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) March 31, December 31, 2023 2022 Assets Cash and cash equivalents $ 74,075 $ 98,817 Restricted cash 127,846 105,000 Loans receivable at fair value 3,012,726 3,143,653 Interest and fees receivable, net 31,752 31,796 Capitalized software and other intangibles, net 137,856 139,801 Right of use assets - operating 28,708 30,448 Other assets 89,094 64,180 Total assets $ 3,502,057 $ 3,613,695 Liabilities and stockholders' equity Liabilities Secured financing $ 403,225 $ 317,568 Asset-backed notes at fair value 2,300,201 2,387,674 Acquisition and corporate financing 232,316 222,879 Lease liabilities 35,669 37,947 Other liabilities 74,500 100,028 Total liabilities 3,045,911 3,066,096 Stockholders' equity Common stock, $ 0.0001 par value - 1,000,000,000 shares authorized at March 31, 2023 and December 31, 2022; 34,156,369 shares issued and 33,884,346 shares outstanding at March 31, 2023; 33,626,630 shares issued and 33,354,607 shares outstanding at December 31, 2022 7 7 Common stock, additional paid-in capital 558,436 547,799 Retained earnings (deficit) ( 95,988 ) 6,102 Treasury stock at cost, 272,023 shares at March 31, 2023 and December 31, 2022 ( 6,309 ) ( 6,309 ) Total stockholders’ equity 456,146 547,599 Total liabilities and stockholders' equity $ 3,502,057 $ 3,613,695 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 March 31, 2023 2022 Revenue Interest income $ 237,619 $ 192,237 Non-interest income 21,893 22,483 Total revenue 259,512 214,720 Less: Interest expense 38,997 13,677 Net increase (decrease) in fair value ( 215,710 ) 3,971 Net revenue 4,805 205,014 Operating expenses: Technology and facilities 56,874 49,189 Sales and marketing 19,182 34,541 Personnel 37,318 35,926 Outsourcing and professional fees 13,802 14,327 General, administrative and other 19,162 13,361 Total operating expenses 146,338 147,344 Income (loss) before taxes ( 141,533 ) 57,670 Income tax expense (benefit) ( 39,443 ) 12,007 Net income (loss) $ ( 102,090 ) $ 45,663 Net income (loss) attributable to common stockholders $ ( 102,090 ) $ 45,663 Share data: Earnings (loss) per share: Basic $ ( 3.00 ) $ 1.42 Diluted $ ( 3.00 ) $ 1.37 Weighted average common shares outstanding: Basic 33,979,050 32,216,641 Diluted 33,979,050 33,323,134 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 Three Months Ended March 31, 2023 Common Stock Warrants Shares Par Value Additional Paid-in Capital Shares Additional Paid-in Capital Retained Earnings Treasury Stock Total Stockholders' Equity Balance – January 1, 2023 33,354,607 $ 7 $ 547,799 $ — $ — $ 6,102 $ ( 6,309 ) $ 547,599 Stock-based compensation expense — — 5,329 — — — — 5,329 Vesting of restricted stock units, net of shares withheld 529,739 — ( 1,364 ) — — — — ( 1,364 ) Issuance of warrants to purchase common stock in connection with debt financing — — — 2,096,727 6,672 — — 6,672 Net loss — — — — — ( 102,090 ) — ( 102,090 ) Balance – March 31, 2023 33,884,346 $ 7 $ 551,764 2,096,727 $ 6,672 $ ( 95,988 ) $ ( 6,309 ) $ 456,146 See Notes to the Condensed Consolidated Financial Statements. OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (in thousands, except share data) For the Three Months Ended March 31, 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 See Notes to the Condensed Consolidated Financial Statements. 5 OPORTUN FINANCIAL CORPORATION Condensed Consolidated Statements of Cash Flow (Unaudited) (in thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities Net income (loss) $ ( 102,090 ) $ 45,663 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 13,389 10,697 Fair value adjustment, net 215,710 ( 3,971 ) Origination fees for loans receivable at fair value, net ( 4,743 ) ( 4,685 ) Gain on loan sales ( 1,352 ) ( 5,715 ) Stock-based compensation expense 4,878 6,773 Other, net ( 34,564 ) 20,226 Originations of loans sold and held for sale ( 10,032 ) ( 48,665 ) Proceeds from sale of loans 11,125 54,872 Changes in other assets and other liabilities ( 15,507 ) ( 36,630 ) Net cash provided by operating activities 76,814 38,565 Cash flows from investing activities Originations of loans ( 376,280 ) ( 707,108 ) Proceeds from loan sales originated as held for investment 1,041 245,019 Repayments of loan principal 348,104 351,324 Capitalization of system development costs ( 11,743 ) ( 10,641 ) Other, net ( 770 ) ( 1,090 ) Net cash used in investing activities ( 39,648 ) ( 122,496 ) Cash flows from financing activities Borrowings under secured financing 87,900 699,000 Repayments of secured financing ( 2,614 ) ( 620,000 ) Repayments of asset-backed notes ( 136,369 ) ( 10,395 ) Borrowings under acquisition and corporate financing 17,723 — Repayments of acquisition and corporate financing ( 10,195 ) — Payments of deferred financing costs ( 775 ) — Borrowings allocated to warrants 6,632 — Net payments related to stock-based activities ( 1,364 ) ( 7,076 ) Net cash provided by (used in) financing activities ( 39,062 ) 61,529 Net decrease in cash and cash equivalents and restricted cash ( 1,896 ) ( 22,402 ) Cash and cash equivalents and restricted cash, beginning of period 203,817 192,960 Cash and cash equivalents and restricted cash, end of period $ 201,921 $ 170,558 Supplemental disclosure of cash flow information Cash and cash equivalents $ 74,075 $ 109,864 Restricted cash 127,846 60,694 Total cash and cash equivalents and restricted cash $ 201,921 $ 170,558 Cash paid for income taxes, net of refunds $ 307 $ 328 Cash paid for interest $ 37,459 $ 13,816 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,725 $ 4,238 Supplemental disclosures of non-cash investing and financing activities Right of use assets obtained in exchange for operating lease obligations $ 1,179 $ 1,064 Non-cash investments in capitalized assets $ ( 1,143 ) $ 565 Non-cash financing activities $ 6,672 $ — See Notes to the Condensed Consolidated Financial Statements. 6 OPORTUN FINANCIAL CORPORATION Notes to the Condensed Consolidated Financial Statements (Unaudited) March 31, 2023 1. Organization and Description of Business Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the "Company") is a digital banking platform that puts its members’ financial goals within reach. With intelligent borrowing, savings, budgeting, and spending capabilities, the Company empowers members with the confidence to build a better financial future. Oportun 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. Oportun offers 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 automated savings, digital banking, 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, 2022 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 14, 2023. 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. 7 3. Earnings (Loss) per Share Basic and diluted earnings (loss) per share are calculated as follows: Three Months Ended March 31, (in thousands, except share and per share data) 2023 2022 Net income (loss) $ ( 102,090 ) $ 45,663 Net income (loss) attributable to common stockholders $ ( 102,090 ) $ 45,663 Basic weighted-average common shares outstanding 33,979,050 32,216,641 Weighted average effect of dilutive securities: Stock options — 733,503 Restricted stock units — 372,990 Diluted weighted-average common shares outstanding 33,979,050 33,323,134 Earnings (loss) per share: Basic $ ( 3.00 ) $ 1.42 Diluted $ ( 3.00 ) $ 1.37 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 March 31, 2023 2022 Stock options 3,261,871 2,723,777 Restricted stock units 3,953,396 1,692,599 Total anti-dilutive common share equivalents 7,215,267 4,416,376 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. 8 The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited): March 31, December 31, (in thousands) 2023 2022 Consolidated VIE assets Restricted cash $ 114,382 $ 91,395 Loans receivable at fair value 2,984,619 3,081,557 Interest and fee receivable 31,449 30,443 Total VIE assets 3,130,450 3,203,395 Consolidated VIE liabilities Secured financing (1) 405,286 320,000 Asset-backed notes at fair value 2,300,201 2,387,674 Acquisition financing (1) 75,484 85,679 Total VIE liabilities $ 2,780,971 $ 2,793,353 (1) Amounts exclude deferred financing costs. See Note 8, 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. 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 Condensed Consolidated Balance Sheets (Unaudited). Other Loan Sales - The Company enters into agreements to sell certain populations of its personal loans and credit card receivables from time to time. The sold loans were accounted for under the fair value option. The loan sales qualified for sale accounting treatment and the Company derecognized these loans from its Condensed Consolidated Balance Sheets (Unaudited) at the end of the quarter in which the loans were sold. 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. In November 2022, the Company entered into a forward flow whole loan sale agreement with an institutional investor. Pursuant to this agreement, the Company has a commitment to sell a minimum of $ 2.0 million of its unsecured loan originations each month, with an option to sell an additional $ 4.0 million each month, over an approximately one-year period, subject to certain eligibility criteria. The originations of loans sold and held for sale during the three months ended March 31, 2023 was $ 10.0 million and the Company recorded a gain on sale of $ 1.4 million and servicing revenue of $ 3.0 million. The originations of loans sold and held for sale during the three months ended March 31, 2022 was $ 48.7 million and the Company recorded a gain on sale of $ 5.7 million and servicing revenue of $ 4.0 million. 6. Capitalized Software and Other Intangibles Capitalized software, net consists of the following: March 31, December 31, (in thousands) 2023 2022 Capitalized software, net: System development costs $ 145,934 $ 135,303 Acquired developed technology 48,500 48,500 Less: Accumulated amortization ( 89,825 ) ( 79,679 ) Total capitalized software, net $ 104,609 $ 104,124 9 Capitalized software, net Amortization of system development costs and acquired developed technology for three months ended March 31, 2023 and 2022 was $ 10.1 million and $ 7.4 million, respectively. System development costs capitalized in the three months ended March 31, 2023 and 2022 were $ 10.6 million and $ 11.2 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: March 31, December 31, (in thousands) 2023 2022 Intangible assets: Member relationships $ 34,500 $ 34,500 Trademarks 5,626 6,426 Other 3,000 3,000 Less: Accumulated amortization ( 9,879 ) ( 8,249 ) Total intangible assets, net $ 33,247 $ 35,677 On March 8, 2023, the Company revealed its rebranding of Oportun and Digit as a single brand. Therefore, the Company wrote off its $ 0.8 million Digit trademark. Amortization of intangible assets for the three months ended March 31, 2023 and 2022 was $ 1.6 million and $ 2.0 million, respectively. Expected future amortization expense for intangible assets as of March 31, 2023 is as follows: (in thousands) Fiscal Years 2023 (remaining nine months) $ 5,777 2024 7,539 2025 4,929 2026 4,929 2027 4,929 2028 4,780 Thereafter — Total $ 32,883 7. Other Assets Other assets consist of the following: March 31, December 31, (in thousands) 2023 2022 Fixed assets Total fixed assets $ 48,941 $ 48,212 Less: Accumulated depreciation ( 38,984 ) ( 37,688 ) Total fixed assets, net $ 9,957 $ 10,524 Other Assets Loans held for sale $ 310 $ 50 Prepaid expenses 20,108 24,167 Deferred tax assets 16,942 1,793 Current tax assets 8,112 8,245 Other 33,665 19,401 Total other assets $ 89,094 $ 64,180 10 Fixed Assets Depreciation and amortization expense related to Other Assets for the three months ended March 31, 2023 and 2022 was $ 1.3 million and $ 1.3 million, respectively. 8. Borrowings The following table presents information regarding the Company's Secured Financing facilities: March 31, 2023 December 31, 2022 Variable Interest Entity Facility Amount Maturity Date Interest Rate Balance Balance (in thousands) Oportun CCW Trust (1) $ 120,000 December 1, 2024 Variable (2) $ 74,029 $ 76,574 Oportun PLW Trust 600,000 September 1, 2024 LIBOR (minimum of 0.00 %) + 2.17 % 329,196 240,994 Total secured financing $ 720,000 $ 403,225 $ 317,568 (1) The facility amount and maturity date on the Secured Financing - CCW facility (Oportun CCW Trust) were $ 150.0 million and December 1, 2023, respectively, as of December 31, 2022. (2) The interest rate on the Secured Financing - CCW facility (Oportun CCW Trust) is LIBOR (minimum of 0.00 %) plus 3.41 % on the outstanding principal balance as of March 31, 2023. The interest rate on the CCW was 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 as of December 31, 2022. The following table presents information regarding asset-backed notes: March 31, 2023 Variable Interest Entity Initial note amount issued (1) Initial collateral balance (2) Current balance (1) Current collateral balance (2) Weighted average interest rate (3) Original revolving period (4) (in thousands) Asset-backed notes recorded at fair value: Oportun Issuance Trust (Series 2022-3) $ 300,000 $ 310,993 $ 248,158 $ 274,205 8.59 % N/A Oportun Issuance Trust (Series 2022-2) 400,000 410,212 265,132 292,891 7.24 % N/A Oportun Issuance Trust (Series 2022-A) 400,000 410,211 385,424 414,827 5.44 % 2 years Oportun Issuance Trust (Series 2021-C) 500,000 512,762 447,610 518,999 2.48 % 3 years Oportun Issuance Trust (Series 2021-B) 500,000 512,759 447,635 518,347 2.05 % 3 years Oportun Funding XIV, LLC (Series 2021-A) 375,000 383,632 354,674 387,676 1.79 % 2 years Oportun Funding XIII, LLC (Series 2019-A) 279,412 294,118 151,568 171,833 3.46 % 3 years Total asset-backed notes recorded at fair value $ 2,754,412 $ 2,834,687 $ 2,300,201 $ 2,578,778 December 31, 2022 Variable Interest Entity Initial note amount issued (1) Initial collateral balance (2) Current balance (1) Current collateral balance (2) Weighted average interest rate ( 3) Original revolving period (4) (in thousands) Asset-backed notes recorded at fair value: Oportun Issuance Trust (Series 2022-3) $ 300,000 $ 310,993 $ 285,218 $ 301,967 8.43 % N/A Oportun Issuance Trust (Series 2022-2) 400,000 410,212 313,689 344,218 7.03 % N/A Oportun Issuance Trust (Series 2022-A) 400,000 410,211 380,313 414,293 5.44 % 2 years Oportun Issuance Trust (Series 2021-C) 500,000 512,762 435,951 518,929 2.48 % 3 years Oportun Issuance Trust (Series 2021-B) 500,000 512,759 432,123 519,182 2.05 % 3 years Oportun Funding XIV, LLC (Series 2021-A) 375,000 383,632 348,046 389,740 1.79 % 2 years Oportun Funding XIII, LLC (Series 2019-A) 279,412 294,118 192,334 218,571 3.46 % 3 years Total asset-backed notes recorded at fair value $ 2,754,412 $ 2,834,687 $ 2,387,674 $ 2,706,900 (1) 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. (2) Includes the unpaid principal balance of loans receivable, the balance of required reserve funds, cash, cash equivalents and restricted cash pledged by the Company. 11 (3) Weighted average interest rate excludes notes retained by the Company. There were no notes retained by the Company as of March 31, 2023. The weighted average interest rate for Series 2022-2 and Series 2022-3 will change over time as the notes pay sequentially (in class priority order). (4) The revolving period for Series 2019-A ended on August 1, 2022 and Series 2021-A ended on March 1, 2023. These asset-backed notes have been amortizing since then. Series 2022-2 and Series 2022-3 are both amortizing deals with no revolving period. The following table presents information regarding the Company's Acquisition and Corporate Financings: March 31, 2023 December 31, 2022 Entity Original Balance Maturity Date Interest Rate Balance Balance (in thousands) Oportun Financial Corporation (1) $ 150,000 September 14, 2026 SOFR (minimum of 0.00 % + 12.00 % $ 160,892 $ 141,957 Oportun RF, LLC (2) 116,000 October 1, 2024 SOFR (minimum of 0.00 %) + 11.00 % 71,424 80,922 Total acquisition and corporate financing $ 266,000 $ 232,316 $ 222,879 (1) The Corporate Financing facility (Oportun Financial Corporation) was upsized and amended on March 10, 2023 to provide the ability to be able to borrow up to an additional $ 75.0 million. The interest rate on the Corporate Financing facility was SOFR (minimum of 0.00 %) plus 9.00 % as of December 31, 2022. (2) The Acquisition Financing facility (Oportun RF, LLC) was amended and upsized several times in 2022 increasing the size of the facility to $ 119.5 million and amending the maturity date. The maturity date and interest rate of the Acquisition Financing facility was May 1, 2024 and SOFR (minimum of 0.00 %) plus 8.00 % as of December 31, 2022. On February 10, 2023, the Acquisition Financing facility (Oportun RF, LLC) was further amended, including among other things, revising the interest rate to SOFR plus 11.00 % and adjusting the amortization schedule to defer $ 42.0 million in principal payments through July 2023, with final payment in October 2024. On March 8, 2023, the Credit Card Warehouse (Oportun CCW Trust) was amended. This amendment, among other things, extends the revolving period by a year, to December 31, 2024, and reduces the commitment amount from $ 150.0 million to $ 120.0 million. On March 10, 2023 (the “Second Amendment Closing Date”), the Company amended its Corporate Financing facility by entering into an Amendment No. 2 (the “Second Amendment”) by and among the Company, as borrower, the subsidiaries of the Company party thereto as guarantors, certain affiliates of Neuberger Berman Specialty Finance as lenders, and Wilmington Trust, National Association, as administrative agent and collateral agent (the “Agent”), which amended the Credit Agreement, dated as of September 14, 2022 (as amended, supplemented or otherwise modified, including by the Second Amendment, the “Amended Credit Agreement”), by and among the Company, the lenders from time to time party thereto and the Agent. On the Second Amendment Closing Date, the Company borrowed $ 20.8 million of incremental term loans (the “Incremental Tranche A-1 Loans”) and borrowed an additional $ 4.2 million of incremental term loans (the “Incremental Tranche A-2 Loans”) on March 27, 2023. Under the Amended Credit Agreement, the Company borrowed an additional $ 25.0 million of incremental term loans (the "Incremental Tranche B Loans") on May 5, 2023 and may borrow up to an additional amount of $ 25.0 million on an uncommitted basis (the “Incremental Tranche C Loans”) expected to be available, if provided by the applicable lenders, on or about June 23, 2023. The loans (the “Loans”) and other obligations under the Amended Credit Agreement are secured by the assets of the Company and certain of its subsidiaries guaranteeing the Loans, including pledges of the equity interests of certain subsidiaries that are directly or indirectly owned by the Company, subject to customary exceptions. Following the Second Amendment Closing Date the Loans bear interest, at (a) an amount equal to 1-month term SOFR plus 9.00 % plus (b) an amount payable in cash or in kind, at the Company's option, equal to 3.00 %. The Loans are scheduled to mature on September 14, 2026, and are not subject to amortization. Certain prepayments of the Loans are subject to a prepayment premium. Pursuant to the Amended Credit Agreement, as of the three months ended March 31, 2023, the Company issued warrants (the “Warrants”) to the lenders providing the Incremental Tranche A-1 and Incremental Tranche A-2 Loans. The Company allocated proceeds from the incremental borrowings of the Corporate Financing facility to the Corporate Financing facility and the Warrants based on their relative fair values at time of issuance. The value of the proceeds allocated to the Corporate Financing facility, net of discount, and the Warrants in the first quarter 2023, was $ 17.8 million and $ 6.7 million, respectively. The value of the Warrants are accounted for as a discount on the incremental borrowings and will be amortized into interest expense over the term of the loans using the effective interest method. In addition, pursuant to the Amended Credit Agreement, on May 5, 2023, the Company issued to the lenders providing the Incremental Tranche B Loans warrants to purchase 1,048,363 shares of the Company’s common stock, at an exercise price of $ 0.01 per share. There may be further warrants issued to the lenders in connection with the potential future incremental tranche loans described above. See Note 10, Stockholders' Equity for additional information on the Warrants. As of March 31, 2023, and December 31, 2022, the Company was in compliance with all covenants and requirements of the Secured Financing, Acquisition and Corporate Financing facilities and asset-backed notes. 12 9. Other Liabilities Other liabilities consist of the following: March 31, December 31, (in thousands) 2023 2022 Accounts payable $ 6,989 $ 9,670 Accrued compensation 14,302 12,502 Accrued expenses 28,083 26,193 Accrued interest 8,773 8,445 Amount due to whole loan buyer 1,738 3,073 Deferred tax liabilities 5,133 30,575 Current tax liabilities and other 9,482 9,570 Total other liabilities $ 74,500 $ 100,028 10. 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 March 31, 2023 or December 31, 2022. Common Stock - As of March 31, 2023 and December 31, 2022, 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 March 31, 2023, 34,156,369 and 33,884,346 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2022, 33,626,630 and 33,354,607 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. Warrants - On March 10, 2023, pursuant to the Second Amendment of the Corporate Financing facility, the Company issued detachable warrants (the “Warrants”) to the lenders providing the Incremental Tranche A-1 Loans to purchase 1,980,242 shares of the Company’s common stock at an exercise price of $ 0.01 per share. On March 27, 2023, in connection with the funding of the Incremental Tranche A-2 Loans, the Company issued Warrants to the lenders providing the Incremental Tranche A-2 Loans to purchase 116,485 shares of the Company’s common stock at an exercise price of $ 0.01 per share. On May 5, 2023, in connection with the funding of the Incremental Tranche B Loans, the Company issued Warrants to the lenders providing the Incremental Tranche B loans to purchase 1,048,363 shares of the Company's common stock at an exercise prices of $ 0.01 per share. In addition, in connection with the funding of the Incremental Tranche C Loans, the Company will issue Warrants to the lenders providing the Incremental Tranche C Loans to purchase 1,048,363 shares of the Company’s common stock at an exercise price of $ 0.01 per share. The value of the proceeds allocated to the Corporate Financing facility and the Warrants in the first quarter 2023 was $ 17.8 million and $ 6.7 million, respectively. The portion of the proceeds so allocated to the warrants has been recorded as part of additional paid-in capital. See Note 8, Borrowings for additional information on the Second Amendment of the Corporate Financing facility. 11. 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) is as follows: Three Months Ended March 31, (in thousands) 2023 2022 Technology and facilities $ 1,049 $ 1,870 Sales and marketing 33 31 Personnel 3,796 4,872 Total stock-based compensation (1) $ 4,878 $ 6,773 (1) Amounts shown are net of $ 0.5 million of capitalized stock-based compensation for the three months ended March 31, 2023 and net of $ 0.7 million of capitalized stock-based compensation for the three months ended March 31, 2022. 13 As of March 31, 2023, and December 31, 2022, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $ 4.9 million and $ 6.2 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.3 years and 2.6 years, respectively. As of March 31, 2023 and December 31, 2022, the Company's total unrecognized compensation cost related to unvested restricted stock unit awards granted to employees was $ 39.2 million and $ 51.6 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.8 years and 2.7 years, respectively. Cash flows from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) are required to be classified as cash from financing activities. The Company recognized $ 1.4 million and $ 2.0 million of income tax benefit in its consolidated statement of operations related to stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively. Additionally, the total income tax expense (benefit) recognized in the income statement for share-based compensation exercises was $ 2.4 million and $ 0.7 million for the three months ended March 31, 2023 and 2022, respectively. 12. Revenue Interest Income - Total interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows: Three Months Ended March 31, (in thousands) 2023 2022 Interest income Interest on loans $ 232,200 $ 187,387 Fees on loans 5,419 4,850 Total interest income 237,619 192,237 Non-interest Income - Total non-interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows: Three Months Ended March 31, (in thousands) 2023 2022 Non-interest income Gain on loan sales $ 1,326 $ 5,715 Servicing fees 3,680 3,957 Subscription revenue 6,878 9,340 Other income 10,009 3,471 Total non-interest income $ 21,893 $ 22,483 13. Income Taxes For the three months ended March 31, 2023 and 2022, 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 months ended March 31, 2023 and 2022, the Company recorded income tax expense (benefit) of $( 39.4 ) million and $ 12.0 million, respectively, related to continuing operations. The Company’s reported effective tax rates were 27.9 % and 20.8 % for the three months ended March 31, 2023 and 2022, respectively. Income tax expense decreased by $ 51.4 million or 428.5 % , from $ 12.0 million for the three months ended March 31, 2022 to $ 39.4 million benefit for the three months ended March 31, 2023, primarily as a result of having a pretax loss for the three months ended March 31, 2023. Our effective tax rates for the three months ended March 31, 2023 and 2022 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. 14 14. 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: March 31, 2023 December 31, 2022 (in thousands) Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value Assets Loans receivable - personal loans $ 2,885,354 $ 2,902,087 $ 2,967,266 $ 3,027,401 Loans receivable - credit cards 119,644 110,639 131,343 116,252 Total Loans Receivable at Fair Value $ 3,004,998 $ 3,012,726 $ 3,098,609 $ 3,143,653 Liabilities Asset-backed notes 2,445,656 2,300,201 2,582,025 2,387,674 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. The personal loan receivables balance at fair value as of March 31, 2023, consists of $ 2,771.0 million of unsecured personal loan receivables and $ 131.1 million of secured personal loan receivables. March 31, 2023 December 31, 2022 Personal Loans Receivables Minimum Maximum Weighted Average (2) Minimum Maximum Weighted Average (2) Remaining cumulative charge-offs (1) 8.27 % 51.55 % 11.37 % 5.06 % 51.45 % 9.86 % Remaining cumulative prepayments (1) — % 33.00 % 27.78 % — % 33.59 % 28.73 % Average life (years) 0.08 1.47 0.97 0.05 1.52 1.01 Discount rate 10.94 % 10.94 % 10.94 % 11.34 % 11.34 % 11.34 % (1) Figure disclosed as a percentage of outstanding principal balance. (2) Unobservable inputs were weighted by outstanding principal balance, which are grouped by risk (type of customer, original loan maturity terms). March 31, 2023 December 31, 2022 Credit Card Receivables Range Range Remaining cumulative charge-offs (1) 20.70 % 22.80 % Principal payment rate (1) 8.27 % 9.28 % Average life (years) 0.82 0.69 Discount rate 14.43 % 14.84 % (1) Figure disclosed as a percentage of outstanding principal balance. Fair value adjustments related to financial instruments where the fair value option has been elected are recorded through earnings for the three months ended March 31, 2023 and 2022. 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. For personal loan receivables, the Company developed an internal model to estimate the fair value of loans receivable held for investment. 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 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. For credit card receivables, the Company uses historical data to derive assumptions about certain loan portfolio characteristics such as principal payment rates, interest yields and fee yields. Similar to the model used for personal loan receivables, the Company engaged a third party to create an independent fair value estimate, which provides a range of fair values that are compared for reasonableness. 15 The table below presents a reconciliation of Loans Receivable at Fair Value on a recurring basis using significant unobservable inputs: Three Months Ended March 31, (in thousands) 2023 2022 Balance – beginning of period $ 3,143,653 $ 2,386,807 Principal disbursements 452,400 779,719 Principal payments from customers ( 451,970 ) ( 636,044 ) Gross charge-offs ( 94,038 ) ( 62,558 ) Net increase (decrease) in fair value ( 37,319 ) ( 16,937 ) Balance – end of period $ 3,012,726 $ 2,450,987 As of March 31, 2023, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 7.6 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 38.5 million. As of December 31, 2022, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 4.1 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 35.2 million. During the first quarter of 2023, under the Amended Credit Agreement of the Corporate Financing facility, the Company borrowed an additional $ 20.8 million on March 10, 2023 and an additional $ 4.2 million on March 27, 2023. Pursuant to the Second Amendment, the Company issued warrants (the “Warrants”) to the lenders providing these incremental borrowings. The Company allocated proceeds from the incremental borrowings of the Corporate Financing facility to the Corporate Financing facility and the Warrants based on their relative fair values at time of issuance. The value of the proceeds allocated to the Corporate Financing facility and the Warrants in the first quarter of 2023 was $ 17.8 million and $ 6.7 million, respectively. See Note 8, Borrowings for additional information on the Second Amendment of the Corporate Financing facility and Note 10, Stockholders' Equity for additional information on the Warrants. The fair value of the non-recurring (level 3) incremental borrowings upon issuance were estimated using a discounted cash flow analysis. The fair value of the of non-recurring (level 3) warrants to purchase shares of the Company’s common stock were estimated using a Black Scholes valuation model with the following significant unobservable inputs at the date of issuance: Range Expected Term (years) 5.0 Risk free rate 3.56 % - 3.96 % Expected Volatility 72.00 % - 77.00 % 16 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: March 31, 2023 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 74,075 $ 74,075 $ 74,075 $ — $ — Restricted cash 127,846 127,846 127,846 — — Loans held for sale (Note 5) 310 339 — — 339 Liabilities Accounts payable 6,989 6,989 6,989 — — Secured financing (Note 8) 405,286 389,779 — 389,779 — Acquisition and corporate financing (Note 8) 250,780 249,760 — 249,760 — December 31, 2022 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 98,817 $ 98,817 $ 98,817 $ — $ — Restricted cash 105,000 105,000 105,000 — — Liabilities Accounts payable 9,670 9,670 9,670 — — Secured financing (Note 8) 320,000 306,574 — 306,574 — Acquisition and corporate financing (Note 8) 235,679 233,166 — 233,166 — 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 and corporate financing ‑ The fair values of the secured financing and acquisition and corporate 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 months ended March 31, 2023 and 2022 and the year ended December 31, 2022. 15. 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. 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. 17 As of March 31, 2023, 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 2023 (remaining nine months) $ 10,354 2024 12,233 2025 10,267 2026 4,210 2027 1,252 2028 130 Thereafter 7 Total lease payments 38,453 Imputed interest ( 2,784 ) Total leases $ 35,669 Weighted average remaining lease term 3.1 years Weighted average discount rate 4.22 % As of December 31, 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 2023 13,879 2024 11,940 2025 9,969 2026 3,918 2027 1,032 Thereafter 25 Total lease payments 40,763 Imputed interest ( 2,816 ) Total leases $ 37,947 Weighted average remaining lease term 3.2 years Weighted average discount rate 4.06 % Rental expenses under operating leases for the three months ended March 31, 2023 and 2022, w a s $ 4.4 million and $ 4.4 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 $ 30.0 million for the remainder of 2023, $ 21.1 million in 2024, $ 13.0 million in 2025, $ 2.2 million in 2026 and $ 0.0 million in 2027 and thereafter. Bank Partnership Program and Servicing Agreement - The Company entered into a bank partnership program with Pathward, 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 March 31, 2023, the Company has a commitment to purchase an additional $ 4.9 million of program loans based on originations through March 31, 2023. 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. In November 2022, the Company entered into a forward flow whole loan sale agreement with an institutional investor. Pursuant to this agreement, the Company has a commitment to sell a minimum of $ 2.0 million of its unsecured loan originations each month, with an option to sell an additional $ 4.0 million each month, over an approximately one-year period, subject to certain eligibility criteria. For details regarding the whole loan sale programs, refer to Note 5, Loans Held for Sale and Loans Sold . Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at March 31, 2023 and December 31, 2022 were $ 53.2 million and $ 45.0 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. 18 Litigation 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 were focused on the Company's legal collection practices from 2019 to 2021 and hardship treatments offered to members during the COVID-19 pandemic. On September 15, 2022, the Company received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the staff of the CFPB in connection with the CID, stating that it is considering whether to recommend that the CFPB take legal action against the Company based on alleged violations focused on the Company's failure to timely dismiss certain lawsuits and the hardship treatments offered during the COVID-19 pandemic, including credit reporting related thereto. On October 14, 2022, the Company provided the CFPB with its written response to the NORA letter disputing the allegations. On March 28, 2023, the Company announced that the CFPB had completed its investigation and concluded that it would not recommend pursuing an enforcement action against the Company. The Company continues to believe that its business practices have been in full compliance with applicable laws. 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. 16. Subsequent Events On May 8, 2023, the Company announced that it is taking a series of personnel and other cost saving measures to reduce expenses and streamline efficiency. These measures include a headcount reduction of 255 employees, representing approximately 19 % of the Company's corporate staff, which excludes retail and contact center agents. The Company also announced additional measures to reduce its expenditures on external contractors and vendors. In relation to these and other personnel related activities, management expects to incur non-recurring, pre-tax charges of approximately $ 8.0 million in the second quarter of 2023. The estimates of the charges and expenditures that the Company expects to incur in connection with these activities, and the timing thereof, are subject to a number of assumptions, and actual amounts may differ materially from estimates. The Company may also incur charges and expenditures not currently contemplated due to unanticipated events that may occur in connection with these measures. 19