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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 September 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)
Delaware45-3361983
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
2 Circle Star Way
San Carlos,CA94070
Address of Principal Executive OfficesZip Code
(650) 810-8823
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareOPRTNasdaq 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
PART I ‑ FINANCIAL INFORMATION
PART II ‑ OTHER INFORMATION

2


GLOSSARY

Terms and abbreviations used in this report are defined below.
Term or AbbreviationDefinition
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 ProgramA 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 EBITDAAdjusted 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 IncomeAdjusted 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 EfficiencyAdjusted 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 ValueFair Value Pro Forma total stockholders' equity, excluding intangible assets and system development costs
Adjusted Tangible Book Value Per ShareAdjusted 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
AOCIAccumulated other comprehensive income (loss)
APRAnnual Percentage Rate
Average Daily Debt BalanceAverage 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
BoardOportun’s Board of Directors
Book ValueTotal assets less total liabilities, or equal to total stockholders' equity
Book Value Per ShareBook Value divided by common shares outstanding at period end
Cost of DebtAnnualized 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 DeferralAny 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 FormaIn 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 RevenueFair 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
GAAPGenerally Accepted Accounting Principles
3


Term or AbbreviationDefinition
Initial Fair Value LoansAll loans receivable held for investment that were originated on or after January 1, 2018
LeverageAverage Daily Debt Balance divided by Average Daily Principal Balance
Loans Receivable at Amortized CostLoans 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 RevenueNet 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 EfficiencyTotal 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 BalanceOriginal principal balance reduced by principal payments received to date
Return on EquityAnnualized net income divided by average stockholders' equity for a period
Subsequent Fair Value LoansAll 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 FinancingAsset-backed revolving debt facility
VIEsVariable interest entities
Weighted Average Interest RateAnnualized 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.

4


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,
20202019
Assets
Cash and cash equivalents$109,656 $72,179 
Restricted cash53,824 63,962 
Loans receivable at fair value1,605,388 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 sale1,046 715 
Interest and fees receivable, net16,535 17,185 
Right of use assets - operating48,762 50,503 
Other assets82,312 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 buyer26,810 33,354 
Lease liabilities51,692 53,357 
Other liabilities69,376 77,174 
Total liabilities1,464,502 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, 20196 6 
Common stock, additional paid-in capital431,673 418,299 
Common stock warrants 63 
Accumulated other comprehensive loss(268)(162)
Retained earnings27,919 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’ equity453,021 488,766 
Total liabilities and stockholders' equity$1,917,523 $2,201,874 
See Notes to the Condensed Consolidated Financial Statements.

5


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,
2020201920202019
Revenue
Interest income$128,739 $139,272 $415,525 $395,778 
Non-interest income8,028 14,608 27,377 39,026 
Total revenue136,767 153,880 442,902 434,804 
Less:
Interest expense13,408 15,499 44,879 44,751 
Provision (release) for loan losses (426) (3,755)
Decrease in fair value(29,633)(24,339)(177,584)(78,567)
Net revenue93,726 114,468 220,439 315,241 
Operating expenses:
Technology and facilities31,641 26,772 93,927 72,849 
Sales and marketing20,634 24,717 65,521 69,084 
Personnel26,662 28,637 79,925 66,414 
Outsourcing and professional fees11,491 16,041 36,232 42,797 
General, administrative and other11,138 3,886 17,591 10,816 
Total operating expenses101,566 100,053 293,196 261,960 
Income (loss) before taxes(7,840)14,415 (72,757)53,281 
Income tax expense (benefit)(1,794)4,386 (19,162)14,846 
Net income (loss)$(6,046)$10,029 $(53,595)$38,435 
Change in post-termination benefit obligation6 8 (106)(36)
Total comprehensive income (loss)$(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:
Basic27,459,192 4,294,107 27,237,246 3,397,503 
Diluted27,459,192 4,294,107 27,237,246 3,397,503 
See Notes to the Condensed Consolidated Financial Statements.
6


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 StockCommon Stock WarrantsCommon Stock
SharesPar Value Additional Paid-in CapitalSharesPar Value SharesPar Value Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal 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.
7


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 StockConvertible Preferred and Common Stock WarrantsCommon Stock
SharesPar Value Additional Paid-in CapitalSharesPar Value SharesPar Value Additional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal Stockholders' Equity
Balance – January 1, 201914,043,977 $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, 201914,043,977 $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, 201914,043,977 $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.
8


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 amortization14,878 9,658 
Fair value adjustment, net177,584 78,567 
Origination fees for loans receivable at fair value, net3,520 (2,172)
Gain on loan sales(13,406)(25,291)
Stock-based compensation expense14,317 15,178 
Provision (release) for loan losses (3,755)
Deferred tax provision, net(14,913)5,082 
Other, net10,688 6,557 
Originations of loans sold and held for sale(134,552)(248,441)
Proceeds from sale of loans147,627 269,546 
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 liabilities5,723 48,408 
Net cash provided by operating activities139,407 167,241 
Cash flows from investing activities
Originations of loans(665,148)(1,035,536)
Repayments of loan principal804,619 753,072 
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 activities119,369 (299,963)
Cash flows from financing activities
Borrowings under secured financing414,000 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 cash27,339 91,244 
Cash and cash equivalents and restricted cash, beginning of period136,141 129,175 
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 cash53,824 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.
9


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.

10


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 OptionIn 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 DisclosuresIn 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