximum size of the facility, in addition to certain ineligible receivables and charged-off receivables. Upon the closing of the CCW and in connection with the termination of the Retention Facility, the Company drew $ 41.0 million from the CCW to purchase such retained receivables. Bank Partnership Program and Servicing Agreement - The Company entered into a bank partnership program with MetaBank, N.A. on August 11, 2020. In accordance with the agreements underlying the bank partnership program, Oportun has a commitment to purchase an increasing percentage of program loans originated by MetaBank based on thresholds specified in the agreements. Lending under the partnership was launched in August of 2021 and as of December 31, 2021, the Company has a commitment to purchase an additional $ 2.5 million of program loans based on originations through December 31, 2021. Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor, which agreement was amended in March 2021 in which the term of the current agreement is set to expire on March 4, 2022. Pursuant to this agreement, the Company has a commitment to sell to a third-party institutional investor 10 % of its unsecured loan originations that satisfy certain eligibility criteria, and an additional 5 % at the Company’s sole option. For details regarding the whole loan sale program, refer to Note 5 , Loans Held for Sale . Access Loan Sale Program ‑ From July 2017 to August 2020, the Company was party to a separate whole loan sale arrangement with an institutional investor with a commitment to sell 100 % of the loans originated pursuant to the Company’s loan program for borrowers who do not meet the qualifications of its core loan origination program and service the sold loans. For details regarding this program, refer to Note 5 , Loans Held for Sale . Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at December 31, 2021 and 2020 were $ 39.8 million and $ 3.5 million, respectively. WebBank has a direct obligation to borrowers to fund such credit card commitments subject to the respective account agreements with such borrowers; however, pursuant to the Receivables Purchase Agreement between WebBank and Oportun, Inc., the Company has the obligation to purchase receivables from WebBank representing these unfunded amounts. Litigation Legal Proceedings Resolved in 2020 and 2021 On June 13, 2017, a complaint, captioned Atinar Capital II, LLC and James Gutierrez v. David Strohm, et. al., CGC 17-559515, was filed by plaintiffs James Gutierrez and Atinar Capital II, LLC (an LLC controlled by Gutierrez), in the Superior Court of the State of California, County of San Francisco, against certain of the Company's current and former directors and officers, and certain of the Company's stockholders alleging that the defendants breached their fiduciary duties, or aided and abetted such breaches, in connection with certain of the Company's convertible preferred stock financing rounds. In October 2020, the Company executed a settlement agreement and established an $ 8.8 million litigation reserve. On November 17, 2020, Company paid $ 5.8 million related to the settlement and the parties filed a stipulation of dismissal and order to dismiss all claims. As of December 31, 2020, the Company had a remaining liability of $ 3.0 million within Other liabilities on the Consolidated Balance Sheets as of December 31, 2020 which was paid in January 2021. The income statement impact of $ 8.8 million was recorded in General, administrative and other on the Consolidated Statements of Operations for the year ended December 31, 2020. On January 2, 2018, a complaint, captioned Opportune LLP v. Oportun, Inc. and Oportun, LLC, Civil Action No. 4:18-cv-00007 ("the Opportune Lawsuit") was filed by plaintiff Opportune LLP in the United States District Court for the Southern District of Texas, against the Company and its wholly-owned subsidiary, Oportun, LLC. The complaint alleged various claims for trademark infringement, unfair competition, trademark dilution and misappropriation against the Company and Oportun, LLC and called for injunctive relief requiring the Company and Oportun, LLC to cease using its marks, as well as monetary damages related to the claims. On December 10, 2021, the Company executed a settlement agreement to resolve the Opportune Lawsuit and dismiss all claims. Pursuant to the terms of the settlement agreement, the Company paid the plaintiff $ 8.5 million for the acquisition of any rights held by the plaintiff, and any associated goodwill, in the disputed trademarks necessary for Oportun to use the trademarks without any further threat of litigation. The Company capitalized the trademark rights based on the fair value at $ 5.5 million. The remaining $ 3.0 million had been reserved for in 2019 due to the ongoing negotiations; therefore, no expense was recorded for the year ended December 31, 2021. Of the remaining $ 3.0 million, $ 2.2 million had been recorded previously as an insurance recovery receivable, of which $ 2.0 million was received in January 2022. Regulatory Proceedings On March 3, 2021, the Company received a Civil Investigative Demand (CID) from the CFPB. The stated purpose of the CID is to determine whether small-dollar lenders or associated persons, in connection with lending and debt-collection practices, have failed to comply with certain federal consumer protection laws over which the CFPB has jurisdiction. The Company has received additional information requests related to the CID. The information requests are focused on the Company’s legal collection practices from 2019 to 2021 and hardship treatments offered to members during the COVID-19 pandemic. Digit received a CID from the CFPB in June 2020. The CID was disclosed and discussed during the acquisition process. The stated purpose of the CID is to determine whether Digit, in connection with offering its products or services, misrepresented the terms, conditions, or costs of the products or services in a manner that is unfair, deceptive, or abusive. 87 The Company, including Digit, are cooperating fully with the CFPB with respect to both of these matters and, although the Company believes that the business practices of the Company, including Digit, have been in full compliance with applicable laws, because the CFPB has broad authority to determine what it views as potential unfair, deceptive or abusive acts or practices, at this time, the Company is unable to predict the outcomes of these CFPB investigations. From time to time, the Company may bring or be subject to other legal proceedings and claims in the ordinary course of business, including legal proceedings with third parties asserting infringement of their intellectual property rights, consumer litigation, and regulatory proceedings. The Company is not presently a party to any other legal proceedings that, if determined adversely to the Company, would individually or taken together have a material adverse effect on its business, financial condition, cash flows or results of operations. 88 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.