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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-39050
OPORTUN FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
| | | | | | | | | | | |
Delaware | | | 45-3361983 |
State or Other Jurisdiction of Incorporation or Organization | | | I.R.S. Employer Identification No. |
| | | |
2 Circle Star Way | | | |
San Carlos, | CA | | 94070 |
Address of Principal Executive Offices | | | Zip Code |
(650) 810-8823
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value per share | OPRT | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Smaller reporting company | ☒ |
Accelerated filer | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | ☒ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares of registrant’s common stock outstanding as of July 31, 2020 was 27,331,162.
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TABLE OF CONTENTS | | |
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PART I ‑ FINANCIAL INFORMATION | | |
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PART II ‑ OTHER INFORMATION | | |
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GLOSSARY
Terms and abbreviations used in this report are defined below.
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Term or Abbreviation | | Definition |
30+ Day Delinquency Rate (1) | | Unpaid principal balance for our owned loans that are 30 or more calendar days contractually past due as of the end of the period divided by Owned Principal Balance as of such date |
Access Loan Program | | A program intended to make credit available to select borrowers who do not qualify for credit under Oportun's core loan origination program |
Active Customers (1) | | Number of customers with an outstanding loan serviced by us at the end of a period. Active Customers includes customers whose loans are owned by us and loans that have been sold that we continue to service. Customers with charged-off accounts are excluded from Active Customers |
Adjusted EBITDA | | Adjusted EBITDA is a non-GAAP financial measure calculated as net income (loss), adjusted for the impact of our election of the fair value option and further adjusted to eliminate the effect of the following items: income tax expense (benefit), COVID-19 expenses, stock-based compensation, depreciation and amortization, litigation reserve, origination fees for Fair Value Loans, net and fair value mark-to-market adjustment |
Adjusted Earnings Per Share ("EPS") | | Adjusted EPS is a non-GAAP financial measure calculated by dividing Adjusted Net Income by adjusted weighted-average diluted common shares outstanding. Weighted-average diluted common shares outstanding have been adjusted to reflect the conversion of all preferred shares as of the beginning of each annual period |
Adjusted Net Income | | Adjusted Net Income is a non-GAAP financial measure calculated by adjusting our net income (loss), for the impact of our election of the fair value option, and further adjusted to exclude income tax expense (benefit), COVID-19 expenses, stock-based compensation expense and litigation reserve, net of tax |
Adjusted Operating Efficiency | | Adjusted Operating Efficiency is a non-GAAP financial measure calculated by dividing total operating expenses (excluding COVID-19 expenses, stock-based compensation expense and litigation reserve) by Fair Value Pro Forma Total Revenue |
Adjusted Return on Equity ("ROE") | | Adjusted Return on Equity is a non-GAAP financial measure calculated by dividing annualized Adjusted Net Income by Average Fair Value Pro Forma total stockholders’ equity |
Adjusted Tangible Book Value | | Fair Value Pro Forma total stockholders' equity, excluding intangible assets and system development costs |
Adjusted Tangible Book Value Per Share | | Adjusted Tangible Book Value divided by common shares outstanding at period end. Common shares outstanding at period end have been adjusted to reflect the conversion of all preferred shares as of the beginning of each annual period. |
Aggregate Originations (1) | | Aggregate amount disbursed to borrowers during a specific period. Aggregate Originations excludes any fees in connection with the origination of a loan |
Annualized Net Charge-Off Rate (1) | | Annualized loan principal losses (net of recoveries) divided by the Average Daily Principal Balance of owned loans for the period |
AOCI | | Accumulated other comprehensive income (loss) |
APR | | Annual Percentage Rate |
Average Daily Debt Balance | | Average of outstanding debt principal balance at the end of each calendar day during the period |
Asset-Backed Notes at Fair Value (or "Fair Value Notes") | | All asset-backed notes issued by Oportun on or after January 1, 2018 |
Average Daily Principal Balance (1) | | Average of outstanding principal balance of owned loans at the end of each calendar day during the period |
Board | | Oportun’s Board of Directors |
Book Value | | Total assets less total liabilities, or equal to total stockholders' equity |
Book Value Per Share | | Book Value divided by common shares outstanding at period end |
Cost of Debt | | Annualized interest expense divided by Average Daily Debt Balance |
Customer Acquisition Cost (1) | | Sales and marketing expenses, which include the costs associated with various paid marketing channels, including direct mail, digital marketing and brand marketing and the costs associated with our telesales and retail operations divided by number of loans originated to new and returning customers during a period |
Emergency Hardship Deferral | | Any receivable that has had one or more payments deferred and added at the end of the loan payment schedule in connection with a local or wide-spread emergency declared by local, state or federal government such as a natural disaster, government shutdown or pandemic |
Fair Value Loans (or "Loans Receivable at Fair Value") | | All loans receivable held for investment that were originated on or after January 1, 2018 |
Fair Value Pro Forma | | In order to facilitate comparisons to periods prior to January 1, 2018, certain metrics included in this presentation have been shown on a pro forma basis, or the Fair Value Pro Forma, as if we had elected the fair value option since our inception for all loans originated and held for investment and all asset-backed notes issued |
Fair Value Pro Forma Total Revenue | | Fair Value Pro Forma Total Revenue is calculated as the sum of Fair Value Pro Forma interest income and non-interest income. Fair Value Pro Forma interest income includes interest on loans and fees; origination fees are recognized upon disbursement. Non-interest income includes gain on sales, servicing fees and other income. The Company adopted ASU 2019-05 as of January 1, 2020 and as a result Fair Value Pro Forma Total Revenue and GAAP Total Revenue are equal for all prospective reporting periods. |
Fair Value Notes (or "Asset-Backed Notes at Fair Value") | | All asset-backed notes issued by Oportun on or after January 1, 2018 |
FICO® score or FICO® | | A credit score created by Fair Isaac Corporation |
First Payment Defaults | | Calculated as the principal balance of any loan whose first payment becomes 30 days past due, divided by the aggregate principal balance of all loans originated during that same period |
GAAP | | Generally Accepted Accounting Principles |
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Term or Abbreviation | | Definition |
Initial Fair Value Loans | | All loans receivable held for investment that were originated on or after January 1, 2018 |
Leverage | | Average Daily Debt Balance divided by Average Daily Principal Balance |
Loans Receivable at Amortized Cost | | Loans held for investment that were originated prior to January 1, 2018. Upon the adoption of ASU 2019-05 as of January 1, 2020 this line item has been eliminated for all prospective reporting periods. |
Loans Receivable at Fair Value (or "Fair Value Loans") | | All Initial Fair Value Loans, together with the Subsequent Fair Value Loans |
Managed Principal Balance at End of Period (1) | | Total amount of outstanding principal balance for all loans, including loans sold, which we continue to service, at the end of the period |
Net Revenue | | Net Revenue is calculated by subtracting interest expense and provision (release) for loan losses from total revenue and adding the net increase (decrease) in fair value. |
Operating Efficiency | | Total operating expenses divided by total revenue |
Owned Principal Balance at End of Period (1) | | Total amount of outstanding principal balance for all loans, excluding loans sold, at the end of the period |
Portfolio Yield (1) | | Annualized interest income as a percentage of Average Daily Principal Balance |
Principal Balance | | Original principal balance reduced by principal payments received to date |
Return on Equity | | Annualized net income divided by average stockholders' equity for a period |
Subsequent Fair Value Loans | | All loans receivable held for investment, previously measured at amortized cost for which the Company elected the fair value option upon adoption of ASU 2019-05, effective January 1, 2020 |
TDR Finance Receivables | | Troubled debt restructured finance receivables. This is only applicable to Loans Receivable at Amortized Cost. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower’s financial difficulties. Upon the adoption of ASU 2019-05 as of January 1, 2020 this line item has been eliminated for all prospective reporting periods. |
Secured Financing | | Asset-backed revolving debt facility |
VIEs | | Variable interest entities |
Weighted Average Interest Rate | | Annualized interest expense as a percentage of average debt |
(1) Credit card data has been excluded from these metrics for the three and six months ended June 30, 2020 because they are de minimis.
PART I ‑ FINANCIAL INFORMATION
Item 1. Financial Statements
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
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| | June 30, | | December 31, |
| | 2020 | | 2019 |
Assets | | | | |
Cash and cash equivalents | | $ | 139,218 | | | $ | 72,179 | |
Restricted cash | | 58,742 | | | 63,962 | |
Loans receivable at fair value | | 1,635,684 | | | 1,882,088 | |
Loans receivable at amortized cost | | — | | | 42,546 | |
Less: | | | | |
Unamortized deferred origination costs and fees, net | | — | | | (103) | |
Allowance for loan losses | | — | | | (3,972) | |
Loans receivable at amortized cost, net | | — | | | 38,471 | |
Loans held for sale | | 368 | | | 715 | |
Interest and fees receivable, net | | 20,206 | | | 17,185 | |
Right of use assets - operating | | 48,253 | | | 50,503 | |
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Other assets | | 72,151 | | | 76,771 | |
Total assets | | $ | 1,974,622 | | | $ | 2,201,874 | |
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Liabilities and stockholders' equity | | | | |
Liabilities | | | | |
Secured financing | | $ | 96,175 | | | $ | 60,910 | |
Asset-backed notes at fair value | | 1,097,929 | | | 1,129,202 | |
Asset-backed notes at amortized cost | | 199,793 | | | 359,111 | |
Amount due to whole loan buyer | | 31,119 | | | 33,354 | |
Lease liabilities | | 51,221 | | | 53,357 | |
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Other liabilities | | 44,053 | | | 77,174 | |
Total liabilities | | 1,520,290 | | | 1,713,108 | |
Stockholders' equity | | | | |
Preferred stock, $0.0001 par value - 100,000,000 shares authorized at June 30, 2020 and December 31, 2019; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019 | | — | | | — | |
Preferred stock, additional paid-in capital | | — | | | — | |
Common stock, $0.0001 par value - 1,000,000,000 shares authorized at June 30, 2020 and December 31, 2019; 27,602,823 shares issued and 27,330,800 shares outstanding at June 30, 2020; 27,262,639 shares issued and 27,003,157 shares outstanding at December 31, 2019 | | 6 | | | 6 | |
Common stock, additional paid-in capital | | 426,944 | | | 418,299 | |
Common stock warrants | | — | | | 63 | |
Accumulated other comprehensive loss | | (274) | | | (162) | |
Retained earnings | | 33,965 | | | 76,679 | |
Treasury stock at cost, 272,023 and 259,482 shares at June 30, 2020 and December 31, 2019 | | (6,309) | | | (6,119) | |
Total stockholders’ equity | | 454,332 | | | 488,766 | |
Total liabilities and stockholders' equity | | $ | 1,974,622 | | | $ | 2,201,874 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(in thousands, except share and per share data)
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| | Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Revenue | | | | | | | | |
Interest income | | $ | 136,086 | | | $ | 129,760 | | | $ | 286,786 | | | $ | 256,506 | |
Non-interest income | | 6,621 | | | 12,836 | | | 19,349 | | | 24,418 | |
Total revenue | | 142,707 | | | 142,596 | | | 306,135 | | | 280,924 | |
Less: | | | | | | | | |
Interest expense | | 15,110 | | | 14,633 | | | 31,471 | | | 29,252 | |
Provision (release) for loan losses | | — | | | (2,963) | | | — | | | (3,329) | |
Decrease in fair value | | (81,482) | | | (28,812) | | | (147,951) | | | (54,228) | |
Net revenue | | 46,115 | | | 102,114 | | | 126,713 | | | 200,773 | |
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Operating expenses: | | | | | | | | |
Technology and facilities | | 31,512 | | | 24,436 | | | 62,286 | | | 46,077 | |
Sales and marketing | | 20,060 | | | 23,101 | | | 44,887 | | | 44,367 | |
Personnel | | 27,681 | | | 18,900 | | | 53,263 | | | 37,777 | |
Outsourcing and professional fees | | 11,123 | | | 13,207 | | | 24,741 | | | 26,756 | |
General, administrative and other | | 2,640 | | | 3,572 | | | 6,453 | | | 6,930 | |
Total operating expenses | | 93,016 | | | 83,216 | | | 191,630 | | | 161,907 | |
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Income (loss) before taxes | | (46,901) | | | 18,898 | | | (64,917) | | | 38,866 | |
Income tax expense (benefit) | | (12,653) | | | 5,106 | | | (17,368) | | | 10,460 | |
Net income (loss) | | $ | (34,248) | | | $ | 13,792 | | | $ | (47,549) | | | $ | 28,406 | |
Change in post-termination benefit obligation | | 5 | | | (41) | | | (112) | | | (44) | |
Total comprehensive income (loss) | | $ | (34,243) | | | $ | 13,751 | | | $ | (47,661) | | | $ | 28,362 | |
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Net income (loss) attributable to common stockholders | | $ | (34,248) | | | $ | 1,542 | | | $ | (47,549) | | | $ | 3,230 | |
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Share data: | | | | | | | | |
Earnings (loss) per share: | | | | | | | | |
Basic | | $ | (1.26) | | | $ | 0.52 | | | $ | (1.75) | | | $ | 1.10 | |
Diluted | | $ | (1.26) | | | $ | 0.52 | | | $ | (1.75) | | | $ | 1.08 | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 27,233,394 | | | 2,942,833 | | | 27,125,054 | | | 2,940,164 | |
Diluted | | 27,233,394 | | | 2,955,914 | | | 27,125,054 | | | 2,987,143 | |
See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
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For the Six Months Ended June 30, 2020 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible Preferred Stock | | | | | | Common Stock Warrants | | | | Common Stock | | | | | | | | | | | | |
| | Shares | | Par Value | | Additional Paid-in Capital | | Shares | | Par Value | | Shares | | Par Value | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2020 | | — | | | $ | — | | | $ | — | | | 23,512 | | | $ | 63 | | | 27,003,157 | | | $ | 6 | | | $ | 418,299 | | | $ | (162) | | | $ | 76,679 | | | $ | (6,119) | | | $ | 488,766 | |
Issuance of common stock upon exercise of stock options | | — | | | — | | | — | | | — | | | — | | | 3,161 | | | — | | | 20 | | | — | | | — | | | — | | | 20 | |
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Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,151 | | | — | | | — | | | — | | | 4,151 | |
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Vesting of restricted stock units, net | | — | | | — | | | — | | | — | | | — | | | 137,479 | | | — | | | (813) | | | — | | | — | | | — | | | (813) | |
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Cumulative effect of adoption of ASU 2019-05 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,835 | | | — | | | 4,835 | |
Change in post-termination benefit obligation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (117) | | | — | | | — | | | (117) | |
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Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,301) | | | — | | | (13,301) | |
Balance – March 31, 2020 | | — | | | $ | — | | | $ | — | | | 23,512 | | | $ | 63 | | | 27,143,797 | | | $ | 6 | | | $ | 421,657 | | | $ | (279) | | | $ | 68,213 | | | $ | (6,119) | | | $ | 483,541 | |
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Issuance of common stock upon exercise of stock options | | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | 22,407 | | | $ | — | | | $ | 79 | | | $ | — | | | $ | — | | | $ | — | | | $ | 79 | |
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Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,972 | | | — | | | — | | | — | | | 4,972 | |
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Issuance of common stock upon exercise of warrants | | — | | | — | | | — | | | (23,512) | | | (63) | | | 10,972 | | | — | | | 253 | | | — | | | — | | | (190) | | | — | |
Vesting of restricted stock units, net | | — | | | — | | | — | | | — | | | — | | | 153,624 | | | — | | | (17) | | | — | | | — | | | — | | | (17) | |
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Change in post-termination benefit obligation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | — | | | — | | | 5 | |
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Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (34,248) | | | — | | | (34,248) | |
Balance – June 30, 2020 | | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | 27,330,800 | | | $ | 6 | | | $ | 426,944 | | | $ | (274) | | | $ | 33,965 | | | $ | (6,309) | | | $ | 454,332 | |
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See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
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For the Six Months Ended June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible Preferred Stock | | | | | | Convertible Preferred and Common Stock Warrants | | | | Common Stock | | | | | | | | | | | | |
| | Shares | | Par Value | | Additional Paid-in Capital | | Shares | | Par Value | | Shares | | Par Value | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Treasury Stock | | Total Stockholders' Equity |
Balance – January 1, 2019 | | 14,043,977 | | | $ | 16 | | | $ | 257,887 | | | 24,959 | | | $ | 130 | | | 2,935,249 | | | $ | 3 | | | $ | 44,411 | | | $ | (132) | | | $ | 52,662 | | | $ | (8,428) | | | $ | 346,549 | |
Issuance of common stock upon exercise of stock options | | — | | | — | | | — | | | — | | | — | | | 7,317 | | | — | | | 142 | | | — | | | — | | | — | | | 142 | |
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Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,980 | | | — | | | — | | | — | | | 1,980 | |
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Cumulative effect of adoption of ASC 842 | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (125) | | | — | | | (125) | |
Change in post-termination benefit obligation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | |
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Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 14,614 | | | — | | | 14,614 | |
Balance – March 31, 2019 | | 14,043,977 | | | $ | 16 | | | $ | 257,887 | | | 24,959 | | | $ | 130 | | | 2,942,566 | | | $ | 3 | | | $ | 46,533 | | | $ | (135) | | | $ | 67,151 | | | $ | (8,428) | | | $ | 363,157 | |
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Issuance of common stock upon exercise of stock options | | — | | | — | | | — | | | — | | | — | | | 2,216 | | | — | | | 4 | | | — | | | — | | | — | | | 4 | |
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Stock-based compensation expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,035 | | | — | | | — | | | — | | | 2,035 | |
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Change in post-termination benefit obligation | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (41) | | | — | | | — | | | (41) | |
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Net income | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 13,792 | | | — | | | 13,792 | |
Balance – June 30, 2019 | | 14,043,977 | | | $ | 16 | | | $ | 257,887 | | | 24,959 | | | $ | 130 | | | 2,944,782 | | | $ | 3 | | | $ | 48,572 | | | $ | (176) | | | $ | 80,943 | | | $ | (8,428) | | | $ | 378,947 | |
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See Notes to the Condensed Consolidated Financial Statements.
OPORTUN FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flow (Unaudited)
(in thousands)
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | |
| | 2020 |
| 2019 |
Cash flows from operating activities | | | | |
Net income (loss) | | $ | (47,549) | | | $ | 28,406 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 9,761 | | | 6,067 | |
Fair value adjustment, net | | 147,951 | | | 54,228 | |
Origination fees for loans receivable at fair value, net | | 4,816 | | | (986) | |
Gain on loan sales | | (9,524) | | | (15,796) | |
Stock-based compensation expense | | 9,123 | | | 4,015 | |
Provision (release) for loan losses | | — | | | (3,329) | |
Deferred tax provision, net | | (22,402) | | | 6,836 | |
Other, net | | 7,067 | | | 3,611 | |
Originations of loans sold and held for sale | | (94,732) | | | ( |