oprt-20210331

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 March 31, 2021

☐ 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 April 30, 2021 was 27,979,915.


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	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II ‑ OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibit Index	70

Signature		71

GLOSSARY

Terms and abbreviations used in this report are defined below.


Term or Abbreviation						Definition
30+ Day Delinquency Rate						Unpaid principal balance for our owned loans and credit card receivables 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
Active Customers						Number of customers with an outstanding loan or an active credit card serviced by us at the end of a period. Active Customers include customers whose loans are owned by us or loans and accounts that were originated under an Oportun affiliated program and that we 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), stock-based compensation expense, depreciation and amortization, certain non-recurring charges, origination fees for Fair Value Loans, net and fair value mark-to-market adjustments
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
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), stock-based compensation expense, and certain non-recurring charges
Adjusted Operating Efficiency						Adjusted Operating Efficiency is a non-GAAP financial measure calculated by dividing adjusted total operating expenses (excluding stock-based compensation expense and certain non-recurring charges) by 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 total stockholders’ equity


Aggregate Originations						Aggregate amount disbursed to borrowers and credit granted on credit cards during a specific period. Aggregate Originations exclude any fees in connection with the origination of a loan
Annualized Net Charge-Off Rate						Annualized loan and credit card principal losses (net of recoveries) divided by the Average Daily Principal Balance of owned loans and credit card receivables for the period
AOCI						Accumulated other comprehensive income (loss)
APR						Annual Percentage Rate
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 Debt Balance						Average of outstanding debt principal balance at the end of each calendar day during the period
Average Daily Principal Balance						Average of outstanding principal balance of owned loans and credit card receivables at the end of each calendar day during the period
Board						Oportun’s Board of Directors


Cost of Debt						Annualized interest expense divided by Average Daily Debt Balance
Customer Acquisition Cost (or "CAC")						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 and new credit cards activated 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
Fair Value Loans (or "Loans Receivable at Fair Value")						All loans receivable held for investment that were originated on or after January 1, 2018. Upon the adoption of ASU 2019-05 as of January 1, 2020 all loans receivable held for investment are reported in this line item for all prospective reporting periods
Fair Value Pro Forma						In order to facilitate comparisons to periods prior to January 1, 2018, certain metrics included in this document 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 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

GAAP						Generally Accepted Accounting Principles

Leverage						Average Daily Debt Balance divided by Average Daily Principal Balance

Loans Receivable at Fair Value (or "Fair Value Loans")						All loans receivable held for investment that were originated on or after January 1, 2018. Upon the adoption of ASU 2019-05 as of January 1, 2020 all loans receivable held for investment are reported in this line item for all prospective reporting periods
Managed Principal Balance at End of Period						Total amount of outstanding principal balance for all loans and credit card receivables, including loans and receivables sold, which we continue to service, at the end of the period
Net Revenue						Net Revenue is calculated by subtracting interest expense 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						Total amount of outstanding principal balance for all loans and credit card receivables, excluding loans and receivables sold, at the end of the period


Term or Abbreviation						Definition
Portfolio Yield						Annualized interest income as a percentage of Average Daily Principal Balance
Principal Balance						Original principal balance reduced by principal payments received and principal charge-offs to date for our personal loans. Purchases and cash advances, reduced by returns and principal payments received and principal charge-offs to date for our credit cards
Return on Equity						Annualized net income divided by average stockholders' equity for a period


Secured Financing						Asset-backed revolving debt facility
VIEs						Variable interest entities
Weighted Average Interest Rate						Annualized interest expense as a percentage of average debt

PART I ‑ FINANCIAL INFORMATION

Item 1. Financial Statements

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)


	March 31,		December 31,
	2021		2020
Assets
Cash and cash equivalents	$	140,416	$	136,187
Restricted cash	42,765		32,403
Loans receivable at fair value	1,670,251		1,696,526






Interest and fees receivable, net	13,322		15,426
Right of use assets - operating	40,323		46,820

Other assets	84,984		81,689
Total assets	$	1,992,061	$	2,009,051

Liabilities and stockholders' equity
Liabilities
Secured financing	$	64,806	$	246,385
Asset-backed notes at fair value	1,340,782		1,167,309

Amount due to whole loan buyer	8,588		6,781
Lease liabilities	47,025		49,684

Other liabilities	58,867		72,525
Total liabilities	1,520,068		1,542,684
Stockholders' equity


Common stock, $0.0001 par value - 1,000,000,000 shares authorized at March 31, 2021 and December 31, 2020; 28,246,606 shares issued and 27,974,583 shares outstanding at March 31, 2021; 27,951,286 shares issued and 27,679,263 shares outstanding at December 31, 2020	6		6
Common stock, additional paid-in capital	439,100		436,499

Accumulated other comprehensive loss	(255)		(261)
Retained earnings	39,451		36,432
Treasury stock at cost, 272,023 and 272,023 shares at March 31, 2021 and December 31, 2020	(6,309)		(6,309)
Total stockholders’ equity	471,993		466,367
Total liabilities and stockholders' equity	$	1,992,061	$	2,009,051

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 March 31,
	2021		2020
Revenue
Interest income	$	127,191	$	150,700
Non-interest income	8,122		12,728
Total revenue	135,313		163,428
Less:
Interest expense	13,504		16,361

Decrease in fair value	(11,568)		(66,469)
Net revenue	110,241		80,598

Operating expenses:
Technology and facilities	32,924		30,774
Sales and marketing	23,893		24,827
Personnel	26,827		25,582
Outsourcing and professional fees	12,625		13,618
General, administrative and other	9,997		3,813
Total operating expenses	106,266		98,614

Income (loss) before taxes	3,975		(18,016)
Income tax expense (benefit)	956		(4,715)
Net income (loss)	$	3,019	$	(13,301)
Change in post-termination benefit obligation	6		(117)
Total comprehensive income (loss)	$	3,025	$	(13,418)

Net income (loss) attributable to common stockholders	$	3,019	$	(13,301)

Share data:
Earnings (loss) per share:
Basic	$	0.11	$	(0.49)
Diluted	$	0.10	$	(0.49)
Weighted average common shares outstanding:
Basic	27,770,063		27,015,730
Diluted	29,620,034		27,015,730

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 Three Months Ended March 31, 2021
	Common Stock Warrants	Common Stock
		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, 2021		—	$	—	27,679,263	$	6	$	436,499	$	(261)	$	36,432	$	(6,309)	$	466,367
Issuance of common stock upon exercise of stock options		—	—		33,526	—		307		—		—		—		307



Stock-based compensation expense		—	—		—	—		5,088		—		—		—		5,088



Vesting of restricted stock units, net		—	—		261,794	—		(2,794)		—		—		—		(2,794)


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


Net income		—	—		—	—		—		—		3,019		—		3,019
Balance – March 31, 2021		—	$	—	27,974,583	$	6	$	439,100	$	(255)	$	39,451	$	(6,309)	$	471,993

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 Three Months Ended March 31, 2020
	Convertible Preferred and Common Stock Warrants	Common Stock
		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

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Condensed Consolidated Statements of Cash Flow (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net income (loss)	$	3,019	$	(13,301)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	6,957		4,658
Fair value adjustment, net	11,568		66,469
Origination fees for loans receivable at fair value, net	(1,422)		1,542
Gain on loan sales	(4,434)		(7,532)
Stock-based compensation expense	5,088		4,151

Deferred tax provision, net	4,038		101
Other, net	11,287		3,521
Originations of loans sold and held for sale	(33,464)		(74,530)
Proceeds from sale of loans	38,372		82,636
Changes in operating assets and liabilities:
Interest and fee receivable, net	1,183		(1,987)
Other assets	(5,326)		(5,818)
Amount due to whole loan buyer	1,808		(95)
Other liabilities	(20,518)		(7,693)
Net cash provided by operating activities	18,156		52,122
Cash flows from investing activities
Originations of loans	(263,148)		(314,484)
Repayments of loan principal	278,659		282,212
Purchase of fixed assets, net	(873)		(1,615)
Capitalization of system development costs	(5,651)		(5,461)

Net cash provided by (used in) investing activities	8,987		(39,348)
Cash flows from financing activities
Borrowings under secured financing	—		235,000

Borrowings under asset-backed notes	371,719		—
Repayments of secured financing	(181,780)		(17,001)
Repayments of asset-backed notes	(200,004)		(160,001)
Repayments of capital lease obligations	—		(26)

Net payments related to stock-based activities	(2,487)		(793)
Net cash provided by (used in) financing activities	(12,552)		57,179
Net increase in cash and cash equivalents and restricted cash	14,591		69,953
Cash and cash equivalents and restricted cash, beginning of period	168,590		136,141
Cash and cash equivalents and restricted cash, end of period	$	183,181	$	206,094

Supplemental disclosure of cash flow information
Cash and cash equivalents	$	140,416	$	144,836
Restricted cash	42,765		61,258
Total cash and cash equivalents and restricted cash	$	183,181	$	206,094

Cash paid for income taxes, net of refunds	$	240	$	455
Cash paid for interest	$	13,625	$	16,378
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,292	$	4,051
Supplemental disclosures of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease obligations	$	1,093	$	3,429


Non-cash investments in capitalized assets	$	625	$	702

See Notes to the Condensed Consolidated Financial Statements.

OPORTUN FINANCIAL CORPORATION

Notes to the Condensed Consolidated Financial Statements (Unaudited)

March 31, 2021


1.			Organization and Description of Business

Oportun Financial Corporation (together with its subsidiaries, "Oportun" or the " Company") provides 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," primarily because they have a credit history that is too limited to be accurately scored by credit bureaus. The Company's primary product offerings are 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 personal loans secured by a vehicle and credit cards. The Company uses models that are developed with Artificial Intelligence ("A.I.") and built on over 15 years of proprietary consumer insights and billions of data points. The Company's proprietary scoring model and continually evolving data analytics have enabled it to underwrite the risk of the hardworking customers that it serves. 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.


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 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, 2020 ("the Annual Report"), filed with the Securities and Exchange Commission ("SEC") on February 23, 2021.

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

Income Taxes - In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company adopted this ASU effective January 1, 2021 with no impact on its consolidated financial statements and disclosures.


3.			Earnings (Loss) per Share

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


	Three Months Ended March 31,
(in thousands, except share and per share data)	2021		2020
Net income (loss)	$	3,019	$	(13,301)


Net (loss) income attributable to common stockholders	$	3,019	$	(13,301)

Basic weighted-average common shares outstanding	27,770,063		27,015,730
Weighted average effect of dilutive securities:
Stock options	1,274,818		—
Restricted stock units	575,153		—
Warrants	—		—
Diluted weighted-average common shares outstanding	29,620,034		27,015,730

Earnings (loss) per share:
Basic	$	0.11	$	(0.49)
Diluted	$	0.10	$	(0.49)

The following common share equivalent securities have been excluded from the calculation of diluted weighted-average common shares outstanding because the effect is anti-dilutive for the periods presented:


	Three Months Ended March 31,
	2021	2020
Stock options	2,822,785	4,086,128
Restricted stock units	45,306	1,757,010
Warrants	—	23,512

Total anti-dilutive common share equivalents	2,868,091	5,866,650


4.			Variable Interest Entities

As part of the Company’s overall funding strategy, the Company transfers a pool of designated loans receivable to wholly owned special-purpose subsidiaries ("VIEs") to collateralize certain asset-backed financing transactions. The Company has determined that it is the primary beneficiary of these VIEs because it has the power to direct the activities that most significantly impact the VIEs’ economic performance and the obligation to absorb the losses or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Such power arises from the Company’s contractual right to service the loans receivable securing the VIEs’ asset-backed debt obligations. The Company has an obligation to absorb losses or the right to receive benefits that are potentially significant to the VIEs because it retains the residual interest of each asset-backed financing transaction either in the form of an asset-backed certificate or as an uncertificated residual interest. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its consolidated financial statements.

Each VIE issues a series of asset-backed securities that are supported by the cash flows arising from the loans receivable securing such debt. Cash inflows arising from such loans receivable are distributed monthly to the transaction’s noteholders and related service providers in accordance with the transaction’s contractual priority of payments. The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets. The Company retains the most subordinated economic interest in each financing transaction through its ownership of the respective residual interest in each VIE. The Company has no obligation to repurchase loans receivable that initially satisfied the financing transaction’s eligibility criteria but subsequently became delinquent or a defaulted loans receivable.

The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited):


	March 31,		December 31,
(in thousands)	2021		2020
Consolidated VIE assets
Restricted cash	$	30,650	$	23,726
Loans receivable at fair value	1,542,813		1,580,061

Interest and fee receivable	11,972		14,191
Total VIE assets	1,585,435		1,617,978
Consolidated VIE liabilities
Secured financing (1)	65,214		246,994
Asset-backed notes at fair value	1,340,782		1,167,309

Total VIE liabilities	$	1,405,996	$	1,414,303

(1) Amounts exclude deferred financing costs. See Note 7, Borrowings for additional information.


5.			Loans Held for Sale

The originations of loans sold and held for sale during the three months ended March 31, 2021 was $33.5 million and the Company recorded a gain on sale of $4.4 million and servicing revenue of $3.1 million. The originations of loans sold and held for sale during the three months ended March 31, 2020 was $74.5 million and the Company recorded a gain on sale of $7.5 million and servicing revenue of $4.5 million.

Whole Loan Sale Program ‑ In November 2014, the Company entered into a whole loan sale agreement with an institutional investor, which agreement was amended in March 2021 in which the term of the current agreement is set to expire on March 4, 2022. Pursuant to the agreement, the Company sells at least 10% of its unsecured loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes.

In addition, from July 2017 to August 2020, the Company was party to a separate whole loan sale arrangement with an institutional investor providing for a commitment to sell 100% of the Company’s loans originated under its Access Loan Program. The Company chose not to renew the arrangement and allowed the agreement to expire on its terms on August 5, 2020.


6.			Other Assets

Other assets consist of the following:


	March 31,		December 31,
(in thousands)	2021		2020
Fixed assets
Computer and office equipment	$	11,431	$	11,182
Furniture and fixtures	11,152		11,019
Purchased software	2,004		1,992
Vehicles	53		53
Leasehold improvements	29,540		29,543
Total cost	54,180		53,789
Less: Accumulated depreciation	(41,038)		(37,939)
Total fixed assets, net	$	13,142	$	15,850

System development costs:
System development costs	$	61,705	$	55,943
Less: Accumulated amortization	(31,997)		(28,524)
Total system development costs, net	$	29,708	$	27,419


Loans held for sale	684		1,158
Prepaid expenses	17,995		17,241
Deferred tax assets	1,811		1,716
Tax assets and other	21,644		18,305
Total other assets	$	84,984	$	81,689

Fixed Assets

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was $3.5 million and $2.5 million, respectively.

System Development Costs

Amortization of system development costs for the three months ended March 31, 2021 and 2020 were $3.5 million and $2.2 million, respectively. System development costs capitalized for the three months ended March 31, 2021 and 2020 were $5.8 million and $5.4 million, respectively.


7.			Borrowings

The following table presents information regarding the Company's Secured Financing facility:

March 31, 2021

Variable Interest Entity

Current Balance

Commitment Amount

Maturity Date

Interest Rate

(in thousands)

Oportun Funding V, LLC

64,806

400,000

October 1, 2021

LIBOR (minimum of 0.00%) + 2.45%

December 31, 2020

Variable Interest Entity

Current Balance

Commitment Amount

Maturity Date

Interest Rate

(in thousands)

Oportun Funding V, LLC

246,385

400,000

October 1, 2021

LIBOR (minimum of 0.00%) + 2.45%

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


	March 31, 2021
Variable Interest Entity	Initial note amount issued (1)		Initial collateral balance (2)		Current balance (1)		Current collateral balance(2)		Weighted average interest rate(3)		Original revolving period
(in thousands)
Asset-backed notes recorded at fair value:
Oportun Funding XIV, LLC (Series 2021-A)	$	375,000	$	383,632	$	375,386	$	392,508	1.79	%	2 years
Oportun Funding XIII, LLC (Series 2019-A)	279,412		294,118		286,138		299,601		3.46	%	3 years
Oportun Funding XII, LLC (Series 2018-D)	175,002		184,213		177,044		187,964		4.50	%	3 years
Oportun Funding X, LLC (Series 2018-C)	275,000		289,474		277,096		295,238		4.39	%	3 years
Oportun Funding IX, LLC (Series 2018-B)	225,001		236,854		225,118		241,483		4.18	%	3 years
Total asset-backed notes recorded at fair value	$	1,329,415	$	1,388,291	$	1,340,782	$	1,416,794


	December 31, 2020
Variable Interest Entity	Initial note amount issued (1)		Initial collateral balance (2)		Current balance (1)		Current collateral balance(2)		Weighted average interest rate(3)		Original revolving period
(in thousands)
Asset-backed notes recorded at fair value:
Oportun Funding XIII, LLC (Series 2019-A)	$	279,412	$	294,118	$	283,299	$	299,237	3.46	%	3 years
Oportun Funding XII, LLC (Series 2018-D)	175,002		184,213		178,182		187,570		4.50	%	3 years
Oportun Funding X, LLC (Series 2018-C)	275,000		289,474		279,171		294,710		4.39	%	3 years
Oportun Funding IX, LLC (Series 2018-B)	225,001		236,854		226,653		241,237		4.18	%	3 years
Oportun Funding VIII, LLC (Series 2018-A)	200,004		222,229		200,004		226,242		3.83	%	3 years
Total asset-backed notes recorded at fair value	$	1,154,419	$	1,226,888	$	1,167,309	$	1,248,996

(1)Initial note amount issued includes notes retained by the Company as applicable. The current balances are measured at fair value for asset-backed notes recorded at fair value.

(2)Includes the unpaid principal balance of loans receivable, cash, cash equivalents and restricted cash pledged by the Company.

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

As of March 31, 2021, and December 31, 2020, the Company was in compliance with all covenants and requirements of the Secured Financing facility and asset-backed notes.

On February 18, 2021, the Company’s wholly-owned subsidiary, Oportun Funding VIII, LLC, the issuer under the 2018-A asset-backed securitization transaction, provided notice to the trustee that it had elected to redeem all $200.0 million of outstanding 2018-A Notes on March 8, 2021 and satisfy and discharge Oportun Funding VIII, LLC’s obligations under the 2018-A Notes and the indenture.

On March 8, 2021, the Company announced the issuance of $375.0 million two-year fixed-rate asset-backed notes by Oportun Funding XIV, LLC, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured personal installment loans (the “2021-A Securitization”). The 2021-A Securitization included four classes of fixed-rate notes: Class A, Class B, Class C and Class D notes, which were priced with a weighted average interest rate of 1.79% per annum.

On March 24, 2021, the Company's wholly-owned subsidiary, Oportun Funding IX, LLC, the issuer under the Series 2018-B asset-backed securitization transaction, provided notice to the trustee that it had elected to redeem all $225.0 million of outstanding 2018-B Notes, plus the accrued and unpaid interest, on April 8, 2021 and satisfy and discharge Oportun Funding IX, LLC's obligations under the 2018-B Notes and the indenture.


8.			Other Liabilities

Other liabilities consist of the following:


	March 31,		December 31,
(in thousands)	2021		2020
Accounts payable	$	2,354	$	1,819
Accrued compensation	18,808		32,681
Accrued expenses	13,761		17,830
Accrued interest	3,109		3,430
Deferred tax liabilities	14,690		10,557
Current tax liabilities and other	6,145		6,208
Total other liabilities	$	58,867	$	72,525


9.			Stockholders' Equity

Preferred Stock - The Board has the authority, without further action by the Company's stockholders, to issue up to 100,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the Board. There were no shares of undesignated preferred stock issued or outstanding as of March 31, 2021 or December 31, 2020.

Common Stock - As of March 31, 2021 and December 31, 2020, the Company was authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. As of March 31, 2021, 28,246,606 and 27,974,583 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock. As of December 31, 2020, 27,951,286 and 27,679,263 shares were issued and outstanding, respectively, and 272,023 shares were held in treasury stock.

Warrants - On September 26, 2019, 3,969 shares of convertible preferred stock were issued in connection with the cashless exercise of 9,090 Series F-1 convertible preferred stock warrants. All 3,969 shares of convertible preferred stock were converted to common stock in connection with the IPO. On June 9, 2020, 10,972 shares of common stock were issued in connection with the cashless exercise of the outstanding common stock warrants. No warrants were outstanding as of March 31, 2021.


10.			Equity Compensation and Other Benefits

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

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


	Three Months Ended March 31,
(in thousands)	2021		2020
Technology and facilities	$	972	$	752
Sales and marketing	32		30
Personnel	4,084		3,369
Total stock-based compensation	$	5,088	$	4,151

As of March 31, 2021, and December 31, 2020, the Company’s total unrecognized compensation cost related to unvested stock-based option awards granted to employees was $11.3 million and $9.5 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.7 years and 2.6 years, respectively. As of March 31, 2021 and December 31, 2020, the Company's total unrecognized compensation cost related to unvested restricted stock unit awards granted to employees was $41.4 million and $37.2 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.9 years and 2.9 years, respectively.

The Company capitalized compensation expense related to stock-based compensation of $0.3 million for the three months ended March 31, 2021, and capitalized $0.1 million for the three months ended March 31, 2020.

Cash flows from the tax benefits for tax deductions resulting from the exercise of stock options in excess of the compensation expense recorded for those options (excess tax benefits) are required to be classified as cash from financing activities. The total income tax expense (benefit) recognized in the income statement for stock-based compensation arrangements for the three months ended March 31, 2021 was insignificant. The total income tax expense (benefit) recognized in the income statement for the stock-based compensation arrangements for the three months ended March 31, 2020 was $0.7 million.


11.			Revenue

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


	Three Months Ended March 31,
(in thousands)	2021		2020
Interest income
Interest on loans	$	125,682	$	148,522
Fees on loans	1,509		2,178
Total interest income	127,191		150,700

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


	Three Months Ended March 31,
(in thousands)	2021		2020
Non-interest income
Gain on loan sales	$	4,434	$	7,532
Servicing fees	3,078		4,451
Other income	610		745
Total non-interest income	$	8,122	$	12,728


12.			Income Taxes

For the three months ended March 31, 2021 and 2020, the Company calculates its year-to-date (provision for) income taxes by applying the estimated annual effective tax rate to the year-to-date income from operations before income taxes and adjusts the (provision for) income taxes for discrete tax items recorded in the period.

During the three months ended March 31, 2021 and 2020, the Company recorded income tax expense (benefit) of $1.0 million and $(4.7) million, respectively, related to continuing operations. The Company’s reported effective tax rates were 24.1% and 26.2% for the three months ended March 31, 2021 and 2020, respectively. Our effective tax rates for the three months ended March 31, 2021 and 2020 differ from the statutory tax rates primarily due to the impacts of the R&D tax credit.


13.			Fair Value of Financial Instruments

Financial Instruments at Fair Value

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


	March 31, 2021				December 31, 2020
(in thousands)	Unpaid Principal Balance		Fair Value		Unpaid Principal Balance		Fair Value
Assets
Loans receivable	$	1,591,789	$	1,670,251	$	1,639,626	$	1,696,526
Liabilities
Asset-backed notes	1,329,415		1,340,782		1,154,419		1,167,309

The Company calculates the fair value of the Fair Value Notes using independent pricing services and broker price indications, which are based on quoted prices for identical or similar notes, which are Level 2 input measures.

The Company primarily uses a discounted cash flow model to estimate the fair value of Level 3 instruments based on the present value of estimated future cash flows. This model uses inputs that are inherently judgmental and reflect management’s best estimates of the assumptions a market participant would use to calculate fair value. The following tables present quantitative information about the significant unobservable inputs on its unsecured personal loan portfolio (which is the primary driver of fair value) used for the Company’s Level 3 fair value measurements:


	March 31, 2021			December 31, 2020
	Minimum	Maximum	Weighted Average (2)	Minimum	Maximum	Weighted Average
Remaining cumulative charge-offs (1)	6.25%	57.24%	8.60%	7.83%	61.26%	10.03%
Remaining cumulative prepayments (1)	—	42.69%	32.65%	—	38.92%	31.11%
Average life (years)	0.12	1.29	0.78	0.17	1.29	0.80
Discount rate	—	—	6.65%	—	—	6.85%

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

(2) Unobservable inputs were weighted by outstanding principal balance, which are grouped by risk (type of customer, original loan maturity terms).

Fair value adjustments related to financial instruments where the fair value option has been elected are recorded through earnings for the three months ended March 31, 2021 and 2020. Certain unobservable inputs may (in isolation) have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. When multiple inputs are used within the valuation techniques for loans, a change in one input in a certain direction may be offset by an opposite change from another input.

The Company developed an internal model to estimate the Fair Value Loans. To generate future expected cash flows, the model combines receivable characteristics with assumptions about borrower behavior based on the Company’s historical loan performance. These cash flows are then discounted using a required rate of return that management estimates would be used by a market participant.

The Company tested the fair value model by comparing modeled cash flows to historical loan performance to ensure that the model was complete, accurate and reasonable for the Company’s use. The Company also engaged a third party to create an independent fair value estimate for the Fair Value Loans, which provides a set of fair value marks using the Company’s historical loan performance data and whole loan sale prices to develop independent forecasts of borrower behavior. Their model generates expected cash flows which were then aggregated and compared to the Company’s actual cash flows within an acceptable range.

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

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


	Three Months Ended March 31,
(in thousands)	2021		2020
Balance – beginning of period	$	1,696,526	$	1,882,088
Adjustment upon adoption of ASU 2019-05	—		43,323
Principal disbursements	309,009		371,433
Principal payments from customers	(315,887)		(335,008)
Gross charge-offs	(40,959)		(46,230)
Net increase (decrease) in fair value	21,562		(155,125)
Balance – end of period	$	1,670,251	$