☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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•	our ability to increase the volume of loans we make;

•	our ability to manage our net charge-off rates;

•	our expectations regarding our costs and seasonality;

•	our ability to successfully build our brand and protect our reputation from negative publicity;

•	our ability to expand our capabilities for mobile loan and online origination and increase the volume of loans originated through our mobile and online channels;

•	our ability to increase the effectiveness of our marketing efforts;

•	our ability to expand our presence in states in which we operate, as well as expand into new states;

•	our plans and ability to enter into new markets and introduce new products and services;

•	our ability to continue to expand our demographic focus;

•	our ability to maintain the terms on which we lend to our customers;

•	our plans for and our ability to successfully maintain our diversified funding strategy, including loan warehouse facilities, whole loan sales and securitization transactions;

•	our ability to successfully manage our interest rate spread against our cost of capital;

•	our ability to successfully adjust our proprietary credit risk models and products in response to changing macroeconomic conditions and fluctuations in the credit market;

•	our ability to manage fraud risk;

•	our ability to efficiently manage our Customer Acquisition Cost;

•	our expectations regarding the sufficiency of our cash to meet our operating and cash expenditures;

•	our ability to effectively estimate the fair value of our Fair Value Loans and Fair Value Notes;

•	our ability to effectively secure and maintain the confidentiality of the information provided and utilized across our systems;

•	our ability to successfully compete with companies that are currently in, or may in the future enter, the business of providing consumer loans to low-to-moderate income customers underserved by traditional, mainstream financial institutions;

•	our ability to attract, integrate and retain qualified employees;

•	our ability to effectively manage and expand the capabilities of our contact centers, outsourcing relationships and other business operations abroad; and

•	our ability to successfully adapt to complex and evolving regulatory environments

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•	Lack of affordability—Alternatives typically available from other lenders are often provided at rates that are too expensive relative to the borrower’s ability to pay. In addition, many such lenders sell add-on products, such as credit insurance, which may further increase the cost of the loan.

•	Lack of transparency and responsibility—Available financing solutions are often structured in a way that force borrowers to become overextended. Some of these products have prepayment penalties and balloon payments.

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Lack of accessibility—Most financing providers lack a true omni-channel presence, either operating just brick-and-mortar branches or providing all solutions only online. Those that do operate in multiple channels often lack the personalized touch we provide like bilingual services, financial education programs, and flexible payment solutions that are essential to cultivating the trust of our customer base.

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Providing access to capital for credit invisible and mis-scored consumers—We take a holistic approach to solving the financial needs of our customers by combining our deep, data-driven understanding of our customers with our advanced proprietary technology. This helps us to score 100% of the applicants who come to us, enabling us to serve credit invisibles and mis-scored consumers that others cannot. In comparison, other lenders, relying on traditional credit bureau-based and in some cases qualitative underwriting and/or legacy systems and processes either decline or inaccurately underwrite loans due to their inability to credit score our customers accurately.

•	Offering a simple application process with timely funding—Our innovative, alternative data-based credit models power our ability to successfully preapprove borrowers in seconds after they complete an application process that typically takes as little as 8-10 minutes. Customers who are approved can receive their loan proceeds the same day.

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Designing responsibly structured products to ensure customer success—To provide manageable payments for our customers, our loan size and length of loan term are generally correlated. Our core offering is a simple-to-understand, personal unsecured installment loan ranging in size from $300 to $10,000, which is fully amortizing with fixed payments that are sized to match each customer’s cash flow. Our loans do not have prepayment penalties or balloon payments. As part of our responsible lending philosophy, we verify income for 100% of our personal loan customers, and we only make loans that our ability-to-pay model indicates customers should be able to afford after meeting their other debts and regular living expenses. We determine the loan size and term based on our assessment of a customer’s ability to pay the loan in full and on schedule by the stated maturity, leading to better outcomes compared to alternative credit products available to our customers. To make sure a customer is comfortable with his or her repayment terms, the customer has the option to choose a lower loan amount or alternative repayment terms prior to the execution of the loan documents.

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Delivering significant savings compared to alternatives—According to a study commissioned by us and conducted by the Financial Health Network, we save our customers an estimated average of approximately $1,000 on their first loan with us compared to typically available alternative credit products, which are on average more than four times the cost of our loans, and some options range up to more than seven times the cost of our loans. For a typical new customer of ours, this equates to approximately one-third of their monthly net take-home pay. These savings create substantial benefits for our customers, allowing them access to liquidity during times of need, such as to help cover unexpected medical bills, repair their car that they rely upon to drive to work or to help pay off more expensive debt.

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Servicing our customers how, where and when they want to be served—We operate over 335 retail locations that our customers can visit in person seven days a week, have contact centers that our customers can call between 7 a.m. and 11 p.m. CST on weekdays and between 9 a.m. and 10 p.m. CST on weekends, and have a fully digital origination platform that our customers can access 24/7 through their mobile phones. In addition, our customers can make their loan payments via ACH or in cash at our retail locations and at more than 56,000 third-party payment sites across the nation. Our employees embody our mission-driven approach, can speak to our customers in English or Spanish, and are fully attuned to their problems. We believe our ability to offer such an omni-channel customer experience is a significant differentiator in the market and leads to a high customer retention rate for their future borrowing needs.

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•	Rewarding customers when they demonstrate successful repayment behavior:

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Larger, lower cost loans for returning customers—We generally are able to offer customers who repay their loan and return to us for a subsequent loan with a loan that is on average approximately $1,300 larger than their prior loan with us. After a full re-underwriting, we typically also offer returning customers a lower rate, with an average rate reduction between a customer’s first and second loan of approximately six percentage points.

•	Development of credit history—We report payment history on every loan we make to nationwide credit bureaus, helping our customers develop a credit history. Since inception, we have helped over 830,000 customers who came to us without a FICO® score begin establishing a credit history.

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Enhancing customer experience through value-add services—We include credit education at the time of loan disbursement to ensure customers, many of whom are new to credit, understand the terms and payment obligations of their loans and how timely and complete payment will help them build positive credit. We also offer customers access to free financial coaching by phone with a nonprofit partner and referrals to a variety of financial health resources.

•	Unique, large and growing data set—We leverage over one petabyte of data derived from our research and development of alternative data sources and our proprietary data accumulated from more than 8.2 million customer applications, 3.7 million loans and 73.3 million customer payments.

•	Serves customers that others cannot—Our use of alternative data allows us to score 100% of the applicants who come to us, enabling us to serve credit invisibles and mis-scored consumers that others cannot.

•	Virtuous cycle of risk model improvement—As our data set has grown for over a decade, we have created a virtuous cycle of consistent enhancements to our proprietary risk models that has allowed us to increase both the number of customers for whom we can approve loans and the amount of credit we can responsibly lend as our risk models derive new insights from our growing customer base.

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Scalable and rapidly evolving—Powered by machine learning, our automated model development workflows enable us to evaluate over 10,000 data variables and develop and deploy a new credit risk model in as little as 25 days. We believe this is a process that can typically take 6-12 months for traditional lenders with legacy technology platforms. This quick turnaround time for a new scoring model allows us to quickly incorporate new data sources into our models or to react to changes in consumer behavior or the macroeconomic environment. Our flexible decisioning platform allows our centralized risk team to adjust score cutoffs and assigned loan amounts in a matter of minutes. We use this platform to rapidly build and test strategies across the customer lifecycle, including through direct mail and digital marketing targeting, underwriting, pricing, fraud and customer servicing.

•	100% centralized and automated decision making—Fully automated and centralized decision making that does not allow any manual intervention enables us to achieve highly predictable credit performance and rapid, efficient scaling of our business.

•	Supports omni-channel network—Our digital loan application allows our customers to transact with us seamlessly through their preferred method: in person at one of over 335 retail locations, over the phone through contact centers, or via mobile or online through our responsive web-based origination solution.

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•	increase the volume of loans originated through our various origination channels, including retail locations, direct mail marketing, contact centers and online, which includes our mobile origination solution;

•	increase the effectiveness of our direct mail marketing, radio advertising, digital advertising, and other marketing strategies;

•	efficiently manage and expand our presence and activities in states in which we operate, as well as expand into new states;

•	successfully build our brand and protect our reputation from negative publicity;

•	manage our Annualized Net Charge-Off Rate;

•	maintain the terms on which we lend to our customers;

•	protect against increasingly sophisticated fraudulent borrowing and online theft;

•	enter into new markets and introduce new products and services;

•	continue to expand our customer demographic focus from our original customer base of Spanish-speaking customers;

•	successfully maintain our diversified funding strategy, including loan warehouse facilities, whole loan sales and securitization transactions;

•	successfully manage our interest rate spread against our cost of capital;

•	successfully adjust our proprietary credit risk models, products and services in response to changing macroeconomic conditions and fluctuations in the credit market;

•	effectively manage and expand the capabilities of our contact centers, outsourcing relationships and other business operations abroad;

•	effectively secure and maintain the confidentiality of the information provided and utilized across our systems;

•	successfully compete with companies that are currently in, or may in the future enter, the business of providing consumer financial services to low-to-moderate income customers underserved by traditional, mainstream financial institutions;

•	attract, integrate and retain qualified employees; and

•	successfully adapt to complex and evolving regulatory environments.

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•	loan volumes, loan mix and the channels through which our loans are originated;

•	the effectiveness of our direct marketing and other marketing channels;

•	the timing and success of new products and origination channels;

•	the amount and timing of operating expenses related to acquiring customers and the maintenance and expansion of our business, operations and infrastructure;

•	net charge-off rates;

•	adjustments to the fair value of our Fair Value Loans and Fair Value Notes;

•	our cost of borrowing money and access to the capital markets; and

•	general economic, industry and market conditions.

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•	identification of new locations and negotiation of acceptable lease terms; and

•	incurrence of additional indebtedness (if necessary to finance new retail locations).

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•	risks related to government regulation or required compliance with local laws;

•	local licensing and reporting obligations;

•	difficulties in developing, staffing and simultaneously managing a number of varying foreign operations as a result of distance, language and cultural differences;

•	different, uncertain, overlapping or more stringent local laws and regulations;

•	political and economic instability, tensions, security risks and changes in international diplomatic and trade relations;

•	state or federal regulations that restrict offshoring of business operational functions or require offshore partners to obtain additional licenses, registrations or permits to perform services on our behalf;

•	geopolitical events, including natural disasters, public health issues, pandemics, acts of war and terrorism;

•	compliance with applicable U.S. laws and foreign laws related to consumer protection, intellectual property, privacy, data security, corruption, money laundering and export/trade control;

•	misconduct by our outsourcing partners and their employees or even unsubstantiated allegations of misconduct;

•	risks due to lack of direct involvement in hiring and retaining personnel; and

•	potentially adverse tax developments and consequences.

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•	default and foreclosure on our and our subsidiaries’ assets if asset performance and our operating revenue are insufficient to repay debt obligations;

•	mandatory repurchase obligations for any loans conveyed or sold into a debt financing or under a whole loan purchase facility if the representations and warranties we made with respect to those loans were not correct when made;

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acceleration of obligations to repay the indebtedness (or other outstanding indebtedness to the extent of cross default triggers), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios with respect to us or the loan portfolio securing our indebtedness or the maintenance of certain reserves or tangible net worth and do not obtain a waiver for such breach or renegotiate our covenant;

•	our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

•	our inability to obtain necessary additional financing if changes in the characteristics of our loans or our collection and other loan servicing activities change and cease to meet conditions precedent for continued or additional availability under our debt financings;

•	diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes;

•	creating limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

•	defaults based on loan portfolio performance or default in our collection and loan servicing obligations could result in our being replaced by a third-party or back-up servicer and notification to our customers to redirect payments;

•	downgrades or revisions of agency ratings for our debt financing; and

•	monitoring, administration and reporting costs and expenses, including legal, accounting and other monitoring reporting costs and expenses, required under our debt financings.

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•	failure to meet quarterly or annual guidance with regard to revenue, margins, earnings or other key financial or operational metrics;

•	fluctuations in the trading volume of our share or the size of our public float;

•	price and volume fluctuations in the overall stock market from time to time;

•	changes in operating performance and stock market valuations of similar companies;

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•	failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•	public reaction to our press releases, other public announcements and filings with the SEC;

•	any major change in our management;

•	sales of shares of our common stock by us or our stockholders;

•	rumors and market speculation involving us or other companies in our industry;

•	actual or anticipated changes in our results of operations or fluctuations in our results of operations;

•	changes in prevailing interest rates;

•	quarterly fluctuations in demand for our loans;

•	actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

•	litigation, government investigations and regulatory actions;

•	developments or disputes concerning our intellectual property or other proprietary rights;

•	new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•	changes in accounting standards, policies, guidelines, interpretations or principles;

•	other general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers, employees, and contractors are located.

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•	a classified Board with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board;

•	our Board has the right to elect directors to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill board vacancies;

•	our stockholders may not act by written consent or call special stockholders’ meetings;

•	our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

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stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the Board or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and

•	our Board may issue, without stockholder approval, shares of undesignated preferred stock, which may make it possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

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•	Loans and notes are recorded at their fair value, not their principal balance or cost basis;

•	The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans, thus no separate allowance for loan loss is required;

•	Upfront fees and expenses of loans and notes are no longer deferred but recognized at origination in income or expense, respectively;

•	Changes in the fair value of loans and notes impact Net Revenue; and

•	Net charge-offs are recognized as they occur as part of the change in fair value for loans.

•	Portfolio yield;

•	Average life;

•	Prepayments;

•	Remaining cumulative charge-offs; and

•	Discount rate.

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•	Subtracting the servicing fee from the weighted average portfolio yield over the remaining life of the loans to calculate net portfolio yield;

•	Multiplying the net portfolio yield by the weighted average life in years of the loans receivable, which is based upon the contractual amortization of the loans and expected remaining prepayments and charge-offs to calculate net cash flow;

•	Subtracting the remaining cumulative charge-offs from the net portfolio yield to calculate the net cash flow;

•	Subtracting the product of the discount rate and the average life from the net cash flow to calculate the gross fair value premium as a percentage of loan principal balance; and

•	Subtracting the accrued interest and fees as a percentage of loan principal balance from the gross fair value premium as a percentage of loan principal balance to calculate the fair value premium as a percentage of loan principal balance.

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•	Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure.

•	These measures do not consider the potentially dilutive impact of stock-based compensation.

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•	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements.

•	Although excess provision represents the portion of provision for loan losses not attributable to net principal charge-offs occurring in the current period, it is expected that net principal charge-offs in the amount of the excess provision will occur in future periods.

•	Although the fair value mark-to-market adjustment is a non-cash adjustment, it does reflect our estimate of the price a third party would pay for our Fair Value Loans or our Fair Value Notes.

•	Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us.

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•	We believe it is useful to exclude the impact of income tax expense (benefit), as reported, because historically it has included irregular income tax items that do not reflect ongoing business operations.

•	We believe it is useful to exclude the impact of depreciation and amortization and stock-based compensation expense because they are non-cash charges.

•	We believe it is useful to exclude the impact of the litigation reserve because this item does not reflect ongoing business operations.

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We also reverse origination fees for Fair Value Loans, net. As a result of our election of the fair value option for our Fair Value Loans, we recognize the full amount of any origination fees as revenue at the time of loan disbursement in advance of our collection of origination fees through principal payments. As a result, we believe it is beneficial to exclude the uncollected portion of such origination fees, because such amounts do not represent cash that we received.

•	We also reverse the fair value mark-to-market adjustment because it is a non-cash adjustment as shown in the table below.

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•	We believe it is useful to exclude the impact of income tax expense (benefit), as reported, because historically it has included irregular tax items that do not reflect our ongoing business operations.

•	We believe it is useful to exclude stock-based compensation expense, net of tax, because it is a non-cash charge.

•	We believe it is useful to exclude the impact of the litigation reserve, net of tax, because this item does not reflect ongoing business operations.

•	We include the impact of normalized income tax expense by applying the income tax rate noted in the table.

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•	Eligibility Criteria. In order for our loans to be eligible for purchase by Oportun Funding V, they must meet all applicable eligibility criteria;

•	Concentration Limits. The collateral pool is subject to certain concentration limits that, if exceeded, would reduce our borrowing base availability by the amount of such excess; and

•	Covenants and Other Requirements. The secured financing facility contains several financial covenants, portfolio performance covenants and other covenants or requirements that, if not complied with, may result in an event of default and/or an early amortization event causing the accelerated repayment of amounts owed.

•	Eligibility Criteria. In order for our loans to be eligible for purchase by our wholly owned special purpose subsidiaries they must meet all applicable eligibility criteria; and

•	Covenants and Other Requirements. Our securitization facilities contain pool concentration limits, pool performance covenants and other covenants or requirements that, if not complied with, may result in an event of default, and/or an early amortization event causing the accelerated repayment of amounts owed.

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Remaining Cumulative Charge-offs - Remaining cumulative charge-offs are estimates of the principal payments that will not be repaid over the life of a loan held for investment. Remaining cumulative loss expectations are adjusted to reflect the expected principal recoveries on charged-off loans. Remaining cumulative loss expectations are primarily based on the historical performance of our loans but also incorporate adjustments based on our expectations of future credit performance and are quantified by the remaining cumulative charge-off rate.

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Remaining Cumulative Prepayments - Remaining cumulative prepayments are estimates of the principal payments that will be repaid earlier than contractually required over the life of a loan held for investment. Remaining cumulative prepayment rates are primarily based on the historical performance of our loans but also incorporate adjustments based on our expectations of future customer behavior and refinancings through our Good Customer Program.

•	Average Life - Average life is the time weighted average of the estimated principal payments divided by the principal balance at the measurement date. The timing of estimated principal payments is impacted by scheduled amortization of loans, charge-offs, and prepayments.

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Discount Rates - The discount rates applied to the expected cash flows of loans held for investment reflect our estimates of the rates of return that investors would require when investing in financial instruments with similar risk and return characteristics. Discount rates are based on our estimate of the rate of return likely to be received on new loans. Discount rates for aged loans are adjusted to reflect the market relationship between interest rates and remaining time to maturity.

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1.	Organization and Description of Business

Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the " Company") is a technology-powered and mission-driven provider of inclusive, affordable financial services to customers who do not have a credit score, known as credit invisibles, or who may have a limited credit history and are "mis-scored," meaning that the Company believes that traditional credit scores do not properly reflect such customers’ credit worthiness. The Company's primary product offerings are small dollar, unsecured installment loans and other products and services that are affordably priced and that help customers establish a credit history. The Company has developed a proprietary lending platform that enables the Company to underwrite the risk of low-to-moderate income customers that are credit invisible or mis-scored, leveraging data collected through the application process and data obtained from third-party data providers, and a technology platform for application processing, loan accounting and servicing. 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.

The Company uses securitization transactions, warehouse facilities and other forms of debt financing, as well as whole loan sales, to finance the principal amount of most of the loans it makes to its customers.

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. As such, the Company’s operations constitute a single reportable segment.

Initial Public Offering

On September 30, 2019, the Company completed its initial public offering (“IPO”), in which it issued and sold 4,873,356 shares of common stock and selling stockholders sold 2,314,144 shares of common stock, including the underwriters' over-allotment, at a price of $15.00 per share with net proceeds of approximately $60.5 million, after deducting underwriting discounts and commissions of $5.1 million and offering expenses paid by us of approximately $7.5 million. In connection with the IPO, all 14,043,977 shares of the Company’s outstanding redeemable convertible preferred stock automatically converted into 19,075,167 shares of common stock. Additionally, on September 26, 2019, 3,969 shares of common stock were issued in connection with the cashless exercise of 9,090 Series F-1 convertible preferred stock warrants.

On September 9, 2019, the Company effected a one-for-eleven reverse stock split of its issued and outstanding shares of common stock and convertible preferred stock. The par value of the common and convertible preferred stock was not adjusted as a result of the reverse stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split.

2.	Summary of Significant Accounting Policies

Basis of Presentation ‑ The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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. All share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Company's one-for-eleven reverse stock split. See "Initial Public Offering" above for additional information.

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:

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•	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 other expense in the Consolidated Statements of Operations and Comprehensive Income.

Concentration of Credit Risk ‑ Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash and loans receivable.

As of December 31, 2019, 59%, 25%, 5%, and 5% of the owned principal balance related to customers from California, Texas, Illinois and Florida, respectively. Owned principal balance related to customers from each of the remaining states of operation continues to be at or below 2%. As of December 31, 2018, 65%, 24%, 5%, 2%, 2%, 2% of the owned principal balance related to customers from California, Texas, Illinois, Nevada, Arizona and Florida, respectively, and the owned principal balance related to customers from Idaho, Missouri, New Jersey, New Mexico, Utah and Wisconsin were not material.

Cash and Cash Equivalents ‑ Cash and cash equivalents consist of unrestricted cash balances and short-term, liquid investments with an original maturity date of three months or less at the time of purchase.

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 ‑ The Company elected the fair value option to account for new loan originations held for investment on or after January 1, 2018. Under the fair value option, direct loan origination fees are taken into income immediately and direct loan origination costs are expensed in the period the loan originates. Loans are charged off at the earlier of when loans are determined to be uncollectible or when loans are 120 days contractually past due and recoveries are recorded when cash is received. 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, 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 increase (decrease) in fair value" in the Consolidated Statements of Operations and Comprehensive Income in the period of the fair value changes.

Loans Receivable at Amortized Cost ‑ Loans originated prior to January 1, 2018 are carried at amortized cost, which is the outstanding unpaid principal balance, net of deferred loan origination fees and costs and the allowance for loan losses.

The Company estimates direct loan origination costs associated with completed and successfully originated loans. The direct loan origination costs include employee compensation and independent third-party costs incurred to originate loans. Direct loan origination costs are offset against any loan origination fees and deferred and amortized over the life of the loan using effective interest rate method for loans originated before January 1, 2018.

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.

Troubled Debt Restructuring ("TDR") ‑ In certain limited circumstances, the Company grants concessions to customers for economic or legal reasons related to a customer’s financial difficulties that would otherwise not have been considered. Financial difficulty is typically evidenced by a customer’s delinquency status and not having access to funds to pay the debt, participation in a credit counseling arrangement or bankruptcy proceedings,

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among others. The Company restructures a loan as a TDR only if the customer can demonstrate willingness to pay under the terms of a TDR for the foreseeable future. When a loan is restructured as a TDR, the Company may grant one or a combination of the following concessions:

•	Reduction of interest rate;

•	Extension of term, typically longer than the remaining term of the original loan; or

•	Forgiveness of a portion or all of the unpaid interest and late fees.

When a loan is restructured as a TDR, the customer signs a new loan document; however, the restructured loan is considered part of the Company’s ongoing effort to recover its investment in the original loan.

A loan that has been classified as a TDR remains so until the loan is paid off or charged off.

For loans recorded at amortized cost, when a loan is restructured as a TDR, the unamortized portion of deferred origination fees, net of origination costs, is amortized based on the term of the TDR, which is typically longer than the remaining term of the un-restructured loan. When a TDR is charged off, the unamortized portion of deferred origination fees, net of origination costs, is also written off.

For loans recorded at fair value, when a loan is restructured as a TDR, any new loan origination fees and costs, if any, are recognized in "Interest income" and "Operating expenses", respectively, in the Consolidated Statements of Operations and Comprehensive Income, when the TDR documents are signed, and any changes in fair value of the original loan are recorded in "Net increase (decrease) in fair value" in the Consolidated Statements of Operations and Comprehensive Income in the period of the fair value changes.

Allowance for Loan Losses ‑ The Company’s allowance for loan losses is an estimate of losses inherent in the Loans Receivable at Amortized Cost at the balance sheet date. Loans are charged off against the allowance at the earlier of when loans are determined to be uncollectible or when loans are 120 days contractually past due. Loan recoveries are recorded when cash is received.

The Company sets the allowance for loan losses on a total portfolio basis by analyzing historical charge-off rates for the loan portfolio, and certain credit quality indicators. The evaluation of the allowance for loan losses is inherently subjective, requiring significant management judgment about future events. In evaluating the sufficiency of the allowance for loan losses, management considers factors that affect loan loss experience, including current economic conditions, recent trends in delinquencies and loan seasoning, and the probability of recession forecasts that correlate to the improvement or deterioration of loan performance. Accordingly, the Company’s actual net charge-offs could differ materially from the Company’s estimate. The provision for loan loss reflects the activity for the applicable period and provides an allowance at a level that management believes is adequate to cover probable losses in the loan portfolio as of December 31, 2019 and 2018.

For Loans Receivable at Amortized Cost, TDRs are evaluated for loan losses separately during the period prior to the first two payments having been made. Afterwards, TDRs are evaluated for loan losses collectively with the total loan portfolio based on delinquency status.

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 and Comprehensive Income. Maintenance and repairs are charged to the Consolidated Statements of Operations and Comprehensive Income as incurred.

The Company does not own any buildings or real estate. The Company enters into term leases for its headquarters, 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 in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC No. 350-40, Internal-Use Software. 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, and data and analytics.

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.

Impairment ‑We review 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. We determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired for the years ended December 31, 2019, 2018 and 2017.

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Revenue Recognition ‑ The Company’s primary sources of revenue consist of interest and non-interest income.

Interest Income

Interest income includes interest on loans and fees on loans. Generally, the Company’s loans require semi- monthly or biweekly customer payments of interest and principal. Fees on loans include billed late fees offset by charged-off fees and provision for uncollectible fees. The Company charges customers 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, less (iv) provision for uncollectable interest and late fees. Additionally, direct loan origination expenses are recognized in operating expenses as incurred. In comparison, for Loans Receivable at Amortized Cost, interest income includes: (a) billed interest and late fees, less (b) charged-off interest and late fees, less (c) provision for uncollectable interest and late fees, plus (d) amortized origination fees recognized over the life of the loan, less (e) amortized cost of direct loan origination expenses recognized over the life of the loan.

Interest income is recognized based upon the amount the Company expects to collect from its customers. 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. For both loans receivable at amortized cost and loans receivable at fair value, the Company mitigates the risk of income recorded for loans that are delinquent for 90 days or more by establishing a 100% provision and the provision for uncollectable interest and late fees is offset against interest income. 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.

For Loans Receivable at Fair Value, loan origination fees and costs are recognized when incurred.

Non-Interest Income

Non-interest income includes gain on loan sales, servicing fees, debit card income, sublease income and other income.

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. Loans are sold within four days of origination; therefore, the Company does not record any provision for loan losses on loans designated for sale. The Company sells a certain percentage of new loans twice weekly.

The Company accounts for loan sales in accordance with ASC No. 860, Transfers and Servicing. In accordance with this guidance, 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.

For the years ended December 31, 2019, 2018 and 2017 all sales met the requirements for sale treatment. 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.

Servicing Fees ‑ The Company retains servicing rights on sold loans. Servicing fees comprise the 5.0% per annum 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 customer payments and performing appropriate collection activities. Management believes the fee approximates a market rate and accordingly has not recognized a servicing asset or liability.

Debit card income is the revenue from interchange fees when customers use our reloadable debit card for purchases as well as the associated card user fees. Sublease income is the rental income from subleasing a portion of our headquarters. 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 asset-backed notes and secured financing, and it includes origination costs as well as fees for the unused portion of the secured financing facility. Asset-backed notes at amortized cost are borrowings that originated prior to January 1, 2018, and origination costs are amortized over the life of the borrowing using the effective interest rate method. As of January 1, 2018, the Company elected the fair value option for all new borrowings under asset-backed notes issued on or after that date. 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.

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Under the provisions of ASC No. 740-10, Income Taxes, 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. ASC No. 740-10 provides that 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 and Comprehensive Income.

The Tax Cuts and Jobs Act was enacted December 22, 2017 and provides for a modified territorial tax system; beginning in 2018, GILTI provisions will be applied providing an incremental tax on low taxed foreign income. The GILTI provisions require the Company to include in the U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. During 2018, the Company made an accounting policy election to treat taxes related to GILTI as a current period expense.

Stock-Based Compensation ‑ The Company applies the provisions of ASC No. 718-10, Stock Compensation. ASC 718-10 establishes accounting 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 and Comprehensive Income 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 granted restricted stock units ("RSUs") to employees that vest upon the satisfaction of time- based criterion of up to four years and some include a performance criterion, a liquidity event in connection with an initial public offering or a change in control. These RSUs are not considered vested until both criteria have been met, if applicable, and provided that the participant is in continuous service on the vesting date. Compensation cost for awards with performance criteria, measured on the grant date, will be recognized when both the service and performance conditions are 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. For grants and awards with both service and performance conditions, the Company recognizes expenses using the accelerated attribution method.

Treasury Stock ‑ From time to time, the Company repurchases shares of its common stock in a tender offer. 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 not retire or re-issue any treasury stock for the years ended December 31, 2019 and 2018.

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.

Recently Adopted Accounting Standards

Leases ‑ In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases, which requires lessees to recognize a right-of-use asset and a liability for the obligation to make payments on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from leases, including various qualitative and quantitative requirements. Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-02. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-of-use assets. The Company adopted the amendments of these ASUs as of January 1, 2019. See Note 15, Leases, Commitments and Contingencies for additional information on the adoption of ASU 2016-02.

Accounting Standards to be Adopted

Allowance for Loan Losses and Fair Value Option ‑ In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This guidance significantly changes the way entities will be required to measure credit losses. Under the new standard, estimated credit loss will be based upon an expected credit loss approach rather than an incurred loss approach that is currently required. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition. This ASU provides an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for certain financial assets upon the adoption of Topic 326. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which defers the effective date for public filers that are considered small reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after 15 December 2018, including interim periods in those fiscal years. The Company will early adopt ASU 2016-13 and ASU 2019-05 effective January 1, 2020.

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The Company has previously elected fair value option for all loans originated after January 1, 2018. In addition, upon adoption of ASU 2019-05 effective January 1, 2020, the Company will elect fair value option on all remaining loans receivable currently at amortized cost. As a result, the adoption of ASU 2016-13 is not expected to have a material impact on the Company’s consolidated financial statements and disclosures. Upon the adoption of ASU 2019-05, the Company will (i) release the remaining allowance for loan losses on Loan Receivables at Amortized Cost; (ii) recognize the unamortized net originations fee income and (iii) measure the remaining loans originated prior to January 1, 2018 at fair value. These adjustments will result in an increase to opening retained earnings as of January 1, 2020 of approximately $4.8 million.

Fair Value Disclosures ‑ In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for all entities for fiscal years beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial statements.

Cloud Computing Arrangements - In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use-Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years, and interim periods, beginning after December 15, 2019. Early adoption is permitted. The Company will prospectively capitalize all eligible implementation costs related to cloud computing arrangements starting January 1, 2020.

3.	Earnings (Loss) per Share

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

		Year Ended December 31,
(in thousands, except share and per share data)		2019				2018				2017
Net income (loss)		$	61,598			$	123,394			$	(10,206	)
Less: Additional common stock issued to Series G shareholders		(37,456		)		—				—
Less: Net income allocated to participating securities (1)		(19,880		)		(106,797		)		—
Net income (loss) attributable to common stockholders		$	4,262			$	16,597			$	(10,206	)
Basic weighted-average common shares outstanding		9,347,103				2,585,405				2,419,810
Weighted average effect of dilutive securities:
Stock options		1,300,758				1,114,816				—
Restricted stock units (2)		101,671				—				—
Warrants		12,320				14,882				—
Diluted weighted-average common shares outstanding		10,761,852				3,715,103				2,419,810
Earnings (loss) per share:
Basic		$	0.46			$	6.42			$	(4.22	)
Diluted		$	0.40			$	4.47			$	(4.22	)

⁽¹⁾ In a period of net income, both earnings and dividends (if any) are allocated to participating securities. In a period of net loss, only dividends (if any) are allocated to participating securities.

⁽²⁾ The increase in restricted stock units included in the diluted weighted-average common shares outstanding for the year ended December 31, 2019 compared to 2018 was primarily due to the performance-based condition relating to certain awards being considered probable on the effective date of the IPO, the voluntary stock option exchange offer and the issuance of restricted stock units for annual awards.

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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,
(in thousands, except share and per share data)		2019			2018			2017
Stock options		2,231,060			—			1,138,870
Warrants		—			—			16,920
Convertible preferred stock		12,630,249			17,497,594			17,569,360
Total anti-dilutive common share equivalents		14,861,309			17,497,594			18,725,150

Restricted stock units granted with performance criterion were not reflected in the computation of diluted earnings (loss) per share for the years ended December 31, 2018 and 2017 as the performance condition was not considered probable. Per the provisions of ASC Topic 260, Earnings per Share, diluted earnings (loss) per share only reflects those shares that would be issued if the reporting period were the end of the contingency period. Accordingly, total outstanding restricted stock units of 0; 503,515; and 162,236 were not reflected in the denominator in the computation of diluted earnings (loss) per share for the years ended December 31, 2019, 2018 and 2017.

The income available to common stockholders, which is the numerator in calculating diluted earnings (loss) per share, does not include any compensation cost related to these restricted stock unit awards for the years ended December 31, 2018 and 2017. For the year ended December 31, 2019, the income available to common stockholders includes $7.9 million catch-up relating to these restricted stock units because of the performance criteria being considered probable on the effective date of the IPO.

4.	Variable Interest Entities

As part of the Company’s overall funding strategy, the Company transfers a pool of designated loans receivable to wholly owned special-purpose subsidiaries, or VIEs, to collateralize certain asset-backed financing transactions. The Company has determined that it is the primary beneficiary of these VIEs 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. 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 either in the form of an asset-backed certificate or as an uncertificated residual interest. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its consolidated financial statements.

Each 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 noteholders 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 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)		2019				2018
Consolidated VIE assets
Restricted cash		$	28,821			$	29,184
Loans receivable at fair value		1,745,465				1,174,684
Loans receivable at amortized cost		41,747				319,129
Interest and fee receivable		15,874				13,036
Total VIE assets		1,831,907				1,536,033
Consolidated VIE liabilities
Secured financing (1)		62,000				87,000
Asset-backed notes at fair value		1,129,202				867,278
Asset-backed notes at amortized cost (1)		360,001				360,001
Total VIE liabilities		$	1,551,203			$	1,314,279

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

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5.	Loans Receivable at Amortized Cost, Net

Loans receivable at amortized cost, net, consisted of the following:

		December 31,
(in thousands)		2019				2018
Loans receivable at amortized cost		$	42,546			$	323,814
Deferred origination costs and fees, net		(103		)		(1,707		)
Allowance for loan losses		(3,972		)		(26,326		)
Loans receivable at amortized cost, net		$	38,471			$	295,781

Loans receivable at amortized cost are the unpaid principal balances of the loans. Accrued and unpaid interest and late fees on the loans estimated to be collected from customers are included in interest and fees receivable in the consolidated balance sheets. At December 31, 2019 and 2018, accrued and unpaid interest on loans were $0.3 million and $2.3 million, respectively. Accrued and unpaid late fees were immaterial at December 31, 2019 and 2018.

Credit Quality Information - The Company uses a proprietary credit scoring algorithm to assess the creditworthiness of individuals who have limited or no credit profile. Data used in the algorithm is obtained from customers, alternative credit reporting agencies, as well as information from traditional credit bureaus.

The Company’s proprietary credit scoring platform determines the amount and duration of the loan. The amount of the loan is determined based on the credit risk and cash flow of the individual. Lower risk individuals with higher cash flows are eligible for larger loans with longer duration. Higher risk individuals with lower cash flows are eligible for smaller loans with shorter duration. Larger loans typically have lower interest rates than smaller loans.

After the loan is disbursed, the Company monitors the credit quality of its loans receivable on an ongoing and a total portfolio basis. The following are credit quality indicators that the Company uses to monitor its exposure to credit risk, to evaluate allowance for loan losses and help set the Company’s strategy in granting future loans:

•	Delinquency Status ‑ The delinquency status of the Company’s loan receivables reflects, among other factors, changes in the mix of loans in the portfolio, the quality of receivables, the success of collection efforts and general economic conditions.

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Geographic Region - In July 2018, the Company stopped calculating estimated loss rates on a geographic region basis and began using the discounted cash flow model to project net charge-offs for the next 12 months for all vintages to calculate the estimated loss rate on a total portfolio basis. Until June 30, 2018, the Company calculated estimated loss rates for two geographic regions. Northern and Central California were considered as one region. Southern California, Texas and all other states, collectively, were considered as another region, and have higher estimated loss rates compared to the Northern and Central California region. The estimated loss rate for the geographic region covering Southern California, Texas and all other states for loans originated prior to January 1, 2018 and outstanding as of June 30, 2018 was approximately 105 basis points higher than the geographic region covering Northern and Central California. See Note 2, Summary of Significant Accounting Policies, for a discussion of concentrations of credit risk related to geographic regions.

The recorded investment in loans receivable at amortized cost based on credit quality indicators were as follows:

		December 31,
Credit Quality Indicator (in thousands)		2019				2018
Geographic Region
Northern and Central California		$	12,167			$	91,307
Southern California, Texas and all other states		30,379				232,507
		$	42,546			$	323,814
Delinquency Status
30-59 days past due		$	2,304			$	10,891
60-89 days past due		1,615				7,089
90-119 days past due		1,459				5,872
		$	5,378			$	23,852

Past Due Loans Receivable - In accordance with the Company’s policy, for loans recorded at amortized cost, income from interest and fees continues to be recorded for loans that are delinquent 90 days or more. The Company addresses the valuation risk on loans recorded at amortized cost that are delinquent 90 days or more by reserving them at 100%.

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The recorded investment in loans receivable at amortized cost that are 90 or more days’ delinquent and still accruing income from interest and fees were as follows:

		December 31,
(in thousands)		2019				2018
Non-TDRs		$	720			$	4,440
TDRs		739				1,432
Total		$	1,459			$	5,872

Troubled Debt Restructurings ("TDR") - For the years ended December 31, 2019 and 2018, TDRs were primarily related to concessions involving interest rate reduction and extension of term.

As of December 31, 2019 and 2018, TDRs comprised 21% and 6% respectively, of the Company’s total owned loan portfolio at amortized cost. The increase in the percentage is reflective of the lower balance of the loan portfolio at amortized cost from 2018 to 2019.

The amount of unamortized origination fees, net of origination costs, that were written off as a result of TDR restructurings of loans recorded at amortized cost during the years ended December 31, 2019, 2018 and 2017 was not material.

The Company’s TDR loans receivable at amortized cost based on delinquency status were as follows:

		December 31,
(in thousands)		2019				2018
TDRs current to 29 days delinquent		$	6,367			$	14,035
TDRs 30 or more days delinquent		2,462				5,246
Total		$	8,829			$	19,281

A loan that has been classified as a TDR remains so until the loan is paid off or charged off. A TDR loan that misses its first two scheduled payments is charged off at the end of the month upon reaching 30 days’ delinquency. A TDR loan that makes the first two scheduled payments is charged off according to the Company’s normal charge-off policy at 120 days’ delinquency.

For loans recorded at amortized cost, previously accrued but unpaid interest and fees are also written off when the loan is charged off upon reaching 120 days’ delinquency or when collection is not deemed probable.

Information on TDRs that defaulted and were charged off during the periods indicated were as follows:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Recorded investment in TDRs that subsequently defaulted and were charged off		$	10,225			$	15,649			$	13,768
Unpaid interest and fees charged off		1,286				1,983				1,684

When a loan recorded at amortized cost is restructured as a TDR, a portion of all of the accrued but unpaid interest and late fees may be forgiven. The following table shows the financial effects of TDRs that occurred during the periods indicated:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Contractual interest and fees forgiven		$	—			$	157			$	255

Allowance for Loan Losses - For loans receivable at amortized cost, the Company sets the allowance for loan losses on a total portfolio by analyzing historical charge-off rates for the loan portfolio and the credit quality indicators discussed earlier.

The Provision (release) for loan losses reflects the activity for the applicable period and provides an allowance at a level that management believes is adequate to cover probable loan losses at the balance sheet date. The Company estimates an allowance for loan losses only for loans receivable at amortized cost.

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Activity in the allowance for loan losses was as follows:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Balance - beginning of period		$	26,326			$	81,577			$	59,943
Provision (release) for loan losses		(4,483		)		16,147				98,315
Loans charged off		(30,702		)		(82,605		)		(83,940		)
Recoveries		12,831				11,207				7,259
Balance - end of period		$	3,972			$	26,326			$	81,577

6.	Loans Held for Sale

The originations of loans sold and held for sale during the year ended December 31, 2019 was $355.6 million and the Company recorded a gain on sale of $36.5 million and servicing revenue of $15.4 million. The originations of loans sold and held for sale during the year ended December 31, 2018 was $292.4 million and the Company recorded a gain on sale of $33.5 million and servicing revenue of $11.8 million. The originations of loans sold and held for sale during the year ended December 31, 2017 was $220.5 million and the Company recorded a gain on sale of $22.3 million and servicing revenue of $8.3 million.

Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor, as amended from time to time. The term of the current agreement expires on November 10, 2020. Pursuant to this agreement, the Company has committed to sell at least 10% of its unsecured loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes. The Company is currently selling 15% of its unsecured loan originations to the institutional investor.

7.	Other Assets

Other assets consist of the following:

		December 31,
(in thousands)		2019				2018
Fixed assets
Computer and office equipment		$	10,432			$	8,459
Furniture and fixtures		10,768				9,542
Purchased software		4,527				3,955
Vehicles		171				842
Leasehold improvements		27,701				23,006
Total cost		53,599				45,804
Less: Accumulated depreciation		(30,765		)		(22,609		)
Total fixed assets, net		$	22,834			$	23,195
System development costs:
System development costs		$	36,795			$	19,022
Less: Accumulated amortization		(18,456		)		(13,530		)
Total system development costs, net		$	18,339			$	5,492
Tax receivable		$	13,107			$	24,597
Servicer fee and whole loan receivables		6,621				5,769
Prepaid expenses		12,217				9,237
Deferred IPO costs		—				3,211
Other		2,090				1,797
Total other assets		$	75,208			$	73,298

Fixed Assets

Depreciation and amortization expense for the years ended December 31, 2019, 2018 and 2017 were $8.8 million, $8.3 million, and $7.5 million, respectively.

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System Development Costs

Amortization of system development costs for years ended December 31, 2019, 2018 and 2017 was $4.9 million, $3.5 million, and $3.1 million, respectively. System development costs capitalized in the years ended December 31, 2019, 2018 and 2017, were $17.9 million, $3.3 million, and $3.5 million, respectively.

8.	Borrowings

The following table presents information regarding the Company's secured financing facility:

December 31, 2019

Variable Interest Entity

Current Balance

Commitment Amount

Maturity Date

Interest Rate

(in thousands)

Oportun Funding V, LLC

$

60,910

$

400,000

10/1/2021

LIBOR (minimum of 0.00%) + 2.45%

December 31, 2018

Variable Interest Entity

Current Balance

Commitment Amount

Maturity Date

Interest Rate

(in thousands)

Oportun Funding V, LLC

$

85,289

$

400,000

10/1/2021

LIBOR (minimum of 0.00%) + 2.45%

The Company elected the fair value option for all asset-backed notes issued on or after January 1, 2018. The following table presents information regarding asset-backed notes:

		December 31, 2019
Variable Interest Entity		Initial note amount issued (a)				Initial collateral balance (b)				Current balance (a)				Current collateral balance (b)				Weighted average interest rate(c)			Original revolving period
(in thousands)
Asset-backed notes recorded at fair value:
Oportun Funding XIII, LLC (Series 2019-A)		$	279,412			$	294,118			$	251,090			$	299,813			3.22	%		3 years
Oportun Funding XII, LLC (Series 2018-D)		175,002				184,213				178,980				187,447				4.50	%		3 years
Oportun Funding X, LLC (Series 2018-C)		275,000				289,474				280,852				294,380				4.39	%		3 years
Oportun Funding IX, LLC (Series 2018-B)		225,001				236,854				216,306				241,000				4.09	%		3 years
Oportun Funding VIII, LLC (Series 2018-A)		200,004				222,229				201,974				225,945				3.83	%		3 years
Total asset-backed notes recorded at fair value		$	1,154,419			$	1,226,888			$	1,129,202			$	1,248,585
Asset-backed notes recorded at amortized cost:
Oportun Funding VII, LLC (Series 2017-B)		$	200,000			$	222,231			$	199,413			$	225,925			3.51	%		3 years
Oportun Funding VI, LLC (Series 2017-A)		160,001				188,241				159,698				191,223				3.36	%		3 years
Total asset-backed notes recorded at amortized cost		$	360,001			$	410,472			$	359,111			$	417,148

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		December 31, 2018
Variable Interest Entity		Initial note amount issued (a)				Initial collateral balance (b)				Current balance (a)				Current collateral balance (b)				Weighted average interest rate(c)			Original revolving period
(in thousands)
Asset-backed notes recorded at fair value:
Oportun Funding XII, LLC (Series 2018-D)		$	175,002			$	184,213			$	177,086			$	188,710			4.50	%		3 years
Oportun Funding X, LLC (Series 2018-C)		275,000				289,474				277,662				297,443				4.39	%		3 years
Oportun Funding IX, LLC (Series 2018-B)		225,001				236,854				213,751				241,353				4.09	%		3 years
Oportun Funding VIII, LLC (Series 2018-A)		200,004				222,229				198,779				226,465				3.83	%		3 years
Total asset-backed notes recorded at fair value:		$	875,007			$	932,770			$	867,278			$	953,971
Asset-backed notes recorded at amortized cost:
Oportun Funding VII, LLC (Series 2017-B)		$	200,000			$	222,231			$	198,677			$	226,465			3.51	%		3 years
Oportun Funding VI, LLC (Series 2017-A)		160,001				188,241				159,022				191,447				3.36	%		3 years
Total asset-backed notes recorded at amortized cost		$	360,001			$	410,472			$	357,699			$	417,912

^(a) Initial note amount issued includes notes retained by the Company as applicable and the current balances are measured at fair value for asset-backed notes recorded at fair value and reflects pay-downs subsequent to note issuance and exclude notes retained by the Company.

^(b) Includes the unpaid principal balance of loans receivables, cash, cash equivalents and restricted cash pledged by the Company.

^(c) Weighted average interest rate excludes notes retained by the Company.

As of December 31, 2019 and 2018, the Company was in compliance with all covenants and requirements of the secured financing facility and asset-backed notes.

9.	Other Liabilities

Other liabilities consist of the following:

		December 31,
(in thousands)		2019				2018
Accounts payable		$	5,919			$	7,277
Accrued compensation		22,226				15,303
Accrued expenses		15,110				10,335
Deferred rent		—				2,208
Taxes payable		4,233				1,610
Accrued interest		3,842				3,368
Other		976				1,157
Total other liabilities		$	52,306			$	41,258

10.	Stockholders' Equity

Convertible Preferred Stock - Immediately prior to the completion of the IPO, all 14,043,977 shares of convertible preferred stock were converted into 19,075,167 shares of the Company's common stock. The conversion of all of the Company's convertible preferred stock included an additional 1,873,355 shares of common stock issued for the conversion of the Series G convertible preferred stock to reflect the conversion rate of the Series G convertible preferred stock. The additional 1,873,355 shares issued to Series G convertible preferred stockholders resulted in a $37.5 million reduction to retained earnings and a corresponding increase to additional paid-in capital.

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The Company's Board of Directors will have 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 of Directors. There were no shares of convertible preferred stock issued or outstanding as of December 31, 2019. A summary of the Company's convertible preferred stock as of December 31, 2018 is as follows:

		December 31, 2018
Series (in thousands, except share data)		Shares Authorized			Shares Issued and Outstanding			Liquidation Amount				Proceeds - Net of Issuance Costs
A‐1		23,636			22,945			$	57			$	45
B‐1		418,181			397,197			2,760				3,878
C‐1		609,090			577,315			13,505				19,184
D‐1		863,636			837,399			19,588				27,950
E‐1		454,545			435,374			14,090				20,037
F		1,000,000			939,500			43,425				22,794
F‐1		4,545,454			4,310,729			36,426				36,756
G		5,727,272			3,889,093			48,981				48,785
H		2,909,090			2,634,425			82,511				78,474
		16,550,904			14,043,977			$	261,343			$	257,903

Common Stock - As of December 31, 2019 and 2018, the Company was authorized to issue 1,000,000,000 and 28,181,818 shares of common stock with a par value of $0.0001 per share, respectively. As of December 31, 2019, 27,262,639 and 27,003,157 shares were issued and outstanding, respectively, and 259,482 shares were held in treasury stock. As of December 31, 2018, 3,194,731 and 2,935,249 shares were issued and outstanding, respectively, and 259,482 shares were held in treasury stock.

An aggregate of 30,287 shares of Company common stock were tendered pursuant to a tender offer conducted by the Company for a total purchase price of $0.9 million on October 3, 2018. Shares repurchased are reflected in the treasury stock components of stockholders' equity.

Warrants - On September 26, 2019, 3,969 shares of convertible preferred stock were issued in connection with the cashless exercise of 9,090 Series F-1 convertible preferred stock warrants. All 3,969 shares were converted to common stock in connection with the IPO. Additionally, at the closing of the IPO, the outstanding 15,869 Series G convertible preferred stock warrants automatically converted into warrants exercisable for 23,512 shares of common stock.

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, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based awards, and other awards, or 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 maximum number of shares of our common stock that may be issued under the 2019 Plan will not exceed 7,469,664 shares, of which, 1,870,745 were available for future awards as of December 31, 2019.

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 726,186 shares and as of December 31, 2019, no shares have been issued under the ESPP.

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.

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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.

The fair value of stock option grants was estimated with the following assumptions:

		Year Ended December 31,
		2019		2018		2017
Expected volatility (employee)		50.8 % - 51.2 %		42.6 % - 43.2 %		43.1 % - 44.2 %
Risk-free interest rate (employee)		1.8 - 2.6		2.6 - 2.9		1.9 - 2.3
Expected term (employee, in years)		5.9 - 6.1		5.7 - 6.1		5.7 - 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.

As there was no public market for the Company’s common stock prior to the IPO, the fair value underlying the Company’s common stock was determined by the Company’s Board. The valuations of the Company’s common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In the absence of a public market, the Company relied upon contemporaneous valuations performed by an independent third-party valuation firm, the Company’s actual operating and financial performance, forecasts, including the current status of the technical and commercial success of the Company’s operations, the potential for an initial public offering, the macroeconomic environment, interest rates, market outlook, and competitive environment, among other factors.

Stock Option Activity - A summary of the Company's stock option activity under the 2005 Plan, the 2015 Plan, and the 2019 Plan at December 31, 2019 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, 2019		4,593,202			16.31			6.67		$	38,723
Options granted		682,679			19.08
Options exercised		(105,909	)		7.44
Options canceled		(1,219,282	)		26.04
Balance – December 31, 2019		3,950,690			14.03			5.87		$	40,264
Options vested and expected to vest - December 31, 2019		3,950,690			14.03			5.87		$	40,264
Options vested and exercisable - December 31, 2019		2,795,568			11.20			4.68		$	36,298

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Information on stock options granted, exercised and vested is as follows:

		Year Ended December 31,
(in thousands, except per share data)		2019				2018				2017
Weighted average fair value per share of options granted		$	9.54			$	11.92			$	10.08
Cash received from options exercised, net		791				1,030				705
Aggregate intrinsic value of options exercised		1,028				4,114				3,061
Fair value of shares vested		6,735				6,063				5,350

The following table summarizes the outstanding and vested stock options:

		As of December 31, 2019
		Options Outstanding							Options Vested and Exercisable
Range of Weighted-Average Exercise Prices		Number Outstanding			Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable			Weighted Average Exercise Price
0.01 - 5.00		1,295,156			2.78		1.92		1,295,156			1.92
5.01 - 10.00		75,011			4.38		8.21		75,011			8.21
10.01 - 15.00		305,266			4.73		10.38		305,266			10.38
15.01 - 20.00		1,164,459			7.91		19.00		548,712			19.64
20.01 - 25.00		632,767			8.23		22.30		248,896			22.43
25.01 - 30.00		468,445			7.14		26.88		312,941			26.71
30.01 - 35.00		9,586			5.47		32.64		9,586			32.64
		3,950,690							2,795,568

As of December 31, 2019 and 2018, the Company’s total unrecognized compensation cost related to nonvested stock-based option awards granted to employees was, $10.1 million and $16.0 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.4 years and 2.8 years, respectively.

Stock Option Exchange Offer

On August 22, 2019, the Company completed a one-time voluntary stock option exchange offer that allowed eligible participants the opportunity to exchange certain stock options for RSUs, subject to a new vesting schedule (the "RSU Exchange Offer"), or for a cash payment (the "Cash Exchange Offer,") together with the RSU Exchange Offer, (the "Exchange Offers").

As a result of the Exchange Offers, options to purchase 1,040,154 shares of the Company’s common stock were accepted for exchange and 455,218 replacement RSUs were issued. The replacement RSUs have a vesting commencement date of August 1, 2019 and vesting schedule of two to four years. The RSUs will first vest on August 1, 2020, with the remainder vesting on a quarterly basis thereafter. The RSUs were granted under, and subject to, the terms and conditions of the Company's 2015 Stock Option/Stock Issuance Plan (the "2015 Plan"). The incremental compensation cost from the exchange is $3.2 million, recognized over the vesting period of the replacement award. The amount of cash payments provided in the Cash Exchange Offer was insignificant.

Restricted Stock Units

The Company’s restricted stock units ("RSUs") vest upon the satisfaction of time-based criterion of up to four years. 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. Some awards also include a performance criterion, a liquidity event in connection with the Company's initial public offering or a change in control. The liquidity event requirement will be satisfied as to any then-outstanding RSUs on the first to occur of the following events prior to the expiration date: (1) the closing of a change in control; or (2) the first trading day following the expiration of the lock-up period. These RSUs are not considered vested until both criteria have been met, if applicable, and provided that participant is providing continuous service on the vesting date. The performance-based condition of such RSUs was considered probable on the effective date of the IPO completed in September 2019. As a result, $7.9 million of compensation expense was recognized in connection with these performance-based awards upon completion of the IPO.

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. For RSUs granted before the IPO there was no public market for the Company’s common stock. The Company retained an independent third-party valuation firm to determine the fair value of its common stock before the IPO. The Company’s Board reviewed and approved the valuations.

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A summary of the Company’s RSU activity under the 2015 Plan and the 2019 Plan for the year ended December 31, 2019 is as follows:

		RSU Outstanding			Weighted Average Grant-Date Fair Value
Balance – January 1, 2019		503,491			26.24
Granted (1)		1,198,179			17.50
Vested		14,534			23.65
Forfeited (1)		40,813			17.47
Balance – December 31, 2019 (1)		1,646,323			20.12
Expected to vest after December 31, 2019 (1)		1,646,323			20.12

⁽¹⁾ Replacement RSUs are fair valued using the grant date fair market value on the date of exchange (August 22, 2019).

As of December 31, 2019 and 2018, the Company's total unrecognized compensation cost related to nonvested restricted stock unit awards granted to employees was, $21.2 million and $8.9 million, respectively, which will be recognized over a weighted average vesting period of approximately 3.0 years and 3.6 years, respectively.

Stock-based Compensation - Total stock-based compensation expense included in the Consolidated Statements of Operations and Comprehensive Income is as follows:

		Year Ended December 31,
(in thousands of dollars)		2019				2018				2017
Technology and facilities		$	2,699			$	1,262			$	1,088
Sales and marketing		123				113				116
Personnel		16,361				5,397				4,501
Total stock-based compensation		$	19,183			$	6,772			$	5,705

The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the award grant date. The Company capitalized compensation expense related to stock-based compensation the years ended December 31, 2019, 2018, and 2017 of $0.9 million, $0.1 million and $0.1 million, 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 total income tax benefit recognized in the income statement for share-based compensation arrangements was $1.1 million and $0.7 million for the years ended December 31, 2017 and 2018, respectively. The Company had no realized excess tax benefits from stock options for the year ended December 31, 2019.

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. The total amount contributed by the Company for the years ended December 31, 2019, 2018 and 2017, was $2.4 million, $1.7 million, and $1.3 million, respectively. All employee and employer contributions will be invested according to participants’ individual elections. The Company remits employee contributions to plan with each bi-weekly payroll.

12.	Revenue

Interest Income - Total interest income included in the Consolidated Statements of Operations and Comprehensive Income is as follows:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Interest income
Interest on loans		$	535,325			$	439,939			$	320,516
Fees on loans		8,801				8,838				7,419
Total interest income		$	544,126			$	448,777			$	327,935

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Non-interest Income - Total non-interest income included in the Consolidated Statements of Operations and Comprehensive Income is as follows:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Non-interest income
Gain on loan sales		$	36,537			$	33,466			$	22,254
Servicing fees		15,429				11,813				8,260
Debit card income		1,151				1,950				2,505
Sublease income		1,622				1,573				—
Other income		1,283				—				—
Total non-interest income		$	56,022			$	48,802			$	33,019

13.	Income Taxes

The following are the domestic and foreign components of the Company’s income before taxes:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Domestic		$	82,612			$	168,907			$	2,162
Foreign		1,820				1,188				(93		)
Income before taxes		$	84,432			$	170,095			$	2,069

The “Tax Cuts and Jobs Act” (the “Act”) was enacted December 22, 2017. The law includes significant changes to the U.S. corporate tax system, including a Federal corporate rate change reduction from 35% to 21%. Additionally, as a result of the Act, the Company is required to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The Company recorded a provisional deduction to its deferred tax assets for the impact of the U.S. Tax Act of approximately $11.2 million. This amount was primarily comprised of the re-measurement of federal net deferred tax liabilities resulting from a permanent reduction in the U.S. statutory corporate tax rate to 21% from 35%, after taking into account the mandatory one-time tax on the accumulated earnings of the Company's foreign subsidiaries. In 2018, the Company completed its determination of the accounting implications of the U.S. Tax Act.

The provision for income taxes consisted of the following:

(in thousands)		Federal				State				Foreign				Total
December 31, 2019
Current		$	7,946			$	2,835			$	1,308			$	12,089
Deferred		7,830				3,439				(524		)		10,745
Total provision for income taxes		$	15,776			$	6,274			$	784			$	22,834
December 31, 2018
Current		$	3,548			$	420			$	709			$	4,677
Deferred		28,403				13,934				(313		)		42,024
Total provision for income taxes		$	31,951			$	14,354			$	396			$	46,701
December 31, 2017
Current		$	3,127			$	724			$	1,195			$	5,046
Deferred		8,270				(874		)		(167		)		7,229
Total provision (benefit) for income taxes		$	11,397			$	(150	)		$	1,028			$	12,275

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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)		2019				2018
Deferred tax assets:
Accrued expenses and reserves		$	2,281			$	1,891
Allowance for loan losses		1,110				7,297
Leases		14,449				—
Share-based compensation		7,057				3,034
Mexico fixed assets		937				738
Depreciation and amortization		480				—
Other		672				417
Total deferred tax assets		$	26,986			$	13,377
Valuation allowance		$	—			$	—
Deferred tax liabilities:
System development costs		$	(4,966	)		$	(1,515	)
Right of use assets		(13,676		)		—
Depreciation and amortization		—				(227		)
Prepaid expenses		(912		)		(174		)
Fair value adjustment		(30,737		)		(24,347		)
Total deferred tax liabilities		(50,291		)		(26,263		)
Net deferred taxes		$	(23,305	)		$	(12,886	)

Income tax expense was $22.8 million, $46.7 million, and $12.3 million for the year ended December 31, 2019, 2018, and 2017 which represents an effective tax rate of 27.0%, 27.5%, and 593.3%, respectively.

The Company adopted ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting effective January 1, 2017, which requires the Company to record excess tax benefits resulting from the exercise of non-qualified stock options, the disqualifying disposition of incentive stock options and vesting of restricted stock awards as income tax benefits in the Consolidated Statements of Operations and Comprehensive Income with a corresponding decrease to current taxes payable. As a result of the adoption of ASU No. 2016-09, the Company recorded an adjustment to 2017 opening retained earnings in the amount of $1.1 million, representing net operating losses previously tracked off-balance sheet resulting from excess tax benefits that are included in the deferred tax asset under the new standard.

The following table summarizes the activity related to the unrecognized tax benefits:

		Year Ended December 31,
(in thousands)		2019				2018				2017
Balance as of January 1,		$	1,431			$	1,067			$	664
Increases related to current year tax positions		535				357				330
Decreases related to current year tax positions		—				—				—
Increases related to prior year tax positions		19				7				73
Decreases related to prior year tax positions		(52		)		—				—
Balance as of December 31,		$	1,933			$	1,431			$	1,067

Interest and penalties related to the Company’s unrecognized tax benefits accrued at December 31, 2019 were not material. The Company’s policy is to recognize interest and penalties associated with income taxes in income tax expense. The Company does not expect its uncertain tax positions to have a material impact on its consolidated financial statements within the next twelve months. The total amount of unrecognized tax benefits, net of associated deferred tax benefit, that would impact the effective tax rate, if recognized, is $1.9 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, 2010 and 2007, respectively, and forward. For Mexico, all tax years remain open for examination by the Mexico taxing authorities.

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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)		2019				2018				2017
Income tax expense computed at U.S. federal statutory rate		$	17,731			$	35,720			$	724
State Tax		4,788				11,229				(34		)
Foreign Rate differential		164				106				279
Foreign taxes amended filings		—				—				782
Federal tax credits		(2,042		)		(595		)		(875		)
Share based compensation expense		752				148				(263		)
Uncertain tax positions		611				—				—
Other		830				93				298
Tax reform impact		—				—				11,364
Change in valuation allowance		—				—				—
Income tax expense		$	22,834			$	46,701			$	12,275
Effective tax rate		27.0		%		27.5		%		593.3		%

14.	Fair Value of Financial Instruments

Financial Instruments at Fair Value

The Company has elected the fair value option to account for all loans receivable held for investment that were originated on or after January 1, 2018 (the "Fair Value Loans"), and for all asset-backed notes issued on or after January 1, 2018 (the "Fair Value Notes"). Loans Receivable at Amortized Cost and asset-backed notes issued prior to January 1, 2018 are accounted for at amortized cost, net. 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 for the periods shown:

		December 31, 2019								December 31, 2018
(in thousands)		Unpaid Principal Balance				Fair Value				Unpaid Principal Balance				Fair Value
Assets
Loans receivable		$	1,800,418			$	1,882,088			$	1,177,471			$	1,227,469
Liabilities
Asset-backed notes		$	1,113,165			$	1,129,202			$	863,165			$	867,278

The Company calculates the fair value of the Fair Value 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.

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The Company primarily uses a 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:

		December 31, 2019
(in thousands)		Fair Value Level 3				Valuation Technique		Significant Unobservable Input		Weighted Average Inputs
Loans receivable at fair value		$	1,882,088			Discounted Cash Flows		Remaining cumulative charge-offs (1)		9.61%
								Remaining cumulative prepayments (1)		34.95%
								Average life (years)		0.81
								Discount rate		7.77%
		December 31, 2018
		Fair Value Level 3				Valuation Technique		Significant Unobservable Input		Weighted Average Inputs
Loans receivable at fair value		$	1,227,469			Discounted Cash Flows		Remaining cumulative charge-offs (1)		10.52%
								Remaining cumulative prepayments (1)		33.78%
								Average life (years)		0.85
								Discount rate		9.20%

⁽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, 2019 and 2018. 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.

The Company developed an internal model to estimate the Fair Value Loans. 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 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 Fair Value Loans, 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. Their model used these assumptions to generate loan level cash flows which were then aggregated and compared to the Company’s within an acceptable range.

The Company's internal valuation and loan loss allowance committee provides governance and oversight over the fair value pricing and loan loss allowance calculations and related financial statement disclosures. Additionally, this committee provides a challenge of the assumptions used and outputs of the model, including the appropriateness of such measures and periodically reviews the methodology and process to determine the fair value pricing and loan loss allowance. Any significant changes to the process must be approved by the committee.

The table below presents a reconciliation of loans receivable at fair value on a recurring basis using significant unobservable inputs:

		December 31,
(in thousands)		2019				2018				2017
Balance – beginning of period		$	1,227,469			$	—			$	—
Principal disbursements		1,741,899				1,509,379				—
Principal payments from customers		(996,945		)		(308,683		)		—
Gross charge-offs		(122,005		)		(23,225		)		—
Net increase in fair value		31,670				49,998				—
Balance ‑ end of period		$	1,882,088			$	1,227,469			$	—

As of December 31, 2019, the aggregate fair value of loans that are 90 days or more past and in non-accrual status is $3.6 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due is $15.8 million. As of December 31, 2018, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status is $1.1 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due is $7.6 million.

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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, 2019
		Carrying value				Estimated fair value				Estimated fair value
(in thousands of dollars)										Level 1				Level 2				Level 3
Assets
Cash and cash equivalents		$	72,179			$	72,179			$	72,179			$	—			$	—
Restricted cash		63,962				63,962				63,962				—				—
Loans receivable at amortized cost, net (Note 5)		38,471				43,482				—				—				43,482
Loans held for sale (Note 6)		715				772				—				—				772
Liabilities
Accounts payable		5,919				5,919				5,919				—				—
Secured financing (Note 8)		62,000				62,000				—				62,000				—
Asset-backed notes at amortized cost (Note 8)		$	359,111			$	360,668			$	—			$	360,668			$	—

		December 31, 2018
		Carrying value				Estimated fair value				Estimated fair value
(in thousands of dollars)										Level 1				Level 2				Level 3
Assets
Cash and cash equivalents		$	70,475			$	70,475			$	70,475			$	—			$	—
Restricted cash		58,700				58,700				58,700				—				—
Loans receivable at amortized cost, net (Note 5)		295,781				316,962				—				—				316,962
Liabilities
Accounts payable		7,277				7,277				7,277				—				—
Secured financing (Note 8)		87,000				87,000				—				87,000				—
Asset-backed notes at amortized cost (Note 8)		$	357,699			$	357,388			$	—			$	357,388			$	—

We use 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 receivable ‑ The fair value of loans receivable recorded at amortized cost were estimated by discounting the future expected cash flows using a required rate of return that management estimates would be used by a market participant.

•	Loans held for sale ‑ The fair values of loans held for sale are based on a negotiated agreement with the purchaser.

•

Secured financing and asset-backed notes ‑ The fair values of secured financing and asset-backed notes recorded at carrying value have been calculated using discount rates equivalent to the weighted-average market yield of comparable debt securities. The Company's asset-backed notes are valued by independent pricing services and brokers using quoted prices for identical or similar notes, which are Level 2 input measures.

There were no transfers in or out of Level 1, Level 2 or Level 3 assets and liabilities for the years ended December 31, 2019, 2018 and 2017.

15.	Leases, Commitments and Contingencies

Leases - The Company’s leases are primarily of real property consisting of retail locations and office space and have remaining lease terms of 10 years or less.

As described in Note 2, the Company adopted ASU 2016-02, Leases, as of January 1, 2019, using the modified retrospective transition approach. 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 and Comprehensive Income.

Most of the Company’s existing lease arrangements are classified as operating leases under the new standard. 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

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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 December 31, 2019, 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
2020		$	15,227
2021		12,439
2022		9,663
2023		8,340
2024		7,488
Thereafter		7,293
Total lease payments		60,450
Imputed interest		(6,240		)
Total leases		$	54,210
Sublease income
2020		$	(861	)
2021 and Thereafter		—
Total lease payments		(861		)
Imputed interest		8
Total sublease income		$	(853	)
Net lease liabilities		$	53,357
Weighted average remaining lease term		5.0 years
Weighted average discount rate		4.49		%

Future minimum lease payments under these non-cancelable leases having initial terms in excess of one year at December 31, 2018, under ASC 840, Leases, were as follows (in thousands):

(in thousands)		Operating Leases
Lease Expense
2019		$	12,994
2020		12,558
2021		10,035
2022		7,640
2023		6,500
Thereafter		12,767
Total lease payments		$	62,494

Rental expenses under operating leases for the years ended December 31, 2019, 2018 and 2017 were $18.2 million, $16.0 million and $11.4 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 2023. 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 $7.3 million in 2020, $6.6 million in 2021, $2.7 million in 2022, $0.2 million in 2023, and $0.0 million in 2024 and thereafter.

Whole Loan Sale Program ‑ The Company has a commitment to sell to a third-party financial institution 10% of its unsecured loan originations that satisfy certain eligibility criteria, and an additional 5% at the Company’s sole option. For details regarding the whole loan sale program, refer to Note 6, Loans Held for Sale.

Access Loan Whole Loan Sale Program ‑ In July 2017, the Company entered into a whole loan sale transaction with a financial institution with a commitment to sell 100% of the originations pursuant to the Company’s Access Loan Program and service the sold loans. For details regarding the Access Loan Whole Loan Sale Program, refer to Note 6, Loans Held for Sale.

Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at December 31, 2019 and 2018 were $2.3 million and $0.7 million, respectively.

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Litigation - On January 2, 2018, a complaint, captioned Opportune LLP v. Oportun, Inc. and Oportun, LLC, Civil Action No. 4:18-cv-00007, or the Opportune Lawsuit, was filed by plaintiff Opportune LLP in the United States District Court for the Southern District of Texas, against us and our wholly-owned subsidiary, Oportun, LLC. The complaint alleged various claims for trademark infringement, unfair competition, trademark dilution and misappropriation against us and Oportun, LLC and called for injunctive relief requiring us and Oportun, LLC to cease using its marks, as well as monetary damages related to the claims. In addition, on January 2, 2018, the plaintiff initiated a cancellation proceeding, Proceeding No. 92067634, before the Trademark Trial and Appeal Board seeking to cancel certain of our trademarks, or the Cancellation Proceeding and, together with the Opportune Lawsuit, the Opportune Matter. On March 5, 2018, the Trademark Trial and Appeal Board granted our motion to suspend the Cancellation Proceeding pending final disposition of the Opportune Lawsuit. On April 24, 2018, the District Court granted our motion to partially dismiss the complaint, dismissing Plaintiff's misappropriation claim. On February 22, 2019, Plaintiff filed an amended complaint adding an additional claim under the Anti-Cybersquatting Protection Act to the remaining claims in the original complaint. On August 30, 2019, we filed a motion for summary judgment on all of Plaintiff's claims. On January 22, 2020, the District Court issued its decision denying our motion for summary judgment. No trial date has been set. In connection with discussions regarding settlement of the Opportune Matter, the Company has recorded a liability of $1.9 million within Other liabilities and a corresponding insurance recovery receivable of $1.0 million within Other assets on the Consolidated Balance Sheets as of December 31, 2019. The income statement impact of $0.9 million was recorded through General, administrative and other on the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2019. Actual results could differ from these estimates.

See Item 3. Legal Proceedings for additional information regarding legal proceedings in which the Company is involved.

16.	Subsequent Events

Subsequent to the balance sheet date of December 31, 2019, the Company’s wholly-owned subsidiary, Oportun Funding VI, LLC, the issuer under the 2017-A asset backed securitization transaction, provided notice on February 21, 2020 to the trustee that they had elected to redeem all $160.0 million of outstanding 2017-A Notes on March 9, 2020 and satisfy and discharge Oportun Funding VI, LLC’s obligations under the 2017-A Notes and the indenture. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Current debt facilities” and Note 8, Borrowings.

17.	Selected Quarterly Financial Data (Unaudited)

As a “Smaller Reporting Company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

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