Oportun Financial Corp

Notes to the Condensed Consolidated Financial Statements (Unaudited)

June 30, 2024

Oportun Financial Corporation (together with its subsidiaries unless the context indicates otherwise, "Oportun" or 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.

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 are unaudited and reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "Annual Report"), filed with the Securities and Exchange Commission ("SEC") on March 15, 2024.

Use of Estimates ‑The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates and assumptions.

Accounting Policies - There have been no changes to the Company's significant accounting policies from those described in Part II, Item 8 - Financial Statements and Supplementary Data in the Annual Report, except for the new accounting pronouncements subsequently adopted as noted below.

Recently Adopted Accounting Standards

None.

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 not have a material impact on the consolidated financial statements.

Basic and diluted earnings (loss) per share are calculated as follows:

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:

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 to collateralize certain asset-backed financing transactions. For these VIEs where the Company has determined that it is the primary beneficiary because it has the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs, the VIEs assets and related liabilities are consolidated with the results of the Company. Such power arises from the Company’s contractual right to service the loans receivable securing the VIEs’ asset-backed debt obligations. The Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the VIEs because it retains the residual interest of each asset-backed financing transaction in the form of an asset-backed certificate. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its condensed consolidated financial statements.

Each consolidated VIE issues a series of asset-backed securities that are supported by the cash flows arising from the loans receivable securing such debt. Cash inflows arising from such loans receivable are distributed monthly to the transaction’s lenders and related service providers in accordance with the transaction’s contractual priority of payments. The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets. The Company retains the most subordinated economic interest in each financing transaction through its ownership of the respective residual interest in each VIE. The Company has no obligation to repurchase loans receivable that initially satisfied the financing transaction’s eligibility criteria but subsequently became delinquent or a defaulted loans receivable.

The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited):

(1)Amounts exclude deferred financing costs. See Note 8, Borrowings for additional information.

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 Condensed Consolidated Balance Sheets (Unaudited) at the end of the quarter in which 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 three months ended June 30, 2024 was $28.4 million and the Company recorded a gain on sale of $2.1 million and servicing revenue of $1.6 million. The originations of loans sold and held for sale during the three months ended June 30, 2023 was $15.6 million. The gain on sale recorded during the three months ended June 30, 2023 was $2.3 million. Servicing revenue during the same time period was $2.5 million.

The originations of loans sold and held for sale during the six months ended June 30, 2024 was $50.7 million and the Company recorded a gain on sale of $3.6 million and servicing revenue of $3.2 million. The originations of loans sold and held for sale during the six months ended June 30, 2023 was $25.7 million. The gain on sale recorded during the six months ended June 30, 2023 was $3.7 million. Servicing revenue during the same time period was $5.6 million.

Oportun® Visa® Credit Card -On June 21, 2024, the Company entered into a nonbinding letter of intent with a third-party to sell the credit card receivable portfolio originated under the Company's credit card program. Following the execution of the nonbinding letter of intent, the portfolio is considered to be held for sale and is presented within Credit cards receivable held for sale on the Condensed Consolidated Balance Sheet (Unaudited). The Company has elected the fair value option for the credit card portfolio and, as a result, we recorded a net decrease in fair value of $36.2 million associated with the terms contained within the nonbinding letter of intent. The Company has chosen to sell the credit card receivables portfolio because it believes it can achieve higher returns on its capital from allocating it to the Company's other products.

Capitalized software, net consists of the following:

Capitalized software, net

Amortization of system development costs and acquired developed technology for the three months ended June 30, 2024 and 2023 was $10.1 million and $10.6 million, respectively. System development costs capitalized in the three months ended June 30, 2024 and 2023 were $5.4 million and $7.7 million, respectively.

Amortization of system development costs and acquired developed technology for the six months ended June 30, 2024 and 2023 was $20.4 million and $20.7 million, respectively. System development costs capitalized in the six months ended June 30, 2024 and 2023 were $9.2 million and $18.3 million, respectively.

Acquired developed technology was $48.5 million and is related to the acquisition of Hello Digit, Inc. (“Digit”) on December 22, 2021.

Intangible Assets

The gross carrying amount and accumulated amortization, in total and by major intangible asset class are as follows:

Amortization of intangible assets for the three months ended June 30, 2024 and 2023 was $1.9 million and $1.9 million, respectively. Amortization of intangible assets for the six months ended June 30, 2024 and 2023 was $3.8 million and $3.5 million, respectively. On March 8, 2023, the Company revealed its rebranding of Oportun and Digit as a single brand. Therefore, the Company wrote off its $0.8 million Digit trademark.

Expected future amortization expense for intangible assets as of June 30, 2024 is as follows:

Other assets consist of the following:

Fixed Assets

Depreciation and amortization expense related to fixed assets for the three months ended June 30, 2024 and 2023 was $1.0 million and $0.9 million, respectively, and for the six months ended June 30, 2024 and 2023 was $2.0 million, and $2.2 million, respectively.

The Company recognized an impairment of the right-of-use asset related to the leased office space in San Carlos, California due to a significant decrease in observed market rents for commercial office space, and the inability to find a sub-lessee given the remaining lease term and market conditions. As a result, the Company disposed of all related fixed assets of $3.7 million and related accumulated depreciation of $3.5 million resulting in a loss on disposal of $0.2 million.