Oportun Financial Corp 10-Q

Item 1. Financial Statements OPORTUN FINANCIAL CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share and per share data) June 30, December 31, 2022 2021 Assets Cash and cash equivalents $ 66,712 $ 130,959 Restricted cash 67,144 62,001 Loans receivable at fair value 2,854,594 2,386,807 Interest and fees receivable, net 27,740 20,916 Capitalized software and other intangibles, net 136,902 131,181 Goodwill 104,162 104,014 Right of use assets - operating 33,538 38,403 Other assets 59,230 72,344 Total assets $ 3,350,022 $ 2,946,625 Liabilities and stockholders' equity Liabilities Secured financing $ 505,727 $ 393,889 Asset-backed notes at fair value 1,935,842 1,651,706 Acquisition financing 113,951 114,092 Lease liabilities 42,362 47,699 Other liabilities 103,942 135,358 Total liabilities 2,701,824 2,342,744 Stockholders' equity Common stock, $ 0.0001 par value - 1,000,000,000 shares authorized at June 30, 2022 and December 31, 2021; 33,171,619 shares issued and 32,899,596 shares outstanding at June 30, 2022; 32,276,419 shares issued and 32,004,396 shares outstanding at December 31, 2021 7 6 Common stock, additional paid-in capital 534,148 526,338 Retained earnings 120,352 83,846 Treasury stock at cost, 272,023 shares at June 30, 2022 and December 31, 2021 ( 6,309 ) ( 6,309 ) Total stockholders’ equity 648,198 603,881 Total liabilities and stockholders' equity $ 3,350,022 $ 2,946,625 See Notes to the Condensed Consolidated Financial Statements. 3 OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue Interest income $ 207,655 $ 128,589 $ 399,892 $ 255,780 Non-interest income 18,147 9,665 40,630 17,787 Total revenue 225,802 138,254 440,522 273,567 Less: Interest expense 17,104 12,163 30,781 25,667 Net decrease in fair value ( 63,484 ) ( 5,902 ) ( 59,513 ) ( 17,470 ) Net revenue 145,214 120,189 350,228 230,430 Operating expenses: Technology and facilities 52,788 33,124 101,977 66,048 Sales and marketing 32,368 23,748 66,909 47,641 Personnel 38,629 28,546 74,555 55,373 Outsourcing and professional fees 17,165 14,789 31,492 27,414 General, administrative and other 16,936 10,179 30,297 20,176 Total operating expenses 157,886 110,386 305,230 216,652 Income (loss) before taxes ( 12,672 ) 9,803 44,998 13,778 Income tax expense (benefit) ( 3,515 ) 2,553 8,492 3,509 Net income (loss) $ ( 9,157 ) $ 7,250 $ 36,506 $ 10,269 Net income (loss) attributable to common stockholders $ ( 9,157 ) $ 7,250 $ 36,506 $ 10,269 Share data: Earnings (loss) per share: Basic $ ( 0.28 ) $ 0.26 $ 1.12 $ 0.37 Diluted $ ( 0.28 ) $ 0.24 $ 1.10 $ 0.34 Weighted average common shares outstanding: Basic 32,831,499 28,004,699 32,525,768 27,888,029 Diluted 32,831,499 30,050,847 33,241,681 29,836,089 See Notes to the Condensed Consolidated Financial Statements. 4 OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (in thousands, except share data) For the Six Months Ended June 30, 2022 Common Stock Shares Par Value Additional Paid-in Capital Retained Earnings Treasury Stock Total Stockholders' Equity Balance – January 1, 2022 32,004,396 $ 6 $ 526,338 $ 83,846 $ ( 6,309 ) $ 603,881 Issuance of common stock upon exercise of stock options 505,945 1 ( 4,749 ) — — ( 4,748 ) Stock-based compensation expense — — 7,467 — — 7,467 Vesting of restricted stock units, net of shares withheld 296,552 — ( 2,327 ) — — ( 2,327 ) Net income — — — 45,663 — 45,663 Balance – March 31, 2022 32,806,893 $ 7 $ 526,729 $ 129,509 $ ( 6,309 ) $ 649,936 Issuance of common stock upon exercise of stock options 32,345 — 78 — — 78 Repurchase of stock options ( 2,706 ) — ( 28 ) — — ( 28 ) Stock-based compensation expense — — 7,642 — — 7,642 Vesting of restricted stock units, net of shares withheld 63,064 — ( 273 ) — — ( 273 ) Net loss — — — ( 9,157 ) — ( 9,157 ) Balance – June 30, 2022 32,899,596 $ 7 $ 534,148 $ 120,352 $ ( 6,309 ) $ 648,198 See Notes to the Condensed Consolidated Financial Statements. 5 OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (in thousands, except share data) For the Six Months Ended June 30, 2021 Common Stock 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 33,526 — 307 — — 307 Stock-based compensation expense — — 5,088 — — 5,088 Vesting of restricted stock units, net 261,794 — ( 2,794 ) — — ( 2,794 ) Net income — — — 3,019 — 3,019 Balance – March 31, 2021 27,974,583 $ 6 $ 439,100 $ 39,451 $ ( 6,309 ) $ 472,248 Issuance of common stock upon exercise of stock options 10,114 — 159 — — 159 Stock-based compensation expense — — 5,366 — — 5,366 Vesting of restricted stock units, net 49,227 — ( 442 ) — — ( 442 ) Net income — — — 7,250 — 7,250 Balance – June 30, 2021 28,033,924 $ 6 $ 444,183 $ 46,701 $ ( 6,309 ) $ 484,581 See Notes to the Condensed Consolidated Financial Statements. 6 OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Cash Flow (Unaudited) (in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net income $ 36,506 $ 10,269 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,340 14,701 Fair value adjustment, net 59,513 17,470 Origination fees for loans receivable at fair value, net ( 11,351 ) ( 6,677 ) Gain on loan sales ( 5,714 ) ( 9,755 ) Stock-based compensation expense 13,702 10,454 Other, net 20,732 29,242 Originations of loans sold and held for sale ( 48,972 ) ( 75,023 ) Proceeds from sale of loans 55,064 84,474 Changes in other assets and other liabilities ( 50,178 ) ( 21,317 ) Net cash provided by operating activities 91,642 53,838 Cash flows from investing activities Originations of loans ( 1,560,495 ) ( 595,849 ) Proceeds from loan sales originated as held for investment 247,230 — Repayments of loan principal 700,968 552,675 Capitalization of system development costs ( 23,580 ) ( 12,132 ) Other, net ( 2,147 ) ( 1,845 ) Net cash used in investing activities ( 638,024 ) ( 57,151 ) Cash flows from financing activities Borrowings under secured financing 1,331,000 150,000 Borrowings under asset-backed notes and acquisition financing 404,984 867,462 Repayments of secured financing ( 1,220,000 ) ( 396,994 ) Repayments of asset-backed notes and acquisition financing ( 21,093 ) ( 425,005 ) Payments of deferred financing costs ( 314 ) — Net payments related to stock-based activities ( 7,299 ) ( 2,771 ) Net cash provided by financing activities 487,278 192,692 Net increase (decrease) in cash and cash equivalents and restricted cash ( 59,104 ) 189,379 Cash and cash equivalents and restricted cash, beginning of period 192,960 168,590 Cash and cash equivalents and restricted cash, end of period $ 133,856 $ 357,969 Supplemental disclosure of cash flow information Cash and cash equivalents $ 66,712 $ 138,429 Restricted cash 67,144 219,540 Total cash and cash equivalents and restricted cash $ 133,856 $ 357,969 Cash paid for income taxes, net of refunds $ ( 3,377 ) $ 1,809 Cash paid for interest $ 27,032 $ 25,588 Cash paid for amounts included in the measurement of operating lease liabilities $ 7,772 $ 9,520 Supplemental disclosures of non-cash investing and financing activities Right of use assets obtained in exchange for operating lease obligations $ 1,862 $ 5,187 Non-cash investments in capitalized assets $ 1,852 $ 806 See Notes to the Condensed Consolidated Financial Statements. 7 OPORTUN FINANCIAL CORPORATION Notes to the Condensed Consolidated Financial Statements (Unaudited) June 30, 2022 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 views as its 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. The Company's 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 accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements are unaudited and reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The condensed 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. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 1, 2022. Use of Estimates ‑ The preparation of the condensed 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 condensed 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 condensed consolidated financial statements; therefore, actual results could differ from those estimates and assumptions. Accounting Policies - There have been no changes to the Company's significant accounting policies from those described in Part II, Item 8 - Financial Statements and Supplementary Data in the Annual Report, except for the new accounting pronouncements subsequently adopted as noted below. Recently Adopted Accounting Standards None. 8 3. Earnings (Loss) per Share Basic and diluted earnings (loss) per share are calculated as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except share and per share data) 2022 2021 2022 2021 Net income (loss) $ ( 9,157 ) $ 7,250 $ 36,506 $ 10,269 Net income (loss) attributable to common stockholders $ ( 9,157 ) $ 7,250 $ 36,506 $ 10,269 Basic weighted-average common shares outstanding 32,831,499 28,004,699 32,525,768 27,888,029 Weighted average effect of dilutive securities: Stock options — 1,327,358 453,695 1,301,088 Restricted stock units — 718,790 262,218 646,972 Diluted weighted-average common shares outstanding 32,831,499 30,050,847 33,241,681 29,836,089 Earnings (loss) per share: Basic $ ( 0.28 ) $ 0.26 $ 1.12 $ 0.37 Diluted $ ( 0.28 ) $ 0.24 $ 1.10 $ 0.34 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: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock options 3,587,839 2,268,423 2,897,171 2,545,604 Restricted stock units 4,705,012 — 2,852,608 22,653 Total anti-dilutive common share equivalents 8,292,851 2,268,423 5,749,779 2,568,257 4. Variable Interest Entities Variable interest entities ("VIEs") are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of equity investment at risk lack the ability to direct the entity's activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity. For all VIEs in which we are involved, we assess whether we are the primary beneficiary of the VIE on an ongoing basis. In circumstances where we have both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive the benefits of the VIE that could be significant, we would conclude that we are the primary beneficiary of the VIE, and we consolidate the VIE. In situations where we are not deemed to be the primary beneficiary of the VIE, we do not consolidate the VIE and only recognize our interests in the VIE. Consolidated VIEs 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. For these VIEs where the Company has determined that it is the primary beneficiary 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 the VIEs assets and related liabilities are consolidated with the results of the Company. 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 in the form of an asset-backed certificate. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its condensed consolidated financial statements. Each consolidated 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 lenders 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 a defaulted loans receivable. 9 The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited): June 30, December 31, (in thousands) 2022 2021 Consolidated VIE assets Restricted cash $ 52,564 $ 41,803 Loans receivable at fair value 2,780,536 2,267,205 Interest and fee receivable 27,132 19,869 Total VIE assets 2,860,232 2,328,877 Consolidated VIE liabilities Secured financing (1) 509,000 398,000 Asset-backed notes at fair value 1,935,842 1,651,706 Acquisition financing (1) 115,814 116,000 Total VIE liabilities $ 2,560,656 $ 2,165,706 (1) Amounts exclude deferred financing costs. See Note 9, Borrowings for additional information. 5. Loans Held for Sale and Loans Sold Structured Loan Sales - On March 31, 2022, the Company participated in a securitization whereby the Company and funds managed by Ellington Management Group both contributed collateral and were co-sponsors of the transaction, which totaled $ 400.0 million in issued asset-backed notes. As part of the securitization, the Company sold loans to OPTN Funding Grantor Trust 2022-1 ("Grantor Trust") through the issuance of amortizing asset-backed notes secured by a pool of its unsecured and secured personal installment loans. The Company also sold its share of the residual interest in the pool (collectively referred to as the "2022-1 transaction"). The Company's continued involvement in the unconsolidated VIEs is in the form of servicer of these loans. The Company does not have variable interest in the Grantor Trust or the issuer established for this transaction. The sold loans were accounted for under the fair value option and had an aggregate unpaid principal balance of approximately $ 227.6 million, a cumulative fair value mark of $ 15.9 million and unpaid interest of $ 1.5 million. The Company received $ 245.0 million of net proceeds and by selling both its notes and residual interest, the Company derecognized these loans from its Consolidated Balance Sheets. Other Loan Sales - In April 2022, the Company entered into an agreement with an institutional investor to sell a population of loans ("Q2 2022 Loan Sale"). The sold loans were accounted for under the fair value option and had an aggregate unpaid principal balance of approximately $ 14.7 million, a cumulative fair value mark of $( 14.1 ) million and unpaid interest and fees of $ 1.6 million. The Company received $ 2.2 million of net proceeds. The Q2 2022 Loan Sale qualified for sale accounting treatment and the Company derecognized these loans from its Consolidated Balance Sheets. Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor. Pursuant to the agreement, the Company sold at least 10 % of its unsecured loan originations, with an option to sell an additional 5 %, subject to certain eligibility criteria and minimum and maximum volumes. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022. The originations of loans sold and held for sale during the three months ended June 30, 2022 was insignificant. Servicing revenue during the same time period was $ 6.3 million. The gain on sale recorded during the three months ended June 30, 2022 was insignificant as a result of our whole loan sale agreement expiring on March 4, 2022. The originations of loans sold and held for sale during the three months ended June 30, 2021 was $ 41.6 million and the Company recorded a gain on sale of $ 5.3 million and servicing revenue of $ 3.0 million. The originations of loans sold and held for sale during the six months ended June 30, 2022 related to our loan sale program was $ 49.0 million and the Company recorded a gain on sale of $ 5.7 million and servicing revenue of $ 10.3 million. The originations of loans sold and held for sale during the six months ended June 30, 2021 was $ 75.0 million and the Company recorded a gain on sale of $ 9.8 million and servicing revenue of $ 6.0 million. 6. Acquisition On December 22, 2021, the Company completed its acquisition of Hello Digit, Inc. (or "Digit"). Digit is a digital banking platform that provides automated savings, banking and investing 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 further expanded its A.I. and digital banking capabilities, adding to its services to provide its members a holistic offering built to address their financial needs. The total consideration the Company provided for Digit, which consisted of cash and equity, was approximately $ 205.3 million. The Company recognized acquisition and integration related costs of approximately $ 6.9 million in the three months ended June 30, 2022 and $ 14.2 million in the six months ended June 30, 2022 which are included in the General, administrative and other expense in the Condensed Consolidated Statements of Operations (Unaudited). 10 7. Capitalized Software, Other Intangibles and Goodwill Capitalized software, net consists of the following: June 30, December 31, (in thousands) 2022 2021 Capitalized software, net: System development costs $ 109,802 $ 84,550 Acquired developed technology 48,500 48,500 Less: Accumulated amortization ( 61,073 ) ( 45,433 ) Total capitalized software, net $ 97,229 $ 87,617 Capitalized software, net Amortization of system development costs and acquired developed technology for three months ended June 30, 2022 and 2021 was $ 8.2 million and $ 3.9 million, respectively. System development costs capitalized in the three months ended June 30, 2022 and 2021 were $ 14.2 million and $ 6.6 million, respectively. Amortization of system development costs and acquired developed technology for six months ended June 30, 2022 and 2021 was $ 15.6 million and $ 7.4 million, respectively. System development costs capitalized in the six months ended June 30, 2022 and 2021 were $ 25.4 million and $ 12.4 million, respectively. Acquired developed technology was $ 48.5 million and is related to the acquisition of Digit on December 22, 2021. Intangible Assets The gross carrying amount and accumulated amortization, in total and by major intangible asset class are as follows: June 30, December 31, (in thousands) 2022 2021 Intangible assets: Member relationships $ 34,500 $ 34,500 Trademarks 6,426 6,364 Other 3,000 3,000 Less: Accumulated amortization ( 4,253 ) ( 300 ) Total intangible assets, net $ 39,673 $ 43,564 Amortization of intangible assets for the three months ended June 30, 2022 was $ 2.0 million. There were no intangible assets subject to amortization for the three months ended June 30, 2021. Amortization of intangible assets for the six months ended June 30, 2022 was $ 4.0 million. There were no intangible assets subject to amortization for the six months ended June 30, 2021. Expected future amortization expense for intangible assets as of June 30, 2022 is as follows: (in thousands) Fiscal Years 2022 (remaining six months) $ ( 3,996 ) 2023 ( 7,949 ) 2024 ( 7,798 ) 2025 ( 4,929 ) 2026 ( 4,929 ) 2027 ( 4,929 ) Thereafter ( 4,780 ) Total $ ( 39,310 ) Goodwill The Company recorded goodwill of $ 104.0 million arising from the acquisition of Digit on December 22, 2021. During the three months ended June 30, 2022, the Company recorded no adjustments to goodwill. During the six months ended June 30, 2022, the Company recorded $ 0.1 million adjustments to goodwill. There was no impairment for the periods presented. 11 8. Other Assets Other assets consist of the following: June 30, December 31, (in thousands) 2022 2021 Fixed assets Total fixed assets $ 44,333 $ 44,100 Less: Accumulated depreciation ( 35,096 ) ( 34,185 ) Total fixed assets, net $ 9,237 $ 9,915 Other Assets Loans held for sale 114 491 Prepaid expenses 20,361 25,355 Deferred tax assets 3,998 3,923 Current tax assets 7,985 13,330 Other 17,535 19,330 Total other assets $ 59,230 $ 72,344 Fixed Assets Depreciation and amortization expense for the three months ended June 30, 2022 and 2021 was $ 1.3 million and $ 3.9 million, respectively, and for the six months ended June 30, 2022 and 2021 it was $ 2.6 million, and $ 7.3 million, respectively. 9. Borrowings The following table presents information regarding the Company's Secured Financing facilities: June 30, 2022 December 31, 2021 Variable Interest Entity Facility Amount Maturity Date (1) Interest Rate Balance Balance (in thousands) Oportun CCW Trust (1) $ 150,000 December 1, 2023 Variable (1) $ 79,339 $ 40,108 Oportun PLW Trust 600,000 September 1, 2024 LIBOR (minimum of 0.00 %) + 2.17 % 426,388 353,781 Total secured financing $ 750,000 $ 505,727 $ 393,889 (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. The following table presents information regarding asset-backed notes: June 30, 2022 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 2022-A) $ 400,000 $ 410,211 $ 384,896 $ 422,897 5.36 % 2 years Oportun Issuance Trust (Series 2021-C) 500,000 512,762 456,610 520,998 2.48 % 3 years Oportun Issuance Trust (Series 2021-B) 500,000 512,759 464,656 521,243 2.05 % 3 years Oportun Funding XIV, LLC (Series 2021-A) 375,000 383,632 352,259 391,176 1.79 % 2 years Oportun Funding XIII, LLC (Series 2019-A) 279,412 294,118 277,421 299,301 3.46 % 3 years Total asset-backed notes recorded at fair value $ 2,054,412 $ 2,113,482 $ 1,935,842 $ 2,155,615 12 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 (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: June 30, 2022 December 31, 2021 Variable Interest Entity Original Balance (1) Maturity Date Interest Rate (2) Balance Balance (in thousands) Oportun RF, LLC $ 116,000 October 1, 2024 SOFR (minimum of 0.00 %) + 8.00 % $ 113,951 $ 114,092 (1) The Acquisition Financing Facility was amended on May 24, 2022 and upsized for an additional $ 20.9 million. (2) The interest rate on the Acquisition Financing facility was LIBOR (minimum of 0.00 %) plus 8.00 % as of December 31, 2021. On May 24, 2022 the Company completed the issuance of $ 400.0 million of two-year asset-backed notes in a private asset-backed securitization secured by a pool of its unsecured and secured personal installment loans (the “2022-A Securitization”). The 2022-A Securitization included four classes of fixed rate notes: Class A, Class B, Class C and Class D notes. The Class A, Class B and Class C notes were priced with a weighted average yield of 5.68 % per annum. The Class D notes were initially retained by an affiliate of the Company and subsequently sold to third parties on July 28, 2022. Also on May 24, 2022, pursuant to an amended indenture, Oportun RF, LLC, a wholly owned subsidiary of the Company issued an additional $ 20.9 million asset-backed floating rate variable funding note, and an asset-backed residual certificate, both of which were initially secured by Class D Notes and residual cash flows from the Company's 2022-A Securitization and guaranteed by Oportun, Inc. The amendment also replaced the Acquisition Financing interest rate based on LIBOR with an interest rate based on the secured overnight financing rate (“SOFR”). The notes bear interest at a rate of SOFR plus 8.00 %. The amendment did not modify the maturity date of the Acquisition Financing facility, it is still scheduled to pay down based on an amortization schedule with a final payment in October 2024. On July 28, 2022, Oportun RF, LLC further amended the indenture to incorporate the transfer of certain residual certificates and notes from and to Oportun RF, LLC and increasing the size of the Acquisition Financing facility to $119.5 million. On July 22, 2022 the Company completed the issuance of $ 400.0 million of Series 2022-2 fixed rate asset-backed notes in a private asset-backed securitization transaction secured by a pool of unsecured and secured installment loans. The notes were priced with a weighted average yield of 8.00 % per annum and weighted average interest rate of 7.77 % per annum. As of June 30, 2022, and December 31, 2021, the Company was in compliance with all covenants and requirements of the Secured Financing and Acquisition Financing facilities and asset-backed notes. 10. Other Liabilities Other liabilities consist of the following: June 30, December 31, (in thousands) 2022 2021 Accounts payable $ 5,690 $ 8,343 Accrued compensation 13,404 36,417 Accrued expenses 31,133 36,464 Accrued interest 6,187 3,276 Amount due to whole loan buyer 2,342 14,062 Deferred tax liabilities 34,731 28,424 Current tax liabilities and other 10,455 8,372 Total other liabilities $ 103,942 $ 135,358 13 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 June 30, 2022 or December 31, 2021. Common Stock - As of June 30, 2022 and December 31, 2021, 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 June 30, 2022, 33,171,619 and 32,899,596 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. 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. 12. Equity Compensation and Other Benefits The Company's stock-based plans are described and informational disclosures are provided in the Notes to the Consolidated Financial Statements included in the Annual Report. Stock-based Compensation - Total stock-based compensation expense included in the Condensed Consolidated Statements of Operations (Unaudited), net of amounts capitalized to system development costs is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Technology and facilities $ 1,567 $ 764 $ 3,435 $ 1,488 Sales and marketing 38 37 69 69 Personnel 5,324 4,312 10,198 8,379 Total stock-based compensation (1) $ 6,929 $ 5,113 $ 13,702 $ 9,936 (1) Amounts shown are net of $ 0.7 million and $ 1.4 million of capitalized stock-based compensation for the three and six months ended June 30, 2022, respectively, and net of $ 0.3 million and $ 0.5 million of capitalized stock-based compensation for the three and six months ended June 30, 2021, respectively. As of June 30, 2022, and December 31, 2021, the Company’s total unrecognized compensation cost related to nonvested stock-based option awards granted to employees was $ 8.2 million and $ 6.9 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.8 years and 2.2 years, respectively. As of June 30, 2022 and December 31, 2021, the Company's total unrecognized compensation cost related to nonvested restricted stock unit awards granted to employees was $ 66.6 million and $ 54.1 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.9 years and 2.6 years, 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 recognized in the income statement for stock-based compensation arrangements for the three and six months ended June 30, 2022 was $ 0.2 million and $ 0.9 million, respectively. The total income tax expense recognized in the income statement for stock-based compensation arrangements for the three and six months ended June 30, 2021 was insignificant. 13. Revenue Interest Income - Total interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Interest income Interest on loans $ 201,904 $ 127,280 $ 389,291 $ 252,962 Fees on loans 5,751 1,309 10,601 2,818 Total interest income 207,655 128,589 399,892 255,780 14 Non-interest Income - Total non-interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Non-interest income Gain on loan sales $ ( 1 ) $ 5,321 $ 5,714 $ 9,755 Servicing fees 6,321 2,963 10,278 6,041 Other income 11,827 1,381 24,638 1,991 Total non-interest income $ 18,147 $ 9,665 $ 40,630 $ 17,787 14. Income Taxes For the three and six months ended June 30, 2022 and 2021, the Company calculates its year-to-date income tax expense (benefit) by applying the estimated annual effective tax rate to the year-to-date income from operations before income taxes and adjusts the income tax expense (benefit) for discrete tax items recorded in the period. During the three and six months ended June 30, 2022, the Company recorded income tax expense (benefit) of $( 3.5 ) million and $ 8.5 million, respectively, related to continuing operations, representing an effective income tax rate of 27.7 % and 18.9 %, respectively. Income tax expense for the three and six months ended June 30, 2021 was $ 2.6 million and $ 3.5 million, respectively, representing an effective income tax rate of 26.0 % and 25.5 %, respectively. Our effective tax rates for the three and six months ended June 30, 2022 and 2021 differ from the statutory tax rates primarily due to the impacts of the research and development tax credit and a one-time exercise of stock-based awards. 15. Fair Value of Financial Instruments Financial Instruments at Fair Value The table below compares the fair value of loans receivable and asset-backed notes to their contractual balances for the periods shown: June 30, 2022 December 31, 2021 (in thousands) Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value Assets Loans receivable $ 2,792,193 $ 2,854,594 $ 2,272,864 $ 2,386,807 Liabilities Asset-backed notes 2,043,158 1,935,842 1,654,412 1,651,706 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 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. June 30, 2022 December 31, 2021 Minimum Maximum Weighted Average (3) Minimum Maximum Weighted Average Remaining cumulative charge-offs (1) 6.26 % 48.36 % 11.25 % 6.75 % 51.86 % 9.60 % Remaining cumulative prepayments (1)(2) — 40.07 % 31.93 % — 44.25 % 32.47 % Principal payment rate (1)(2) — % — % 17.52 % — % — % 18.07 % Average life (years) 0.05 1.55 0.90 0.22 1.51 0.86 Discount rate 8.88 10.94 8.97 % 6.90 8.35 6.94 % (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 customer, 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 six months ended June 30, 2022 and 2021. 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. 15 The Company developed internal models to estimate the fair value of loans receivable held for investment. To generate future expected cash flows, the models combine 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 fair value models by comparing modeled cash flows to historical loan performance to ensure that the models were complete, accurate and reasonable for the Company’s use. The Company also engaged a third party to create an independent fair value estimate for substantially all Loans Receivable at Fair Value, 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: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2022 2021 2022 2021 Balance – beginning of period $ 2,450,987 $ 1,670,251 $ 2,386,807 $ 1,696,526 Principal disbursements 940,116 379,463 1,719,835 688,472 Principal payments from customers ( 436,028 ) ( 308,371 ) ( 1,072,072 ) ( 624,258 ) Gross charge-offs ( 65,876 ) ( 32,238 ) ( 128,434 ) ( 73,197 ) Net increase (decrease) in fair value ( 34,605 ) 17,809 ( 51,542 ) 39,371 Balance – end of period $ 2,854,594 $ 1,726,914 $ 2,854,594 $ 1,726,914 As of June 30, 2022, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 3.1 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 25.3 million. 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. 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: June 30, 2022 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 66,712 $ 66,712 $ 66,712 $ — $ — Restricted cash 67,144 67,144 67,144 — — Liabilities Accounts payable 5,690 5,690 5,690 — — Secured financing (Note 9) 509,000 492,362 — 492,362 — Acquisition financing (Note 9) 115,814 115,814 — 115,814 — 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 — The Company uses the following methods and assumptions to estimate fair value: 16 • 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 values of the secured financing and acquisition financing facilities have been calculated using discount rates equivalent to the weighted-average market yield of comparable debt securities, which is a Level 2 input measure. There were no transfers in or out of Level 3 assets and liabilities for the three and six months ended June 30, 2022 and 2021 and the year ended December 31, 2021. 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. During the first quarter of 2022, we made the decision to close an additional 27 retail locations in April 2022 and we have incurred $ 1.2 million and $ 1.4 million for the three and six months ended June 30, 2022 in expenses related to the accelerated amortization of right of use assets. The Company has elected the practical expedient to keep leases with terms of 12 months or less off the balance sheet as no recognition of a lease liability and a right-of-use asset is required. Operating lease expense is recognized on a straight-line basis over the lease term in "Technology and facilities" in the Condensed Consolidated Statements of Operations (Unaudited). All 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. As of June 30, 2022, 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 (remaining six months) $ 7,375 2023 13,362 2024 11,331 2025 9,386 2026 3,463 2027 640 Thereafter 7 Total lease payments 45,564 Imputed interest ( 3,202 ) Total leases $ 42,362 Sublease income 2022 (remaining six months) $ — 2023 and thereafter — Total lease payments — Imputed interest — Total sublease income $ — Net lease liabilities $ 42,362 Weighted average remaining lease term 3.5 years Weighted average discount rate 3.97 % 17 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 % Rental expenses under operating leases for the three and six months ended June 30, 2022, were $ 5.7 million, and $ 10.1 million, respectively, and for the three and six months ended June 30, 2021, were $ 6.2 million, and $ 15.6 million, respectively. Purchase Commitments ‑ The Company has commitments to purchase information technology and communication services in the ordinary course of business, with various terms through 2026. 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 $ 12.8 million for the remainder of 2022, $ 11.3 million in 2023, $ 4.7 million in 2024, $ 1.8 million in 2025 and $ 0.0 million in 2026 and thereafter. Bank Partnership Program and Servicing Agreement - The Company entered into a bank partnership program with Pathward, N.A. (formerly known as 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 Pathward based on thresholds specified in the agreements. Lending under the partnership was launched in August of 2021 and as of June 30, 2022, the Company has a commitment to purchase an additional $ 1.2 million of program loans based on originations through June 30, 2022. Whole Loan Sale Program ‑ Through March 4, 2022, the Company had 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. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on March 4, 2022. For details regarding the whole loan sale program, refer to Note 5, Loans Held for Sale and Loans Sold . Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at June 30, 2022 and December 31, 2021 were $ 58.5 million and $ 39.8 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 2021 For legal proceedings resolved in 2021, please refer to Note 16 of the Notes to the Consolidated Financial Statements in the Company's Form 10-K filed on March 1, 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 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. The Company is cooperating fully with the CFPB with respect to this matter and the Company believes that its 18 business practices have been in full compliance with applicable laws. Because the CFPB has broad authority to determine what it views as potentially unfair, deceptive or abusive acts or practices, at this time, the Company is unable to predict the outcome of the Oportun investigation. 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. The Company, including Digit, have cooperated fully with the CFPB with respect to this matter and, while the Company believes that the business practices of the Company, including Digit, have been in full compliance with applicable laws, the Company and the CFPB have reached an agreement in principle with respect to resolution of the Digit matter. The settlement will include a civil monetary penalty and the Company has established a reserve of approximately $ 2.8 million that was recorded in the Condensed Consolidated Statements of Operations (Unaudited) for the six months ended June 30, 2022. 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. See Part II. Item 1. Legal Proceedings for additional information regarding legal proceedings in which the Company is involved. 19