oprt-20200930

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 September 30, 2020

☐ 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.


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 November 5, 2020 was 27,607,142.


TABLE OF CONTENTS
GLOSSARY

PART I ‑ FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Income	6
	Condensed Consolidated Statements of Changes in Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flow	9
	Notes to the Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

PART II ‑ OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibit Index	80

Signature		81

GLOSSARY

Terms and abbreviations used in this report are defined below.


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 expense, 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 currently has 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 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


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 nine months ended September 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)


	September 30,		December 31,
	2020		2019
Assets
Cash and cash equivalents	$	109,656	$	72,179
Restricted cash	53,824		63,962
Loans receivable at fair value	1,605,388		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	1,046		715
Interest and fees receivable, net	16,535		17,185
Right of use assets - operating	48,762		50,503

Other assets	82,312		76,771
Total assets	$	1,917,523	$	2,201,874

Liabilities and stockholders' equity
Liabilities
Secured financing	$	191,180	$	60,910
Asset-backed notes at fair value	1,125,444		1,129,202
Asset-backed notes at amortized cost	—		359,111
Amount due to whole loan buyer	26,810		33,354
Lease liabilities	51,692		53,357

Other liabilities	69,376		77,174
Total liabilities	1,464,502		1,713,108
Stockholders' equity
Preferred stock, $0.0001 par value - 100,000,000 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued and outstanding at September 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 September 30, 2020 and December 31, 2019; 27,855,051 shares issued and 27,583,028 shares outstanding at September 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	431,673		418,299
Common stock warrants	—		63
Accumulated other comprehensive loss	(268)		(162)
Retained earnings	27,919		76,679
Treasury stock at cost, 272,023 and 259,482 shares at September 30, 2020 and December 31, 2019	(6,309)		(6,119)
Total stockholders’ equity	453,021		488,766
Total liabilities and stockholders' equity	$	1,917,523	$	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)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Interest income	$	128,739	$	139,272	$	415,525	$	395,778
Non-interest income	8,028		14,608		27,377		39,026
Total revenue	136,767		153,880		442,902		434,804
Less:
Interest expense	13,408		15,499		44,879		44,751
Provision (release) for loan losses	—		(426)		—		(3,755)
Decrease in fair value	(29,633)		(24,339)		(177,584)		(78,567)
Net revenue	93,726		114,468		220,439		315,241

Operating expenses:
Technology and facilities	31,641		26,772		93,927		72,849
Sales and marketing	20,634		24,717		65,521		69,084
Personnel	26,662		28,637		79,925		66,414
Outsourcing and professional fees	11,491		16,041		36,232		42,797
General, administrative and other	11,138		3,886		17,591		10,816
Total operating expenses	101,566		100,053		293,196		261,960

Income (loss) before taxes	(7,840)		14,415		(72,757)		53,281
Income tax expense (benefit)	(1,794)		4,386		(19,162)		14,846
Net income (loss)	$	(6,046)	$	10,029	$	(53,595)	$	38,435
Change in post-termination benefit obligation	6		8		(106)		(36)
Total comprehensive income (loss)	$	(6,040)	$	10,037	$	(53,701)	$	38,399

Net income (loss) attributable to common stockholders	$	(6,046)	$	(27,427)	$	(53,595)	$	—

Share data:
Earnings (loss) per share:
Basic	$	(0.22)	$	(6.39)	$	(1.97)	$	—
Diluted	$	(0.22)	$	(6.39)	$	(1.97)	$	—
Weighted average common shares outstanding:
Basic	27,459,192		4,294,107		27,237,246		3,397,503
Diluted	27,459,192		4,294,107		27,237,246		3,397,503

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)


For the Nine Months Ended September 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



Stock-based compensation expense	—	—		—		—	—		—	—		4,151		—		—		—		4,151



Vesting of restricted stock units, net	—	—		—		—	—		137,479	—		(813)		—		—		—		(813)

Cumulative effect of adoption of ASU 2019-05	—	—		—		—	—		—	—		—		—		4,835		—		4,835
Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		(117)		—		—		(117)


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

Issuance of common stock upon exercise of stock options	—	$	—	$	—	—	—		22,407	—		79		—		—		—		79



Stock-based compensation expense	—	—		—		—	—		—	—		4,972		—		—		—		4,972


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)


Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		5		—		—		5


Net loss	—	—		—		—	—		—	—		—		—		(34,248)		—		(34,248)
Balance – June 30, 2020	—	$	—	$	—	—	$	—	27,330,800	$	6	$	426,944	$	(274)	$	33,965	$	(6,309)	$	454,332

Issuance of common stock upon exercise of stock options	—	$	—	$	—	—	—		4,018	—		24		$	—	—		—		24



Stock-based compensation expense	—	—		—		—	—		—	—		5,194		—		—		—		5,194



Vesting of restricted stock units, net	—	—		—		—	—		248,210	—		(489)		—		—		—		(489)


Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		6		—		—		6


Net loss	—	—		—		—	—		—	—		—		—		(6,046)		—		(6,046)
Balance – September 30, 2020	—	$	—	$	—	—	$	—	27,583,028	$	6	$	431,673	$	(268)	$	27,919	$	(6,309)	$	453,021

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)


For the Nine Months Ended September 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



Stock-based compensation expense	—	—		—		—	—		—	—		1,980		—		—		—		1,980





Cumulative effect of adoption of ASC 842	—	—		—		—	—		—	—		—		—		(125)		—		(125)
Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		(3)		—		—		(3)


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

Issuance of common stock upon exercise of stock options	—	—		—		—	—		2,216	—		4		—		—		—		4



Stock-based compensation expense	—	—		—		—	—		—	—		2,035		—		—		—		2,035






Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		(41)		—		—		(41)


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

Issuance of common stock upon exercise of stock options	—	—		—		—	—		96,371	—		645		—		—		—		645
Repurchase of stock options	—	—		—		—	—		—	—		(86)		—		—		—		(86)

Issuance of common stock upon initial public offering, net of offering costs	—	—		—		—	—		4,873,356	—		60,479		—		—		—		60,479
Stock-based compensation expense	—	—		—		—	—		—	—		11,163		—		—		—		11,163
Conversion of convertible preferred stock to common stock in connection with initial public offering	(14,043,977)	(16)		(257,887)		—	—		19,075,167	3		295,356		—		(37,456)		—		—

Issuance of convertible preferred stock and conversion to common stock upon exercise of warrants, net	—	—		—		(9,090)	(67)		3,969	—		67		—		—		—		—
Vesting of restricted stock units	—	—		—		—	—		11,627	—		—		—		—		—		—
Restricted stock units tax withholding	—	—		—		—	—		(4,021)	—		—		—		—		(68)		(68)

Change in post-termination benefit obligation	—	—		—		—	—		—	—		—		8		—		—		8


Net income	—	—		—		—	—		—	—		—		—		10,029		—		10,029
Balance – September 30, 2019	—	$	—	$	—	15,869	$	63	27,001,251	$	6	$	416,196	$	(168)	$	53,516	$	(8,496)	$	461,117

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Cash Flow (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net income (loss)	$	(53,595)	$	38,435
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	14,878		9,658
Fair value adjustment, net	177,584		78,567
Origination fees for loans receivable at fair value, net	3,520		(2,172)
Gain on loan sales	(13,406)		(25,291)
Stock-based compensation expense	14,317		15,178
Provision (release) for loan losses	—		(3,755)
Deferred tax provision, net	(14,913)		5,082
Other, net	10,688		6,557
Originations of loans sold and held for sale	(134,552)		(248,441)
Proceeds from sale of loans	147,627		269,546
Changes in operating assets and liabilities:
Interest and fee receivable, net	(3,678)		(3,407)
Other assets	(8,242)		(23,283)
Amount due to whole loan buyer	(6,544)		2,159
Other liabilities	5,723		48,408
Net cash provided by operating activities	139,407		167,241
Cash flows from investing activities
Originations of loans	(665,148)		(1,035,536)
Repayments of loan principal	804,619		753,072
Purchase of fixed assets, net	(3,610)		(5,765)
Capitalization of system development costs	(16,492)		(11,734)

Net cash provided by (used in) investing activities	119,369		(299,963)
Cash flows from financing activities
Borrowings under secured financing	414,000		82,000
Proceeds from initial public offering, net of offering costs	—		60,479
Borrowings under asset-backed notes	—		249,951
Repayments of secured financing	(284,006)		(169,000)
Repayments of asset-backed notes	(360,001)		—
Repayments of capital lease obligations	(29)		(102)
Payments of deferred financing costs	(205)		—
Net payments related to stock-based activities	(1,196)		638
Net cash provided by (used in) financing activities	(231,437)		223,966
Net increase in cash and cash equivalents and restricted cash	27,339		91,244
Cash and cash equivalents and restricted cash, beginning of period	136,141		129,175
Cash and cash equivalents and restricted cash, end of period	$	163,480	$	220,419

Supplemental disclosure of cash flow information
Cash and cash equivalents	$	109,656	$	154,512
Restricted cash	53,824		65,907
Total cash and cash equivalents and restricted cash	$	163,480	$	220,419

Cash paid for income taxes, net of refunds	$	2,443	$	2,786
Cash paid for interest and prepayment fees	$	44,219	$	42,845
Cash paid for amounts included in the measurement of operating lease liabilities	$	11,730	$	9,337
Supplemental disclosures of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease obligations	$	7,404	$	46,156
Additional common stock issued to Series G shareholders upon initial public offering	$	—	$	37,456

Non-cash investments in capitalized assets	$	491	$	862

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

September 30, 2020


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 that are affordably priced and that help customers establish a credit history. The Company has begun to expand beyond its core offering into other financial services that a significant portion of its customers already use, such as auto loans and credit cards. The Company has developed a proprietary lending platform that enables the Company to underwrite the risk of low- and 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 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. 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 to the Company of approximately $60.5 million, after deducting underwriting discounts and commissions of $5.1 million and offering expenses paid by the Company 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 condensed 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 condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These statements are unaudited and reflect all normal, recurring adjustments that are, in management's opinion, necessary for the fair presentation of results. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior-period financial information has been reclassified to conform to current period presentation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 ("the Annual Report"), filed with the Securities and Exchange Commission ("SEC") on February 28, 2020. All share and per share amounts for all periods presented in the accompanying condensed 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 condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates and assumptions.

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

Recently Adopted Accounting Standards

Allowance for Loan Losses and Fair Value Option ‑ In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This guidance significantly changes the way entities are required to measure credit losses. Under the new standard, estimated credit losses are based upon an expected credit loss approach rather than an incurred loss approach that was previously 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 deferred the effective date for public filers that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted in fiscal years beginning after December 15, 2018, including interim periods in those fiscal years. The Company elected to early adopt ASU 2016-13 and ASU 2019-05 effective January 1, 2020.

The Company previously elected the fair value option for all loans originated after January 1, 2018. Upon adoption of ASU 2019-05, the Company elected the fair value option on all loans receivable originated prior to January 1, 2018 that were previously measured at amortized cost. As a result, adoption of ASU 2016-13 did not have impact on the Company's condensed consolidated financial statements and disclosures. The Company made an accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts as the Company writes off the uncollectible accrued interest receivable balance in a timely manner and makes relevant disclosures.

The adoption of ASU 2019-05 and fair value election resulted in (i) the release of the remaining allowance for loan losses on Loans Receivable at Amortized Cost as of December 31, 2019; (ii) recognition of the unamortized net originations fee income as of December 31, 2019; and (iii) measurement of the remaining loans originated prior to January 1, 2018 at fair value. These adjustments resulted in an increase to opening retained earnings as of January 1, 2020 of approximately $4.8 million. ASU 2019-05 does not allow for the fair value option to be elected on the Company's asset-backed notes carried at amortized cost.

Fair Value Disclosures ‑ In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. This ASU simplifies the disclosure requirements for fair value measurements. The Company adopted this ASU effective January 1, 2020. The simplified disclosure requirements included a new disclosure for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. These new disclosure requirements were applied prospectively.

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). The Company adopted the amendments of this ASU effective January 1, 2020 on a prospective basis with no impact upon adoption. All eligible implementation costs related to cloud computing arrangements are now recorded as part of "prepaid expenses" within "Other assets" on the Condensed Consolidated Balance Sheets (Unaudited). The amortization expense is presented in the same line on the income statement as the fees for the associated hosted service within "Operating expenses" on the Company's Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited), and the cash payments related to implementation of cloud computing arrangements are classified as "cash flows from operating activities" within the Condensed Consolidated Statements of Cash Flow (Unaudited).

Accounting Standards to be Adopted

Income Taxes