Oportun Financial Corp 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the stockholders and the Board of Directors of Oportun Financial Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Oportun Financial Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company ' s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair Value of Financial Instruments — Fair Value Estimate of Unsecured Personal Loans — Refer to Notes 2 and 14 to the financial statements Critical Audit Matter Description The Company’s loans receivable at fair value were valued as Level 3 financial instruments. The Company estimates the fair value of the Level 3 loans receivable using a discounted cash flow model based on estimated future cash flows, which considers unobservable inputs that require significant judgment. The model uses inputs that are not observable and inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. We identified the Company’s fair value estimate of unsecured personal loans as a critical audit matter because of the subjective process in determining significant inputs used to estimate the fair value. Auditing management’s estimate of unsecured personal loans receivable at fair value involved exercising subjective and complex judgments, required specialized skills and knowledge, and required an increased extent of audit effort, including obtaining audit evidence of the data sources used to estimate fair value and understanding the assumptions applied and the nature of significant inputs utilized. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s fair value estimate of unsecured personal loans receivable included the following, among others: • We tested the effectiveness of management’s controls covering the overall estimate and the review of the accuracy and completeness of the underlying unsecured personal loan data utilized in the model calculations. • We tested the accuracy and completeness of the source information derived from the Company’s loan data, which is used in the valuation model. 59 • We evaluated the valuation model and related assumptions, including significant unobservable inputs, and underlying loan data used by management. • With the assistance of our fair value specialists, we developed independent estimates of the unsecured personal loans receivable at fair value and compared our estimates to the Company’s estimates. /s/ Deloitte & Touche LLP San Francisco, CA March 15, 2024 We have served as the Company's auditor since 2010. 60 OPORTUN FINANCIAL CORPORATION Consolidated Balance Sheets (in thousands, except share and per share data) December 31, 2023 2022 Assets Cash and cash equivalents $ 91,187 $ 98,817 Restricted cash 114,829 105,000 Loans receivable at fair value 2,962,352 3,175,449 Capitalized software and other intangibles, net 114,735 139,801 Right of use assets - operating 21,105 30,448 Other assets 107,680 64,180 Total assets $ 3,411,888 $ 3,613,695 Liabilities and stockholders' equity Liabilities Secured financing $ 289,951 $ 317,568 Asset-backed notes at fair value 1,780,005 2,387,674 Asset-backed borrowings at amortized cost 581,468 — Acquisition and corporate financing 258,746 222,879 Lease liabilities 28,376 37,947 Other liabilities 68,938 100,028 Total liabilities 3,007,484 $ 3,066,096 Stockholders' equity Common stock, $ 0.0001 par value - 1,000,000,000 shares authorized at December 31, 2023 and December 31, 2022; 34,741,076 shares issued and 34,469,053 shares outstanding at December 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 584,555 547,799 Retained earnings (accumulated deficit) ( 173,849 ) 6,102 Treasury stock at cost, 272,023 and 272,023 shares at December 31, 2023 and December 31, 2022 ( 6,309 ) ( 6,309 ) Total stockholders’ equity 404,404 547,599 Total liabilities and stockholders' equity $ 3,411,888 $ 3,613,695 See Notes to the Consolidated Financial Statements. 61 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Operations (in thousands, except share and per share data) Year Ended December 31, 2023 2022 Revenue Interest income $ 963,496 $ 876,114 Non-interest income 93,423 76,431 Total revenue 1,056,919 952,545 Less: Interest expense 179,414 93,046 Net decrease in fair value ( 596,839 ) ( 218,842 ) Net revenue 280,666 640,657 Operating expenses: Technology and facilities 219,406 216,120 Sales and marketing 75,284 110,033 Personnel 121,843 154,850 Outsourcing and professional fees 45,401 67,630 General, administrative and other 72,385 58,838 Goodwill impairment — 108,472 Total operating expenses 534,319 715,943 Income (loss) before taxes ( 253,653 ) ( 75,286 ) Income tax expense (benefit) ( 73,702 ) 2,458 Net income (loss) $ ( 179,951 ) $ ( 77,744 ) Net income (loss) attributable to common stockholders $ ( 179,951 ) $ ( 77,744 ) Share data: Earnings (loss) per share: Basic $ ( 4.88 ) $ ( 2.37 ) Diluted $ ( 4.88 ) $ ( 2.37 ) Weighted average common shares outstanding: Basic 36,875,950 32,825,772 Diluted 36,875,950 32,825,772 See Notes to the Consolidated Financial Statements. 62 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) For the Years Ended December 31, 2023 and 2022 Common Stock Warrants Shares Par Value Additional Paid-in Capital Shares Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Treasury Stock Total Stockholders' Equity Balance – January 1, 2023 33,354,607 $ 7 $ 547,799 — $ — $ 6,102 $ ( 6,309 ) $ 547,599 Issuance of common stock upon exercise of stock options, net of shares withheld 37,314 — ( 46 ) — — — — ( 46 ) Stock-based compensation expense — — 20,024 — — — — 20,024 Vesting of restricted stock units, net of shares withheld 1,077,132 — ( 2,653 ) — — — — ( 2,653 ) Issuance of warrants to purchase common stock in connection with debt financing — — — 4,193,453 19,431 — — 19,431 Net loss — — — — — ( 179,951 ) — ( 179,951 ) Balance – December 31, 2023 34,469,053 $ 7 $ 565,124 4,193,453 $ 19,431 $ ( 173,849 ) $ ( 6,309 ) $ 404,404 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, net of shares withheld 546,312 1 ( 4,636 ) — — — — ( 4,635 ) Repurchase of stock options ( 2,706 ) — ( 28 ) — — — — ( 28 ) Stock-based compensation expense — — 30,125 — — — — 30,125 Vesting of restricted stock units, net of shares withheld 806,605 — ( 4,000 ) — — — — ( 4,000 ) Net loss — — — — — ( 77,744 ) — ( 77,744 ) Balance – December 31, 2022 33,354,607 $ 7 $ 547,799 — $ — $ 6,102 $ ( 6,309 ) $ 547,599 See Notes to the Consolidated Financial Statements. 63 OPORTUN FINANCIAL CORPORATION Consolidated Statements of Cash Flow (in thousands) Year Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 179,951 ) $ ( 77,744 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 54,885 47,533 Goodwill impairment — 108,472 Fair value adjustment, net 596,839 218,842 Origination fees for loans receivable at fair value, net ( 23,360 ) ( 26,845 ) Gain on loan sales ( 8,481 ) ( 5,703 ) Stock-based compensation expense 18,593 27,620 Other, net ( 53,195 ) 30,336 Originations of loans sold and held for sale ( 56,603 ) ( 52,742 ) Proceeds from sale of loans 65,088 58,844 Changes in operating assets and liabilities ( 21,050 ) ( 80,738 ) Net cash provided by operating activities 392,765 247,875 Cash flows from investing activities Originations and purchases of loans held for investment ( 1,580,134 ) ( 2,762,828 ) Proceeds from loan sales originated as held for investment 4,055 249,271 Repayments of loan principal 1,322,601 1,396,896 Capitalization of system development costs ( 31,261 ) ( 48,892 ) Other, net ( 1,442 ) ( 5,995 ) Net cash used in investing activities ( 286,181 ) ( 1,171,548 ) Cash flows from financing activities Borrowings under secured financing 245,700 1,972,000 Repayments of secured financing ( 274,751 ) ( 2,050,000 ) Borrowings under asset-backed notes at fair value — 1,262,059 Repayments of asset-backed notes at fair value ( 707,619 ) ( 232,675 ) Borrowings under asset-backed borrowings at amortized cost 626,405 — Repayments of asset-backed borrowings at amortized cost ( 33,615 ) — Borrowings under acquisition and corporate financing 73,355 — Repayments of acquisition and corporate financing ( 28,442 ) — Payments of deferred financing costs ( 2,719 ) ( 8,189 ) Net payments related to stock-based activities ( 2,699 ) ( 8,665 ) Net cash provided by (used in) financing activities ( 104,385 ) 934,530 Net increase in cash and cash equivalents and restricted cash 2,199 10,857 Cash and cash equivalents and restricted cash, beginning of period 203,817 192,960 Cash and cash equivalents and restricted cash, end of period $ 206,016 $ 203,817 Supplemental disclosure of cash flow information Cash and cash equivalents $ 91,187 $ 98,817 Restricted cash 114,829 105,000 Total cash and cash equivalents and restricted cash $ 206,016 $ 203,817 Cash paid for income taxes, net of refunds $ ( 1,860 ) $ ( 3,457 ) Cash paid for interest $ 183,973 $ 85,775 Cash paid for amounts included in the measurement of operating lease liabilities $ 14,070 $ 15,696 Supplemental disclosures of non-cash investing and financing activities Right of use assets obtained in exchange for operating lease obligations $ 1,835 $ 4,161 Non-cash investment in capitalized assets $ ( 305 ) $ 2,672 Non-cash financing activities $ 17,807 $ 1,550 See Notes to the Consolidated Financial Statements. 64 OPORTUN FINANCIAL CORPORATION Notes to the Consolidated Financial Statements December 31, 2023 1. Organization and Description of Business Oportun Financial Corporation (together with its subsidiaries unless the context indicates otherwise, "Oportun," the "Company,") is a mission driven fintech that puts its members’ financial goals within reach. With intelligent borrowing, savings, and budgeting 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 products powered by A.I., offered either directly or through partners, including unsecured and secured lending, and savings. The Company is headquartered in San Carlos, California. The Company has been certified by the United States Department of the Treasury as a Community Development Financial Institution ("CDFI") since 2009. Segments Segments are defined as components of an enterprise for which discrete financial information is available and evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer and the Company's Chief Financial Officer are collectively considered to be the CODM. The CODM reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company’s operations constitute a single reportable segment. 2. Summary of Significant Accounting Policies Basis of Presentation ‑ The Company meets the SEC's definition of a “Smaller Reporting Company”, and therefore qualifies for the SEC's reduced disclosure requirements for smaller reporting companies. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Use of Estimates ‑ The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates and assumptions. Consolidation and Variable Interest Entities ‑ The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s policy is to consolidate the financial statements of entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by evaluating whether the entity is a voting interest entity or variable interest entity ("VIE") and if the accounting guidance requires consolidation. VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The Company determines whether it has a controlling financial interest in a VIE by considering whether its involvement with the VIE is significant and whether it is the primary beneficiary of the VIE based on the following: • The Company has the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; • The aggregate indirect and direct variable interests held by us have the obligation to absorb losses or the right to receive benefits from the entity that could be significant to the VIE; an • Qualitative and quantitative factors regarding the nature, size, and form of the Company’s involvement with the VIE. Foreign Currency Re-measurement ‑ The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Monetary assets and liabilities of these subsidiaries are re-measured into U.S. dollars from the local currency at rates in effect at period-end and nonmonetary assets and liabilities are re-measured at historical rates. Revenue and expenses are re-measured at average exchange rates in effect during each period. Foreign currency gains and losses from re-measurement and transaction gains and losses are recorded as general, administrative and other expense in the Consolidated Statements of Operations. Concentration of Credit Risk ‑ Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable at fair value. As of December 31, 2023, 46 %, 26 %, 9 %, 5 % and 3 % of the owned principal balance related to borrowers from California, Texas, Florida, Illinois and New Jersey, respectively. Owned principal balance related to borrowers from each of the remaining states of operation continues to be at 65 or below 3 %. As of December 31, 2022, 45 %, 26 %, 9 %, 5 % and 4 % of the owned principal balance related to borrowers from California, Texas, Florida, Illinois and New Jersey, respectively, and the owned principal balance related to borrowers from each of the remaining states was at or below 3 %. Cash and Cash Equivalents ‑ Cash and cash equivalents consist of unrestricted cash balances and short-term, liquid investments with a maturity date of three months or less at the time of purchase. The Oportun savings platform connects to members’ checking accounts and analyzes their income and spending patterns to find amounts that can safely be set aside towards savings goals. The Company calculates these amounts by identifying upcoming bills and regular spending habits to ensure optimal amounts are flagged for savings and transferred to savings accounts. The funds in these saving accounts are owned by Oportun members and are not the assets of the Company. Therefore, these funds are not included in the Consolidated Balance Sheets. Restricted Cash ‑ Restricted cash represents cash held at a financial institution as part of the collateral for the Company’s Secured Financing, asset-backed notes and loans designated for sale. Loans Receivable at Fair Value ‑ Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are considered as loans held for investment. The Company elected the fair value option for all loans receivable held for investment. Under fair value accounting, direct loan origination fees are recognized in income immediately and direct loan origination costs are expensed in the period the loan originates. In addition, the Company recognizes annual fees on credit card receivables into income immediately upon activation of the credit card by the credit card holder and subsequent annual fees when billed upon the anniversary of the credit card account. Loans are charged off at the earlier of when loans are determined to be uncollectible or when loans are 120 days contractually past due, or 180 days contractually past due in the case of credit cards. Recoveries are recorded when cash is received on loans that had been previously charged off. The Company estimates the fair value of the loans using a discounted cash flow model, which considers various unobservable inputs such as remaining cumulative charge-offs, remaining cumulative prepayments or principal payment rates for our credit card receivables, average life and discount rate. The Company re-evaluates the fair value of loans receivable at the close of each measurement period. Changes in fair value are recorded in "Net decrease in fair value" in the Consolidated Statements of Operations in the period of the fair value changes. Fair Value Measurements ‑ The Company follows applicable guidance that establishes a fair value measurement framework, provides a single definition of fair value and requires expanded disclosure summarizing fair value measurements. Such guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability. Fair value guidance establishes a three-level hierarchy for inputs used in measuring the fair value of a financial asset or financial liability. • Level 1 financial instruments are valued based on unadjusted quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date. • Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities. • Level 3 financial instruments are valued using pricing inputs that are unobservable and reflect the Company’s own assumptions that market participants would use in pricing the asset or liability. Loans Held for Sale ‑ Loans held for sale are recorded at the lower of cost or fair value, until the loans are sold. Loans held for sale are sold within four days of origination. Cost of loans held for sale is inclusive of unpaid principal plus net deferred origination costs. Derivatives - Derivative financial instruments are recognized as either assets or liabilities in the consolidated balance sheet at fair value. Changes in fair value and settlements of derivative instruments are reflected in earnings as a component of "Net decrease in fair value" in the Consolidated Statements of Operations. The Company does not use derivative instruments for trading or speculative purposes. Based on the agreements entered into with Pathward, N.A. for all loans originated and retained by Pathward, Pathward receives a fixed interest rate. Oportun bears the risk of credit loss and has the benefit of any excess interest proceeds after satisfying various obligations under the agreements. Goodwill ‑ Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The Company performs impairment testing for goodwill annually or more frequently if an event or change in circumstances indicates that goodwill may be impaired. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the Company concludes the fair value is less than its carrying value a quantitative test is performed. The Company performs a quantitative goodwill impairment test by determining the fair value of the reporting unit and comparing it to the carrying value of the reporting unit. If the fair value of the reporting unit is greater than the reporting unit's fair value, then the carrying value of the reporting unit is deemed to be recoverable. If the carrying value of the reporting unit is greater than the reporting unit's fair value, goodwill is impaired and written down to the reporting unit's fair value. 66 In response to a sustained decline in the Company's share price primarily driven by macroeconomic conditions, the Company conducted a quantitative test of our goodwill as of September 30, 2022. As a result of this quantitative test, the Company identified an impairment to goodwill resulting in recognition of a $ 108.5 million non-cash goodwill impairment charge for the year ended December 31, 2022. There were no goodwill impairment charges during the year ended December 31, 2023. Intangible Assets other than Goodwill - At the time intangible assets are initially recognized, a determination is made with regard to each asset as it relates to its useful life. We have determined that each of our intangible assets has a finite useful life with the exception of certain trade names, which we have determined have indefinite lives. Intangible assets with a finite useful life are amortized on a straight-line basis over their estimated useful lives. Intangible assets with a finite useful life are presented net of accumulated amortization on the Consolidated Balance Sheets. The Company reviews the intangible assets with finite useful lives for impairment at least annually and whenever changes in circumstances indicate their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future cash flows is less than the carrying value of the respective asset. Impairment is permanently recognized by writing down the asset to the extent that the carrying value exceeds the estimated fair value. For indefinite-lived intangible assets, we review for impairment at least annually and whenever events occur or circumstances change that would indicate the assets are more likely than not to be impaired. We first complete an annual qualitative assessment to determine whether it is necessary to perform a quantitative impairment test. If the qualitative assessment indicates that the assets are more likely than not to have been impaired, we proceed with the fair value calculation of the assets. If the fair value is less than the carrying value, an impairment loss will be recognized in an amount equal to the difference and the indefinite life classification will be evaluated to determine whether such classification remains appropriate. Fixed Assets ‑ Fixed assets are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, which is generally three years for computer and office equipment and furniture and fixtures, and three to five years for purchased software, vehicles and leasehold improvements. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss, if any, is included in the Consolidated Statements of Operations. Maintenance and repairs are charged to the Consolidated Statements of Operations as incurred. The Company does not own any buildings or real estate. The Company enters into term leases for its corporate offices, call center and store locations. Leasehold improvements are capitalized and depreciated over the lesser of their physical life or lease term of the building. Systems Development Costs ‑ The Company capitalizes software developed or acquired for internal use, and these costs are included in Capitalized software and other intangibles, net on the Consolidated Balance Sheets. The Company has internally developed its proprietary Web-based technology platform, which consists of application processing, credit scoring, loan accounting, servicing and collections, debit card processing, data and analytics and digital banking services. The Company capitalizes its costs to develop software when preliminary development efforts are successfully completed; management has authorized and committed project funding; and it is probable the project will be completed and the software will be used as intended. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. When the software developed for internal use has reached its technological feasibility, such costs are amortized on a straight-line basis over the estimated useful life of the assets, which is generally three years . Costs incurred for upgrades and enhancements that are expected to result in additional functionality are capitalized and amortized over the estimated useful life of the upgrades. The Company acquired developed technology with its acquisition of Digit. Developed technology is included in capitalized software. Such costs are amortized on a straight-line basis over the estimated useful life of the assets, which was determined to be seven years . Impairment ‑ The Company reviews long-lived assets, including fixed assets, right of use assets and system development costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The Company determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired for the years ended December 31, 2023 and 2022, except as disclosed. Asset-Backed Notes at Fair Value ‑ Prior to 2023, the Company elected the fair value option to account for all asset-backed notes. The Company calculates the fair value of the asset-backed notes using independent pricing services and broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures. The Company re-evaluates the fair value of the asset-backed notes at the close of each measurement period. Changes in fair value are recorded in Net decrease in fair value in the Consolidated Statements of Operations in the period of the fair value changes. Asset-Backed Borrowings at Amortized Cost - Beginning 2023, t he Company elected the amortized cost method to account for newly issued asset-backed borrowings. The Company determines amortized cost using the effective interest method, which allocates interest expense over the expected life of the financial instrument. Premiums, discounts and debt issuance costs are presented as part of the net carrying amount of the debt on issuance. Premiums are amortized from the carrying amount of the debt as a reduction to interest expense over the term. Discounts and debt issuance costs are accreted into the carrying amount of the debt and included in interest expense. Acquisition Financing ‑ The Acquisition Financing is an asset-backed note carried at amortized cost. The Company reports issuance costs associated with the financing on its balance sheet as a direct reduction in the carrying amount of the note, and they are amortized over the life of the 67 note using the effective interest method. The Acquisition Financing was used to fund the cash component of the purchase price for the Digit acquisition and, as a result, the interest payments are recorded to General, administrative and other in the Consolidated Statements of Operations. Revenue Recognition ‑ The Company’s primary sources of revenue consist of interest and non-interest income. Interest Income Interest income includes interest and fees on loans. Generally, the Company’s loans require semi-monthly or biweekly borrower payments of interest and principal. Fees on loans include billed late fees offset by charged-off fees. The Company charges borrowers a late fee if a scheduled installment payment becomes delinquent. Depending on the loan, late fees are assessed when the loan is eight to 16 days delinquent. Late fees are recognized when they are billed. When a loan is charged off, uncollected late fees are also written off. For Loans Receivable at Fair Value, interest income includes (i) billed interest and late fees, plus (ii) origination fees recognized at loan disbursement, less (iii) charged-off interest and late fees. Additionally, direct loan origination expenses are recognized in operating expenses as incurred. For Loans Receivable at Fair Value, loan origination fees and costs are recognized when incurred. Interest income on our personal loans receivable is recognized based upon the amount the Company expects to collect from its borrowers. When a loan becomes delinquent for a period of 90 days or more, interest income continues to be recorded until the loan is charged off. Delinquent loans are charged off at month-end during the month it becomes 120 days’ delinquent. Previously accrued and unpaid interest is also charged off in the month the Company receives a notification of bankruptcy, a judgment or mediated agreement by the court, or loss of life, unless there is evidence that the principal and interest are collectible. Interest income on our credit card receivables is recognized on the current balance on the account, inclusive of outstanding principal balance plus previously unpaid interest and fees, at the end of the monthly billing cycle. Delinquent credit card accounts, including unpaid interest and fees are charged off at month-end during the month they become 180 days contractually past due. Non-Interest Income Non-interest income includes subscription revenue, servicing fees, gain on loan sales, debit card income, documentation fees, sublease income and other income. Subscription Revenue - The Company earns revenue on a subscription basis from users of its platform. Revenue is recognized ratably over each month as the performance obligation is satisfied over time. Deferred revenue is recognized when the service period spans into the following month. Servicing Fees ‑ The Company retains servicing rights on sold loans. Servicing fees comprise the contractual annual servicing fee based upon the average daily principal balance of loans sold that the Company earns for servicing loans sold to a third-party financial institution. The servicing fee compensates the Company for the costs incurred in servicing the loans, including providing customer services, receiving borrower payments and performing appropriate collection activities. Management believes the fee approximates a market rate and accordingly has not recognized a servicing asset or liability. Gain on Loan Sales ‑ The Company recognizes a gain on sale from the difference between the proceeds received from the purchaser and the carrying value of the loans on the Company’s books. The Company sells a certain percentage of new loans twice weekly. A transfer of a financial asset, a group of financial assets, or a participating interest in a financial asset is accounted for as a sale if all of the following conditions are met: • The financial assets are isolated from the transferor and its consolidated affiliates as well as its creditors. • The transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets. • The transferor does not maintain effective control of the transferred assets. The Company records the gain on the sale of a loan at the sale date in an amount equal to the proceeds received less outstanding principal, accrued interest, late fees and net deferred origination costs. Debit card income is the revenue from interchange fees when borrowers use our reloadable debit card for purchases as well as the associated card user fees. Documentation Fees - On a monthly basis Pathward, N.A. pays the Company documentation fees as compensation for its role in facilitation of loan originations by Pathward. The documentation fees are equivalent to loan origination fees charged by Pathward to its borrowers. Documentation fees to which the Company expects to be entitled are variable consideration because loan volume originated over the contractual term is not known at the contract’s inception. Documentation fees associated with loans purchased from Pathward are presented within interest income. The transaction fee is determined each time a loan is issued based on that loan’s initial principal amount and is recognized when performance is complete and upon the successful origination of a borrower's loan. Sublease income is the rental income from subleasing a portion of our existing right of use assets. Interest on member accounts represents income earned on member savings accounts held at partner banks. 68 Other income includes marketing incentives paid directly to us by the merchant clearing company based on transaction volumes, interest earned on cash and cash equivalents and restricted cash, and gain (loss) on asset sales. Interest expense ‑ Interest expense consists of interest expense associated with the Company’s Secured Financing, asset-backed notes at fair value, asset-backed borrowings at amortized cost, and Acquisition and Corporate Financing, and it includes the amortization of deferred origination costs for the Corporate Financing and Secured Financing facilities as well as fees for the unused portion of the Secured Financing facility. The Company elected the fair value option for all asset-backed notes. Accordingly, all origination costs for such asset-backed notes at fair value are expensed as incurred. Income Taxes ‑ The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company evaluates uncertain tax positions by reviewing against applicable tax law all positions taken by the Company with respect to tax years for which the statute of limitations is still open. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company recognizes interest and penalties related to the liability for unrecognized tax benefits, if any, as a component of the Income tax expense line in the accompanying Consolidated Statements of Operations. Stock-Based Compensation ‑ The Company accounts for stock-based employee awards based on the fair value of the award which is measured at grant date. Accordingly, stock-based compensation cost is recognized in operating expenses in the Consolidated Statements of Operations over the requisite service period. The fair value of stock options granted or modified is estimated using the Black-Scholes option pricing model. The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the award grant date. The Company granted restricted stock units ("RSUs") to employees that vest upon the satisfaction of time-based criterion of up to four years and previously some included a performance criterion, a liquidity event in connection with an initial public offering or a change in control. These RSUs were not considered vested until both criteria were met and provided that the participant was in continuous service on the vesting date. Compensation cost for awards with performance criteria, measured on the grant date, was recognized when both the service and performance conditions were probable of being achieved. For grants and awards with just a service condition, the Company recognizes stock-based compensation expenses using the straight-line basis over the requisite service period net of forfeitures. As a result of shares vesting as part of the Company's stock-based plans shares are surrendered to the Company to satisfy the tax withholding obligations and the Company pays the associated payroll taxes and the shares go back to the plan for future use . Treasury Stock ‑ Treasury stock is reported at cost, and no gain or loss is recorded on stock repurchase transactions. Repurchased shares are held as treasury stock until they are retired or re-issued. The Company did no t retire or re-issue any treasury stock for the years ended December 31, 2023 and 2022. Basic and Diluted Earnings per Share ‑ Basic earnings per share is computed by dividing net income per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. The Company computes earnings per share using the two-class method required for participating securities. The Company considers all series of convertible preferred stock to be participating securities due to their noncumulative dividend rights. As such, net income allocated to these participating securities, which includes participation rights in undistributed earnings, are subtracted from net income to determine total undistributed net income to be allocated to common stockholders. All participating securities are excluded from basic weighted-average common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised. It is computed by dividing net income attributable to common stockholders by the weighted-average common shares plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method or the two-class method, whichever is more dilutive. Accounting Standards to be Adopted Income Taxes - In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures. This ASU requires entities to disclose in their rate reconciliation table additional categories or information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold and requires annual disclosure of income taxes paid to be disaggregated by federal, state and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company has evaluated the effect of the new guidance and determined the ASU expands tax disclosures but it will not have a material impact on the consolidated financial statements. Segment Reporting - In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures . The ASU enhances disclosures about significant segment expenses, provides new segment disclosure requirements for entities with a single reportable segment, enhances interim disclosure requirements, clarifies circumstances in which an entity is permitted to disclose multiple segment measures of profit or loss and other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company has evaluated the effect of the new guidance and determined that the expanded segment disclosures will apply but it will not have a material impact on the consolidated financial statements. 69 Recently Adopted Accounting Standards None. 3. Earnings (Loss) per Share Basic and diluted earnings (loss) per share are calculated as follows: Year Ended December 31, (in thousands, except share and per share data) 2023 2022 Net income (loss) $ ( 179,951 ) $ ( 77,744 ) Net income (loss) attributable to common stockholders $ ( 179,951 ) $ ( 77,744 ) Basic weighted-average common shares outstanding 36,875,950 32,825,772 Weighted average effect of dilutive securities: Stock options — — Restricted stock units — — Diluted weighted-average common shares outstanding 36,875,950 32,825,772 Earnings (loss) per share: Basic $ ( 4.88 ) $ ( 2.37 ) Diluted $ ( 4.88 ) $ ( 2.37 ) 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: Year Ended December 31, 2023 2022 Stock options 2,953,853 3,527,096 Restricted stock units 3,709,422 4,347,899 Total anti-dilutive common share equivalents 6,663,275 7,874,995 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 the Company is involved, it assesses whether it is the primary beneficiary of the VIE on an ongoing basis. In circumstances where the Company has 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, it would conclude that it is the primary beneficiary of the VIE, and it consolidates the VIE. In situations where the Company is not deemed to be the primary beneficiary of the VIE, it does not consolidate the VIE and only recognizes its interests in the VIE. In addition, on June 16, 2023 and August 3, 2023, the Company entered into forward flow whole loan sale agreements that are considered secured borrowings and are not considered VIEs. See Note 8, Borrowings for additional information on the secured borrowing under the caption of asset-backed borrowings at amortized cost. 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 consolidated financial statements. 70 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. The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s consolidated balance sheets: December 31, (in thousands) 2023 2022 Consolidated VIE assets Restricted cash $ 91,466 $ 91,395 Loans receivable at fair value 2,539,186 3,112,000 Total VIE assets 2,630,652 3,203,395 Consolidated VIE liabilities Secured financing (1) 290,949 320,000 Asset-backed notes at fair value 1,780,005 2,387,674 Asset-backed borrowings at amortized cost 195,057 — Acquisition financing (1) 57,237 85,679 Total VIE liabilities $ 2,323,248 $ 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 Consolidated Balance Sheets. Other Loan Sales - The Company enters into agreements to sell certain populations of its personal loans and credit card receivables from time to time, including non-performing loans and credit card receivables originated as held for investment. 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 Consolidated Balance Sheets when the loans were sold. Whole Loan Sale Program ‑ The Company enters into whole loan sale agreements with third parties in which we agree to sell newly originated unsecured personal loans and secured personal loans. The originations of loans sold and held for sale during the year ended December 31, 2023 was $ 56.6 million and the Company recorded a gain on sale of $ 8.5 million and servicing revenue of $ 9.6 million. The originations of loans sold and held for sale during the year ended December 31, 2022 was $ 52.7 million and the Company recorded a gain on sale of $ 5.7 million and servicing revenue of $ 17.4 million. 71 6. Capitalized Software and Other Intangibles Capitalized software, net consists of the following: December 31, (in thousands) 2023 2022 Capitalized software, net: System development costs $ 158,577 $ 135,303 Acquired developed technology 48,500 48,500 Less: Accumulated amortization ( 119,810 ) ( 79,679 ) Total capitalized software, net $ 87,267 $ 104,124 Capitalized software, net Amortization of system development costs and acquired developed technology for years ended December 31, 2023 and 2022 was $ 42.3 million and $ 34.2 million, respectively. System development costs capitalized in the years ended December 31, 2023 and 2022 were $ 31.0 million and $ 51.5 million, respectively. The Company recognized a non-cash pre-tax impairment charge of $ 5.6 million related to the write-off of embedded finance, investing and retirement products. The non-cash impairment charge is included in Technology and Facilities in the Consolidated Statements of Operations. Acquired developed technology was $ 48.5 million and is related to the acquisition of Digit. Intangible Assets The gross carrying amount and accumulated amortization, in total and by major intangible asset class are as follows: December 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 ( 15,658 ) $ ( 8,249 ) Total intangible assets, net 27,468 $ 35,677 On March 8, 2023, the Company revealed its rebranding of Oportun and Oportun Savings (formerly known as Digit) as a single brand. Therefore, the Company wrote off its $ 0.8 million Digit trademark. Amortization of intangible assets for the years ended December 31, 2023 and 2022 was $ 7.7 million and $ 7.9 million. Expected future amortization expense for intangible assets as of December 31, 2023 is as follows: (in thousands) Fiscal Years 2024 $ 7,538 2025 4,929 2026 4,929 2027 4,929 2028 4,780 Thereafter — Total $ 27,105 72 7. Other Assets Other assets consist of the following: December 31, (in thousands) 2023 2022 Fixed assets Total fixed assets $ 48,944 $ 48,212 Less: Accumulated depreciation ( 41,953 ) ( 37,688 ) Total fixed assets, net $ 6,991 $ 10,524 Other assets Prepaid expenses $ 15,758 $ 24,167 Deferred tax assets 48,123 1,793 Current tax assets 4,731 8,245 Receivable from banking partner 4,050 2,878 Derivative asset 9,307 725 Other 18,720 15,848 Total other assets $ 107,680 $ 64,180 Fixed Assets Depreciation and amortization expense related to fixed assets for the years ended December 31, 2023 and 2022 was $ 4.3 million and $ 5.2 million, respectively. 8. Borrowings S ecured Financing The following table presents information regarding the Company's Secured Financing facilities: December 31, 2023 December 31, 2022 Variable Interest Entity Facility Amount Maturity Date Interest Rate Balance Balance (in thousands) Oportun CCW Trust (1) $ 100,000 December 1, 2024 Variable (2) $ 68,409 $ 76,574 Oportun PLW Trust (3) 600,000 September 1, 2024 Adjusted SOFR + 2.17 % 221,542 240,994 Total secured financing $ 700,000 $ 289,951 $ 317,568 (1) At December 31, 2022, the facility amount and the original maturity date on the Secured Financing - CCW facility (Oportun CCW Trust) were $ 150.0 million and December 1, 2023, respectively. (2) The interest rate on the Secured Financing - CCW facility (Oportun CCW Trust) is adjusted SOFR plus 3.41 % on the outstanding principal balance as of December 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. (3) On June 29, 2023, the interest rate on the Secured Financing - PLW facility (Oportun PLW Trust) transitioned from LIBOR (minimum 0.00 % ) plus 2.17 % to Adjusted SOFR plus 2.17 %. 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 December 22, 2023, Oportun CCW Trust, a subsidiary of the Company, and Wilmington Trust, National Association, as indenture trustee, securities intermediary and depositary bank, entered into the Seventh Amendment to Indenture (the “Seventh CCW Indenture Amendment”) and other related documents (together with the Seventh CCW Indenture Amendment, the “Seventh CCW Amendment”) related to the Company’s asset-backed variable funding facility secured by certain credit card receivables (the “Credit Card Warehouse Facility”). The Seventh CCW Amendment provides for the reduction in the size of its Credit Card Warehouse Facility from $ 120 million to $ 100 million in connection with the Company’s strategic review of its credit card portfolio, in addition to certain other immaterial changes. 73 Asset-backed Notes at Fair Value The following table presents information regarding asset-backed notes: December 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 $ 145,732 $ 165,079 9.34 % N/A Oportun Issuance Trust (Series 2022-2) 400,000 410,212 135,825 156,027 8.46 % N/A Oportun Issuance Trust (Series 2022-A) 400,000 410,211 390,755 415,448 5.44 % 2 years Oportun Issuance Trust (Series 2021-C) 500,000 512,762 459,212 519,612 2.47 % 3 years Oportun Issuance Trust (Series 2021-B) 500,000 512,759 466,317 519,115 2.05 % 3 years Oportun Funding XIV, LLC (Series 2021-A) 375,000 383,632 182,164 200,758 1.78 % 2 years Oportun Funding XIII, LLC (Series 2019-A) 279,412 294,118 — — — % 3 years Total asset-backed notes recorded at fair value $ 2,754,412 $ 2,834,687 $ 1,780,005 $ 1,976,039 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. (3) Weighted average interest rate excludes notes retained by the Company. There were no notes retained by the Company as of December 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. Asset-backed Borrowings at Amortized Cost The following table represents information regarding the Company's Asset-backed borrowings at amortized cost: December 31, 2023 Asset-backed borrowings at amortized cost Pledged Asset (1) Associated Liability (in thousands) Asset-backed borrowings recorded at amortized cost: Oportun CL Trust 2023-A $ 197,390 $ 195,057 Other Asset Backed Borrowings 382,712 386,411 Total asset-backed borrowings recorded at amortized cost: $ 580,102 $ 581,468 (1) The amount of pledged assets are recognized within the Loans Receivable at Fair Value within the Consolidated Balance Sheet. 74 On June 16, 2023, and August 3, 2023, the Company entered into forward flow whole loan sale agreements and has agreed to sell up to $ 300 million and $ 400 million of its personal loan originations over the next twelve months, respectively. The Company will continue to service these loans upon transfer of the receivables. While the economics of these transactions are structured as a whole loan sale, the transfer of these loans receivable does not qualify as a sale for accounting purposes. Accordingly, the related assets remain on the Company's balance sheet and cash proceeds received are reported as a secured borrowing under the caption of asset-backed borrowings at amortized cost with related interest expense recognized over the life of the related borrowing. As part of these agreements, as of December 31, 2023, the Company transferred loans receivable totaling $ 220.5 million and $ 195.8 million, respectively. On October 20, 2023, the Company entered into a Receivables Loan and Security Agreement (the “Receivables Loan and Security Agreement”), pursuant to which the Company borrowed $ 197 million. Borrowings under the Receivables Loan and Security Agreement accrue interest at a weighted average interest rate equal to 10.05 %. Acquisition and Corporate Financing The following table presents information regarding the Company's Acquisition and Corporate Financings: December 31, 2023 December 31, 2022 Entity Original Balance (1) Maturity Date (2) Interest Rate Balance Balance (in thousands) Oportun Financial Corporation (1) $ 150,000 September 14, 2026 SOFR (minimum of 0.00 % + 12.00 % $ 204,100 $ 141,957 Oportun RF, LLC (2) 116,000 October 10, 2024 SOFR (minimum of 0.00 %) + 11.00 % 54,646 80,922 Total acquisition and corporate financing $ 266,000 $ 258,746 $ 222,879 (1) The Corporate Financing (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 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. Amendments to Acquisition Financing On February 10, 2023, the Acquisition Financing facility (Oportun RF, LLC) was further amended, to among other things, revise the interest rate to SOFR plus 11.00 % and adjust the amortization schedule to defer $ 42.0 million in principal payments through July 2023, with final payment in October 2024. On December 20, 2023, the Acquisition Financing facility (Oportun RF, LLC) was further amended to provide for the exclusion of certain events with respect to Oportun Funding XIV, LLC, a subsidiary of the Company, including a Rapid Amortization Event (as defined in the Sixth RF Indenture Amendment), the release of the RF Issuer’s (as defined in the Sixth RF Indenture Amendment) lien on certain residual certificates and notes, and makes certain other immaterial changes. On March 8, 2024, the Acquisition Financing facility (Oportun RF, LLC) was further amended to provide for a three-month principal payment holiday for the months of March, April and May 2024, in amounts equal to $ 5.7 million per month. In addition, the amendment extended the term of the Acquisition Financing facility to January 10, 2025. Amendments to Corporate Financing On March 10, 2023 (the “Second Amendment Closing Date”), the Company amended its Corporate Financing (Oportun Financial Corporation) 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 funds associated with 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. 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, under the Amended Credit Agreement, the Company borrowed an additional $ 25.0 million of incremental term loans (the "Incremental Tranche B Loans") and issued Warrants to the lenders to purchase 1,048,363 shares of the Company's common stock at an exercise price of $ 0.01 per share. The Company determined that the terms of the new debt instrument upon issuance of Tranche B was substantially different when compared to the Original Credit Agreement resulting in an insignificant net loss on debt extinguishment. Accordingly, the Company extinguished the carrying value of the Corporate Financing prior to issuance of Tranche B and recorded the new Corporate Financing upon issuance of Tranche B at fair value of $ 179.5 million. This resulted in an insignificant net loss on extinguishment. 75 On June 30, 2023, under the Amended Credit Agreement, the Company borrowed an additional $ 25.0 million of incremental term loans (the "Incremental Tranche C Loans") and issued Warrants to the lenders to purchase 1,048,363 shares of the Company's common stock at an exercise price of $ 0.01 per share. 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. On March 12, 2024, the Company entered into an Amendment No. 3 to the Corporate Financing (the “Third 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 the Agent. The Third Amendment includes modifications to the minimum asset coverage ratio covenant levels, provides for an interest rate step-up of 3.00 % per annum for certain months beginning in August 2024 in which the asset coverage ratio is less than 1.00 to 1.00, and requires certain principal payments in amounts equal to $ 5.7 million per month to be made on the last business day of each of March, April and May 2024. In addition, the Third Amendment requires principal payments equal to 100 % of the net cash proceeds of any indebtedness junior in priority to the obligations under the Corporate Financing. See Note 10, Stockholders' Equity for additional information on the Warrants. Debt Covenants - As of December 31, 2023 and 2022, the Company was in compliance with all covenants and requirements of the Secured Financing, Acquisition Financing and Corporate Financing and asset-backed notes. 9. Other Liabilities Other liabilities consist of the following: December 31, (in thousands) 2023 2022 Accounts payable $ 5,288 $ 9,670 Accrued compensation 15,359 12,502 Accrued expenses 24,791 26,193 Accrued interest 8,415 8,445 Amount due to whole loan buyer 4,169 3,073 Deferred tax liabilities — 30,575 Current tax liabilities 7,139 5,912 Other 3,777 3,658 Total other liabilities $ 68,938 $ 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 December 31, 2023 or 2022. Common Stock - As of December 31, 2023 and 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 December 31, 2023, 34,741,076 and 34,469,053 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, the Company issued detachable 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 price of $ 0.01 per share. On June 30, 2023, in connection with the funding of the Incremental Tranche C Loans, the Company issued 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. 76 11. Equity Compensation and Other Benefits 2019 Equity Incentive Plan We currently have one stockholder-approved plan from which we can issue stock-based awards, which was approved by our stockholders in fiscal year 2019 (the "2019 Plan"). The 2019 Plan became effective on September 25, 2019 and replaced the Amended and Restated 2005 Stock Option / Stock Issuance Plan and the 2015 Stock Option/Stock Issuance Plan (collectively, the “Previous Plans”). The Previous Plans solely exist to satisfy outstanding options previously granted under those plans. The 2019 Plan provides for the grant of incentive stock options ("ISOs"), nonstatutory stock options ("NSOs"), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based awards, and other awards (collectively, "awards"). ISOs may be granted only to the Company's employees, including officers, and the employees of its affiliates. All other awards may be granted to the employees, including officers, non-employee directors and consultants and the employees and consultants of the Company's affiliates. The total number of shares of common stock authorized under the 2019 Plan is 13,471,733 shares. The remaining maximum number of shares of our common stock, net of vested and exercised shares, that may be issued under the 2019 Plan will not exceed 9,698,886 shares, of which, 3,192,145 were available for future awards as of December 31, 2023. The number of shares of the Company's common stock reserved for issuance under its 2019 Plan will automatically increase on January 1 of each year for the remaining term of the plan, by 5 % of the total number of shares of its common stock outstanding on December 31 of the immediately preceding calendar year, or a lesser number of shares determined by the Board prior to the applicable January 1st. The shares available for issuance increased by 1,667,730 shares, on January 1, 2023, pursuant to the automatic share reserve increase provision. 2019 Employee Stock Purchase Plan In September 2019, the Board adopted, and stockholders approved, the Company's 2019 Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective on September 25, 2019. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward the Company's success and that of its affiliates. The ESPP includes two components. One component is designed to allow eligible U.S. employees to purchase common stock in a manner that may qualify for favorable tax treatment under Section 423 of the Code. In addition, purchase rights may be granted under a component that does not qualify for such favorable tax treatment when necessary or appropriate to permit participation by eligible employees who are foreign nationals or employed outside of the United States while complying with applicable foreign laws. The maximum aggregate number of shares of common stock that may be issued under the ESPP is 1,926,598 shares and as of December 31, 2023, no shares have been issued under the ESPP. The number of shares of the Company's common stock reserved for issuance under its ESPP will automatically increase on January 1 of each calendar year for the remaining term of the plan by the lesser of (1) 1 % of the total number of shares of its capital stock outstanding on December 31 of the preceding calendar year, (2) 726,186 shares, and (3) a number of shares determined by the Board. The shares available for issuance increased by 333,546 shares, on January 1, 2023, pursuant to the automatic share reserve increase provision. Generally, all regular employees, including executive officers, employed by the Company or by any of its designated affiliates, will be eligible to participate in the ESPP and may contribute, normally through payroll deductions, up to 15 % of their earnings (as defined in the ESPP) for the purchase of common stock under the ESPP. Unless otherwise determined by the Board, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85 % of the fair market value of a share of the Company's common stock on the first date of an offering or (b) 85 % of the fair market value of a share of the common stock on the date of purchase. 2021 Inducement Equity Incentive Plan Effective December 30, 2021, the Company adopted the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”), pursuant to which the Company reserved 1,105,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The remaining maximum number of shares of our common stock that may be issued under the 2021 Inducement Plan net of vested and exercised shares, will not exceed 940,512 shares, of which, 518,558 were available for future awards as of December 31, 2023. The 2021 Inducement Plan was approved by the Company’s Board without stockholder approval in accordance with such rule. Stock Options The term of an option may not exceed 10 years as determined by the Board, and each option generally vests over a four-year period with 25 % vesting on the first anniversary date of the grant and 1/36th of the remaining amount vesting at monthly intervals thereafter. Option holders are allowed to exercise unvested options to acquire restricted shares. Upon termination of employment, option holders have a period of up to three months in which to exercise any remaining vested options. The Company has the right to repurchase at the original purchase price any unvested but issued common shares upon termination of service. Unexercised options granted to participants who separate from the Company are forfeited and returned to the pool of stock options available for grant. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. 77 The fair value of stock option grants was estimated with the following assumptions: Year Ended December 31, 2023 2022 Expected volatility (employee) 71.7 % 63.4 % Risk-free interest rate (employee) 3.9 % 2.3 % Expected term (employee, in years) 6.1 6.1 Expected dividend — % — % These assumptions are defined as follows: • Expected Volatility ‑ Since the Company does not have enough trading history to use the volatility of its own common stock, the option’s expected volatility is estimated based on historical volatility of a peer group’s common stock. • Risk-Free Interest Rate ‑ The risk-free interest rate is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. • Expected Term ‑ The option’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. • Expected Dividend - The Company has no plans to pay dividends. Stock Option Activity - A summary of the Company's stock option activity under the 2005 Plan, 2015 Plan, and 2019 Plan at December 31, 2023 is as follows: (in thousands, except share and per share data) Options Outstanding Options Weighted-Average Exercise Price Weighted Average Remaining Life (in years) Aggregate Intrinsic Value Balance – January 1, 2023 3,298,538 17.71 5.43 $ 202 Options granted 16,210 5.78 Options exercised ( 182,214 ) 4.41 Options canceled ( 467,333 ) 20.16 Options forfeited ( 106,048 ) 14.74 Balance – December 31, 2023 2,559,153 18.25 4.31 $ — Options vested and expected to vest - December 31, 2023 2,559,153 18.25 4.31 $ — Options vested and exercisable - December 31, 2023 2,226,861 18.80 3.89 $ — Information on stock options granted, exercised and vested is as follows: Year Ended December 31, (in thousands, except per share data) 2023 2022 Weighted average fair value per share of options granted $ 3.85 $ 7.76 Cash received from options exercised, net (1) ( 46 ) ( 4,636 ) Aggregate intrinsic value of options exercised 268 11,884 Fair value of shares vested 3,500 3,863 (1) The amount reflected for the years ended December 31, 2023 and 2022, is the net of cash received from options exercised of $ 0.8 million and $ 1.6 million, respectively, and the cash paid for employee tax withholding settled in shares of $ 0.8 million and $ 6.2 million, respectively. As of December 31, 2023 and 2022, the Company’s total unrecognized compensation cost related to nonvested stock-based option awards granted to employees was, $ 2.6 million and $ 6.2 million, respectively, which will be recognized over a weighted-average vesting period of approximately 1.9 years and 2.6 years, respectively. Restricted Stock Units The Company’s restricted stock units ("RSUs") vest upon the satisfaction of time-based criterion of up to four years . In most cases, the service-based requirement will be satisfied in installments as follows: 25 % of the total number of RSUs awarded will have the service-based requirement satisfied during the month in which the 12-month anniversary of the vesting commencement date occurs, and thereafter 1/16th of the total award in a series of 12 successive equal quarterly installments or 1/4th of the total award in a series of three successive equal annual installments following the first anniversary of the initial service vest date. Stock-based compensation cost for RSUs is measured based on the fair market value of the Company’s common stock on the date of grant. 78 A summary of the Company’s RSU activity under the 2015 Plan, 2019 Plan and 2021 Inducement Plan for the year ended December 31, 2023 is as follows: RSU Outstanding Weighted Average Grant-Date Fair Value Balance – January 1, 2023 4,494,947 14.37 Granted 2,786,247 4.85 Vested (1) ( 1,638,135 ) 13.11 Forfeited ( 1,601,185 ) 14.10 Balance – December 31, 2023 4,041,874 8.43 Expected to vest after December 31, 2023 3,922,079 8.44 (1) The Company allows its Board to defer all or a portion of monetary remuneration paid to the Director. As of December 31, 2023, there were 119,795 restricted stock units vested for which the holders elected to defer delivery of the Company's shares. As of December 31, 2023 and 2022, the Company's total unrecognized compensation cost related to nonvested restricted stock unit awards granted to employees was, $ 24.8 million and $ 51.6 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.1 years and 2.7 years, respectively. Stock-based Compensation - Total stock-based compensation expense included in the Consolidated Statements of Operations, net of amounts capitalized to system development costs is as follows: Year Ended December 31, (in thousands of dollars) 2023 2022 Technology and facilities $ 4,602 $ 6,993 Sales and marketing 63 143 Personnel 13,928 20,484 Total stock-based compensation (1) $ 18,593 $ 27,620 (1) Amounts shown are net of $ 1.4 million and $ 2.5 million of capitalized stock-based compensation for the year ended December 31, 2023 and 2022, respectively. Cash flows from the tax shortfalls or benefits for tax deductions resulting from the exercise of stock options in comparison to the compensation expense recorded for those options are required to be classified as cash from financing activities. The Company recognized $ 5.1 million and $ 8.1 million of income tax benefit in its Consolidated Statements of Operations related to stock-based compensation expense during the years ended December 31, 2023 and 2022, respectively. Additionally, the total income tax expense recognized in the income statement for share-based compensation exercises was $ 3.5 million and $ 3.3 million for the years ended December 31, 2023 and 2022, respectively. Retirement Plan The Company maintains a 401(k) Plan, which enables employees to make pre-tax or post-tax deferral contributions to the participating employees account. Employees may contribute a portion of their pay up to the annual amount as set periodically by the Internal Revenue Service. The Company provides for an employer 401(k) contribution match of up to 4 % of an employee’s eligible compensation. In addition, the Company provides a contribution to various savings funds for India and Mexico-based employees. The total expense related to the employer match and contributions recognized by the Company for the years ended December 31, 2023 and 2022 was $ 6.2 million and $ 6.4 million, respectively. All employee and employer contributions will be invested according to participants’ individual elections. 12. Revenue Interest Income - Total interest income included in the Consolidated Statements of Operations is as follows: Year Ended December 31, (in thousands) 2023 2022 Interest income Interest on loans $ 945,118 $ 854,245 Fees on loans 18,378 21,869 Total interest income $ 963,496 $ 876,114 79 Non-interest Income - Total non-interest income included in the Consolidated Statements of Operations is as follows: Year Ended December 31, (in thousands) 2023 2022 Non-interest income Gain on loan sales $ 8,455 $ 5,703 Servicing fees 14,685 19,928 Subscription revenue 25,569 31,186 Interest on members accounts 21,075 3,840 Other income 23,639 15,774 Total non-interest income $ 93,423 $ 76,431 13. Income Taxes The following are the domestic and foreign components of the Company’s income before taxes: Year Ended December 31, (in thousands) 2023 2022 Domestic $ ( 261,620 ) $ ( 83,793 ) Foreign 7,967 8,507 Income (loss) before taxes $ ( 253,653 ) $ ( 75,286 ) The provision for income taxes consisted of the following: Year Ended December 31, (in thousands) 2023 2022 Current Federal $ 200 $ ( 1,217 ) State $ 260 $ 1,505 Foreign $ 2,743 $ 2,227 Total current $ 3,203 $ 2,515 Deferred Federal ( 52,885 ) ( 712 ) State ( 23,553 ) 806 Foreign ( 467 ) ( 151 ) Total deferred $ ( 76,905 ) $ ( 57 ) Total provision for income taxes $ ( 73,702 ) $ 2,458 Income tax expense (benefit) was $( 73.7 ) million and $ 2.5 million for the years ended December 31, 2023 and 2022, which represents an effective tax rate of 29.1 % and ( 3.3 )%, respectively. 80 A reconciliation of income tax expense with the amount computed by applying the statutory U.S. federal income tax rates to income before provision for income taxes is as follows: Year Ended December 31, (in thousands) 2023 2022 Income tax (benefit) expense computed at U.S. federal statutory rate $ ( 53,267 ) $ ( 15,810 ) State tax ( 19,209 ) 1,403 Foreign rate differential 603 289 Federal tax credits ( 3,030 ) ( 2,621 ) Share based compensation expense 2,870 506 Change in unrecognized tax benefit reserves 3,038 1,326 Return to provision adjustment ( 5,674 ) ( 5,798 ) Goodwill impairment — 22,779 Fines and penalties 14 578 Other 953 ( 194 ) Income tax expense $ ( 73,702 ) $ 2,458 Effective tax rate 29.1 % ( 3.3 ) % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The primary components of the Company’s net deferred tax assets and liabilities are composed of the following: December 31, (in thousands) 2023 2022 Deferred tax assets: Net operating loss & credit carryforward $ 68,677 $ 41,169 Leases 7,494 10,174 Share-based compensation 6,618 8,335 System development costs 5,619 — Accrued expenses and reserves 3,032 3,361 Other 972 245 Total deferred tax assets $ 92,412 $ 63,284 Valuation allowance $ — $ — Deferred tax liabilities: Fair value adjustment - Bonds Payable $ ( 24,930 ) $ ( 53,210 ) Fair value adjustment - Loans Receivable ( 7,095 ) ( 12,077 ) Right of use assets ( 5,574 ) ( 8,163 ) Depreciation and amortization ( 4,232 ) ( 6,813 ) Derivative instrument ( 2,458 ) — System development costs — ( 11,803 ) Total deferred tax liabilities $ ( 44,289 ) $ ( 92,066 ) Net deferred taxes $ 48,123 $ ( 28,782 ) As provided for in the Tax Cuts and Jobs Act of 2017, our historical earnings were subject to the one-time transition tax and can now be repatriated to the U.S. with a de minimis tax cost due to the participation exemption put in place by the 2017 Tax Act. The Company continues to assert that both its historical and current earnings in its foreign subsidiaries are permanently reinvested and therefore no deferred taxes have been provided. As of December 31, 2023, the Company had federal net operating loss carryforwards of $ 189.1 million, of which $ 17.7 million expires beginning in 2033 and $ 171.4 million carries forward indefinitely. Additionally, the Company had state net operating loss carryforwards of $ 199.0 million which are set to begin expiring in 2030. As of December 31, 2023, the Company had federal and California research and development tax credit carryforwards of $ 15.3 million and $ 9.9 million, respectively. The federal research and development tax credit expires beginning in 2041, and the California research and development tax credits are not subject to expiration. 81 The following table summarizes the activity related to the unrecognized tax benefits: Year Ended December 31, (in thousands) 2023 2022 Balance as of January 1, $ 6,608 $ 5,170 Increases related to current year tax positions 1,146 894 Increases related to prior year tax positions 1,844 544 Decreases related to prior year tax positions ( 950 ) — Balance as of December 31, $ 8,648 $ 6,608 Interest and penalties related to the Company’s unrecognized tax benefits accrued as of December 31, 2023 and 2022 were $ 1.2 million and $ 0.9 million, respectively. The Company’s policy is to recognize interest and penalties associated with income taxes in income tax expense and the Company recognized $ 0.3 million for both years ended December 31, 2023 and 2022, respectively. The Company expects to release $ 3.6 million of the uncertain tax positions within the next twelve months due to the expiration of various statute of limitations at the end of 2024. The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, is $ 6.8 million. Due to the net operating loss carryforwards, the Company’s United States federal and significant state returns are open to examination by the Internal Revenue Service and state jurisdictions for years ended December 31, 2012 and 2014, respectively, and forward. For Mexico, all tax years ended December 31, 2018 and forward remain open for examination by the Mexico taxing authorities. For India, all tax years remain open for examination by the India taxing authorities. 14. Fair Value of Financial Instruments Financial Instruments at Fair Value The Company elected the fair value option for all loans receivable held for investment and for all asset-backed notes. Loans that the Company designates for sale will continue to be accounted for as held for sale and recorded at the lower of cost or fair value until the loans receivable are sold . The table below compares the fair value of loans receivable and asset-backed notes to their contractual balances as of the dates shown: December 31, 2023 December 31, 2022 (in thousands) Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value Assets Loans receivable - personal loans $ 2,824,342 $ 2,853,186 $ 2,999,062 $ 3,059,197 Loans receivable - credit cards 111,145 109,166 131,343 116,252 Total loans receivable at Fair Value $ 2,935,487 $ 2,962,352 $ 3,130,405 $ 3,175,449 Liabilities Asset-backed notes $ 1,874,406 $ 1,780,005 $ 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 loans receivable balance at fair value as of December 31, 2023 consists of $ 2,726.6 million of unsecured personal loans receivable and $ 126.6 million of secured personal loans receivable. December 31, 2023 December 31, 2022 Personal Loans Receivable Minimum Maximum Weighted Average (2) Minimum Maximum Weighted Average (2) Remaining cumulative charge-offs (1) 6.87 % 51.00 % 11.80 % 5.06 % 51.45 % 9.86 % Remaining cumulative prepayments (1) — % 28.17 % 23.83 % — % 33.59 % 28.73 % Average life (years) 0.18 1.37 1.01 0.05 1.52 1.01 Discount rate 10.10 % 10.10 % 10.10 % 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) . 82 The Company has derivative instruments in connection with its bank partnership program with Pathward, N.A. related to excess interest proceeds it expects to receive on loans retained by Pathward, N.A. Based on the agreement underlying the bank partnership program, for all loans originated and retained by Pathward, Pathward receives a fixed interest rate. The Company bears the risk of credit loss and has the benefit of any excess interest proceeds after satisfying various obligations under the agreement. The fair value of the derivative instrument was $ 9.3 million as of December 31, 2023. The underlying cash flows were $ 12.2 million as of December 31, 2023. The fair value of the derivative instrument and underlying cash flows were not material as of December 31, 2022. The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for derivative instruments presented within Other Assets in the Consolidated Balance Sheets: December 31, 2023* Low High Weighted Average Remaining cumulative charge-offs 1.09 % 30.38 % 10.56 % Remaining cumulative prepayments 0.01 % 3.89 % 0.92 % Average life (years) 0.36 2.00 1.64 Discount rate 17.00 % 17.00 % 17.00 % * Inputs as of December 31, 2022 were not disclosed as the balance was not yet material December 31, 2023 December 31, 2022 Credit Card Receivables Range Range Remaining cumulative charge-offs (1) 20.16 % 22.80 % Principal payment rate (1) 7.06 % 9.28 % Average life (years) 1.00 0.69 Discount rate 10.20 % 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 years ended December 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 loans receivable, 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 loans receivable, 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. For the derivative, the Company uses a base set of cash flows derived from historical data and management assumptions. From this base set of cash flows, funds that are projected to be released to the Company according to the contractual terms outlined in the waterfall agreement are calculated on an aggregate basis then discounted at a rate that is representative of equity yield. The table below presents a reconciliation of Loans Receivable at Fair Value on a recurring basis using significant unobservable inputs: December 31, (in thousands) 2023 2022 Balance – beginning of period $ 3,175,449 $ 2,407,722 Principal disbursements 2,841,916 3,921,347 Principal payments from borrowers ( 2,599,503 ) ( 2,729,545 ) Gross charge-offs ( 437,330 ) ( 355,178 ) Net (decrease) increase in fair value ( 18,180 ) ( 68,897 ) Balance ‑ end of period $ 2,962,352 $ 3,175,449 As of December 31, 2023, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $ 5.2 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $ 41.5 million. As of December 31, 2022, the aggregate fair value 83 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. Financial Instruments Disclosed But Not Carried at Fair Value The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy: December 31, 2023 Carrying value Estimated fair value Estimated fair value (in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 91,187 $ 91,187 $ 91,187 $ — $ — Restricted cash 114,829 114,829 114,829 — — Liabilities Accounts payable 5,288 5,288 5,288 — — Secured financing (Note 8) 290,949 285,231 — 285,231 — Asset-backed borrowings at amortized cost (Note 8) (1) 580,101 580,101 — — 580,101 Acquisition and corporate financing (Note 8) 285,682 286,865 — 286,865 — (1) As of December 31, 2023, the Company estimates the carrying value of asset-backed borrowings at amortized cost to approximate their fair value as the underlying cash flows and associated assumptions are reviewed and updated each period. 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 9) 320,000 306,574 — 306,574 — Acquisition and corporate financing (Note 9) 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, acquisition and corporate financing ‑ The fair values of the secured financing and acquisition and corporate financing have been calculated using discount rates equivalent to the weighted-average market yield of comparable debt securities, which is a Level 2 input measure. • Asset-backed borrowings at amortized cost ‑ The fair values of the asset-backed borrowings at amortized cost have been calculated by discounting the contractual cash flows at the interest rate the Company estimates such arrangement would bear if executed in the current market, which is a Level 3 input measure. There were no transfers in or out of Level 3 assets and liabilities for the years ended December 31, 2023 and 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 6 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 Consolidated Statements of Operations. 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 84 Company’s leases include options to extend or terminate the arrangement at the end of the original lease term. The Company generally does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. Variable lease payments and short-term lease costs were deemed immaterial. The Company’s leases do not provide an explicit rate. The Company uses its contractual borrowing rate to determine lease discount rates. As of December 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 2024 $ 12,786 2025 10,851 2026 4,700 2027 1,661 2028 435 2029 40 Thereafter — Total lease payments 30,473 Imputed interest ( 2,097 ) Total leases $ 28,376 Weighted average remaining lease term 2.7 years Weighted average discount rate 4.72 % 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 years ended December 31, 2023 and 2022 were $ 17.4 million and $ 18.5 million, respectively. Purchase Commitment ‑ The Company has commitments to purchase information technology and communication services in the ordinary course of business, with various terms through 2027. 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 $ 44.8 million in 2024, $ 26.5 million in 2025, $ 3.3 million in 2026, $ 1.0 million in 2027, and $ 0.0 million in 2028 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 December 31, 2023, the Company has a commitment to purchase an additional $ 12.9 million of program loans based on originations through December 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 program, refer to Note 5, Loans Held for Sale . Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at December 31, 2023 and 2022 were $ 32.9 million and $ 45.0 million, respectively. WebBank has a direct obligation to borrowers to fund such credit card commitments subject to the respective 85 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. Mexico Value-added Tax - In October 2023, the Company's Mexico subsidiary received notice from Mexico’s Servicio de Administración Tributaria, the Mexican federal tax authority, for claims related to the alleged underpayment of value-added tax, including inflationary adjustments, fines and penalties for tax years 2017-2019. The Company disputes that there were underpayments in any of those years, and intends to pursue all available administrative and legal avenues of appeal to assert its position. No accrual related to this matter has been recorded as of December 31, 2023, as the Company believes it is not probable to be incurred. However, it is reasonably possible the Company will be unsuccessful in asserting at least some of these claims, and for those claims, the Company believes it may be exposed to a liability ranging from zero to $ 3.8 million, consisting of $ 1.2 million of value-added tax and $ 2.6 million of inflationary adjustments, fines and penalties. These estimates are subject to change based on the results of the administrative and legal appeal processes, however, timing of the resolution of this issue is unknown. Litigation 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. 16. Related Party Transactions On September 14, 2022, the Company entered into an agreement to borrow $ 150.0 million of a senior secured term loan with certain funds associated with Neuberger Berman Specialty Finance (“Neuberger”). On March 10, 2023, the Company upsized and amended its Corporate Financing and borrowed an additional $ 75.0 million over four separate tranches from March 10, 2023 to June 30, 2023. In connection with the additional $ 75.0 million, the Company issued warrants to the lenders with each tranche to purchase a total of 4,193,453 shares of its common stock at an exercise price of $ 0.01 per share (the “Warrants”). Following the issuance of the Warrants, Neuberger is now deemed to be a beneficial owner of greater than ten percent of the Company's outstanding stock pursuant to generally accepted accounting principles. See Note 8, Borrowings for additional information on the Second Amendment of the Corporate Financing and Note 10, Stockholders' Equity for additional information on the Warrants. In addition, on June 16, 2023, the Company entered into a forward flow whole loan sale agreement with Neuberger. Pursuant to this agreement, the Company has agreed to sell up to $ 300.0 million of its personal loan originations over the next twelve months. The Company will continue to service these loans upon transfer of the receivables. As part of this agreement, during the year ended December 31, 2023, the Company transferred loans receivable totaling $ 220.5 million. See Note 8, Borrowings – Asset-backed borrowings at amortized cost for additional information on the forward flow whole loan sale agreement. For the year ended December 31, 2023, the Company recorded interest expense of $ 38.3 million related to the Corporate Financing agreement and $ 8.7 million related to the secured borrowing agreement. The expected cash flows are used to calculate interest expense on the secured borrowing, using the effective interest method. The Company also recorded $ 20.0 million of interest income in the Company’s Consolidated Statements of Operations for the year ended December 31, 2023 related to transferred loans. Loans receivable at fair value underlying the secured borrowing with Neuberger was $ 200.8 million as of December 31, 2023. The Company had Asset-backed borrowings at amortized costs of $ 201.8 million and corporate financing of $ 204.1 million due to Neuberger as of December 31, 2023. The Company also had an insignificant amount of Interest and fee receivable, net, and Other liabilities in its Consolidated Balance Sheets as of December 31, 2023 related to these transactions. The Company believes that it has executed all the transactions described herein on terms no less favorable to it than it could have obtained from unaffiliated third parties. 17. Subsequent Events On February 13, 2024, Oportun Financial Corporation (the “Company”) issued a press release announcing the issuance of $ 199.5 million two-year asset-backed notes (the “Notes”) by Oportun Issuance Trust 2024-1 (the “Issuer”) and secured by a pool of its unsecured and secured personal installment loans (the “2024-1 Securitization”). The 2024-1 Securitization included four classes of fixed rate notes. The Notes were offered and sold in a private placement in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended, and were priced with a weighted average yield of 8.600 % per annum and weighted average coupon of 8.434 % per annum. 86 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.