Oportun Financial Corp

Preferred Stock - The board of directors of the Company (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 wereno shares of undesignated preferred stock issued or outstanding as of June 30, 2024 or December 31, 2023.

Common Stock - As of June 30, 2024 and December 31, 2023, the Company was authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. As of June 30, 2024,35,994,744 and 35,722,721 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. 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.

Warrants - On March 10, 2023, pursuant to the Second Amendment of the Corporate Financing facility, 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.

See Liquidity and Capital Resources section for additional information on the Second Amendment of the Corporate Financing facility.

The Company's stock-based plans are described and informational disclosures are provided in the Notes to the Consolidated Financial Statements included in the Annual Report.

Stock-based Compensation -Total stock-based compensation expense included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:

(1)Amounts shown are net of $0.2 million and $0.5 million of capitalized stock-based compensation for the three and six months ended June 30, 2024, respectively, and net of $0.3 million and $0.7 million of capitalized stock-based compensation for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, and December 31, 2023, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $1.5 million and $2.6 million, respectively, which will be recognized over a weighted-average vesting period of approximately 1.7 years and 1.9 years, respectively. As of June 30, 2024 and December 31, 2023, the Company's total unrecognized compensation cost related to time-based and performance-based unvested restricted stock unit awards granted to employees was $21.0 million and $24.8 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.2 years and 2.1 years, respectively.

Cash flows from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) are required to be classified as cash from financing activities. The Company recognized $2.0 million and $2.6 million of income tax benefit in its consolidated statement of operations related to stock-based compensation expense during the six months ended June 30, 2024 and 2023, respectively. Additionally, the total income tax expense (benefit) recognized in the income statement for share-based compensation exercises was $0.2 million and $1.7 million for the three and six months ended June 30, 2024, respectively. The total income tax expense recognized in the income statement for share-based compensation exercises was $0.3 million and $2.7 million for the three and six months ended June 30, 2023, respectively.

Interest Income - Total interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:

Non-interest Income - Total non-interest income included in the Condensed Consolidated Statements of Operations (Unaudited) is as follows:

For the three and six months ended June 30, 2024 and 2023, the Company calculated its year-to-date income tax expense (benefit) by applying the estimated annual effective tax rate to the year-to-date income from operations before income taxes and adjusts the income tax expense (benefit) for discrete tax items recorded in the period.

During the three and six months ended June 30, 2024, the Company recorded income tax benefit of $18.1 million and $22.2 million, respectively, related to continuing operations, representing an effective tax rate of 36.9% and 27.8%, respectively. Income tax benefit for the three and six months ended June 30, 2023 was $2.6 million and $42.0 million, representing an effective income tax rate of 14.7% and 26.4%, respectively.

Income tax benefit increased by $15.6 million or 605%, from $2.6 million for the three months ended June 30, 2023 to $18.1 million benefit for the three months ended June 30, 2024, primarily as a result of having a larger pretax loss for the three months ended June 30, 2024. Income tax benefit decreased by $19.9 million or 47%, from $42.0 million for the six months ended June 30, 2023 to $22.2 million for the six months ended June 30, 2024, primarily as a result of having a lower pretax loss for the six months ended June 30, 2024. The Company's effective tax rates for the three and six months ended June 30, 2024 and 2023 differ from the statutory tax rates primarily due to the impacts of the research and development tax credit, and stock-based compensation.

The Company’s policy is to recognize interest and penalties associated with unrecognized tax positions in income tax expense. At the end of 2024, the Company expects it will no longer be subject to any significant U.S. federal tax examinations by tax authorities for all years prior to 2021. Thus, the Company expects to release $3.4 million of uncertain tax positions within the next twelve months due to the expiration of various statute of limitations.

In December 2021, the Organization for Economic Co-operation and Development Inclusive Framework on Base Erosion Profit Shifting released Model Global Anti-Base Erosion rules (“Model Rules”) under Pillar Two. The Model Rules set forth the “common approach” for a Global Minimum Tax at 15 percent for multinational enterprises with a turnover of more than 750 million euros. Rules under Pillar Two were effective from January 1, 2024. The Company does not expect adoption of Pillar Two rules to have a significant impact on its consolidated financial statements during fiscal year 2024.

Financial Instruments at Fair Value

The table below compares the fair value of loans receivable and asset-backed notes to their contractual balances for the periods shown:

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 June 30, 2024, consists of $2,578.9 million of unsecured personal loans receivable and $135.5 million of secured personal loans receivable.

(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).

(1)Figure disclosed as a percentage of outstanding principal balance.

(2) As of June 30, 2024, the Company determined the fair value of the credit card receivables held for sale based on the terms outlined in the non-binding letter of intent.

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 as of June 30, 2024 and December 31, 2023, were $11.4 million and $9.3 million, respectively. The underlying cash flows as of June 30, 2024 and December 31, 2023, were $14.2 million and $12.2 million, respectively. 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 Condensed Consolidated Balance Sheets (Unaudited):

Fair value adjustments related to financial instruments where the fair value option has been elected are recorded through earnings for the six months ended June 30, 2024 and 2023. 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 modelby 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.

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 decision to sell the credit card receivable portfolio the Company used the agreed upon sale price to determine the fair value. Prior to this decision, the Company used 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:

As of June 30, 2024, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $4.7 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $34.2 million. 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.

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:

(1)As of June 30, 2024, the Company estimates the carrying value of the Level 3 other 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.

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.

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 facilities have been calculated using discount rates equivalent to the weighted-average market yield of comparable debt securities, which is a Level 2 input measure.

•Asset-backed borrowings at amortized cost ‑The fair values of the asset-backed borrowings at amortized cost include both securitizations carried at amortized cost and secured borrowings. We obtain indicative pricing on comparable debt securities for securitizations carried at amortized cost, which is a Level 2 input measure. Fair values of secured borrowings included in 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 wereno transfers in or out of Level 3 assets and liabilities for the three and six months ended June 30, 2024 and 2023 and the year ended December 31, 2023.

Leases - The Company’s leases are primarily for real property consisting of retail locations and office space and have remaining lease terms of less than 6 years.

The Company recognized an impairment of the right-of-use asset related to the leased office space in San Carlos, California of $6.2 million due to a significant decrease in observed market rents for commercial office space, and the inability to find sub-lessee given the remaining lease term and market conditions. The impairment charges were recognized in General, administrative and other in the Consolidated Statements of Operations.

The Company has elected the practical expedient to keep leases with terms of 12 months or less off the balance sheet as no recognition of a lease liability and a right-of-use asset is required. Operating lease expense is recognized on a straight-line basis over the lease term in "Technology and facilities" in the Condensed Consolidated Statements of Operations (Unaudited).

All of the Company’s existing lease arrangements are classified as operating leases. At the inception of a contract, the Company determines if the contract is or contains a lease. At the commencement date of a lease, the Company recognizes a lease liability equal to the present value of the lease payments and a right-of-use asset representing the Company's right to use the underlying asset for the duration of the lease term. The Company’s leases include options to extend or terminate the arrangement at the end of the original lease term. The Company generally does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. Variable lease payments and short-term lease costs were deemed immaterial. The Company’s leases do not provide an explicit rate. The Company uses its contractual borrowing rate to determine lease discount rates.

As of June 30, 2024, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows:

As of December 31, 2023, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows:

Rental expenses under operating leases for the three and six months ended June 30, 2024, were $3.3 million, and $7.1 million, respectively, and for the three and six months ended June 30, 2023, were $4.7 million, and $9.1 million, respectively.

Purchase Commitments ‑The Company has commitments to purchase information technology and communication services in the ordinary course of business, with various terms through 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 $20.6 million for the remainder of 2024, $29.4 million in 2025, $14.5 million in 2026, $1.2 million in 2027 and $0.0 million in 2028.

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. After Pathward has met its retention requirement, the Company has a commitment to purchase all additional program loans.

Unfunded Loan and Credit Card Commitments- Unfunded loan and credit card commitments at June 30, 2024 and December 31, 2023 were $28.5 million and $32.9 million, respectively. WebBank has a direct obligation to borrowers to fund such credit card commitments subject to the respective account agreements with such borrowers; however, pursuant to the Receivables Purchase Agreement between WebBank and Oportun, Inc., the Company has the obligation to purchase receivables from WebBank representing these unfunded amounts.

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 June 30, 2024, 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.

See Part II. Item 1. Legal Proceedings for additional information regarding legal proceedings in which the Company is involved.

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 facility 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 thanten 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 facility 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 agreed to sell up to $300.0 million of its personal loan originations over the subsequent twelve months. On April 26, 2024, we amended the agreement to extend the term and revised the commitment amount to sell $370.9 million of personal loan originations in aggregate through October 2024. The Company will continue to service these loans upon transfer of the receivables. As part of this agreement, during the three and six months ended June 30, 2024 the Company transferred loans receivable totaling $70.2 million and $70.6 million, respectively. See Liquidity and Capital Resources section for additional information on the forward flow whole loan sale agreement.

For the three months ended June 30, 2024 and 2023 the Company recorded interest expense under these agreements of $11.0 million and $9.0 million, respectively, primarily related to the Corporate Financing agreement and $7.2 million and $0.1 million, respectively, 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. Related to transferred loans, the Company also recorded $14.7 million and $0.1 million of interest income in the Company's Condensed Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2024 and 2023, respectively.

For the six months ended June 30, 2024 and 2023, the Company recorded interest expense under these agreements of $22.5 million and $15.3 million, respectively, primarily related to the Corporate Financing agreement and, $13.6 million and $0.1 million, respectively, 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. Related to the transferred loans, the Company also recorded $19.5 million and $0.1 million of interest income in the Company's Condensed Consolidated Statements of Operations (Unaudited) for the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024 and December 31, 2023, loans receivable at fair value underlying the secured borrowing with Neuberger was $227.8 million and $200.8 million, respectively, The Company had Asset-backed borrowings at amortized costs of $229.8 million and corporate financing of $192.0 million due to Neuberger as of June 30, 2024 and, $201.8 million and $204.1 million, respectively, as of December 31, 2023. The Company also had an insignificant amount of Interest and fee receivable, net and Other liabilities in its Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2024 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.

Secured Financing - On August 5, 2024, the Company entered into a new personal loan warehouse facility (the “PLW II Warehouse Facility”). In connection with the PLW II Warehouse Facility, Oportun PLW II Trust, a wholly-owned subsidiary of the Company, entered into a Loan and Security Agreement with certain lenders from time to time party thereto, Wilmington Trust, National Association as collateral agent, administrative agent, paying agent, securities intermediary and depositary bank. The PLW II Warehouse Facility has a three year term and a borrowing capacity of $245.2 million. Borrowings under the Loan and Security Agreement accrue interest at a rate equal to Term SOFR plus a weighted average spread of 3.08%. The advance rate for the PLW II Warehouse Facility is 95.0%, subject to certain delinquency and liquidity triggers that could lower the advance rate to 92.0%.