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Item 1A. Risk Factors

2023-08-09 compared with 2023-05-10 · 100 added, 129 removed, 849 unchanged (21% of the section changed)

Investing in our common stock involves a high degree of risk.

Any of the following risks could have an adverse effect on our business, results of operations and financial condition.

The following risks could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment.

You should carefully consider these risks, all of the other information in this report, including our consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations," and general economic and business risks before making a decision to invest in our common stock.

Any of the following risks could have an adverse effect on our business, financial condition, liquidity, results of operations and prospects.

These risks could cause the trading price of our common stock to decline, which could cause you to lose all or part of your investment.

You should carefully consider these risks, all of the other information in this report, including our consolidated financial statements, the notes thereto and the sections entitled "Forward-Looking Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations," and general economic and business risks before making a decision to invest in our common stock.

While we believe the risks described below include all material risks currently known by us, it is possible that these may not be the only ones we face.

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Investing in our common stock involves risks.

If any of the factors enumerated in this section occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected.

Our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected by these risks, as well as other risks and uncertainties not currently known to us or that we currently deem immaterial.

In that case, the market price of our common stock could decline, and you may lose some or all of your investment.

Some of the more significant risks relating to an investment in our common stock include:

These risks are discussed more fully below and include, but are not limited to:

Business, Financial and Operational Risks

• Our results of operations and future prospects depend on our ability to retain existing, and attract new, members.

• Our results of operations and future prospects depend on our ability to retain existing members and attract new members.

• We are, and intend in the future to continue, developing new financial products and services, and our failure to accurately predict their demand or growth could have an adverse effect on our business.

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• If we do not compete effectively in our target markets, our results of operations could be harmed.

• We may not be able to effectively manage our growth.

• We may not be able to effectively manage the growth of our business.

• Our business may be adversely affected by disruptions in the credit markets and changes to interest rates on our borrowings.

• Our risk management efforts may not be effective, which may expose us to market risks that harm our results of operations.

• We rely extensively on models in managing many aspects of our business.

If our models contain errors or are otherwise ineffective, our business could be adversely affected.

• Our results of operations and financial condition have been and may be adversely affected by economic conditions and other factors that we cannot control.

• We have elected the fair value option and we use estimates in determining the fair value of our loans and our asset-backed notes.

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Any material reduction in our interest rate spread could adversely affect our results of operations.

• Our risk management efforts may not be effective, which may expose us to market risks that harm our results of operations.

• We rely extensively on models in managing many aspects of our business.

If our models contain errors or are otherwise ineffective, our business could be adversely affected.

• Our results of operations and financial condition have been and may be adversely affected by economic conditions and other factors that we cannot control.

• If we are unable to collect payment and service the loans we make to members, our net charge-off rates may exceed expected loss rates, and our business and results of operations may be harmed.

• Our quarterly results are likely to fluctuate significantly and may not fully reflect the underlying performance of our business.

• The ongoing COVID-19 pandemic has and may continue to adversely impact our business and results of operations.

• Negative publicity or public perception of our company or our industry could adversely affect our reputation, business, and results of operations.

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• Any acquisitions, strategic investments, entries into new businesses, joint ventures, divestitures, and other transactions could fail to achieve strategic objectives, disrupt our ongoing operations or result in operating difficulties, liabilities and expenses, harm our business, and negatively impact our results of operations.

• Fraudulent activity could negatively impact our business, operating results, brand and reputation and require us to take steps to reduce fraud risk.

• Fraudulent activity could negatively impact our business, brand and reputation and require us to continue to take steps to reduce fraud risk.

• Security breaches and incidents may harm our reputation, adversely affect our results of operations, and expose us to liability.

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• Our securitizations and structured and whole loan sales may expose us to certain risks, and we can provide no assurance that we will be able to conduct such transactions in the future, which may require us to seek more costly financing.

• We expect to need to raise additional funds in the future, including through equity, debt, or convertible debt financings, to support business growth and those funds may not be available on acceptable terms, or at all.

• We may need to raise additional funds in the future, including through equity, debt, or convertible debt financings, to support business growth and those funds may not be available on acceptable terms, or at all.

Intellectual Property Risks

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• The collection, storage, use, disclosure, and other processing of personal information is an area of increasing complexity and scrutiny.

• Our business is subject to the regulatory framework applicable to registered investment advisers, including regulation by the SEC.

• Our business is subject to the regulatory framework applicable to registered investment advisers, including regulation by the Securities and Exchange Commission (the "SEC").

• Our bank partnership products may lead to regulatory risk and may increase our regulatory burden.

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Business, Financial and Operational Risks

Our results of operations and future prospects depend on our ability to retain existing, and attract new, members.

Our results of operations and future prospects depend on our ability to retain existing members and attract new members.

We operate in a rapidly changing and highly competitive industry and our results of operations and future prospects depend on, among other things, continued growth of our member base, our ability to increase the activity of our members, including by using additional products or services we offer, and our ability to attract members in a cost-effective manner.

Our member retention rates may decline or fluctuate due to pricing changes, our expansion into new products and markets, our members' ability to obtain alternative funding sources based on their credit history with us, and new members we acquire in the future may be less loyal than our current member base.

Our member retention rates may decline or fluctuate due to various factors, including pricing changes (including as a result of rising interest rates), our expansion into new products and markets or changes to existing products, our members' ability to obtain alternative funding sources based on their credit history with us, and new members we acquire in the future may be less loyal than our current member base.

If our member retention rates decline and we are not able to attract new members in numbers sufficient to grow our business, this may adversely affect our business, results of operations and future prospects.

In particular, it is important that we continue to ensure that our members with loans remain loyal to us and we continue to extend loans to members who have successfully repaid their previous loans.

As of March 31, 2023 and 2022, members with repeat loans comprised 80% and 73%, respectively, of our Owned Principal Balance at End of Period.

As of June 30, 2023 and 2022, members with repeat loans comprised 81% and 73%, respectively, of our Owned Principal Balance at End of Period.

If our repeat loan rates decline, we may not realize consistent or improved operating results from our existing member base.

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New initiatives are inherently risky, as each involves unproven business strategies and new financial products and services with which we have limited or no prior development or operating experience.

We can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new products and services.

We can provide no assurance that we will be able to develop, commercially market, scale, and achieve acceptance of, or success with, our new products and services.

Our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from other growth initiatives important to our business.

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Any negative publicity or negative public perception of A.I.

could negatively impact demand for our products and services or hinder our ability to attract new members and strategic partners.

and related technologies could negatively impact demand for our products and services or hinder our ability to attract new members and strategic partners.

The regulatory framework for A.I.

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We may not be able to effectively manage the growth of our business.*

Although we have experienced rapid growth in our business and operations in recent years, we cannot assure you that our business will continue to grow at our historical growth rates.

The growth and expansion of our business has placed significant demands on our management, operational, risk management, technology, marketing, compliance and finance and accounting infrastructure, and has resulted in increased expenses, a trend that we expect to continue as our business continues to grow.

In addition, we are required to continuously develop and adapt our systems and infrastructure in response to the increasing sophistication of the consumer financial services market, evolving fraud and information security landscape, and regulatory developments relating to existing and planned business operations.

Overall revenue growth depends on a number of factors, including on our ability to increase the origination volume of our products and services, attract new and retain existing members, build our brand, achieve the anticipated benefits and synergies from the Digit acquisition, expand and manage our remote-first workforce, all while managing our business systems, operations and expenses.

If we are unable to accomplish these tasks, our future growth may be harmed.

Further, many economic and other factors outside of our control, including general economic and market conditions, pandemics, consumer and commercial credit availability, inflation, unemployment, and consumer debt levels, may adversely affect our ability to sustain revenue growth consistent with recent history.

Since 2022, we have engaged in a series of cost-saving measures in response to challenging macroeconomic conditions, including by conducting workforce reductions.

Such actions may adversely affect our ability to retain and recruit skilled and motivated

personnel, hindering our ability to achieve our key priorities.

While we believe these measures will improve operational efficiency, implementation of these measures may be disruptive to our business and we may not realize the anticipated benefits within the expected time frame or at all.

Further, we may experience unintended consequences and costs that may be disruptive to our business, such as the loss of institutional knowledge and expertise, attrition beyond our intended workforce reduction, and a reduction in morale among our remaining employees.

Such actions may adversely affect our ability to retain and recruit skilled and motivated personnel, which may be disruptive to our operations and hinder our ability to achieve our key priorities.

If we fail to achieve some or all of the expected benefits of these decisions, our future growth, operating results, and financial condition may be adversely affected.

In addition, we are required to continuously develop and adapt our operations, systems and infrastructure in response to the increasing sophistication of the consumer financial services market, evolving fraud and information security landscape, and regulatory developments relating to existing and planned business operations.

Although we experienced rapid growth in our business and operations in the recent past, many economic and other factors outside of our control, including general economic and market conditions, pandemics, consumer and commercial credit availability, inflation, unemployment, and consumer debt levels, may adversely affect our ability to sustain revenue growth consistent with recent history and we cannot assure you that our business will grow at our historical growth rates.

In addition, in the past, the growth and expansion of our business has placed significant demands on our management, operational, risk management, technology, marketing, compliance and finance and accounting infrastructure, and resulted in increased expenses, a trend that we expect to continue as our business continues to grow, and we may not be able to increase our revenue sufficiently to offset such higher expenses.

Overall revenue growth depends on a number of factors, including on our ability to increase the origination volume of our products and services, attract new members and retain existing members, build our brand, achieve the anticipated benefits and synergies from the Digit acquisition, expand and manage our remote-first workforce, all while managing our business systems, operations and expenses.

If we are unable to accomplish these tasks, our future growth may be harmed.

Our business may be adversely affected by disruptions in the credit markets and changes to interest rates on our borrowings.

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However, there is no assurance that these sources of capital will continue to be available in the future on terms favorable to us or at all.

The availability of debt financing and other sources of capital depends on many factors, some of which are outside of our control.

The availability of debt financing and other sources of capital depends on many factors, many of which are outside of our control.

Conditions in the credit markets may continue to experience disruption or deterioration, including as a result of rising interest rates, which could make it difficult for us to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms.

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If we are unable to arrange financing on favorable terms, our business may be adversely affected and we may not be able to grow our business as planned and we may have to curtail new originations and reduce credit lines to cardholders.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it will no longer persuade or compel banks to submit LIBOR rates after 2021.

At the end of 2021, the ICE Benchmark Administration, the administrator for LIBOR, ceased publishing one-week and two-month U.S.

dollar LIBOR and will cease publishing all remaining U.S.

dollar LIBOR tenors in mid-2023.

Other regulators have suggested reforming or replacing other benchmark rates.

These may be replaced by SOFR or other benchmark rates over the next several years.

Uncertainty as to the nature of such phase out and selection of an alternative reference rate, together with disruption in the financial markets, could increase in the cost of our credit facilities that are currently tied to LIBOR.

Our management continues to monitor the status and discussions regarding LIBOR.

Changes in interest rates on our variable rate debt could adversely affect our interest expense, results of operations, and cash flows.

We have elected the fair value option and we use estimates in determining the fair value of our loans and our asset-backed notes.

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We use estimates and assumptions in determining the fair value of our loans receivable held for investment and asset-backed notes.

Our Loans Receivable at Fair Value represented 86% of our total assets and our asset-backed notes represented 76% of our total liabilities as of March 31, 2023.

Our Loans Receivable at Fair Value represented 86% of our total assets and our asset-backed notes represented 71% of our total liabilities as of June 30, 2023.

The fair value of our loans receivable held for investment are determined using Level 3 inputs and the fair value of our asset-backed notes are determined using Level 2 inputs.

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We earn over 90% of our revenue from interest payments on the loans we make to our members .

Financial institutions and other funding sources provide us with the capital to fund a substantial portion of the principal amount of our loans to members and charge us interest on funds that we borrow.

Financial institutions and other funding sources provide us with the capital to fund a substantial portion of the principal amount of our loans to members and charge us interest on funds that we

In the event that the spread between the interest rate at which we lend to our members and the rate at which we borrow from our lenders decreases, our Net Revenue will decrease.

We have capped the APR for newly originated loans at 36% since August 2020.

Interest rates have

recently risen and may continue to rise, which increases our interest expense and cost of funds and may result in lower operating margins.

Interest rates have recently risen and may continue to rise, which increases our interest expense and cost of funds and may result in lower operating margins.

The interest rates we charge to our members and pay to our lenders could each be affected by a variety of factors, including our ability to access capital markets, the volume of loans we make to our members, product mix, competition and regulatory limitations.

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Moreover, future performance of our members’ loans could differ from past experience because of macroeconomic factors, policy actions by regulators, lending by other institutions or reliability of data used in the underwriting process.

To the extent that past experience has influenced the development of our underwriting procedures and proves to be inconsistent with future events, delinquency rates and losses on loans could increase.

Errors in our models or tools and an inability to effectively forecast loss rates could also inhibit our ability to sell loans to investors or draw down on borrowings under our warehouse and other debt facilities,

which could limit new origination growth and harm our financial performance.

To the extent that past experience has influenced the development of our underwriting procedures and proves

to be inconsistent with future events, delinquency rates and losses on loans could increase.

Additionally, the use of A.I.

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Additionally, the United States is experiencing a workforce shortage, which, in turn has created a hyper-competitive wage environment that may further increase employee compensation.

From March 2022 through December 2022, the Federal Reserve raised the target range for the federal funds rate on seven separate occasions and signaled that it anticipates additional increases in the target range will be appropriate to lower inflation.

From March 2022 through June 2023, the Federal Reserve raised the target range for the federal funds rate on ten separate occasions and signaled that it anticipates additional increases in the target range will be appropriate to lower inflation.

Further adverse changes in inflation and interest rates could negatively impact consumer and business confidence, and adversely affect the economy as well as our business and results of operations.

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If our contact center operations become constrained for any reason, the effectiveness of our collection activities may be reduced.

In November 2021 we voluntarily implemented certain provisions of the call limitations set forth in Regulation F, the CFPB’s Debt Collection Rule that took effect at that time, which is not applicable to creditors such as us who are collecting their own debts.

If we did not correctly estimate the impact

of a reduced calling strategy, the effectiveness of our efforts to collect on defaulted loans may be impacted.

In November 2021 we voluntarily implemented certain provisions of the call limitations set forth in Regulation F, the CFPB’s Debt Collection Rule that

took effect at that time, which is not applicable to creditors such as us who are collecting their own debts.

If we did not correctly estimate the impact of a reduced calling strategy, the effectiveness of our efforts to collect on defaulted loans may be impacted.

Additionally, in August 2020, we changed our small claims filing practices, including dismissing all pending small claims court filings and suspending all new legal collection actions.

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While our growth has obscured this seasonality from our overall financial results, we expect our results of operations to continue to be affected by such seasonality in the future.

The ongoing COVID-19 pandemic has and may continue to adversely impact our business and results of operations.

The COVID-19 pandemic and health and safety measures taken by governments and private industry in response to the pandemic have significantly impacted worldwide economic activity and consumer behavior and continue to create economic uncertainty.

Worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, the emergence of new variants and the reinstatement and subsequent lifting of restrictions and health and safety related measures in response to the emergence of new variants have occurred in the past and may occur in the future.

In 2020 through 2022, we offered payment relief options to members impacted by COVID-19, including hardship programs, reduced payment plans, late fee waivers and other borrower accommodations.

In the future, we may offer additional payment relief options and may cease offering some options when the federal state of emergency ends.

We are unable to predict the future path or impact of any global or regional COVID-19 resurgences, including existing or future variants, or other public health crises.

An extended period of disruption as a result of a health epidemic or pandemic, including COVID-19, may negatively impact us, as well as our members, vendors, and partners.

Negative publicity or public perception of our company or our industry could adversely affect our reputation, business, and results of operations.

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In particular, employee candidates, specifically in high-technology industries, often consider the value of any equity they may receive in connection with their employment, so significant volatility or a further decline in the price of our stock may adversely affect our recruitment strategies.

Additionally, changes to U.S.

immigration policies, as well as restrictions on global travel due to public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire and/or retain talent.

In February 2023 and May 2023, we announced a 10% and 19% reduction in our corporate workforce, respectively.

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We believe that there are significant benefits and synergies that may be realized through combining the platform, product and service offerings of Oportun and Digit.

As we continue to integrate the businesses and seek to realize anticipated benefits and synergies, we will continue to be

required to devote significant attention and resources to successfully align our business practices and operations, which may disrupt both companies' businesses.

As we continue to integrate the businesses and seek to realize anticipated benefits and synergies, we will continue to be required to devote significant attention and resources to successfully align our business practices and operations, which may disrupt both companies' businesses.

The full benefits of the acquisition, including anticipated growth opportunities, may not be realized as expected or may not be achieved within the anticipated time frame, or at all.

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Further, our adoption of remote working arrangements for our corporate and many of our contact center employees may result in increased consumer or employee privacy, IT security, and fraud concerns arising from the increased electronic transfer and other online activity.

Techniques used in cybersecurity attacks to obtain unauthorized access, disable or sabotage information technology systems change frequently, as data breaches and other cybersecurity events have become increasingly commonplace, including as a result of the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine.

commonplace, including as a result of the intensification of state-sponsored cybersecurity attacks during periods of geopolitical conflict, such as the ongoing conflict in Ukraine.

We have seen, and will continue to see, industry-wide vulnerabilities, which could affect our or other parties’ systems.

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Our computer systems, including those provided by third-party providers and partners, may encounter service interruptions at any time due to system or software failure, natural disasters, severe weather conditions, health epidemics or pandemics, terrorist attacks, cyber-attacks, computer viruses, physical or electronic break-ins, technical errors, insider threats, power outages or other events.

Any of these occurrences may interrupt the availability, or reduce or adversely affect the functionality of our websites, applications, products or services, including our ability to service our loans, process loan applications, and provide

digital banking services to our members.

Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage.

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We are, and intend in the future to continue, expanding into new geographic regions, and our failure to comply with applicable laws or regulations, or accurately predict demand or growth, related to these geographic regions could have an adverse effect on our business.

We intend to continue expanding into new geographic regions, including through strategic partnerships or a national bank charter.

We intend to continue expanding into new geographic regions, including through strategic partnerships or through our bank partnership programs.

In addition, each of the new states where we do not currently operate may have different laws and regulations that apply to our products and services.

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Further, the concentration of our outstanding receivables in one or more states would have a disproportionate effect on us if governmental authorities in any of those states take action against us or take action affecting how we conduct our business.

As of March 31, 2023, 46.1%, 26.0%, 8.4%, 5.2% and 3.4% of our Owned Principal Balance at End of Period related to members from California, Texas, Florida, Illinois and New Jersey, respectively.

As of June 30, 2023, 46.4%, 25.7%, 8.3%, 5.1% and 3.4% of our Owned Principal Balance at End of Period related to members from California, Texas, Florida, Illinois and New Jersey, respectively.

If any of the events noted in these risk factors were to occur in or have a disproportionate impact in regions where we operate or plan to commence operations, it may negatively affect our business in many ways, including increased delinquencies and loan losses or a decrease in future originations.

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We rely on our proprietary credit risk models, which are statistical models built using third-party alternative data, credit bureau data, application data and our credit experience gained through monitoring the payment performance of our members over time.

If we are unable to access certain third-party data used in our credit risk models, or our access to such data is limited, our ability to accurately evaluate potential members will be compromised, and we may be unable to effectively predict probable credit losses inherent in our loan portfolio, which would negatively impact our

results of operations.

Third-party data sources, including credit bureau data and other alternative data sources, are aggregated by our risk engine to be used in our credit risk models to score applicants, make credit decisions, and in our verification processes to confirm member-reported information.

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These types of laws and regulations could prohibit or significantly restrict our third-party data sources from sharing information, or could restrict our use of personal data when developing our proprietary credit risk models, or for fraud prevention purposes.

These restrictions could also inhibit our development or marketing of certain products or services, or increase the costs of offering them to members or reduce the effectiveness of credit models at predicting credit outcomes or preventing fraud.

These restrictions could also inhibit our development or marketing of certain products or

services, or increase the costs of offering them to members or reduce the effectiveness of credit models at predicting credit outcomes or preventing fraud.

We follow procedures to verify a member’s identity and address which are designed to minimize fraud.

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If any third-party vendor fails to provide the services we require, due to factors outside our control, we could be subject to regulatory enforcement actions, suffer economic and reputational harm and incur significant costs to resolve any such disruptions in service.

Our mission to provide inclusive, affordable financial services that empower our members to build a better future may conflict with the short-term interests of our stockholders.

Our mission to provide inclusive, affordable financial services that empower our members to build a better future may conflict with the short-term interests of our stockholders or may not provide the long-term benefits that we expect and may adversely impact our business operations, results of operations, and financial condition.

Our mission is to provide inclusive, affordable financial services that empower our members to build a better future.

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We are dependent on hiring an adequate number of hourly bilingual employees to run our business and are subject to government regulations concerning these and our other employees, including minimum wage laws.

Our workforce is comprised primarily of bilingual employees who work on an hourly basis.

Our workforce is comprised largely of bilingual employees who work on an hourly basis.

In certain areas where we operate, there is significant competition for hourly bilingual employees and the lack of availability of an adequate number of hourly bilingual employees could adversely affect our operations.

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Our international operations and offshore service providers involve inherent risks which could result in harm to our business.

As of March 31, 2023, we had 1,409 employees related to three contact centers in Mexico.

As of June 30, 2023, we had 1,429 employees in Mexico, including employees related to our two contact centers.

These employees provide certain English/Spanish bilingual support related to member-facing contact center activities, administrative and technology support of the contact centers and back-office support services.

We have also engaged outsourcing partners in the United States that provide offshore member-facing contact center activities in Colombia, Jamaica and the Philippines, and may in the future include additional locations in other countries.

We have also engaged outsourcing partners in the United States that provide offshore member-facing contact center activities in Colombia and the Philippines, and may in the future include additional locations in other countries.

In addition, our technology development center in India is staffed through outsourcing partners and our own employees.

We have engaged vendors that utilize employees or contractors based outside of the United States.

As of March 31, 2023, our outsourcing partners have provided us, on an exclusive basis, the equivalent of 359 full-time equivalents in Colombia, Jamaica, Philippines, and India.

As of June 30, 2023, our outsourcing partners have provided us, on an exclusive basis, the equivalent of 224 full-time equivalents in Colombia, Philippines, and India to support contact center and technical delivery work.

These international activities are subject to inherent risks that are beyond our control, including:

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If we discover a material weakness in our internal control over financial reporting that we are unable to remedy or otherwise fail to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to report our financial results on a timely and accurate basis and the market price of our common stock may be adversely affected.

We have developed our disclosure controls, internal control over financial reporting and other procedures to ensure information required to be disclosed by us in the reports that we will file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

We have developed our disclosure controls, internal control over financial reporting and other procedures to ensure information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal

executive and financial officers.

To maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate we will continue to expend significant resources, including accounting-related costs and significant management oversight.

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We may not maintain sufficient business interruption or property insurance to compensate us for potentially significant losses, including potential harm to our business that may result from interruptions in our ability to provide our financial products and services.

Health epidemics or other outbreaks, such as the COVID-19 pandemic, may adversely impact our business and results of operations.

Our business could be adversely impacted by the effects of health epidemics or other outbreaks.

For example, the COVID-19 pandemic and health and safety measures taken by governments and private industry in response to the COVID-19 pandemic significantly impacted worldwide economic activity and consumer behavior and created economic uncertainty.

Worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, the emergence of new health epidemics or outbreaks and new variants of COVID-19, and the reinstatement and subsequent lifting of restrictions and health and safety related measures in response to the emergence of new health epidemics or outbreaks and new variants of COVID-19 have occurred in the past and may occur in the future.

In 2020 through 2022, we offered payment relief options to members impacted by COVID-19, including hardship programs, reduced payment plans, late fee waivers and other borrower accommodations.

In the future, we may offer additional payment relief options and may cease offering some options after the end of the federal state of emergency on May 11, 2023.

We are unable to predict the future path or impact of any global or regional health epidemics, other outbreaks, or resurgences of COVID-19, including existing or future variants.

An extended period of disruption as a result of a health epidemic or pandemic, including COVID-19, may negatively impact us, as well as our members, vendors, and partners.

Unfavorable outcomes in legal proceedings may harm our business and results of operations.

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Funding and Liquidity Risks

We amended our Corporate Financing, as a result of which certain tranches of additional loans are available on an uncommitted basis, and our business could be adversely affected if we were unable to access such additional capital.*

On March 10, 2023 (the “Second Amendment Closing Date”), Oportun Financial Corporation (the “Company”) entered into an Amendment No.

2 to Credit Agreement (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.

On May 5, 2023, borrowed an additional $25.0 million of incremental term loans (the "Incremental Tranche B Loans").

Under the Amended Credit Agreement, the Company 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.

Pursuant to the Second Amendment, the Company issued 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.

Given the uncommitted nature of the Incremental Tranche C Loans, there can be no assurance that the Company will be able to access such additional capital.

If we do not have sufficient capital, we may have to take additional actions to decrease expenses, curtail the origination of loans, and our ability to continue to support our growth and to respond to challenges could be impaired.

In addition, if we do not have sufficient capital, we may need to engage in equity, debt or convertible debt financings to secure additional funds.

If we raise additional funds by issuing equity securities or securities convertible into equity securities, those securities may have rights, preferences or privileges senior to the rights of our common stock and our stockholders may experience dilution.

Debt financing, if available, may have a high cost of funds and may involve covenants restricting our operations or our ability to incur additional debt.

Lenders may also require warrants to boost their return, the issuance of which would be dilutive to our stockholders.

Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders and could also negatively impact our stock price.

A number of factors, including market volatility or depressed valuations, trading prices in the equity markets, our financial condition and capital market conditions will impact our ability to obtain equity or debt financing.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could have an adverse effect on our business, results of operation and financial condition.

We have incurred substantial debt and may issue debt securities or otherwise incur substantial debt in the future, which may adversely affect our financial condition and negatively impact our operations.

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The primary funding sources available to support the maintenance and growth of our business include, among others, asset-backed securitizations, revolving debt facilities (including the Secured Financing), Corporate Financing, and structured and whole loan sales.

If we are unable to comply with various conditions precedent to availability under these facilities (including the eligibility of our loans), covenants and other

specified requirements set forth in our agreements with our lenders, this could result in the early amortization, default and/or acceleration of our existing facilities.

If we are unable to comply with various conditions precedent to availability under these facilities (including the eligibility of our loans), covenants and other specified requirements set forth in our agreements with our lenders, this could result in the early amortization, default and/or acceleration of our existing facilities.

Such covenants and requirements include financial covenants, portfolio performance covenants and other events.

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If it is not possible or economical for us to securitize our loans in the future, we would need to seek alternative financing to support our operations and to meet our existing debt obligations, which may not be available on commercially reasonable terms, or at all.

If the cost of such

alternative financing were to be higher than our securitizations, we would likely reduce the fair value of our loans receivable held for investment, which would negatively impact our results of operations.

If the cost of such alternative financing were to be higher than our securitizations, we would likely reduce the fair value of our loans receivable held for investment, which would negatively impact our results of operations.

The gain on sale generated by any of our structured or whole loan sales and servicing fees earned on sold loans represents a significant source of our earnings.

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Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt.

Debt financing, if available, may have a high cost of funds and may involve covenants restricting our operations or our ability to incur additional debt.

Lenders may also require warrants to boost their return, the issuance of which would be dilutive to our stockholders.

Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders.

Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders and could also negatively impact our stock price.

If we do not have sufficient capital, we may be unable to pursue certain opportunities and our ability to continue to support our growth and to respond to challenges could be impaired.

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Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp.

were each swept into receivership.

While we did not maintain deposits at Silicon Valley Bank, Signature Bank or Silvergate Capital Corp., the failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance.

were each swept into receivership and on May 1, 2023, First Republic Bank was taken into receivership.

While we did not maintain deposits at Silicon Valley Bank, Signature Bank, Silvergate Capital Corp.

or First Republic Bank, the failure of a bank, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, could adversely impact our liquidity and financial performance.

There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S.

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Specifically, any defect in our credit risk models could result in the approval of unacceptably risky loans.

Such defects could also result in reputational harm, loss of members, loss of revenue, adjustments to the fair value of our loans receivable held for investment or our asset-backed notes, challenges in raising capital, or liability for damages.

Such defects could also result in

reputational harm, loss of members, loss of revenue, adjustments to the fair value of our loans receivable held for investment or our asset-backed notes, challenges in raising capital, or liability for damages.

Some aspects of our business processes include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

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For example, Section 1042 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") grants state attorneys general the ability to enforce the Dodd-Frank Act and regulations promulgated under the Dodd-Frank Act’s authority and to secure remedies against entities within their jurisdiction.

State attorneys general also have a variety of legal mechanisms at their disposal to enforce state and federal consumer financial laws have enforcement authority under state law with respect to unfair or deceptive practices.

State attorneys general also have a variety of legal mechanisms at their disposal to enforce state and federal consumer financial laws and have enforcement authority under state law with respect to unfair or deceptive practices.

Generally, under these statutes, state attorneys general may conduct investigations, bring actions, and recover civil penalties or obtain injunctive relief against entities engaging in unfair, deceptive, or fraudulent acts.

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It could also result in a default or early amortization event under certain of our debt facilities and reduce or terminate availability of debt financing to us to fund originations.

To the extent it is determined that any loan we make was not originated in accordance with all applicable laws as we are required to represent under our securitization and other debt facilities and in loan sales to investors, we could be obligated to repurchase for cashor swap for qualifying assets, any such loan determined not to have been originated in compliance with legal requirements.

To the extent it is determined that any loan we make was not originated in accordance with all applicable laws as we are required to represent under our securitization and other debt facilities and in loan sales to investors, we could be obligated to repurchase for cash or swap for qualifying assets, any such loan determined not to have been originated in compliance with legal requirements.

We may not have adequate liquidity and resources to make such cash repurchases or swap for qualifying assets.

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In the ordinary course of business, we have been named as a defendant in various legal actions, including class actions and other litigation.

Generally, this litigation arises from the claims of violation of do-not-call, credit reporting, collection, and bankruptcy laws.

Generally, this litigation arises from claims of violation of do-not-call, credit reporting, collection, and bankruptcy laws.

The complexity of the laws related to secured personal loans regarding vehicle titling, lien placement and repossession may enhance the risk of consumer litigation.

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If the CFPB decides to subject us to its supervisory process, it could significantly increase the level of regulatory scrutiny of our business practices.

Further, in December 2022 and January 2023 respectively, the CFPB announced proposed rules requiring (a) a nonbank entity to register with the CFPB if it receives a final public written order or judgment (including a consent order or stipulated order) from a federal, state or local government agency for violation of consumer protection laws and (b) a supervised nonbank to register if it uses certain contract terms and conditions that claim to waive or limit consumer rights and protections (including arbitration clauses).

If finalized, each of these registries has the potential to increase the operational costs and regulatory scrutiny of our business practices.

In addition, the Biden Administration recently announced a government-wide effort to eliminate “junk fees” which could subject our business practices to even further scrutiny.

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There is no assurance that these regulatory matters or other factors will not, in the future, affect how we conduct our business or adversely affect our business.

In particular, legal proceedings brought under state consumer protection statutes or under several of the various federal consumer financial services statutes subject to

the jurisdiction of the CFPB may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities.

In particular, legal proceedings brought under state consumer protection statutes or under several of the various federal consumer financial services statutes subject to the jurisdiction of the CFPB may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities.

Some of our consumer financing agreements include arbitration clauses.

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Constitution’s appropriations clause and invalidated the remaining portions of the CFPB’s restrictions on the lenders offering payday, auto title and other short-term, high-interest loans.

The CFPB has appealed the decision to the Supreme Court of the United States and we are unable to predict the timing, outcome, and impact of this litigation.

The CFPB has appealed the decision to the Supreme Court of the United States and while a decision is expected in the coming term, we are unable to predict the exact timing, outcome, and impact of this litigation.

In addition, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including the credit products we offer.

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Further, in February 2023, the CFPB proposed a rule that would amend regulations to limit credit card late-payment fees to $8 or 25% of the minimum payment due, whichever is greater.

On March 3, 2021, we 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.

We have received additional information requests related to the CID.

The information requests are focused on our legal collection practices from 2019 to 2021 and hardship treatments offered to members during the COVID-19 pandemic.

On September 15, 2022, we 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 us based on alleged violations focused on our 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, we provided the CFPB with a written response to the NORA letter disputing the allegations.

On March 28, 2023, we announced that the CFPB had completed its investigation and concluded that it would not recommend pursuing an enforcement action against us.

We continue to believe that our business practices have been in full compliance with applicable laws.

Digit received a CID from the CFPB in June 2020.

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New laws and regulations concerning the processing of personal information continue to be vigorously debated and enacted at all levels of government across the United States and around the globe while existing laws, such as the Gramm-Leach-Bliley Act, are being amended or reinterpreted to account for the rapidly evolving data economy.

The California Consumer Privacy Act (the "CCPA"), including the California Privacy Rights Act of 2020 ("CPRA") amendments imposes significant requirements on businesses processing consumer personal information – principally around enabling and honoring consumer choices related to such processing.

The California Consumer Privacy Act (the "CCPA"), including the California Privacy Rights Act of 2020 amendments imposes significant requirements on businesses processing consumer personal information – principally around enabling and honoring consumer choices related to such processing.

Violations of the CCPA can result in civil penalties assessed by the Attorney General or the California Privacy Protection Agency and individual plaintiffs may pursue statutory damages in a private right of action for certain data breaches.

states have already followed California’s lead in enacting comprehensive privacy legislation and others are likely to do so in the future.

The CCPA and other state comprehensive privacy laws enacted to date contain certain exemptions for personal information that is subject to the Gramm-Leach-Bliley Act.

In some cases, these laws also contain broader exemptions for entities such as Oportun that are subject to the Gramm-Leach-Bliley Act.

These exemptions may not exempt Oportun completely from these laws, however, and such exemptions' scope and interpretation remain subject to uncertainty.

Further, future laws may not include such exemptions.

At the federal level, regulators, including the CFPB and FTC, have adopted, or are considering adopting, laws and regulations concerning personal information and data privacy and security.

The FTC, for example, released its updated Standards for Safeguarding Customer Information (Safeguards Rule), effective June 9, 2023, which raises the bar for covered financial institutions’ information security programs through proscriptive requirements for things like accountability and oversight, performing risk assessments, encryption, and enabling multi-factor authentication to protect all forms of customer information.

This patchwork of legislation and regulation may give rise to conflicts or differing views of personal privacy rights.

This patchwork of legislation and regulation may give rise to conflicts or differing views of personal privacy rights and of privacy and security obligations to which companies such as Oportun must adhere.

The rapidly evolving privacy and data protection regulatory environment, along with increased scrutiny from consumers and their advocates and increased complexity in Oportun’s organizational structure, demands careful attention to our own processing of personal information and processing by third parties acting on our behalf.

For example, we’ve seen an increase in third-party arrangements, including, for example, with lead aggregators, bank partners, Lending as a Service partners and affiliate relationships through our subsidiary Digit.

For example, we’ve seen an increase in third-party arrangements, including, for example, with lead aggregators,

bank partners, Lending as a Service partners and affiliate relationships through our subsidiary Digit.

Our failure, or a failure by third parties with whom we do business, to comply with applicable privacy laws or regulations and contractual obligations required by our business partners, and even a perceived failure, could damage our reputation, harm our ability to obtain market adoption, discourage existing and prospective members from using our products and services, require us to change our business practices, business partners or operational structure, or result in investigations, claims, or fines by governmental agencies and private plaintiffs.

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State and federal agencies have broad discretion in their interpretation of laws and their interpretation of requirements related to bank partnership programs and may elect to alter standards or the interpretation of the standards applicable to these programs.

States are also introducing and passing legislation designed to examine these programs by defining who has the “predominant economic interest” in the loan transaction and prohibiting such entity from collecting interest and fees above state mandated caps.

In addition, as a result of our bank partnerships, prudential bank regulators with supervisory authority over our partners have the ability to regulate aspects of our business.

lender”, and in case law challenging the “valid when made” doctrine, which holds that based on federal preemption, state interest rate limitations are not applicable in the context of certain bank-non-bank partnership arrangements.

There has also been significant recent government enforcement action and litigation challenging the validity of such arrangements for lending products, including disputes seeking to recharacterize lending transactions on the basis that the non-bank party rather than the bank is the “true lender” or “de facto lender”, and in case law challenging the “valid when made” doctrine, which holds that based on federal preemption, state interest rate limitations are not applicable in the context of certain bank-non-bank partnership arrangements.

The uncertainty of the federal and state regulatory environments around bank partnership programs means that our efforts to launch products and services through bank partners may not ultimately be successful, or may be challenged by legislation or regulatory action.

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General Risk Factors

You may be diluted by the future issuance of additional common stock in connection with our equity incentive plans, acquisitions or otherwise.

You may be diluted by the future issuance of additional common stock in connection with our equity incentive plans, acquisitions, financings, investments or otherwise.

Our amended and restated certificate of incorporation authorizes us to issue shares of common stock authorized but unissued and rights relating to common stock for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise.

We have authorized 10,078,116 shares for issuance under our 2019 Equity Incentive Plan, 1,926,598 shares for issuance under our 2019 Employee Stock Purchase Plan, and 552,992 shares for issuance under our 2021 Inducement Equity Incentive Plan, each subject to adjustment in certain events.

Any common stock that we issue, including under our existing equity incentive plans or other equity incentive plans that we may adopt in the future, could dilute your percentage ownership.

Any common stock that we issue, including under our existing equity incentive plans or other equity incentive plans that we may adopt in the future, or in connection with any acquisitions, financings, investments or otherwise, could dilute your percentage ownership.

The issuance of shares of our Common Stock upon exercise of our outstanding Warrants issued in connection with the Amended Credit Agreement would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

As of March 10, 2023, the Warrants to purchase 1,980,242 shares of our Common Stock issued in connection with the Amended Credit Agreement were outstanding and exercisable.

As of June 30, 2023, the Warrants to purchase 4,193,453 shares of our Common Stock issued in connection with the Amended Credit Agreement were outstanding and exercisable.

The exercise price of these Warrants is $0.01 per share.

To the extent such warrants are exercised, additional shares of common stock will be issued, which will result in dilution to holders of our common stock and increase the number of shares eligible for resale in the public market.

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If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

In addition, analysts may establish and publish their own periodic projections for us.

These projections may vary widely and may not accurately predict the results we actually achieve.

Our share price may decline if our actual results do not match the projections of these research analysts.

The enactment of tax reform legislation could adversely impact our financial position and results of operations.

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Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses and net deferred taxes in the future.

As the legislation becomes effective in countries in which we do business, our taxes could increase and negatively impact our provision for income taxes.

Our directors, officers, and principal stockholders have substantial control over our company, which could limit your ability to influence the outcome of key transactions, including a change of control.

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Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

(1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws, or (5) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.

any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors