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OPRT Oportun Financial

Filed: 3 Nov 21, 8:00pm

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, 2021
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 filerSmaller reporting company
Accelerated filerEmerging 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 October 29, 2021 was 28,387,950.




2


GLOSSARY

Terms and abbreviations used in this report are defined below.
Term or AbbreviationDefinition
30+ Day Delinquency RateUnpaid 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 CustomersNumber of customers with an outstanding loan or an active credit card owned or serviced by us at the end of a period. Active Customers include customers whose loans or accounts were originated by us or under a bank partnership program that we 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), 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 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), stock-based compensation expense, and certain non-recurring charges
Adjusted Operating EfficiencyAdjusted 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 OriginationsAggregate amount disbursed to borrowers and credit granted on credit cards during a specific period, including amounts originated by us or loans or accounts that were originated under a bank partnership program. Aggregate Originations exclude any fees in connection with the origination of a loan
Annualized Net Charge-Off RateAnnualized 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
AOCIAccumulated other comprehensive income (loss)
APRAnnual 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 BalanceAverage of outstanding debt principal balance at the end of each calendar day during the period
Average Daily Principal BalanceAverage of outstanding principal balance of owned loans and credit card receivables at the end of each calendar day during the period
BoardOportun’s Board of Directors
Cost of DebtAnnualized 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 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
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 FormaIn 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
GAAPGenerally Accepted Accounting Principles
LeverageAverage 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 PeriodTotal 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 RevenueNet Revenue is calculated by subtracting interest expense 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 PeriodTotal amount of outstanding principal balance for all loans and credit card receivables, excluding loans and receivables sold or loans retained by a bank partner, at the end of the period
3


Term or AbbreviationDefinition
Personal Loan Warehouse (or "PLW")Revolving personal loan warehouse debt facility, collateralized by unsecured personal loans and secured personal loans that replaced VFN facility. Included as "Secured Financing"
Portfolio YieldAnnualized interest income as a percentage of Average Daily Principal Balance
Principal BalanceOriginal 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 EquityAnnualized net income divided by average stockholders' equity for a period
Secured FinancingAsset-backed revolving debt facilities. The VFN facility, collateralized by unsecured personal loans, terminated September 8, 2021 and replaced with the PLW facility collateralized by unsecured personal loans and secured personal loans
Variable Funding Note Warehouse (or "VFN")Asset-backed revolving debt facility, collateralized by unsecured personal loans, terminated on September 8, 2021. Formerly defined solely as "Secured Financing"
VIEsVariable interest entities
Weighted Average Interest RateAnnualized interest expense as a percentage of average debt

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,
20212020
Assets
Cash and cash equivalents$168,407 $136,187 
Restricted cash55,348 32,403 
Loans receivable at fair value1,971,375 1,696,526 
Interest and fees receivable, net16,292 15,426 
Right of use assets - operating34,952 46,820 
Other assets101,507 81,689 
Total assets$2,347,881 $2,009,051 
Liabilities and stockholders' equity
Liabilities
Secured financing$525,471 $246,385 
Asset-backed notes at fair value1,162,948 1,167,309 
Lease liabilities43,498 49,684 
Other liabilities104,545 79,306 
Total liabilities1,836,462 1,542,684 
Stockholders' equity
Common stock, $0.0001 par value - 1,000,000,000 shares authorized at September 30, 2021 and December 31, 2020; 28,656,945 shares issued and 28,384,922 shares outstanding at September 30, 2021; 27,951,286 shares issued and 27,679,263 shares outstanding at December 31, 2020
Common stock, additional paid-in capital448,214 436,499 
Accumulated other comprehensive loss(172)(261)
Retained earnings69,680 36,432 
Treasury stock at cost, 272,023 shares at September 30, 2021 and December 31, 2020(6,309)(6,309)
Total stockholders’ equity511,419 466,367 
Total liabilities and stockholders' equity$2,347,881 $2,009,051 
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,
2021202020212020
Revenue
Interest income$145,444 $128,739 $401,224 $415,525 
Non-interest income13,640 8,028 31,427 27,377 
Total revenue159,084 136,767 432,651 442,902 
Less:
Interest expense10,574 13,408 36,241 44,879 
Net decrease in fair value(8,987)(29,633)(26,457)(177,584)
Net revenue139,523 93,726 369,953 220,439 
Operating expenses:
Technology and facilities34,226 31,641 100,274 93,927 
Sales and marketing32,102 20,634 79,743 65,521 
Personnel29,039 26,662 84,412 79,925 
Outsourcing and professional fees13,348 11,491 40,762 36,232 
General, administrative and other2,686 11,138 22,862 17,591 
Total operating expenses111,401 101,566 328,053 293,196 
Income (loss) before taxes28,122 (7,840)41,900 (72,757)
Income tax expense (benefit)5,143 (1,794)8,652 (19,162)
Net income (loss)$22,979 $(6,046)$33,248 $(53,595)
Change in post-termination benefit obligation77 89 (106)
Total comprehensive income (loss)$23,056 $(6,040)$33,337 $(53,701)
Net income (loss) attributable to common stockholders$22,979 $(6,046)$33,248 $(53,595)
Share data:
Earnings (loss) per share:
Basic$0.82 $(0.22)$1.19 $(1.97)
Diluted$0.75 $(0.22)$1.11 $(1.97)
Weighted average common shares outstanding:
Basic28,167,686 27,459,192 27,982,273 27,237,246 
Diluted30,503,773 27,459,192 30,059,675 27,237,246 
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, 2021
Common Stock WarrantsCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal Stockholders' Equity
Balance – January 1, 2021— $— 27,679,263 $$436,499 $(261)$36,432 $(6,309)$466,367 
Issuance of common stock upon exercise of stock options— — 33,526 — 307 — — — 307 
Stock-based compensation expense— — — — 5,088 — — — 5,088 
Vesting of restricted stock units, net— — 261,794 — (2,794)— — — (2,794)
Change in post-termination benefit obligation— — — — — — — 
Net income— — — — — — 3,019 — 3,019 
Balance – March 31, 2021— $— 27,974,583 $$439,100 $(255)$39,451 $(6,309)$471,993 
Issuance of common stock upon exercise of stock options— — 10,114 — 159 — — — 159 
Stock-based compensation expense— — — — 5,366 — — — 5,366 
Vesting of restricted stock units, net— — 49,227 — (442)— — — (442)
Change in post-termination benefit obligation— — — — — — — 
Net income— — — — — — 7,250 — 7,250 
Balance – June 30, 2021— $— 28,033,924 $$444,183 $(249)$46,701 $(6,309)$484,332 
Issuance of common stock upon exercise of stock options— — 139,096 — 2,140 $— — — 2,140 
Stock-based compensation expense— — — — 4,868 — — — 4,868 
Vesting of restricted stock units, net— — 211,902 — (2,977)— — — (2,977)
Change in post-termination benefit obligation— — — — — 77 — — 77 
Net income— — — — — — 22,979 — 22,979 
Balance – September 30, 2021— $— 28,384,922 $$448,214 $(172)$69,680 $(6,309)$511,419 

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, 2020
Convertible Preferred and Common Stock WarrantsCommon Stock
SharesPar ValueSharesPar ValueAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockTotal Stockholders' Equity
Balance – January 1, 202023,512 $63 27,003,157 $$418,299 $(162)$76,679 $(6,119)$488,766 
Issuance of common stock upon exercise of stock options— — 3,161 — 20 — — — 20 
Stock-based compensation expense— — — — 4,151 — — — 4,151 
Vesting of restricted stock units, net— — 137,479 — (813)— — — (813)
Cumulative effect of adoption of ASU 2019-05— — — — — — 4,835 — 4,835 
Change in post-termination benefit obligation— — — — — (117)— — (117)
Net loss— — — — — — (13,301)— (13,301)
Balance – March 31, 202023,512 $63 27,143,797 $$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— — — — — — — 
Net loss— — — — — — (34,248)— (34,248)
Balance – June 30, 2020— $— 27,330,800 $$426,944 $(274)$33,965 $(6,309)$454,332 
Issuance of common stock upon exercise of stock options— — 4,018 — 24 — — — 24 
Stock-based compensation expense— — — — 5,194 — — — 5,194 
Vesting of restricted stock units, net— — 248,210 — (489)— — — (489)
Change in post-termination benefit obligation— — — — — — — 
Net loss— — — — — — (6,046)— (6,046)
Balance – September 30, 2020— $— 27,583,028 $$431,673 $(268)$27,919 $(6,309)$453,021 

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,
2021

2020
Cash flows from operating activities
Net income (loss)$33,248 $(53,595)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization20,390 14,878 
Fair value adjustment, net26,457 177,584 
Origination fees for loans receivable at fair value, net(9,070)3,520 
Gain on loan sales(17,083)(13,406)
Stock-based compensation expense14,542 14,317 
Deferred tax provision, net14,002 (14,913)
Other, net23,607 10,688 
Originations of loans sold and held for sale(136,285)(134,552)
Proceeds from sale of loans151,924 147,627 
Changes in operating assets and liabilities:
Interest and fee receivable, net(2,871)(3,678)
Other assets(18,224)(8,242)
Amount due to whole loan buyer3,942 (6,544)
Other liabilities(851)5,723 
Net cash provided by operating activities103,728 139,407 
Cash flows from investing activities
Originations of loans(1,113,515)(665,148)
Repayments of loan principal817,843 804,619 
Purchase of fixed assets, net(2,561)(3,610)
Capitalization of system development costs(18,508)(16,492)
Net cash provided by (used in) investing activities(316,741)119,369 
Cash flows from financing activities
Borrowings under secured financing895,535 414,000 
Borrowings under asset-backed notes867,251 — 
Repayments of secured financing(615,994)(284,006)
Repayments of asset-backed notes(875,007)(360,001)
Repayments of capital lease obligations— (29)
Payments of deferred financing costs— (205)
Net payments related to stock-based activities(3,607)(1,196)
Net cash provided by (used in) financing activities268,178 (231,437)
Net increase in cash and cash equivalents and restricted cash55,165 27,339 
Cash and cash equivalents and restricted cash, beginning of period168,590 136,141 
Cash and cash equivalents and restricted cash, end of period$223,755 $163,480 
Supplemental disclosure of cash flow information
Cash and cash equivalents$168,407 $109,656 
Restricted cash55,348 53,824 
Total cash and cash equivalents and restricted cash$223,755 $163,480 
Cash paid for income taxes, net of refunds$2,048 $2,443 
Cash paid for interest$36,582 $44,219 
Cash paid for amounts included in the measurement of operating lease liabilities$13,802 $11,730 
Supplemental disclosures of non-cash investing and financing activities
Right of use assets obtained in exchange for operating lease obligations$6,677 $7,404 
Non-cash investments in capitalized assets$1,960 $491 
Non-cash financing activities$1,121 $— 
See Notes to the Condensed Consolidated Financial Statements.
9


OPORTUN FINANCIAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
September 30, 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 continues to expand beyond its core offering into other financial services that a significant portion of its customers already use, such as secured personal loans 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 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, 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 condensed consolidated financial statements and disclosures.



10


3.Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are calculated as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except share and per share data)2021202020212020
Net income (loss)$22,979 $(6,046)$33,248 $(53,595)
Net income (loss) attributable to common stockholders$22,979 $(6,046)$33,248 $(53,595)
Basic weighted-average common shares outstanding28,167,686 27,459,192 27,982,273 27,237,246 
Weighted average effect of dilutive securities:
Stock options1,451,687 — 1,351,288 — 
Restricted stock units884,400 — 726,114 — 
Diluted weighted-average common shares outstanding30,503,773 27,459,192 30,059,675 27,237,246 
Earnings (loss) per share:
Basic$0.82 $(0.22)$1.19 $(1.97)
Diluted$0.75 $(0.22)$1.11 $(1.97)

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 September 30,Nine Months Ended September 30,
2021202020212020
Stock options1,597,130 4,462,158 2,229,446 4,352,649 
Restricted stock units— 2,331,678 15,102 2,120,068 
Warrants— — — 13,866 
Total anti-dilutive common share equivalents1,597,130 6,793,836 2,244,548 6,486,583 

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. Accordingly, the Company includes the VIEs’ assets, including the assets securing the financing transactions, and related liabilities in its condensed 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 lenders 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.

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The following table represents the assets and liabilities of consolidated VIEs recorded on the Company’s Condensed Consolidated Balance Sheets (Unaudited):
September 30,December 31,
(in thousands)20212020
Consolidated VIE assets
Restricted cash$33,182 $23,726 
Loans receivable at fair value1,886,776 1,580,061 
Interest and fee receivable15,233 14,191 
Total VIE assets1,935,191 1,617,978 
Consolidated VIE liabilities
Secured financing (1)
529,002 246,994 
Asset-backed notes at fair value1,162,948 1,167,309 
Total VIE liabilities$1,691,950 $1,414,303 
(1) Amounts exclude deferred financing costs. See Note 7, Borrowings for additional information.

5.Loans Held for Sale

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.

The originations of loans sold and held for sale during the three months ended September 30, 2021 was $61.3 million and the Company recorded a gain on sale of $7.3 million and servicing revenue of $3.3 million. The originations of loans sold and held for sale during the three months ended September 30, 2020 was $39.8 million and the Company recorded a gain on sale of $3.9 million and servicing revenue of $3.5 million.

The originations of loans sold and held for sale during the nine months ended September 30, 2021 was $136.3 million and the Company recorded a gain on sale of $17.1 million and servicing revenue of $9.3 million. The originations of loans sold and held for sale during the nine months ended September 30, 2020 was $134.6 million and the Company recorded a gain on sale of $13.4 million and servicing revenue of $12.0 million.

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6.Other Assets

Other assets consist of the following:
September 30,December 31,
(in thousands)20212020
Fixed assets
Computer and office equipment$12,612 $11,182 
Furniture and fixtures8,549 11,072 
Purchased software2,046 1,992 
Leasehold improvements20,221 29,543 
Total cost43,428 53,789 
Less: Accumulated depreciation(33,736)(37,939)
Total fixed assets, net$9,692 $15,850 
System development costs:
System development costs$75,821 $55,943 
Less: Accumulated amortization(40,256)(28,524)
Total system development costs, net$35,565 $27,419 
Loans held for sale2,602 1,158 
Prepaid expenses17,962 17,241 
Deferred tax assets2,018 1,716 
Tax assets and other33,668 18,305 
Total other assets$101,507 $81,689 

Fixed Assets

Depreciation and amortization expense for the three months ended September 30, 2021 and 2020 was $1.3 million and $2.2 million, respectively, and for the nine months ended September 30, 2021 and 2020 it was $8.7 million, and $7.3 million, respectively. As of September 30, 2021, the Company retired $11.6 million of fixed assets associated with retail locations that were closed as a result of the retail network optimization plan.

System Development Costs

Amortization of system development costs for the three months ended September 30, 2021 and 2020 was $4.4 million and $2.9 million, respectively, and for the nine months ended September 30, 2021 and 2020 they were $11.7 million and $7.6 million, respectively. System development costs capitalized in the three months ended September 30, 2021 and 2020, were $7.5 million and $5.3 million, respectively, and for the nine months ended September 30, 2021 and 2020 they were $19.9 million and $16.4 million, respectively.

7.Borrowings

The following table presents information regarding the Company's Secured Financing facilities:
September 30, 2021
Variable Interest EntityCurrent BalanceCommitment Amount
Maturity Date (1)
Interest Rate
(in thousands)
Oportun PLW Trust$525,471 $600,000 September 1, 2024LIBOR (minimum of 0.00%) + 2.17%
December 31, 2020
Variable Interest EntityCurrent BalanceCommitment Amount
Maturity Date (1)
Interest Rate
(in thousands)
Oportun Funding V, LLC$246,385 $400,000 October 1, 2021LIBOR (minimum of 0.00%) + 2.45%
(1)Maturity date noted is the end of the revolving period.

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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:
September 30, 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 Issuance Trust (Series 2021-B)$500,000 $512,759 $501,743 $523,870 2.05 %3 years
Oportun Funding XIV, LLC (Series 2021-A)375,000 383,632 377,120 392,332 1.79 %2 years
Oportun Funding XIII, LLC (Series 2019-A)279,412 294,118 284,085 300,002 3.46 %3 years
Total asset-backed notes recorded at fair value$1,154,412 $1,190,509 $1,162,948 $1,216,204 
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.


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. The redemption was completed on March 8, 2021 and satisfied and discharged Oportun Funding VIII, LLC’s obligations under the 2018-A Notes and the indenture.

On March 8, 2021, the Company issued $375.0 million of 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 4 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. The redemption was completed on April 8, 2021 and satisfied and discharged Oportun Funding IX, LLC's obligations under the 2018-B Notes and the indenture.

On May 10, 2021, the Company issued $500.0 million of three-year fixed-rate asset-backed notes by Oportun Issuance Trust 2021-B, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured and secured personal installment loans (the "2021-B Securitization"). The 2021-B Securitization included 4 classes of fixed-rate notes: Class A, Class B, Class C and Class D notes, which were priced with a weighted average fixed interest rate of 2.05% per annum.

On July 8, 2021, the Company's wholly-owned subsidiary Oportun Funding X, LLC, the issuer under the Series 2018-C asset-backed securitization transaction, completed the redemption of all $275.0 million of outstanding Series 2018-C Notes, plus the accrued and unpaid interest. In connection with the redemption, all obligations of Oportun Funding X, LLC under the 2018-C Notes and the indenture were satisfied and discharged. The redemption was funded by drawing upon the Company's VFN facility, utilizing funds from the Company's 2021-B securitization transaction and using unrestricted cash.

On September 8, 2021, the Company closed on a Personal Loan Warehouse facility ("PLW"). In connection with the PLW facility, the Company's wholly-owned subsidiary Oportun PLW Trust entered into a Loan and Security Agreement to borrow up to $600.0 million committed through September 2024. Borrowings under the PLW facility accrue interest at a rate equal to one-month LIBOR plus a spread of 2.17%. On September 8, 2021, the Company's wholly-owned subsidiary, Oportun Funding V, LLC, as issuer under the Variable Funding Note Warehouse ("VFN") facility, terminated the VFN facility. Final payment was made on the VFN facility in the amount of $219.0 million, plus the accrued and unpaid interest, which is the amount sufficient to satisfy and discharge Oportun Funding V, LLC's obligations under the VFN facility notes and the indenture. The final payment was funded by drawing upon the Company's PLW facility.

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On September 8, 2021, the Company's wholly-owned subsidiary Oportun Funding XII, LLC, the issuer under the Series 2018-D asset-backed securitization transaction, completed the redemption of all $175.0 million of outstanding Series 2018-D Notes, plus the accrued and unpaid interest. In connection with the redemption, all obligations of Oportun Funding XII, LLC under the 2018-D Notes and the indenture were satisfied and discharged. The redemption was funded by drawing upon the Company's Personal Loan Warehouse facility.

On October 28, 2021, the Company announced the issuance of $500.0 million of 3 year fixed-rate asset-backed notes by Oportun Issuance Trust 2021-C, a wholly-owned subsidiary of the Company and secured by a pool of its unsecured and secured personal installment loans (the "2021-C Securitization"). The 2021-C 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 fixed interest rate of 2.48% per annum.

As of September 30, 2021, and December 31, 2020, the Company was in compliance with all covenants and requirements of the Secured Financing facilities and asset-backed notes.

8.Other Liabilities

Other liabilities consist of the following:
September 30,December 31,
(in thousands)20212020
Accounts payable$5,451 $1,819 
Accrued compensation29,948 32,681 
Accrued expenses23,856 17,830 
Accrued interest2,424 3,430 
Amount due to whole loan buyer10,723 6,781 
Deferred tax liabilities24,861 10,557 
Current tax liabilities and other7,282 6,208 
Total other liabilities$104,545 $79,306 

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 0 shares of undesignated preferred stock issued or outstanding as of September 30, 2021 or December 31, 2020.

Common Stock - As of September 30, 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 September 30, 2021, 28,656,945 and 28,384,922 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 September 30, 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), net of amounts capitalized to system development costs is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Technology and facilities$736 $1,010 $2,231 $2,693 
Sales and marketing36 32 105 92 
Personnel3,826 4,152 12,206 11,532 
Total stock-based compensation (1)
$4,598 $5,194 $14,542 $14,317 
(1) Amounts shown are net of $0.3 million and $0.8 million of capitalized stock-based compensation for the three and nine months ended September 30, 2021, respectively, and net of $0.3 million and $0.7 million of capitalized stock-based compensation for the three and nine months ended September 30, 2020, respectively.

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As of September 30, 2021, and December 31, 2020, the Company’s total unrecognized compensation cost related to nonvested stock-based option awards granted to employees was $8.3 million and $9.5 million, respectively, which will be recognized over a weighted-average vesting period of approximately 2.4 years and 2.6 years, respectively. As of September 30, 2021 and December 31, 2020, the Company's total unrecognized compensation cost related to nonvested restricted stock unit awards granted to employees was $34.0 million and $37.2 million, respectively, which will be recognized over a weighted average vesting period of approximately 2.6 years and 2.9 years, respectively.

Cash flows from the tax shortfalls or benefits for tax deductions resulting from the exercise of stock options in comparison to the compensation expense recorded for those options are required to be classified as cash from financing activities. The total income tax benefit recognized in the income statement for stock-based compensation arrangements for the three and nine months ended September 30, 2021 was $0.3 million and $0.2 million, respectively. The total income tax expense recognized in the income statement for stock-based compensation arrangements for the three and nine months ended September 30, 2020 was $1.2 million and $2.4 million, respectively.

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 September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Interest income
Interest on loans$143,582 $127,267 $396,544 $410,124 
Fees on loans1,862 1,472 4,680 5,401 
Total interest income145,444 128,739 401,224 415,525 

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 September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Non-interest income
Gain on loan sales$7,328 $3,882 $17,083 $13,406 
Servicing fees3,250 3,515 9,291 12,003 
Other income3,062 631 5,053 1,968 
Total non-interest income$13,640 $8,028 $31,427 $27,377 

12.Income Taxes

For the three and nine months ended September 30, 2021 and 2020, the Company calculates its year-to-date income tax expense (benefit) by applying the estimated annual effective tax rate to the year-to-date income from operations before income taxes and adjusts the income tax expense (benefit) for discrete tax items recorded in the period.

During the three and nine months ended September 30, 2021, the Company recorded income tax expense of $5.1 million and $8.7 million, respectively, related to continuing operations, representing an effective tax rate of 18.3% and 20.7%, respectively. Income tax benefit for the three and nine months ended September 30, 2020 was $1.8 million and $19.2 million, respectively, representing an effective income tax rate of 22.9% and 26.3%, respectively. Our effective tax rates for the three and nine months ended September 30, 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:
September 30, 2021December 31, 2020
(in thousands)Unpaid Principal BalanceFair ValueUnpaid Principal BalanceFair Value
Assets
Loans receivable$1,862,143 $1,971,375 $1,639,626 $1,696,526 
Liabilities
Asset-backed notes1,154,412 1,162,948 1,154,419 1,167,309 

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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:
September 30, 2021December 31, 2020
MinimumMaximum
Weighted Average (2)
MinimumMaximumWeighted Average
Remaining cumulative charge-offs (1)
5.70%66.03%7.53%7.83%61.26%10.03%
Remaining cumulative prepayments (1)
53.64%40.30%38.92%31.11%
Average life (years)0.151.280.760.171.290.80
Discount rate6.52%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 nine months ended September 30, 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 of 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 September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Balance – beginning of period$1,726,914 $1,635,684 $1,696,526 $1,882,088 
Adjustment upon adoption of ASU 2019-05— — — 43,323 
Principal disbursements578,084 283,894 1,266,556 804,767 
Principal payments from customers(317,489)(305,883)(941,747)(927,175)
Gross charge-offs(29,096)(48,135)(102,293)(145,373)
Net increase (decrease) in fair value12,962 39,828 52,333 (52,242)
Balance – end of period$1,971,375 $1,605,388 $1,971,375 $1,605,388 

As of September 30, 2021, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $3.6 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $14.0 million. As of December 31, 2020, the aggregate fair value of loans that are 90 days or more past due and in non-accrual status was $2.3 million, and the aggregate unpaid principal balance for loans that are 90 days or more past due was $14.8 million.

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Financial Instruments Disclosed But Not Carried at Fair Value

The following table presents the carrying value and estimated fair values of financial assets and liabilities disclosed but not carried at fair value and the level within the fair value hierarchy:
September 30, 2021
Carrying valueEstimated fair valueEstimated fair value
(in thousands)Level 1Level 2Level 3
Assets
Cash and cash equivalents$168,407 $168,407 $168,407 $— $— 
Restricted cash55,348 55,348 55,348 — — 
Loans held for sale (Note 5)2,602 2,602 — — 2,602 
Liabilities
Accounts payable5,451 5,451 5,451 — — 
Secured financing (Note 7)529,002 528,458 — 528,458 — 

December 31, 2020
Carrying valueEstimated fair valueEstimated fair value
(in thousands)Level 1Level 2Level 3
Assets
Cash and cash equivalents$136,187 $136,187 $136,187 $— $— 
Restricted cash32,403 32,403 32,403 — — 
Loans held for sale (Note 5)1,158 1,158 — — 1,158 
Liabilities
Accounts payable1,819 1,819 1,819 — — 
Secured financing (Note 7)246,994 245,077 — 245,077 — 

The Company uses the following methods and assumptions to estimate fair value:

Cash, cash equivalents, restricted cash and accounts payable ‑ The carrying values of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash and accounts payable, approximate Level 1 fair values of these financial instruments due to their short-term nature.
Loans held for sale ‑ The fair values of loans held for sale are based on a negotiated agreement with the purchaser.
Secured financing ‑ The fair value of the secured financing facilities has been calculated using discount rates equivalent to the weighted-average market yield of comparable debt securities, which is a Level 2 input measure.

There were no transfers in or out of Level 3 assets and liabilities for the three and nine months ended September 30, 2021 and 2020 and the year ended December 31, 2020.

14.Leases, Commitments and Contingencies

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

As a result of the retail network optimization plan, for the three and nine months ended September 30, 2021, we incurred $0.1 million and $12.8 million in expenses, respectively, related to retail location closures. $5.3 million of the retail location closures for the nine months ended September 30, 2021 relate to the accelerated amortization of right-of-use assets and the renegotiation of lease liabilities. The retail network optimization plan was substantially completed in the third quarter and the Company does not expect any significant additional expenses to be incurred.

The Company has elected the practical expedient to keep leases with terms of 12 months or less off the balance sheet as no recognition of a lease liability and a right-of-use asset is required. Operating lease expense is recognized on a straight-line basis over the lease term in "Technology and facilities" in the Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited).

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Most of the Company’s existing lease arrangements are classified as operating leases. At the inception of a contract, the Company determines if the contract is or contains a lease. At the commencement date of a lease, the Company recognizes a lease liability equal to the present value of the lease payments and a right-of-use asset representing the Company's right to use the underlying asset for the duration of the lease term. The Company’s leases include options to extend or terminate the arrangement at the end of the original lease term. The Company generally does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. Variable lease payments and short-term lease costs were deemed immaterial. The Company’s leases do not provide an explicit rate. The Company uses its contractual borrowing rate to determine lease discount rates.

As of September 30, 2021, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows:
(in thousands)Operating Leases
Lease expense
2021 (remaining three months)$3,491 
202213,576 
202311,872 
20249,761 
20257,786 
20261,881 
Thereafter324 
Total lease payments48,691 
Imputed interest(3,885)
Total leases$44,806 
Sublease income
2021 (remaining three months)$(435)
2022(896)
2023 and thereafter— 
Total lease payments(1,331)
Imputed interest23 
Total sublease income$(1,308)
Net lease liabilities$43,498 
Weighted average remaining lease term3.9 years
Weighted average discount rate4.11 %

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As of December 31, 2020, maturities of lease liabilities, excluding short-term leases and leases on a month-to-month basis, were as follows:
(in thousands)Operating Leases
Lease expense
202115,788 
202212,967 
202310,881 
20249,069 
20256,989 
Thereafter1,641 
Total lease payments57,335 
Imputed interest(5,247)
Total leases52,088 
Sublease income
2021(1,594)
2022(896)
2023 and thereafter— 
Total lease payments(2,490)
Imputed interest86 
Total sublease income(2,404)
Net lease liabilities49,684 
Weighted average remaining lease term4.3 years
Weighted average discount rate4.42 %

Rental expenses under operating leases for the three and nine months ended September 30, 2021, were $4.3 million, and $19.9 million, respectively, and for the three and nine months ended September 30, 2020, were $5.2 million, and $15.5 million, respectively.
Purchase Commitment ‑ The Company has commitments to purchase information technology and communication services in the ordinary course of business, with various terms through 2026. These amounts are not reflective of the Company’s entire anticipated purchases under the related agreements; rather, they are determined based on the non-cancelable amounts to which the Company is contractually obligated. The Company’s purchase obligations are $2.1 million for the remainder of 2021, $13.1 million in 2022, $6.3 million in 2023, $2.7 million in 2024 and $1.4 million in 2025 and thereafter.

Credit Card Program and Servicing Agreement ‑ On February 5, 2021, the Company entered into a Receivables Retention Facility Agreement, an Amended and Restated Credit Card Program and Servicing Agreement and other related documents with WebBank, a Utah-chartered industrial bank, providing it with additional funding to expand its credit card product (the "Retention Facility"). Under the Retention Facility agreements, WebBank will originate, fund and retain credit card receivables up to $25.0 million. The Company will purchase any excess receivables originated above the $25.0 million amount, in addition to certain ineligible receivables and charged-off receivables. The Retention Facility commenced on February 9, 2021 and has a two-year term. At the end of this term, the Company will purchase any remaining receivables from WebBank. The Company is required to maintain a cash collateral account with WebBank pursuant to this agreement. As of September 30, 2021, the cash collateral balance was $9.3 million and was included in the restricted cash line item on the Condensed Consolidated Balance Sheets (Unaudited). To provide additional funding for the Company's credit card product, through agreements entered into in July, September and October 2021, the Company and WebBank agreed to temporarily increase the size of the Retention Facility to $38.5 million through, the earlier of, the closing of a new credit facility or November 30, 2021.

Bank Partnership Program and Servicing Agreement - Oportun entered into a bank partnership program with MetaBank, N.A. on August 11, 2020. In accordance with the agreements underlying the bank partnership program, Oportun has a commitment to purchase an increasing percentage of program loans originated by MetaBank based on thresholds specified in the agreements. The partnership was rolled out in August of 2021 and as of September 30, 2021, the Company has a commitment to purchase an additional $0.3 million of program loans based on originations through September 30, 2021.

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

Access Loan Sale ProgramFrom July 2017 to August 2020, the Company was party to a separate whole loan sale arrangement with an institutional investor with a commitment to sell 100% of the originations pursuant to the Company’s loan program for customers who do not meet the qualifications of its core loan origination program and service the sold loans. For details regarding this program, refer to Note 5, Loans Held for Sale.

Unfunded Loan and Credit Card Commitments - Unfunded loan and credit card commitments at September 30, 2021 and December 31, 2020 were $3.0 million and $3.5 million, respectively.
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Litigation - On January 2, 2018, a complaint, captioned Opportune LLP v. Oportun, Inc. and Oportun, LLC, Civil Action No. 4:18-cv-00007 (the "Opportune Lawsuit"), was filed by plaintiff Opportune LLP in the United States District Court for the Southern District of Texas, against the Company and its wholly-owned subsidiary, Oportun, LLC. The complaint alleged various claims for trademark infringement, unfair competition, trademark dilution and misappropriation against the Company and Oportun, LLC and called for injunctive relief requiring the Company and Oportun, LLC to cease using its marks, as well as monetary damages related to the claims. In addition, on January 2, 2018, the plaintiff initiated a cancellation proceeding, Proceeding No. 92067634, before the Trademark Trial and Appeal Board seeking to cancel certain of the Company's trademarks, (the "Cancellation Proceeding" and, together with the Opportune Lawsuit, the "Opportune Matter"). On March 5, 2018, the Trademark Trial and Appeal Board granted the Company's motion to suspend the Cancellation Proceeding pending final disposition of the Opportune Lawsuit. On April 24, 2018, the District Court granted the Company's motion to partially dismiss the complaint, dismissing the plaintiff's misappropriation claim. On February 22, 2019, the plaintiff filed an amended complaint adding an additional claim under the Anti-Cybersquatting Protection Act to the remaining claims in the original complaint. On August 30, 2019, the Company filed a motion for summary judgment on all of the plaintiff's claims. On January 22, 2020, the District Court issued its decision denying the Company's motion for summary judgment. Settlement negotiations are on-going at this time. No trial date has been set. In connection with discussions regarding settlement of the Opportune Matter, the Company has recorded a liability of $5.9 million within Other liabilities and a corresponding insurance recovery receivable of $5.0 million within Other assets in the Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2021. Actual results could differ from these estimates.

See Part II. Item 1. Legal Proceedings for additional information regarding legal proceedings in which the Company is involved.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

An index to our management's discussion and analysis follows:

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, on February 23, 2021. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Forward-Looking Statements

This report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements about:

our ability to increase the volume of loans we make;
our ability to manage our net charge-off rates;
our ability to successfully manage the potential adverse impact of the COVID-19 pandemic on our business, results and operations;
our plans to consolidate a number of our retail locations and estimated future expenses associated with our retail network optimization plan;
our plans and timing for new product launches;
our ability to successfully adjust our proprietary credit risk models and products in response to changing macroeconomic conditions and fluctuations in the credit market, including as a result of the COVID-19 pandemic;
our expectations regarding our costs and seasonality;
our ability to successfully build our brand and protect our reputation from negative publicity;
our ability to expand our digital capabilities origination and increase the volume of loans originated through our digital channels;
our ability to increase the effectiveness of our marketing efforts;
our ability to expand our presence in states in which we operate, as well as expand into new states, including through the successful development and execution of strategic partnerships, bank partnerships or by obtaining a national bank charter;
our plans and ability to enter into new markets and introduce new products and services;
our ability to continue to expand our demographic focus;
our ability to maintain the terms on which we lend to our customers;
our plans for and our ability to successfully maintain our diversified funding strategy, including loan warehouse facilities, whole loan sales and securitization transactions;
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our ability to successfully manage our interest rate spread against our cost of capital;
our ability to manage fraud risk;
our ability to efficiently manage our Customer Acquisition Cost;
our expectations regarding the sufficiency of our cash to meet our operating and cash expenditures;
our ability to effectively estimate the fair value of our Fair Value Loans and Fair Value Notes;
our ability to effectively secure and maintain the confidentiality of the information provided and utilized across our systems;
our ability to successfully compete with companies that are currently in, or may in the future enter, the business of providing consumer loans to low- and moderate-income customers underserved by traditional, mainstream financial institutions;
our ability to attract, integrate and retain qualified employees;
our ability to effectively manage and expand the capabilities of our contact centers, outsourcing relationships and other business operations abroad; and
our ability to successfully adapt to complex and evolving regulatory environments

Forward-looking statements are based on our management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and on our management’s beliefs and assumptions. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate we have conducted exhaustive inquiry into, or review of, all potentially available relevant information. We anticipate that subsequent events and developments may cause our views to change. Forward-looking statements do not guarantee future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this report. We also operate in a rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. As a result, any or all of our forward-looking statements in this report may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material.

You should read this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect, particularly given the uncertainties caused by the COVID-19 pandemic.

These forward-looking statements speak only as of the date of this report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. We qualify all of our forward-looking statements by these cautionary statements.

Overview

We offer responsible consumer credit through our A.I.-driven digital platform. Our products provide a lower cost alternative to individuals that are not well served by the financial mainstream. In our 15-year lending history, we have originated more than 4.5 million loans, representing over $11.1 billion of credit extended, to more than 2.0 million customers. We have developed a deep data-driven understanding of our customers' needs through a combination of the rigorous application of machine learning, the use of alternative data sets and continuous customer engagement. We have been certified as a Community Development Financial Institution ("CDFI") by the U.S. Department of the Treasury since 2009.

Our core offering is a simple-to-understand, affordable, unsecured, fully amortizing personal installment loan with fixed payments and fixed interest rates throughout the life of the loan with APRs capped at 36%. Our unsecured personal loans do not have prepayment penalties or balloon payments and range in size from $300 to $11,000 with terms ranging from 8 to 51 months. We have begun expanding beyond our core offering of unsecured installment loans into other financial services that a significant portion of our customers already use and have asked us to provide, such as auto loans and credit cards. We launched the Oportun Visa Credit Card, issued by WebBank, Member FDIC, in 2019 and offered credit cards in 45 states as of September 30, 2021. In April 2020, we launched a personal installment loan product secured by an automobile, which we refer to as secured personal loans. Our secured personal loans range in size from $2,525 to $20,000 with terms ranging from 19 to 64 months.

Beyond our core direct-to-consumer lending business, we believe that our proprietary credit scoring and underwriting model can be offered as a service to other companies. Our first strategic partner for this Lending as a Service model is DolEx. In this partnership, DolEx will market loans and enter customer applications into Oportun’s system, and Oportun will underwrite, originate and service the loans. In July, we signed our second Lending as a Service partner, Barri Financial Group, which we launched in several locations in October 2021. If these partnerships are successful, we believe we will be able to offer Lending as a Service to additional partners and thereby expand our reach into new consumer markets.

As part of our commitment to be a responsible lender, we verify income for our personal loan customers and only make loans to customers that our ability-to-pay model indicates should be able to afford a loan after meeting their other debts and regular living expenses. We execute our sales and marketing strategy through a variety of acquisition channels including our digital platform, retail locations, direct mail and digital marketing, and partnerships. We also benefit from customers learning about Oportun from friends, family members and through social media. Our omni-channel network enables us to serve our customers in the way they prefer and when it is convenient for them, online, over-the-phone, and in person. We have
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seen our customers' usage and preference for our digital channels accelerate during 2020 and 2021 and we are continuing to invest in our digital origination and servicing platform, as well as building out customer self-service capabilities. Our product offerings serve as an alternative to high-cost installment, auto title, payday and pawn lenders. According to the Financial Health Network study that we commissioned, we estimate that, as of September 30, 2021, our customers have saved more than $2.0 billion in aggregate interest and fees compared to alternative products available to them.

With the rollout of our partnership with MetaBank, N.A, a national bank ("MetaBank"), in August 2021, MetaBank originates unsecured personal loans in 21 states outside of our state-licensed footprint as of September 30, 2021, allowing us to offer a uniform product across the nation, while minimizing operational complexity and generating cost savings that can be passed on to our customers. Through MetaBank, we plan to offer loan products that are the same as our unsecured personal loans with APRs capped at 36%.

To fund our growth at a low and efficient cost, we have built a diversified and well-established capital markets funding program, which allows us to partially hedge our exposure to rising interest rates or credit spreads by locking in our interest expense for up to three years. Over the past eight years, we have executed 16 bond offerings in the asset-backed securities market, the last 13 of which include tranches that have been rated investment grade. We issued two- and three-year fixed rate bonds which have provided us committed capital to fund future loan originations at a fixed Cost of Debt. We are also party to a whole loan sale program whereby we sell a percentage of our loans to a third-party financial institution. In addition to our whole loan sale program, we also have a $600.0 million Personal Loan Warehouse facility, committed through September 2024, which also helps to fund our loan portfolio growth. Further, we have entered into a separate agreement with another institution which provides us with additional funding to expand our credit card product.

In November 2020, we filed our application to obtain a national bank charter. On October 8, 2021, we announced that we were voluntarily withdrawing our previously filed application and plan to amend elements of our application to reflect changes in our business. If established, Oportun Bank, N.A. will seek to serve customers in all 50 states with consumer lending and deposit services.

Retail Network Optimization

Consistent with our retail network optimization plan, during the first quarter of 2021, we closed 136 retail locations and reduced a portion of the employee workforce who managed and operated these retail locations. In addition, for the three and nine months ended September 30, 2021, we incurred $0.1 million and $11.2 million, respectively, in expenses related to the retail location closures. In the first quarter of 2021, we recognized $1.6 million related to severance and benefits related to the store closures which represents all severance and benefits related costs to be incurred related to the retail network optimization plan. The income statement impact for the three and nine months ended September 30, 2021 was $0.1 million and $12.8 million, respectively, and was recorded through General, administrative and other on the Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited). The retail network optimization plan was substantially completed in the third quarter, and we do not expect any significant additional expenses to be incurred.

Key Financial and Operating Metrics

We monitor and evaluate the following key metrics in order to measure our current performance, develop and refine our growth strategies, and make strategic decisions.

See the next section, "Non-GAAP Financial Measures", included in this Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for a presentation of the actual impact of the election of the fair value option for the periods presented in the financial statements included elsewhere in this report.
As of or for the Three Months
Ended September 30,
As of or for the Nine Months
Ended September 30,
(in thousands of dollars, except CAC)2021202020212020
Key Financial and Operating Metrics
Aggregate Originations$662,105 $302,397 $1,430,383 $892,798 
Active Customers
772,361 624,205 772,361 624,205 
Customer Acquisition Cost
$152 $207 $166 $223 
Managed Principal Balance at End of Period
$2,147,856 $1,835,764 $2,147,856 $1,835,764 
30+ Day Delinquency Rate
2.8 %3.5 %2.8 %3.5 %
Annualized Net Charge-Off Rate
5.5 %10.4 %6.8 %10.0 %
Operating Efficiency70.0 %74.3 %75.8 %66.2 %
Adjusted Operating Efficiency67.1 %63.3 %68.7 %60.1 %
Return on Equity18.3 %(5.3)%9.1 %(15.2)%
Adjusted Return on Equity19.0 %3.7 %14.4 %(9.0)%
Other Useful Metrics
Number of Loans Originated210,731 97,826 479,183 289,169 
Average Daily Principal Balance
$1,741,358 $1,598,141 $1,654,582 $1,731,748 
Owned Principal Balance at End of Period
$1,862,143 $1,571,980 $1,862,143 $1,571,980 
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See “Glossary” at the beginning of this report for formulas and definitions of our key performance metrics.

Aggregate Originations

Aggregate Originations increased to $662.1 million for the three months ended September 30, 2021 from $302.4 million for the three months ended September 30, 2020, representing a 119.0% increase. The increase is primarily driven by growth in application volume due to higher demand and an increase in average loan size. We originated 210,731 and 97,826 loans for the three months ended September 30, 2021 and 2020, respectively, representing an increase of 115.4%.

Aggregate Originations increased to $1,430.4 million for the nine months ended September 30, 2021 from $892.8 million for the nine months ended September 30, 2020, representing a 60.2% increase. The increase is primarily driven by an increased number of applications due to higher demand. We originated 479,183 and 289,169 loans for the nine months ended September 30, 2021 and 2020, respectively, representing a 65.7% increase. The increase in Aggregate Originations was partially offset by a decrease in average loan size for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease in average loan size is primarily due to growth in the proportion of new customers compared to returning customers.

Active Customers
    
Active Customers increased by 23.7% from September 30, 2020 to September 30, 2021 due to higher originations as a result of an increase in application volume and the growth of our credit card and unsecured personal loan products.

Customer Acquisition Cost

For the three months ended September 30, 2021 and 2020, our Customer Acquisition Cost was $152 and $207, respectively, a decrease of 26.6%. For the nine months ended September 30, 2021 and 2020, our Customer Acquisition Cost was $166 and $223, respectively, a decrease of 25.6%. The decrease is primarily due to the increase in number of loans originated period over period as a result of an increase in application volume due to higher demand. The decrease is partially offset by the higher sales and marketing expenses due to growth in direct mail volume, digital marketing and our customer referral programs.

Managed Principal Balance at End of Period

Managed Principal Balance at End of Period as of September 30, 2021 increased by 17.0% from September 30, 2020, driven by growth in originations over the last 12 months.

30+ Day Delinquency Rate

Our 30+ Day Delinquency Rate was 2.8% and 3.5% as of September 30, 2021 and 2020, respectively. The decrease is due to the overall improvement in the economy, COVID-19 stimulus measures that our customers have used to stay current on their payments, as well as the effectiveness of our A.I.-driven underwriting models, collections tools and payment options that have helped our customers manage through the pandemic.

Annualized Net Charge-Off Rate

Annualized Net Charge-Off Rate for the three months ended September 30, 2021 and 2020 was 5.5% and 10.4%, respectively. Annualized Net Charge-Off Rate for the nine months ended September 30, 2021 and 2020 was 6.8% and 10.0%, respectively. Net charge-offs decreased due to the overall improvement in the economy, the impact of stimulus payments to consumers as well as the effectiveness of our A.I.-driven underwriting models, collections tools and payment options that have helped our customers manage through the pandemic.

Operating Efficiency and Adjusted Operating Efficiency

For the three months ended September 30, 2021 and 2020, Operating Efficiency was 70.0% and 74.3% respectively, and Adjusted Operating Efficiency for the same period was 67.1% and 63.3%, respectively. For the nine months ended September 30, 2021 and 2020, Operating Efficiency was 75.8%, and 66.2%, respectively, and Adjusted Operating Efficiency was 68.7% and 60.1%, respectively.

The change in Operating Efficiency for the three and nine months ended September 30, 2021 is primarily due to year-over-year increases in operating expenses driven by $14.6 million and $31.7 million in investments in new products and channels for the three and nine months ended September 30, 2021, respectively. The change in Operating Efficiency was also driven by our increased investment in marketing initiatives of $11.5 million and $14.2 million for the three and nine months ended September 30, 2021, respectively, as well as additional investments in technology, data and digital capabilities. The increase in operating expenses year-over-year also included $12.8 million of expenses related to our retail network optimization plan and a $3.3 million impairment charge related to our right-of-use asset recognized due to management's decision to move toward a remote-first work environment in the nine months ended September 30, 2021.

Adjusted Operating Efficiency excludes COVID-19 expenses prior to January 1, 2021, stock-based compensation expense, and litigation reserves, expenses associated with our retail network optimization plan and impairment charges. For a reconciliation of Operating Efficiency to Adjusted Operating Efficiency, see “Non-GAAP Financial Measures—Fair Value Pro Forma.”
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Return on Equity and Adjusted Return on Equity

For the three months ended September 30, 2021 and 2020, Return on Equity was 18.3% and (5.3)%, respectively, and Adjusted Return on Equity was 19.0% and 3.7%, respectively, For the nine months ended September 30, 2021 and 2020, Return on Equity was 9.1% and (15.2)%, respectively, and Adjusted Return on Equity was 14.4% and (9.0)%, respectively. The increases in Return on Equity and Adjusted Return on Equity were primarily due to higher net income. Net income was higher due to lower credit losses and increased fair value of our loan portfolio due to improved credit outlook. For a reconciliation of Return on Equity to Adjusted Return on Equity, see “Non–GAAP Financial Measures—Fair Value Pro Forma.”

Average Daily Principal Balance

Average Daily Principal Balance increased by 9.0% from $1.60 billion for the three months ended September 30, 2020 to $1.74 billion for the three months ended September 30, 2021. The increase is primarily driven by increased Aggregate Originations due to higher application volume and an increase in average loan size.

Average Daily Principal Balance decreased by 4.5% from $1.73 billion for the nine months ended September 30, 2020 to $1.65 billion for the nine months ended September 30, 2021. The decrease is primarily driven by shrinkage in our portfolio as a result of lower originations due to economic uncertainty following the onset of the COVID-19 pandemic in March 2020 and a decrease in average loan size. We have seen an increase in Aggregate Originations for the nine months ended September 30, 2021 due to higher application volume.

Owned Principal Balance at End of Period

Owned Principal Balance at End of Period as of September 30, 2021 increased by 18.5% from September 30, 2020, driven by the increase in Aggregate Originations.

Historical Credit Performance

Our A.I.-driven credit models enable us to originate loans with low and stable loss rates. Our Annualized Net Charge-off Rate ranged between 7% and 9% from 2011 to 2019 and was 9.8% in 2020, a modest variance above this range during the pandemic. Consistent with our charge-off policy, we evaluate our loan portfolio and charge a loan off at the earlier of when the loan is determined to be uncollectible or when loans are 120 days contractually past due or 180 days contractually past due in the case of credit cards.

oprt-20210930_g1.jpg
*Numbers shown reflect year-to-date amounts for the nine months ended September 30, for the indicated fiscal year.

In addition to monitoring our loss and delinquency performance on an owned portfolio basis, we also monitor the performance of our loans by the period in which the loan was disbursed, generally years or quarters, which we refer to as a vintage. We calculate net lifetime loan loss rate by vintage as a percentage of original principal balance. Net lifetime loan loss rates equal the net lifetime loan losses for a given year through September 30, 2021 divided by the total origination loan volume for that year.

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The below table shows our net lifetime loan loss rate for each annual vintage since we began lending in 2006. We were able to stabilize cumulative net loan losses after the financial crisis that started in 2008. We even achieved a net lifetime loan loss rate of 5.5% during the peak of the recession in 2009. The evolution of our credit models has allowed us to increase our average loan size and commensurately extend our average loan terms. Cumulative net lifetime loan losses for the 2015, 2016, 2017, and 2018 vintages increased partially due to the delay in tax refunds in 2017 and 2019, the impact of natural disasters such as Hurricane Harvey, and the longer duration of the loans. The 2018 and 2019 vintages are increasing due to the COVID-19 pandemic. The chart below includes all personal loan originations by vintage, excluding loans originated from July 2017 to August 2020 under a loan program for customers who did not meet the qualifications for our core loan origination program. 100% of those loans were sold pursuant to a whole loan sale arrangement.






oprt-20210930_g2.jpg
Year of Origination
20072008200920102011201220132014201520162017201820192020
Net lifetime loan losses as of September 30, 2021 as a percentage of original principal balance7.7%8.9%5.5%6.4%6.2%5.6%5.6%6.1%7.1%8.0%8.2%10.0%*9.4%*2.8%*
Outstanding principal balance as of September 30, 2021 as a percentage of original amount disbursed—%—%—%—%—%—%—%—%—%—%0.1%2.9%21.2%63.6%
Dollar weighted average original term for vintage in months9.39.910.211.712.314.516.419.122.324.226.329.030.032.0
* Vintage is not yet fully mature from a loss perspective.

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Results of Operations

The following tables and related discussion set forth our Condensed Consolidated Statements of Operations (Unaudited) for each of the three and nine months ended September 30, 2021 and 2020.
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands of dollars)2021202020212020
Revenue
Interest income$145,444 $128,739 $401,224 $415,525 
Non-interest income13,640 8,028 31,427 27,377 
Total revenue159,084 136,767 432,651 442,902 
Less:
  Interest expense10,574 13,408 36,241 44,879 
Total net decrease in fair value(8,987)(29,633)(26,457)(177,584)
Net revenue139,523 93,726 369,953 220,439 
Operating expenses:
Technology and facilities34,226 31,641 100,274 93,927 
Sales and marketing32,102 20,634 79,743 65,521 
Personnel29,039 26,662 84,412 79,925 
Outsourcing and professional fees13,348 11,491 40,762 36,232 
General, administrative and other2,686 11,138 22,862 17,591 
Total operating expenses111,401 101,566 328,053 293,196 
Income before taxes28,122 (7,840)41,900 (72,757)
Income tax expense (benefit)5,143 (1,794)8,652 (19,162)
Net income (loss)$22,979 $(6,046)$33,248 $(53,595)

Total revenue
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Revenue
Interest income$145,444 $128,739 $16,705 13.0 %$401,224 $415,525 $(14,301)(3.4)%
Non-interest income13,640 8,028 5,612 69.9 %31,427 27,377 4,050 14.8 %
Total revenue$159,084 $136,767 $22,317 16.3 %$432,651 $442,902 $(10,251)(2.3)%
Percentage of total revenue:
Interest income91.4 %94.1 %92.7 %93.8 %
Non-interest income8.6 %5.9 %7.3 %6.2 %
Total revenue100.0 %100.0 %100.0 %100.0 %

Interest Income. Total interest income increased by $16.7 million, or 13.0%, from $128.7 million for the three months ended September 30, 2020 to $145.4 million for the three months ended September 30, 2021. This increase was primarily attributable to higher Average Daily Principal Balance, which increased from $1.60 billion for the three months ended September 30, 2020 to $1.74 billion for the three months ended September 30, 2021. The increase is due to growth in our portfolio as a result of higher application volume due to increased demand. Interest income was also favorably impacted by an increase in portfolio yield of 116 basis points in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to growth in originations to new customers who generally receive higher APRs than returning customers.

Total interest income decreased by $14.3 million, or 3.4%, from $415.5 million for the nine months ended September 30, 2020 to $401.2 million for the nine months ended September 30, 2021. This decrease was primarily attributable to lower Average Daily Principal Balance, which declined from $1.73 billion for the nine months ended September 30, 2020 to $1.65 billion for the nine months ended September 30, 2021. The decrease is due to shrinkage in our portfolio as a result of lower originations due to economic uncertainty following the onset of the COVID-19 pandemic.

Non-interest income. Total non-interest income increased by $5.6 million, or 69.9%, from $8.0 million for the three months ended September 30, 2020 to $13.6 million for the three months ended September 30, 2021. This increase is primarily due to increased gain on loans sold of $3.4 million, or 88.8% under our whole loan sale programs due to an increase in loans sold resulting from higher origination volume. The increase in non-interest income is also due to increased credit card fees of $1.5 million, which have increased with the growth of our credit card customer base.

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Total non-interest income increased by $4.1 million, or 14.8%, from $27.4 million for the nine months ended September 30, 2020 to $31.4 million for the nine months ended September 30, 2021. This increase is primarily due to increased gain on loans sold of $3.7 million, or 27.4% under our whole loan sale programs due to an increase in loans sold resulting from higher origination volume. The increase in non-interest income is also due to increased credit card fees partially offset by decreased servicing fees of $2.7 million for the nine months ended September 30, 2021, or 22.6%, related to the shrinkage in our serviced portfolio of sold loans due to lower loan sale volume since the onset of the COVID-19 pandemic and our decision to sell 10% versus 15% of originated loans.

See Note 2, Summary of Significant Accounting Policies, and Note 11, Revenue, of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our interest income, non-interest income and revenue.

Interest expense
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Interest expense$10,574 $13,408 $(2,834)(21.1)%$36,241 $44,879 $(8,638)(19.2)%
Percentage of total revenue6.6 %9.8 %8.4 %10.1 %
Cost of Debt2.8 %4.0 %3.3 %4.1 %
Leverage as a percentage of Average Daily Principal Balance86.4 %82.6 %88.8 %84.1 %

Interest Expense. Interest expense decreased by $2.8 million, or 21.1%, from $13.4 million for the three months ended September 30, 2020 to $10.6 million for the three months ended September 30, 2021. We financed approximately 86.4% of our loans receivable through debt for the three months ended September 30, 2021, as compared to 82.6% for the three months ended September 30, 2020, and our Average Daily Debt Balance increased from $1.32 billion for the three months ended September 30, 2020 to $1.50 billion for the three months ended September 30, 2021, an increase of 13.9%. Our leverage as a percentage of Average Daily Principal Balance was elevated due to the prefunding account on our 2021-B securitization. Adjusting for this restricted cash amount, our leverage ratio would have been 85.5% for the three months ended September 30, 2021. We have continued to improve our Cost of Debt as we have been able to refinance and increase the size of our securitizations.

Interest expense decreased by $8.6 million, or 19.2%, from $44.9 million for the nine months ended September 30, 2020 to $36.2 million for the nine months ended September 30, 2021. We financed approximately 88.8% of our loans receivable through debt for the nine months ended September 30, 2021, as compared to 84.1% for the nine months ended September 30, 2020, and our Average Daily Debt Balance increased slightly from $1.46 billion for the nine months ended September 30, 2020 to $1.47 billion for the nine months ended September 30, 2021, an increase of 0.9%. Our leverage as a percentage of Average Daily Principal Balance was elevated due to the prefunding account on our 2021-B securitization. Adjusting for this restricted cash amount, our leverage ratio would have been 86.0% for the nine months ended September 30, 2021. We have continued to improve our Cost of Debt as we have been able to refinance and increase the size of our securitizations.

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Total net decrease in fair value

Net decrease in fair value reflects changes in fair value of Fair Value Loans and Fair Value Notes on an aggregate basis and is based on a number of factors, including benchmark interest rates, credit spreads, remaining cumulative charge-offs and customer payment rates. Increases in the fair value of loans increase Net Revenue. Conversely, decreases in the fair value of loans decrease Net Revenue. Increases in the fair value of asset-backed notes decrease Net Revenue. Decreases in the fair value of asset-backed notes increase Net Revenue. We also have derivative instruments related to our credit card funding facility and servicing agreement with WebBank and our bank partnership program with MetaBank, N.A. Changes in the fair value of the derivative asset are reflected in the total fair value mark-to-market adjustment below.
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Fair value mark-to-market adjustment:
Fair value mark-to-market adjustment on Loans Receivable at Fair Value$12,962 $39,828 $(26,866)*$52,333 $(52,242)$104,575 *
Fair value mark-to-market adjustment on asset-backed notes700 (27,515)28,215 *4,237 3,758 479 *
Fair value mark-to-market adjustment on derivatives935 — 935 *639 — 639 *
Total fair value mark-to-market adjustment14,597 12,313 2,284 *57,209 (48,484)105,693 *
Charge-offs, net of recoveries on loans receivable at fair value(23,924)(41,946)18,022 *(84,183)(129,100)44,917 *
Excess interest - credit card performance fee340 — 340 *517 — 517 *
Total net decrease in fair value$(8,987)$(29,633)$20,646 *$(26,457)$(177,584)$151,127 *
Percentage of total revenue:
Fair value mark-to-market adjustment9.2 %9.0 %13.2 %(10.9)%
Charge-offs, net of recoveries on loans receivable at fair value(15.0)%(30.7)%(19.5)%(29.1)%
Total net decrease in fair value(5.9)%(21.7)%(6.2)%(40.1)%
Discount rate6.52 %7.84 %6.52 %7.84 %
Remaining cumulative charge-offs7.53 %10.61 %7.53 %10.61 %
Average life in years0.76 0.78 0.76 0.78 
* Not meaningful

Net increase (decrease) in fair value. Net decrease in fair value for the three months ended September 30, 2021 was $9.0 million. This amount represents a total fair value mark-to-market increase of $14.6 million, and $23.9 million of charge-offs, net of recoveries on Fair Value Loans. The total fair value mark-to-market adjustment consists of a $13.0 million mark-to-market adjustment on Fair Value Loans due to (a) a decrease in the discount rate from 6.54% as of June 30, 2021 to 6.52% as of September 30, 2021 caused by declining interest rates and credit spreads, and (b) a decrease in remaining cumulative charge-offs from 7.59% as of June 30, 2021 to 7.53% as of September 30, 2021 due to improving credit trends, partially offset by (c) a slight decrease in average life from 0.77 years as of June 30, 2021 to 0.76 years as of September 30, 2021. The $0.7 million mark-to-market adjustment on Fair Value Notes is due to the tendency for asset-backed security prices to trend toward par as they approach their call date, partially offset by tightening in longer-dated asset-backed notes.

Net decrease in fair value for the nine months ended September 30, 2021 was $26.5 million. This amount represents a total fair value mark-to-market increase of $57.2 million, and $84.2 million of charge-offs, net of recoveries on Fair Value Loans. The total fair value mark-to-market adjustment consists of a $52.3 million mark-to-market adjustment on Fair Value Loans due to (a) a decrease in the discount rate from 6.85% as of December 31, 2020 to 6.52% as of September 30, 2021 caused by declining interest rates and credit spreads, and (b) an decrease in remaining cumulative charge-offs from 10.03% as of December 31, 2020 to 7.53% as of September 30, 2021 due to improving credit trends, partially offset by (c) a slight decrease in average life from 0.80 years as of December 31, 2020 to 0.76 years as of September 30, 2021. The $4.2 million mark-to-market adjustment on Fair Value Notes is due to the tendency for asset-backed security prices to trend toward par as they approach their call date, partially offset by tightening in longer-dated asset-backed notes.

Charge-offs, net of recoveries
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Total charge-offs, net of recoveries$23,924 $41,946 $(18,022)(43.0)%$84,183 $129,100 $(44,917)(34.8)%
Average Daily Principal Balance$1,741,358 $1,598,141 $143,217 9.0 %$1,654,582 $1,731,748 $(77,166)(4.5)%
Annualized Net Charge-Off Rate5.5 %10.4 %6.8 %10.0 %

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Charge-offs, net of recoveries. Our Annualized Net Charge-Off Rate decreased to 5.5% and 6.8% for the three months and nine months ended September 30, 2021, respectively, from 10.4% and 10.0% for the three and nine months ended September 30, 2020, respectively. Net charge-offs for the three months and nine months ended September 30, 2021 decreased primarily due to the overall improvement in the economy and the impact of stimulus payments to consumers. Consistent with our charge-off policy, we evaluate our loan portfolio and charge a loan off at the earlier of when the loan is determined to be uncollectible or when loans are 120 days contractually past due or 180 days contractually past due in the case of credit cards. As a result of the pandemic and based upon our analysis of loan performance following natural disasters or other emergencies, more loans have been determined to be uncollectible prior to reaching 120 days contractually past due, resulting in higher charge-offs. This led to $1.0 million and $6.4 million of additional charge-offs for the three and nine months ended September 30, 2021, respectively, compared to $11.2 million and $15.3 million of additional charge-offs for the three and nine months ended September 30, 2020, respectively.

Operating expenses

Operating expenses consist of technology and facilities, sales and marketing, personnel, outsourcing and professional fees and general, administrative and other expenses. Operating expenses include $14.6 million and $31.7 million related to new products for the three and nine months ended September 30, 2021, respectively. Operating expenses include $4.2 million and $12.4 million related to new products for the three and nine months ended September 30, 2020, respectively.

Technology and facilities

Technology and facilities expense is the largest component of our operating expenses, representing the costs required to build our omni-channel network and technology platform, and consists of three components. The first component is comprised of costs associated with our technology, engineering, information security, cybersecurity, platform development, maintenance, and end user services, including fees for software licenses, consulting, legal and other services as a result of our efforts to grow our business, as well as personnel expenses. The second includes rent for retail and corporate locations, utilities, insurance, telephony costs, property taxes, equipment rental expenses, licenses and fees, and depreciation and amortization. Lastly, this category also includes all software licenses, subscriptions, and technology service costs to support our corporate operations, excluding sales and marketing.

Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Technology and facilities$34,226 $31,641 $2,585 8.2 %$100,274 $93,927 $6,347 6.8 %
Percentage of total revenue21.5 %23.1 %23.2 %21.2 %

Technology and facilities. Technology and facilities expense increased by $2.6 million, or 8.2%, from $31.6 million for the three months ended September 30, 2020 to $34.2 million for the three months ended September 30, 2021. The increase is primarily due to a $1.0 million increase in service costs related to higher usage of software and cloud services, $0.6 million of increased depreciation commensurate with growth in internally developed software and $0.5 million increase in usage of temporary contractors to supplement staffing related to new product investment.

Technology and facilities expense increased by $6.3 million, or 6.8%, from $93.9 million for the nine months ended September 30, 2020 to $100.3 million for the nine months ended September 30, 2021. The increase is primarily due to a $3.1 million increase in service costs related to higher usage of software and cloud services, $2.1 million of increased depreciation commensurate with growth in internally developed software and a $1.1 million increase in usage of India off-shoring services and other temporary contractors to supplement staffing related to new product investment.

Sales and marketing

Sales and marketing expense consists of two components and represents the costs to acquire our customers. The first component is comprised of the expense to acquire a customer through various paid marketing channels including direct mail, digital marketing and brand marketing. The second component is comprised of the costs associated with our telesales, lead generation and retail operations, including personnel expenses, but excluding costs associated with retail locations.
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Sales and marketing$32,102 $20,634 $11,468 55.6 %$79,743 $65,521 $14,222 21.7 %
Percentage of total revenue20.2 %15.1 %18.4 %14.8 %
Customer Acquisition Cost (CAC)$152 $207 $(55)(26.6)%$166 $223 $(57)(25.6)%

Sales and marketing. Sales and marketing expenses to acquire our customers increased by $11.5 million, or 55.6%, from $20.6 million for the three months ended September 30, 2020 to $32.1 million for the three months ended September 30, 2021. To grow our loan originations, we increased our investment in marketing initiatives by $13.2 million across various marketing channels, including direct mail, digital advertising and our customer referral programs. This increase was partially offset by $2.4 million lower personnel-related costs as a result of the implementation of our retail network optimization plan that began in the first quarter of 2021. As a result of our increased number of loans originated during the three months ended September 30, 2021, our CAC decreased by 26.6% as compared to the three months ended September 30, 2020.

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Sales and marketing expenses to acquire our customers increased by $14.2 million, or 22%, from $65.5 million for the nine months ended September 30, 2020 to $79.7 million for the nine months ended September 30, 2021. To grow our loan originations, we increased our investment in marketing initiatives by $20.7 million across various marketing channels, including direct mail, digital advertising, lead aggregators and our customer referral programs. This increase was partially offset by $6.6 million lower personnel-related costs as a result of the implementation of our retail network optimization plan that began in the first quarter of 2021. As a result of our increased number of loans originated during the nine months ended September 30, 2021, our CAC decreased by 25.6% as compared to the nine months ended September 30, 2020.

Personnel

Personnel expense represents compensation and benefits that we provide to our employees and includes salaries, wages, bonuses, commissions, related employer taxes, medical and other benefits provided and stock-based compensation expense for all of our staff with the exception of our telesales, lead generation, retail operations which are included in sales and marketing expenses and technology which is included technology and facilities.
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Personnel$29,039 $26,662 $2,377 8.9 %$84,412 $79,925 $4,487 5.6 %
Percentage of total revenue18.3 %19.5 %19.5 %18.0 %

Personnel. Personnel expense increased by $2.4 million, or 8.9%, from $26.7 million for the three months ended September 30, 2020 to $29.0 million for the three months ended September 30, 2021, driven by increased compensation expense due to a 5.9% increase in U.S. headcount.

Personnel expense increased by $4.5 million, or 5.6%, from $79.9 million for the nine months ended September 30, 2020 to $84.4 million for the nine months ended September 30, 2021, primarily driven by a $4.1 million increase in compensation expense due to a 5.9% increase in U.S. headcount.

Outsourcing and professional fees

Outsourcing and professional fees consist of costs for various third-party service providers and contact center operations, primarily for the sales, customer service, collections and store operation functions. Our contact centers located in Mexico and our third-party contact centers located in Colombia and Jamaica provide support for the business including application processing, verification, customer service and collections. We utilize third parties to operate the contact centers in Colombia and Jamaica and include the costs in outsourcing and other professional fees. Professional fees also include the cost of legal and audit services, credit reports, recruiting, cash transportation, collection services and fees and consultant expenses. Direct loan origination expenses related to application processing are expensed when incurred. In addition, outsourcing and professional fees include any financing expenses, including legal and underwriting fees, related to our Fair Value Notes.
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Outsourcing and professional fees$13,348 $11,491 $1,857 16.2 %$40,762 $36,232 $4,530 12.5 %
Percentage of total revenue8.4 %8.4 %9.4 %8.2 %

Outsourcing and professional fees. Outsourcing and professional fees increased by $1.9 million, or 16%, from $11.5 million for the three months ended September 30, 2020 to $13.3 million for the three months ended September 30, 2021. The increase is primarily attributable to a $2.7 million increase in credit report expense due to higher application volume and $1.0 million of higher professional service costs related to credit card and bank partnership programs. These increases were partially offset by a $1.2 million decrease related to ceasing legal collection on defaulted loans since August 2020 and $1.1 million lower outsourced service costs due to the reduced contact center outsourced headcount as compared to prior year as a result of the uncertainty around the COVID-19 pandemic.

Outsourcing and professional fees increased by $4.5 million, or 13%, from $36.2 million for the nine months ended September 30, 2020 to $40.8 million for the nine months ended September 30, 2021. The increase is primarily attributable to a $7.7 million in debt financing fees and expenses related to asset-backed securitizations, $4.0 million increase in credit report expense due to higher application volume and $2.7 million of higher professional service costs related to credit card and bank partnership programs and expenses associated with our prior bank charter application. These increases were partially offset by a $5.6 million decrease related to ceasing legal collection on defaulted loans beginning in August 2020, $2.9 million lower outsourced service costs due to the decline in contact center outsourced headcount that was needed in prior year as a result of the uncertainty around the COVID-19 pandemic and $1.2 million of lower legal fees.

General, administrative and other
General, administrative and other expense includes non-compensation expenses for employees, who are not a part of the technology and sales and marketing organizations, which include travel, lodging, meal expenses, political and charitable contributions, office supplies, printing and shipping. Also included are franchise taxes, bank fees, foreign currency gains and losses, transaction gains and losses, debit card expenses, litigation reserve and expenses associated with our retail network optimization plan.
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Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
General, administrative and other$2,686 $11,138 $(8,452)(75.9)%$22,862 $17,591 $5,271 30.0 %
Percentage of total revenue1.7 %8.1 %5.3 %4.0 %

General, administrative and other. General, administrative and other expense decreased by $8.5 million, or 76%, from $11.1 million for the three months ended September 30, 2020 to $2.7 million for the three months ended September 30, 2021, primarily due to a $8.8 million litigation reserve recorded for the three months ended September 30, 2020.

General, administrative and other expense increased by $5.3 million, or 30%, from $17.6 million for the nine months ended September 30, 2020 to $22.9 million for the nine months ended September 30, 2021, primarily due to our retail network optimization expenses of $11.1 million related to the retail location closures and $1.6 million related to severance and benefits related to the retail location closures. The increase was also attributable to a $3.3 million impairment charge recognized on a right-of use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment. These increases were partially offset by an $8.8 million decrease in litigation reserve related to prior year and decreases in travel expenses due to the travel restrictions and remote work arrangements resulting from the COVID-19 pandemic.

Income taxes

Income taxes consist of U.S. federal, state and foreign income taxes, if any. For the periods ended September 30, 2021 and 2020, we recognized tax expense (benefit) attributable to U.S. federal, state and foreign income taxes.
Three Months Ended
September 30,
Period-to-period Change
Nine Months Ended
September 30,
Period-to-period Change
(in thousands, except percentages)20212020$%20212020$%
Income tax expense (benefit)$5,143 $(1,794)$6,937 386.7 %$8,652 $(19,162)$27,814 145.2 %
Percentage of total revenue3.2 %(1.3)%2.0 %(4.3)%
Effective tax rate18.3 %22.9 %20.7 %26.3 %

Income tax expense (benefit). Income tax expense increased by $6.9 million or 387%, from a benefit of $1.8 million for the three months ended September 30, 2020 to an expense of $5.1 million for the three months ended September 30, 2021, primarily as a result of having pretax income for the three months ended September 30, 2021 compared to a pretax loss for the three months ended September 30, 2020 as well as tax planning performed by the Company.

Income tax expense increased by $27.8 million or 145%, from a benefit of $19.2 million for the nine months ended September 30, 2020 to an expense of $8.7 million for the nine months ended September 30, 2021, primarily as a result of having pretax income for the nine months ended September 30, 2021 compared to a pretax loss for the nine months ended September 30, 2020 as well as tax planning performed by the Company.

See Note 2, Summary of Significant Accounting Policies, and Note 12, Income Taxes, of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for further discussion on our income taxes.
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Fair Value Estimate Methodology for Loans Receivable at Fair Value

Summary

Fair value is an electable option under GAAP to account for any financial instruments, including loans receivable and debt. It differs from amortized cost accounting in that loans receivable and debt are recorded on the balance sheet at fair value rather than on a cost basis. Under the fair value option credit losses are recognized through income as they are incurred rather than through the establishment of an allowance and provision for losses. The fair value of instruments under this election is updated at the end of each reporting period, with changes since the prior reporting period reflected in the Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) as net increase (decrease) in fair value which impacts Net Revenue. Changes in interest rates, credit spreads, realized and projected credit losses and cash flow timing will lead to changes in fair value and therefore impact earnings. These changes in the fair value of the Fair Value Loans may be partially offset by changes in the fair value of the Fair Value Notes, depending upon the relative duration of the instruments.

Fair Value Estimate Methodology for Loans Receivable at Fair Value

We calculate the fair value of Fair Value Loans using a model that projects and discounts expected cash flows. The fair value is a function of:

Portfolio yield;
Average life;
Prepayments;
Remaining cumulative charge-offs; and
Discount rate.

Portfolio yield is the expected interest and fees collected from the loans as an annualized percentage of outstanding principal balance. Portfolio yield is based upon (a) the contractual interest rate, reduced by expected delinquencies and interest charge-offs and (b) late fees, net of late fee charge-offs based upon expected delinquencies. Origination fees are not included in portfolio yield since they are generally capitalized as part of the loan’s principal balance at origination.

Average life is the time-weighted average of expected principal payments divided by outstanding principal balance. The timing of principal payments is based upon the contractual amortization of loans, adjusted for the impact of prepayments, Good Customer Program refinances, and charge-offs.

Prepayments are the expected remaining cumulative principal payments that will be repaid earlier than contractually required over the life of the loan, divided by the outstanding principal balance.

Remaining cumulative charge-offs is the expected net principal charge-offs over the remaining life of the loans, divided by the outstanding principal balance.

Discount rate is the sum of the interest rate and the credit spread. The interest rate is based upon the interpolated LIBOR/swap curve rate that corresponds to the average life. The credit spread is based upon the credit spread implied by the whole loan purchase price at the time the flow sale agreement was entered into, updated for observable changes in the fixed income markets, which serve as a proxy for how a whole loan buyer would adjust their yield requirements relative to the originally agreed price.

Our internal valuation committee includes members from our risk, legal, finance, capital markets and operations departments and provides governance and oversight over the fair value pricing 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.

It is also possible to estimate the fair value of our loans using a simplified calculation. The table below illustrates a simplified calculation to aid investors in understanding how fair value may be estimated using the last seven quarters:

Subtracting the servicing fee from the weighted average portfolio yield over the remaining life of the loans to calculate net portfolio yield;
Multiplying the net portfolio yield by the weighted average life in years of the loans receivable, which is based upon the contractual amortization of the loans and expected remaining prepayments and charge-offs, to calculate pre-loss net cash flow;
Subtracting the remaining cumulative charge-offs from the net portfolio yield to calculate the net cash flow;
Subtracting the product of the discount rate and the average life from the net cash flow to calculate the gross fair value premium as a percentage of loan principal balance; and
Subtracting the accrued interest and fees as a percentage of loan principal balance from the gross fair value premium as a percentage of loan principal balance to calculate the fair value premium as a percentage of loan principal balance.
34



The table below reflects the application of this methodology for the seven quarters since January 1, 2020, on loans held for investment. The data for the three months ended September 30, 2021 in the table below represents our secured and unsecured loan portfolio. For the prior quarters, the data in the table below represents only our unsecured personal loan portfolio which was the primary driver of fair value during those periods.
Three Months Ended
Sep 30, 2021Jun 30, 2021Mar 31, 2021Dec 31, 2020Sep 30, 2020Jun 30, 2020Mar 31, 2020
Weighted average portfolio yield over the remaining life of the loans30.35 %30.28 %30.25 %30.17 %30.50 %30.78 %30.74 %
Less: Servicing fee(5.00)%(5.00)%(5.00)%(5.00)%(5.00)%(5.00)%(5.00)%
Net portfolio yield25.35 %25.28 %25.25 %25.17 %25.50 %25.78 %25.74 %
Multiplied by: Weighted average life in years0.761 0.769 0.778 0.796 0.775 0.797 0.903 
Pre-loss cash flow19.26 %19.43 %19.64 %20.03 %19.75 %20.54 %23.25 %
Less: Remaining cumulative charge-offs(7.53)%(7.59)%(8.60)%(10.03)%(10.61)%(12.73)%(14.56)%
Net cash flow11.73 %11.84 %11.04 %10.00 %9.14 %7.81 %8.69 %
Less: Discount rate multiplied by average life(4.96)%(5.03)%(5.17)%(5.45)%(6.07)%(7.04)%(11.54)%
Gross fair value premium (discount) as a percentage of loan principal balance6.77 %6.81 %5.87 %4.55 %3.07 %0.77 %(2.85)%
Less: Accrued interest and fees as a percentage of loan principal balance(0.90)%(0.87)%(0.92)%(1.06)%(1.15)%(1.35)%(1.11)%
Fair value premium (discount) as a percentage of loan principal balance5.87 %5.94 %4.95 %3.49 %1.92 %(0.58)%(3.96)%
Discount Rate6.52 %6.54 %6.65 %6.85 %7.84 %8.84 %12.78 %

The illustrative table included above is designed to assist investors in understanding the impact of our election of the fair value option.

Non-GAAP Financial Measures

We believe that the provision of non-GAAP financial measures in this report, including Fair Value Pro Forma information, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Adjusted Operating Efficiency and Adjusted Return on Equity, can provide useful measures for period-to-period comparisons of our core business and useful information to investors and others in understanding and evaluating our operating results. However, non-GAAP financial measures are not calculated in accordance with United States generally accepted accounting principles, or GAAP, and should not be considered as an alternative to any measures of financial performance calculated and presented in accordance with GAAP. There are limitations related to the use of these non-GAAP financial measures versus their most directly comparable GAAP measures, which include the following:

Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure.
These measures do not consider the potentially dilutive impact of stock-based compensation.
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements.
Although the fair value mark-to-market adjustment is a non-cash adjustment, it does reflect our estimate of the price a third party would pay for our Fair Value Loans or our Fair Value Notes.
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us.
Reconciliations of non-GAAP to GAAP measures can be found below.


Fair Value Pro Forma

We previously elected the fair value option to account for all Fair Value Loans held for investment and all Fair Value Notes issued on or after January 1, 2018. In order to facilitate comparisons to prior periods, we provided unaudited financial information for the three and nine months ended September 30, 2020 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. Upon adoption of ASU 2019-05, effective January 1, 2020, we elected the fair value option on all remaining loans that had previously been measured at amortized cost. Accordingly, for the three and nine months ended September 30, 2021 and 2020, we did not have any loans receivable measured at amortized cost. Therefore, there are no Fair Value Pro Forma adjustments related to assets or revenue as of and for the three and nine months ended September 30, 2021 and 2020. As of January 1, 2021, we no longer have any Fair Value Pro Forma adjustments as there are no longer any amortized cost balances. However, on a Fair Value Pro Forma basis, the three and nine months ended September 30, 2020 include Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

35


Fair Value Pro Forma Condensed Consolidated Statements of Operations Data:
Three Months Ended September 30, 2021 (1)
Three Months Ended September 30, 2020
Period-to-period Change in FVPF (1)
(in thousands)As ReportedAs ReportedFV AdjustmentsFV Pro Forma$%
Revenue:
Interest income$145,444 $128,739 $— $128,739 $16,705 13.0 %
Non-interest income13,640 8,028 — 8,028 5,612 69.9 %
Total revenue159,084 136,767 — 136,767 22,317 16.3 %
Less:
Interest expense10,574 13,408 (207)13,201 (2,627)(19.9)%
Net decrease in fair value(8,987)(29,633)(1,579)(31,212)22,225 (71.2)%
Net revenue139,523 93,726 (1,372)92,354 47,169 51.1 %
Operating expenses:
Technology and facilities34,226 31,641 — 31,641 2,585 8.2 %
Sales and marketing32,102 20,634 — 20,634 11,468 55.6 %
Personnel29,039 26,662 — 26,662 2,377 8.9 %
Outsourcing and professional fees13,348 11,491 — 11,491 1,857 16.2 %
General, administrative and other2,686 11,138 — 11,138 (8,452)(75.9)%
Total operating expenses111,401 101,566 — 101,566 9,835 9.7 %
Income (loss) before taxes28,122 (7,840)(1,372)(9,212)37,334 405.3 %
Income tax expense (benefit)5,143 (1,794)(375)(2,169)7,312 337.1 %
Net income (loss)$22,979 $(6,046)$(997)$(7,043)$30,022 426.3 %
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value. Therefore, the three months ended September 30, 2021 is presented on a GAAP basis and the three months ended September 30, 2020 includes Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

Nine Months Ended September 30, 2021 (1)
Nine Months Ended September 30, 2020
Period-to-period Change in FVPF (1)
(in thousands)As ReportedAs ReportedFV AdjustmentsFV Pro Forma$%
Revenue:
Interest income$401,224 $415,525 $— $415,525 $(14,301)(3.4)%
Non-interest income31,427 27,377 — 27,377 4,050 14.8 %
Total revenue432,651 442,902 — 442,902 (10,251)(2.3)%
Less:
Interest expense36,241 44,879 (889)43,990 (7,749)(17.6)%
Net decrease in fair value(26,457)(177,584)667 (176,917)150,460 85.0 %
Net revenue369,953 220,439 1,556 221,995 147,958 66.6 %
Operating expenses:
Technology and facilities100,274 93,927 — 93,927 6,347 6.8 %
Sales and marketing79,743 65,521 — 65,521 14,222 21.7 %
Personnel84,412 79,925 — 79,925 4,487 5.6 %
Outsourcing and professional fees40,762 36,232 — 36,232 4,530 12.5 %
General, administrative and other22,862 17,591 — 17,591 5,271 30.0 %
Total operating expenses328,053 293,196 — 293,196 34,857 11.9 %
Income (loss) before taxes41,900 (72,757)1,556 (71,201)113,101 158.8 %
Income tax expense (benefit)8,652 (19,162)682 (18,480)27,132 146.8 %
Net income (loss)$33,248 $(53,595)$874 $(52,721)$85,969 163.1 %
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value. Therefore, the nine months ended September 30, 2021 is presented on a GAAP basis and the nine months ended September 30, 2020 includes Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

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Fair Value Pro Forma Condensed Consolidated Balance Sheet Data:
September 30, 2021 (1)
December 31, 2020
Period-to-period Change in FVPF (1)
(in thousands)As ReportedAs ReportedFV AdjustmentsFV Pro Forma$%
Cash and cash equivalents$168,407 $136,187 $— $136,187 $32,220 23.7 %
Restricted cash55,348 32,403 — 32,403 22,945 70.8 %
Loans receivable (1)
1,971,375 1,696,526 — 1,696,526 274,849 16.2 %
Other assets152,751 143,935 — 143,935 8,816 6.1 %
Total assets2,347,881 2,009,051 — 2,009,051 338,830 16.9 %
Total debt (2)
1,688,419 1,413,694 — 1,413,694 274,725 19.4 %
Other liabilities148,043 128,990 682 129,672 18,371 14.2 %
Total liabilities1,836,462 1,542,684 682 1,543,366 293,096 19.0 %
Total stockholder's equity511,419 466,367 (682)465,685 45,734 9.8 %
Total liabilities and stockholders' equity$2,347,881 $2,009,051 $— $2,009,051 $338,830 16.9 %
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value. Therefore, the balances as of September 30, 2021 are presented on a GAAP basis and the balances as of December 31, 2020 include Fair Value Pro Forma adjustments related to our asset-backed notes at amortized cost.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as our net income (loss), adjusted for the impact of our election of the fair value option and further adjusted to eliminate the effect of certain items as described below. We believe that Adjusted EBITDA is an important measure because it allows management, investors and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described below. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of taxes, certain non-cash items, variable charges and timing differences.

We believe it is useful to exclude the impact of income tax expense (benefit), as reported, because historically it has included irregular income tax items that do not reflect ongoing business operations.
We believe it is useful to exclude the impact of depreciation and amortization and stock-based compensation expense because they are non-cash charges.
We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with a litigation reserve, our retail network optimization plan and impairment charges because these items do not reflect ongoing business operations. During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted EBITDA. As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted EBITDA because our business practices have been updated to operate in the current environment.
We also reverse origination fees for Fair Value Loans, net. We recognize the full amount of any origination fees as revenue at the time of loan disbursement in advance of our collection of origination fees through principal payments. As a result, we believe it is beneficial to exclude the uncollected portion of such origination fees, because such amounts do not represent cash that we received.
We also reverse the fair value mark-to-market adjustment because it is a non-cash adjustment as shown in the table below.

Components of Fair Value Mark-to-Market Adjustment (in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Fair value mark-to-market adjustment on Fair Value Loans$12,962 $39,828 $52,333 $(52,242)
Fair value mark-to-market adjustment on asset-backed notes700 (29,094)4,237 4,425 
Fair value mark-to-market adjustment on derivatives935 — $639 — 
Total fair value mark-to-market adjustment$14,597 $10,734 $57,209 $(47,817)

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020 as if the fair value option had been in place since inception for all loans held for investment and all asset-backed notes:

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Three Months Ended September 30,Nine Months Ended September 30,
Adjusted EBITDA (in thousands)
2021202020212020
Net income (loss)$22,979 $(6,046)$33,248 $(53,595)
Adjustments:
Fair Value Pro Forma net income adjustment (1)
— (997)— 874 
Income tax expense (benefit)5,143 (2,169)8,652 (18,480)
COVID-19 expenses (2)
— 1,011 — 4,052 
Depreciation and amortization5,690 5,117 16,992 14,878 
Stock-based compensation expense4,598 5,194 14,542 14,317 
Litigation reserve— 8,750 — 8,750 
Retail network optimization expenses114 — 12,787 — 
Impairment (3)
— — 3,324 — 
Origination fees for Fair Value Loans, net(5,863)(1,296)(9,070)3,520 
Fair value mark-to-market adjustment(14,597)(10,734)(57,209)47,817 
Adjusted EBITDA (4)
$18,064 $(1,170)$23,266 $22,133 
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.
(2) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted EBITDA because our business practices have been updated to operate in the current environment.
(3) Impairment charge recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.
(4) For the three and nine months ended September 30, 2021, Adjusted EBITDA included a pre-tax impact of $8.1 million and $21.8 million, respectively, related to the launch of new products and services (such as secured personal loans, credit card, bank partnership and expenses associated with our prior bank charter application). For the three and nine months ended September 30, 2020, Adjusted EBITDA included a pre-tax impact of $3.2 million and $9.7 million, respectively, related to the launch of new products and services (such as auto and credit card).

Adjusted Net Income (Loss)

We define Adjusted Net Income (Loss) as our net income (loss), adjusted for the impact of our election of the fair value option, and further adjusted to exclude income tax expense (benefit), stock-based compensation expenses and certain non-recurring charges. We believe that Adjusted Net Income (Loss) is an important measure of operating performance because it allows management, investors, and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period to period.

We believe it is useful to exclude the impact of income tax expense (benefit), as reported, because historically it has included irregular tax items that do not reflect our ongoing business operations.
We believe it is useful to exclude the impact of certain non-recurring charges, such as expenses associated with a litigation reserve, our retail network optimization plan and impairment charges, because these items do not reflect ongoing business operations. During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted Net Income. As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Net Income because our business practices have been updated to operate in the current environment.
We believe it is useful to exclude stock-based compensation expense because it is a non-cash charge.
We include the impact of normalized statutory income tax expense by applying the income tax rate noted in the table.

The following table presents a reconciliation of net income (loss) to Adjusted Net Income (Loss) for the three and nine months ended September 30, 2021 and 2020 as if the fair value option had been in place since inception for all loans held for investment and all asset-backed notes:

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Three Months Ended September 30,Nine Months Ended September 30,
Adjusted Net Income (Loss) (in thousands)
2021202020212020
Net income (loss)$22,979 $(6,046)$33,248 $(53,595)
Adjustments:
Fair Value Pro Forma net income adjustment (1)
— (997)— 874 
Income tax expense (benefit)5,143 (2,169)8,652 (18,480)
COVID-19 expenses (2)
— 1,011 — 4,052 
Stock-based compensation expense4,598 5,194 14,542 14,317 
Litigation reserve— 8,750 — 8,750 
Retail network optimization expenses114 — 12,787 — 
Impairment (3)
— — 3,324 — 
Adjusted income (loss) before taxes32,834 5,743 72,553 (44,082)
Normalized income tax expense (benefit)8,997 1,570 19,880 (12,347)
Adjusted Net Income (Loss) (4)
$23,837 $4,173 $52,673 $(31,735)
Income tax rate (5)
27.4 %27.4 %27.4 %28.0 %
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value.
(2) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Net Income because our business practices have been updated to operate in the current environment.
(3) Impairment charge recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.
(4) For the three and nine months ended September 30, 2021, Adjusted Net Income includes an after-tax impact of $5.9 million and $16.2 million, respectively, related to the launch of new products and services (such as secured personal loans, credit card, bank partnership and expenses associated with our prior bank charter application). For the three and nine months ended September 30, 2020, Adjusted Net Income includes an after-tax impact of $2.6 million and $7.9 million, respectively, related to the launch of new products and services (such as auto and credit card).
(5) Income tax rate for the three and nine months ended September 30, 2021 is based on a normalized statutory rate and the three and nine months ended September 30, 2020 is based on the effective tax rate.

Adjusted Earnings Per Share (“Adjusted EPS”)

Adjusted Earnings Per Share is a non-GAAP financial measure that allows management, investors and our Board to evaluate the operating results, operating trends and profitability of the business in relation to diluted adjusted weighted-average shares outstanding post initial public offering. In addition, it provides a useful measure for period-to-period comparisons of our business, as it considers the effect of conversion of all convertible preferred shares as of the beginning of each annual period.

The following table presents a reconciliation of Diluted EPS to Diluted Adjusted EPS for the three and nine months ended September 30, 2021 and 2020. For the reconciliation of net income (loss) to Adjusted Net Income (Loss), see the immediately preceding table “Adjusted Net Income (Loss).”

Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except share and per share data)2021202020212020
Diluted earnings (loss) per share$0.75 $(0.22)$1.11 $(1.97)
Adjusted EPS
Adjusted Net Income (Loss)$23,837 $4,173 $52,673 $(31,735)
Basic weighted-average common shares outstanding28,167,686 27,459,192 27,982,273 27,237,246 
Weighted average effect of dilutive securities:
Stock options1,451,687 1,188,396 1,351,288 — 
Restricted stock units884,400 75,282 726,114 — 
Diluted adjusted weighted-average common shares outstanding30,503,773 28,722,870 30,059,675 27,237,246 
Adjusted Earnings (Loss) Per Share$0.78 $0.15 $1.75 $(1.17)

Adjusted Return on Equity

We define Adjusted Return on Equity as annualized Adjusted Net Income divided by average stockholders’ equity. Average stockholders’ equity is an average of the beginning and ending stockholders’ equity balance for each period. Before January 1, 2021, we previously defined Adjusted Return on Equity as annualized Adjusted Net Income divided by average Fair Value Pro Forma total stockholders’ equity. Average Fair Value Pro Forma stockholders’ equity is an average of the beginning and ending Fair Value Pro Forma stockholders’ equity balance for each period. We believe Adjusted Return on Equity is an important measure because it allows management, investors and our Board to evaluate the profitability of the business in relation to equity and how well we generate income from the equity available.
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The following table presents a reconciliation of Return on Equity to Adjusted Return on Equity as of and for the three and nine months ended September 30, 2021 and 2020. For the reconciliation of net income (loss) to Adjusted Net Income (Loss), see the immediately preceding table “Adjusted Net Income (Loss).”

As of or for the Three Months Ended September 30,As of or for the Nine Months Ended September 30,
(in thousands)2021202020212020
Return on Equity18.3 %(5.3)%9.1 %(15.2)%
Adjusted Return on Equity
Adjusted Net Income (Loss)$23,837 $4,173 $52,673 $(31,735)
Fair Value Pro Forma average stockholders' equity (1)
$497,876 $453,493 $488,893 $471,422 
Adjusted Return on Equity19.0 %3.7 %14.4 %(9.0)%
(1) Beginning in 2021 we are no longer including any Fair Value Pro Forma adjustments because all loans originated and held for investment and asset-backed notes issued are recorded at fair value. Therefore, the average stockholders' equity amount as of September 30, 2021 reflects the average of the GAAP stockholders' equity account as of December 31, 2020 and the GAAP stockholders' equity account as September 30, 2021.

Adjusted Operating Efficiency

We define Adjusted Operating Efficiency as total operating expenses adjusted to exclude stock-based compensation expense and certain non-recurring charges such as expenses associated with a litigation reserve, our retail network optimization plan and impairment charges divided by total revenue. During the last three quarters of 2020 we excluded COVID-19 related expenses in our adjustments to derive Adjusted Operating Efficiency. As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Operating Efficiency because our business practices have been updated to operate in the current environment. We believe Adjusted Operating Efficiency is an important measure because it allows management, investors and our Board to evaluate how efficient we are at managing costs relative to revenue.

The following table presents a reconciliation of Operating Efficiency to Adjusted Operating Efficiency for the three and nine months ended September 30, 2021 and 2020:

As of or for the Three Months Ended September 30,As of or for the Nine Months Ended September 30,
(in thousands)2021202020212020
Operating Efficiency70.0 %74.3 %75.8 %66.2 %
Adjusted Operating Efficiency
Total revenue159,084 136,767 432,651 442,902 
Total operating expense111,401 101,566 328,053 293,196 
COVID-19 expenses (1)
— (1,011)— (4,052)
Stock-based compensation expense(4,598)(5,194)(14,542)(14,317)
Litigation reserve— (8,750)— (8,750)
Retail network optimization expenses(114)— (12,787)— 
Impairment (2)
$— $— $(3,324)$— 
Total adjusted operating expenses$106,689 $86,611 $297,400 $266,077 
Adjusted Operating Efficiency67.1 %63.3 %68.7 %60.1 %
(1) As of January 1, 2021, COVID-19 expenses are no longer being excluded from Adjusted Operating Efficiency because our business practices have been updated to operate in the current environment.
(2) Impairment charge recognized on a right-of-use asset related to our leased office space in San Carlos, California due to management's decision to move toward a remote-first work environment.

Liquidity and Capital Resources

Sources of liquidity

To date, we have funded our lending activities and operations primarily through private issuances of debt, equity issuances, cash from operating activities, and the sale of loans to a third-party institutional investor. We anticipate issuing additional securitizations, entering into additional secured financings and continuing whole loan sales.

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Current debt facilities

The following table summarizes our current debt facilities available for funding our lending activities and our operating expenditures as of September 30, 2021:
Debt FacilityScheduled Amortization Period
Commencement Date
Interest RatePrincipal
(in thousands)
Secured Financing - PLW9/1/2024LIBOR (minimum of 0.00%) + 2.17%$529,002 
Asset-Backed Securitization-Series 2021-B Notes5/1/20242.05%500,000 
Asset-Backed Securitization-Series 2021-A Notes3/1/20231.79%375,000 
Asset-Backed Securitization-Series 2019-A Notes8/1/20223.46%279,412 
$1,683,414 

The outstanding amounts set forth in the table above are consolidated on our balance sheet whereas loans sold to a third-party institutional investor are not on our balance sheet once sold.

On September 8, 2021, we closed on a Personal Loan Warehouse facility ("PLW"). In connection with the PLW facility, our wholly-owned subsidiary Oportun PLW Trust entered into a Loan and Security Agreement to borrow up to $600.0 million committed through September 2024. Borrowings under the PLW facility accrue interest at a rate equal to one-month LIBOR plus a spread of 2.17%. On September 8, 2021, our wholly-owned subsidiary, Oportun Funding V, LLC, as issuer under the Variable Funding Note Warehouse ("VFN") facility, terminated the VFN facility. Final payment was made on the VFN facility in the amount of $219.0 million, plus the accrued and unpaid interest, which is the amount sufficient to satisfy and discharge Oportun Funding V, LLC's obligations under the VFN facility notes and the indenture. The final payment was funded by drawing upon our PLW facility.

On September 8, 2021, our wholly-owned subsidiary Oportun Funding XII, LLC, the issuer under the Series 2018-D asset-backed securitization transaction, completed the redemption of all $175.0 million of outstanding Series 2018-D Notes, plus the accrued and unpaid interest. In connection with the redemption, all obligations of Oportun Funding XII, LLC under the 2018-D Notes and the indenture were satisfied and discharged. The redemption was funded by drawing upon our facility.

On October 28, 2021, the Company announced the issuance of $500.0 million of 3 year fixed-rate asset-backed notes by Oportun Issuance Trust 2021-C, a wholly-owned subsidiary of the Company, and secured by a pool of its unsecured and secured personal installment loans (the "2021-C Securitization"). The 2021-C 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 fixed interest rate of 2.48% per annum.

Lenders do not have direct recourse to Oportun Financial Corporation or Oportun, Inc.

Debt

Our ability to utilize our Personal Loan Warehouse facility as described herein is subject to compliance with various requirements, including:

Eligibility Criteria. In order for our loans to be eligible for purchase by Oportun PLW Trust, they must meet all applicable eligibility criteria;
Concentration Limits. The collateral pool is subject to certain concentration limits that, if exceeded, would reduce our borrowing base availability by the amount of such excess; and
Covenants and Other Requirements. The Personal Loan Warehouse facility contains several financial covenants, portfolio performance covenants and other covenants or requirements that, if not complied with, may result in an event of default and/or an early amortization event causing the accelerated repayment of amounts owed. The Personal Loan Warehouse facility also requires us to get lender consent prior to making material changes to our credit and collection policies.
As of September 30, 2021, we were in compliance with all covenants and requirements per the Personal Loan Warehouse facility. As of September 8, 2021, the termination date of the VFN facility, we were in compliance with all covenants and requirements of the VFN facility prior to its termination and replacement.

For more information regarding our Secured Financing facilities, see Notes 4 and 7 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Our ability to utilize our asset-backed securitization facilities as described herein is subject to compliance with various requirements including:

Eligibility Criteria. In order for our loans to be eligible for purchase by our wholly-owned special purpose subsidiaries they must meet all applicable eligibility criteria; and
Covenants and Other Requirements. Our securitization facilities contain pool concentration limits, pool performance covenants and other covenants or requirements that, if not complied with, may result in an event of default, and/or an early amortization event causing the accelerated repayment of amounts owed.
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As of September 30, 2021, we were in compliance with all covenants and requirements of all our asset-backed notes.

For more information regarding our asset-backed securitization facilities, see Notes 4 and 7 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

Credit card receivables retention facility and servicing

On February 5, 2021, we entered into a Receivables Retention Facility Agreement, a Servicing Agreement and other related documents with WebBank, providing us with additional funding to expand our credit card product (the "Retention Facility"). Under the Retention Facility agreements, WebBank will originate, fund and retain credit card receivables up to $25.0 million. We will purchase any excess receivables originated above the $25.0 million amount, in addition to certain ineligible receivables and charged-off receivables. The Retention Facility commenced on February 9, 2021 and has a two-year term. We will provide certain marketing, processing and accounting processing services to WebBank in connection with our credit card warehouse facility. WebBank will pay us a servicing fee of 5% to service the accounts and certain excess collections on a monthly basis. To provide additional funding for our credit card product, through agreements entered into in July, September and October 2021, WebBank and the Company agreed to temporarily increase the size of the Retention Facility to $38.5 million through, the earlier of, the closing of a new credit facility or November 30, 2021.

Whole loan sales

In November 2014, we entered into a whole loan sale agreement with an institutional investor. This agreement was amended in March 2021 to extend the term to March 4, 2022. Pursuant to the agreement, we are obligated to sell at least 10% of our unsecured loan originations, with an option to sell an additional 5%, subject to certain eligibility criteria and minimum and maximum volumes. We retain all rights and obligations involving the servicing of the loans and earn servicing revenue of 5% of the daily average principal balance of loans sold each month.

We will continue to evaluate additional loan sale opportunities in the future and have not made any determinations regarding the percentage of loans we may sell.

The loans are randomly selected and sold at the pre-determined contractual purchase price above par and we recognize a gain on the loans. We sell loans twice per week. We have not repurchased any of the loans sold related to this agreement and do not anticipate repurchasing loans sold in the future. We therefore do not record a reserve related to our repurchase obligations from the whole loan sale agreement.

Cash, cash equivalents, restricted cash and cash flows

The following table summarizes our cash and cash equivalents, restricted cash and cash flows for the periods indicated:
Nine Months Ended September 30,
(in thousands)20212020
Cash, cash equivalents and restricted cash$223,755 $163,480 
Cash provided by (used in)
Operating activities103,728 139,407 
Investing activities(316,741)119,369 
Financing activities268,178 (231,437)

Our cash is held for working capital purposes and originating loans. Our restricted cash represents collections held in our securitizations and is applied currently after month-end to pay interest expense and satisfy any amount due to whole loan buyer with any excess amounts returned to us.

Cash flows

Operating Activities

Our net cash provided by operating activities was $103.7 million and $139.4 million for the nine months ended September 30, 2021 and 2020, respectively. Cash flows from operating activities primarily include net income or losses adjusted for (i) non-cash items included in net income or loss, including depreciation and amortization expense, fair value adjustments, net, origination fees for loans at fair value, net, gain on loan sales, stock-based compensation expense and deferred tax provision, net, (ii) originations of loans sold and held for sale, and proceeds from sale of loans and (iii) changes in the balances of operating assets and liabilities, which can vary significantly in the normal course of business due to the amount and timing of various payments.

Investing Activities

Our net cash provided by (used in) investing activities was $(316.7) million and $119.4 million for the nine months ended September 30, 2021 and 2020, respectively. Our investing activities consist primarily of loan originations and loan repayments. We currently do not own any real estate. We invest in purchases of property and equipment and incur system development costs. Purchases of property and equipment, and capitalization of system development costs may vary from period to period due to the timing of the expansion of our operations, the addition of employee headcount and the development cycles of our system development. The change in our net cash provided by (used in) investing activities is due to disbursements on originations of loans increasing by $448.4 million while repayments of loan principal only increased by $13.2 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
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Financing Activities

Our net cash provided by (used in) financing activities was $268.2 million and $(231.4) million for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, net cash provided by financing activities was primarily driven by the issuance of our Series 2021-A and Series 2021-B asset-backed notes securitizations and the borrowings under our Secured Financing facilities, partially offset by redemptions of our Series 2018-A, 2018-B and 2018-C asset-backed notes and repayments of borrowings on our Secured Financing facilities. For the nine months ended September 30, 2020, net cash used in financing activities was primarily driven by repayments of borrowings on our Secured Financing facility and redemption of our Series 2017-A and 2017-B asset-backed notes, partially offset by borrowings on our Secured Financing facility.

Operating and capital expenditure requirements

We believe that our existing cash balance, anticipated positive cash flows from operations and available borrowing capacity under our credit facilities will be sufficient to meet our anticipated cash operating expense and capital expenditure requirements through at least the next 12 months. If our available cash balances are insufficient to satisfy our liquidity requirements, we will seek additional debt or equity financing. If we raise additional funds through the issuance of additional debt, the agreements governing such debt could contain covenants that would restrict our operations and such debt would rank senior to shares of our common stock. The sale of equity may result in dilution to our stockholders and those securities may have rights senior to those of our common stock. We may require additional capital beyond our currently anticipated amounts and additional capital may not be available on reasonable terms, or at all.

Off-Balance Sheet Arrangements

On February 5, 2021, we entered into an off-balance sheet arrangement under the Receivables Retention Facility Agreement, an Amended and Restated Credit Card Program and Servicing Agreement and other related documents with WebBank, a Utah-chartered industrial bank, providing us with additional funding to expand our credit card product (the "Retention Facility"). Under the Retention Facility agreements, WebBank will originate, fund and retain credit card receivables up to $25.0 million. We will purchase any excess receivables originated above the $25.0 million amount, in addition to certain ineligible receivables. We will provide certain marketing, processing and accounting processing services to WebBank in connection with our credit card program. As of September 30, 2021, $36.2 million of the $38.5 million has been utilized. The Retention Facility commenced on February 9, 2021 and has a two-year term. To provide additional funding for our credit card product, through agreements entered into in July, September and October 2021, WebBank and the Company agreed to temporarily increase the size of the facility to $38.5 million through, the earlier of, the closing of a new credit facility or November 30, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

Our Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K dated December 31, 2020, filed with the Securities and Exchange Commission on February 23, 2021 ("2020 Form 10-K"), under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations. For additional information about our critical accounting policies and estimates, see the disclosure included in our 2020 Form 10-K.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risk as previously disclosed in our 2020 Form 10-K. The COVID-19 pandemic could continue to have an impact on market volatility which could impact our financial results

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. This evaluation was conducted under the supervision of, and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Inherent Limitations on Effectiveness of Controls

There are inherent limitations to the controls and effectiveness of any system of disclosure controls and procedures. These limitations include the possibility of human error, the circumvention or overriding of the controls and procedures and reasonable resource constraints. In addition, because we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, our system of controls may not achieve its desired purpose under all possible future conditions. Accordingly, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their objectives.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II ‑ OTHER INFORMATION

Item 1. Legal Proceedings

For a description of legal proceedings, see Note 14, Leases, Commitments and Contingencies, in the accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited). From time to time, we may bring or be subject to other legal proceedings and claims in the ordinary course of business, including legal proceedings with third parties asserting infringement of their intellectual property rights and consumer litigation. Other than as described in this report, we are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition, cash flows or results of operations.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Any of the following risks could have an adverse effect on our business, results of operations and financial condition. The following risks could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. You should carefully consider these risks, all of the other information in this report, including our consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations", and general economic and business risks before making a decision to invest in our common stock. While we believe the risks described below include all material risks currently known by us, it is possible that these may not be the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Summary of Risk Factors

Investing in our common stock involves a high degree of risk. If any of the factors enumerated in this section occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the market price of our common stock could decline, and you may lose some or all of your investment. Some of the more significant risks relating to an investment in our common stock include:

Risks Related to Our Business
The global COVID-19 pandemic has and may continue to adversely impact our business operations, financial performance and results of operations.
We have incurred net losses and may incur net losses in the future.
Our quarterly results are likely to fluctuate significantly and may not fully reflect the underlying performance of our business.
We have experienced rapid growth in recent periods and our recent growth rates may not be indicative of future growth. If we fail to manage our growth effectively, our results of operations may suffer.
Our risk management efforts may not be effective, which may expose us to market risks that harm our results of operations.
We rely extensively on models in managing many aspects of our business. If our models contain errors or are otherwise ineffective, our business could be adversely affected.
Our business may be adversely affected by disruptions in the credit markets, including reduction in our ability to finance our business.
We have elected the fair value option and we use estimates in determining the fair value of our loans and our asset-backed notes. If our estimates prove incorrect, we may be required to write down the value of these assets or write up the value of these liabilities, which could adversely affect our results of operations.
If we are unable to collect payment and service the loans we make to customers, our net charge-off rates may exceed expected loss rates, and our business and results of operations may be harmed.
Our results of operations and financial condition and our customers’ willingness to borrow money from us and ability to make payments on their loans have been, and may in the future be, adversely affected by economic conditions and other factors that we cannot control.
Negative publicity or public perception of our company or our industry could adversely affect our reputation, business and results of operations.
If we do not compete effectively in our target markets, our results of operations could be harmed.
Our success and future growth depend on our Oportun brand and our successful marketing efforts across channels, and if we are unable to attract or retain customers, our business and financial results may be harmed.
If we are unable to effectively optimize the mix of our channel ecosystem and serve our customers in their preferred channel, our business and results of operations may be adversely affected.
We could experience a decline in repeat customers.
We are, and intend in the future to continue, developing new financial products and services, and our failure to accurately predict their demand or growth could have an adverse effect on our business.
We may change our strategy or underwriting and servicing practices, which may adversely affect our business.
We may evaluate, and potentially consummate, acquisitions, which could require significant management attention, consume our financial resources, disrupt our business, and adversely affect our financial results.
We are, and intend in the future to continue, expanding into new geographic regions, and our failure to comply with applicable laws or regulations, or accurately predict demand or growth, related to these geographic regions could have an adverse effect on our business.
We are exposed to geographic concentration risk.
Our proprietary credit risk models rely in part on the use of third-party data to assess and predict the creditworthiness of our customers, and if we lose the ability to license or use such third-party data, or if such third-party data contain inaccuracies, it may harm our results of operations.
Changes in immigration patterns, policy or enforcement could affect some of our customers, including those who may be undocumented immigrants, and consequently impact the performance of our loans, our business and results of operations.
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Our current level of interest rate spread may decline in the future. Any material reduction in our interest rate spread could adversely affect our results of operations.
Fraudulent activity could negatively impact our business, operating results, brand and reputation and require us to take steps to reduce fraud risk.
Security breaches and incidents impacting customers’ confidential information that we store may harm our reputation, adversely affect our results of operations, and expose us to liability.
We have limited experience underwriting, originating and servicing secured personal loans.
Our ability to collect payment on loans and maintain accurate accounts may be adversely affected by computer viruses, physical or electronic break-ins, technical errors and similar disruptions.
Any significant disruption in our computer systems could prevent us from processing or posting payments on loans, reduce the effectiveness of our credit risk models and result in a loss of customers.
We may not be able to make technological improvements as quickly as demanded by our customers which could harm our ability to attract customers and adversely affect our results of operations, financial condition and liquidity.
Because we receive a significant amount of cash in our retail locations through customer loan repayments, we may be subject to theft and cash shortages due to employee errors.
A deterioration in the financial condition of counterparties, including financial institutions, could expose us to credit losses, limit access to liquidity or disrupt our business operations.
Our vendor relationships subject us to a variety of risks, and the failure of third parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business.
If we lose the services of any of our key management personnel, our business could suffer.
Competition for our highly skilled employees is intense, and we may not be able to attract and retain the employees we need to support the growth of our business.
We are dependent on hiring an adequate number of hourly bilingual employees to run our business and are subject to government regulations concerning these and our other employees, including minimum wage laws.
Our mission to provide inclusive, affordable financial services that empower our customers to build a better future may conflict with the short-term interests of our stockholders.
Our international operations and offshore service providers involve inherent risks which could result in harm to our business.

Risks Related to Our Intellectual Property
It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection.
We have been, and may in the future be, sued by third parties for alleged infringement of their proprietary rights.
Our credit risk models and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Some aspects of our business processes include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Risks Related to Our Industry and Regulation
Financial regulatory reform relating to asset-backed securities has not been fully implemented and could have a significant impact on our ability to access the asset-backed securities market.
Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses.
Internet-based and electronic signature-based loan origination processes may give rise to greater risks than paper-based processes.
The CFPB is a relatively new agency which has sometimes taken expansive views of its authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business.
The collection, storage, use, disclosure, and other processing of personal information could give rise to liabilities as a result of existing or new governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
We may have to constrain our business activities to avoid being deemed an investment company under the Investment Company Act.
Our bank partnership products may lead to regulatory risk and may increase our regulatory burden.

Risks Related to Our Indebtedness
We have incurred substantial debt and may issue debt securities or otherwise incur substantial debt in the future, which may adversely affect our financial condition and negatively impact our operations.
A breach of early payment triggers or covenants or other terms of our agreements with lenders could result in an early amortization, default, and/or acceleration of the related funding facilities.
Our securitizations and whole loan sales may expose us to certain risks, and we can provide no assurance that we will be able to access the securitization or whole loan sales market in the future, which may require us to seek more costly financing.
In connection with our securitizations, Secured Financing facilities, and whole loan sales, we make representations and warranties concerning these loans. If those representations and warranties are not correct, we could be required to repurchase the loans. Any significant required repurchases could have an adverse effect on our ability to operate and fund our business.

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We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks described under Part I, Item 1A "Risk Factors" included in our 2020 Form 10-K.

Risks Related to Our Business

The global COVID-19 pandemic has and may continue to adversely impact our business operations, financial performance and results of operations.*
 
The COVID-19 pandemic and health and safety measures taken by governments and private industry in response to the pandemic, including shelter-in-place orders, restrictions on business operations, and travel restrictions, have significantly impacted worldwide economic activity and continues to create economic uncertainty. The extent to which the spread of COVID-19 (including its variant strains) impacts our business, results of operations, and financial condition will depend on developments that continue to be highly uncertain and difficult to predict, including the spread of the pandemic, its severity, the actions to contain the virus or treat its impact, the availability, distribution and efficacy of vaccines, and how quickly and to what extent normal economic conditions can resume. Concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price as well as our ability to access capital markets. If funds become unavailable, we cannot be sure that we will be able to maintain the necessary levels of funding to retain current levels of originations without incurring higher funding costs, a reduction in the term of funding instruments or increasing the rate of whole loan sales or be able to access funding at all. If we are unable to arrange financing on favorable terms, we may not be able to grow our business as planned and we may have to further curtail our origination of loans, which could result in volatility in our results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, our business may be adversely affected as a result of the virus’ global economic impact.

The COVID-19 pandemic has adversely affected our business in a number of ways, including a decreased demand for our products, which, has decreased originations, and which could negatively impact our liquidity position and growth strategy. This crisis has left some of our customers unable to make payments and has resulted in increased delinquencies and charge-offs and may cause other unpredictable and adverse events. If the pandemic continues or worsens, there may be continued or heightened impact on demand for our loans and on our customers’ ability to repay their loans. Governmental stimulus measures may have favorably impacted some of our customers and helped them to meet their loan obligations. If these benefits are not reinstated, or are reinstated at a reduced level than otherwise expected, or if other stimulus measures benefiting such customers are not enacted in the near term, the effect may materially and adversely impact the ability of customers to make timely payments and may result in an increase in loan delinquencies. In addition, governmental stimulus may result in reduced demand for our products, and any further economic relief or stimulus payment provided by the government in the future may cause demand for our products to remain depressed from prior levels.

Similar to relief options we have previously offered to customers impacted by natural disasters such as hurricanes and wildfires, we have and are continuing to offer payment relief options to customers impacted by the COVID-19 pandemic, including emergency hardship programs, reduced payment plans, late fee waivers and other customer accommodations. Unlike the relief options offered for natural disasters, which were limited to the affected geographies, COVID-19 related relief is being offered in all states in which we do business and has and may continue to adversely affect our business, financial condition, results of operations, and cash flows. While the percentage of our owned portfolio balance in active deferral status under the Emergency Hardship Deferral program has declined since early 2020, there can be no assurance that customer inquiries related to relief options will not increase in the future, either as a result of COVID-19 or a future emergency or disruption in the economy. Legal, regulatory and media concerns about the lending industry in general, or our practices, during the COVID-19 pandemic could result in additional restrictions affecting the conduct of our business in the future either due to regulatory requirements or made voluntarily due to reputational or other pressures. These changes could include, but are not limited to, requirements that we waive or lower interest, payments, or otherwise alter our collection practices or forgive debt for those impacted by COVID-19. If we implement any of these changes, such changes could adversely affect our income and other results of operations in the near term, make collection of our personal loans more difficult, reduce income received from such loans or negatively affect our ability to comply with our current financing arrangements or obtain financing with respect to such loans.
 
We have incurred COVID-19 related expenses for items and services including sanitation kits, facilities equipment, contingency call center, payment option flyers, childcare relief, special medical enrollment, sick leave, emergency assistance fund and charitable contributions, among other things. Until the COVID-19 pandemic subsides, we expect to continue to incur such expenses and may incur additional COVID-19 related expenses, which may adversely affect our results of operations, financial condition, and cash flows.

While the majority of our retail locations remained open during the COVID-19 pandemic, we have had to temporarily alter our operations during parts of the pandemic to comply with local health orders, including reducing opening hours or closing certain retail locations. These alterations have at times negatively affected, and if we are required to reinstate them in the future, could negatively affect our ability to attract new customers, conduct business and collect payments from customers, which could result in increased delinquencies and losses. In addition, changes in consumer behavior and health concerns may continue to impact demand for our loans and customer traffic at our retail locations. We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. We may also face claims related to the pandemic, including claims from employees or customers who allege that they contracted COVID-19 at our retail locations or offices. Any such allegations of exposure or illness could result in litigation and harm to our reputation, which could negatively affect our business, results of operations, and financial condition.

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The rollout of vaccines is currently underway in the United States and abroad. As a result of the distribution of the vaccines, various federal, state and local governments have begun to ease certain COVID-19 restrictions previously imposed while continuing to adhere to enhanced safety measures, such as physical distancing and face mask protocols. Our contact centers (either owned or through our outsourcing partners) are also located in various jurisdictions within three countries, all of which have varying shelter-in-place, social distancing orders in place, and vaccine availability. While we have been successful thus far in complying with these orders and keeping the contact centers operational, predominately by moving the majority of our contact center employees to home working environments, our ability to continue to originate loans and service our customers is highly dependent on the ability of contact center staff to continue to work, either in the contact center or remotely. The increase in remote working may also result in consumer or employee privacy, IT security, and fraud concerns as well as increase our exposure to potential regulatory or civil claims. Additionally, if any of our critical vendors are adversely impacted by the COVID-19 pandemic and unable to deliver services to us, our operations may be adversely impacted.

The ultimate extent of the impact of the COVID-19 pandemic on our business and results of operations will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, timing of the vaccine rollout and herd immunity locally and globally, resurgence of infection rates from COVID-19 (including its variant strains), efficacy of the vaccines against COVID-19 and its variant strains, vaccination against COVID-19 as a condition of employment, as we have required in the U.S., timing of global recovery, and economic normalization and responses taken by governmental authorities and other third parties due to the COVID-19 pandemic, including economic assistance programs and stimulus efforts. While there have recently been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we do not yet know how our business, or our partners will operate in a post COVID-19 environment. There may be additional costs or impacts to our business and operations, including when we are able to return to our offices and resume in-person activities, travel, and events. In addition, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will fully recover. The ultimate impact of the COVID-19 pandemic or a similar health epidemic on our business, operations, or the global economy as a whole remains highly uncertain.

To the extent the COVID-19 pandemic continues to adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this "Risk Factors" section, such as those relating to our losses, liquidity, our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

We have incurred net losses and may incur net losses in the future.*

For the year ended December 31, 2020, we had a net loss of $45.2 million and we have experienced net losses in the past. As of September 30, 2021, our retained earnings were $69.7 million. We will need to generate and sustain increased revenue and net income levels in future periods in order to achieve and increase profitability, and, even if we do, we may not be able to maintain or increase our level of profitability over the long term. We intend to continue to expend significant funds to grow our business, and we may not be able to increase our revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this report, and unforeseen expenses, difficulties, complications and delays, and other unknown events. We have implemented measures to reduce operating costs, and we continuously evaluate other opportunities to reduce costs further. If we are unable to achieve or sustain profitability, our business would suffer, and the market price of our common stock may decrease.

Our quarterly results are likely to fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations are likely to vary significantly in the future and period-to-period comparisons of our results of operations may not be meaningful, due to factors such as our election of the fair value option and the evolving and uncertain duration of the COVID-19 pandemic. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Our quarterly financial results may fluctuate due to a variety of factors, some of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Factors that may cause fluctuations in our quarterly financial results include:

loan volumes, loan mix and the channels through which our loans are originated;
the effectiveness of our direct marketing and other marketing channels;
the timing and success of new products and origination channels;
the amount and timing of operating expenses related to acquiring customers and the maintenance and expansion of our business, operations and infrastructure;
net charge-off rates;
adjustments to the fair value of our Fair Value Loans and Fair Value Notes;
our cost of borrowing money and access to the capital markets; and
general economic, industry, and market conditions, including those stemming from the COVID-19 pandemic.

In addition, we experience significant seasonality in demand for our loans, which is generally lower in the first quarter. The seasonal slowdown is primarily attributable to high loan demand around the holidays in the fourth quarter and the general increase in our customers’ available cash flows in the first quarter, including cash received from tax refunds, which temporarily reduces their borrowing needs. While our growth has obscured this seasonality from our overall financial results, we expect our results of operations to continue to be affected by such seasonality in the future. However, the impact of the COVID-19 pandemic has and may continue to disrupt the seasonal trends our business has otherwise consistently experienced.

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We have experienced rapid growth in recent periods and our recent growth rates may not be indicative of future growth. If we fail to manage our growth effectively, our results of operations may suffer.*

We have experienced rapid growth in our business and operations in recent periods, and our recent growth rates may not be indicative of our future growth rates. We believe our revenue growth depends on a number of factors, including but not limited to our ability to:

increase the volume of loans originated through our various origination channels, including mobile, retail locations, direct mail marketing, contact centers, and partnerships;
increase the effectiveness of our direct mail marketing, radio advertising, digital advertising and other marketing strategies;
efficiently manage and expand our presence and activities in states in which we operate, as well as expand into new states, including successfully developing our bank partnerships;
successfully build our brand and protect our reputation from negative publicity;
manage our Annualized Net Charge-Off Rate;
maintain the terms on which we lend to our customers;
protect against increasingly sophisticated fraudulent borrowing and online theft;
enter into new markets, new channels and introduce new products and services;
continue to expand our customer demographic focus from our original customer base of Spanish-speaking customers;
successfully maintain our diversified funding strategy, including loan warehouse facilities, whole loan sales, and securitization transactions;
successfully manage our interest rate spread against our cost of capital;
successfully adjust our proprietary credit risk models, products, and services in response to changing macroeconomic conditions and fluctuations in the credit market;
effectively manage and expand the capabilities of our contact centers, outsourcing relationships, and other business operations abroad;
effectively secure and maintain the confidentiality of the information provided and utilized across our systems;
successfully compete with companies that are currently in, or may in the future enter, the business of providing consumer financial services to low- and moderate-income customers underserved by traditional, mainstream financial institutions;
attract, integrate, and retain qualified employees; and
successfully adapt to complex and evolving regulatory environments.

If we are unable to accomplish these tasks, our revenue growth may be harmed. In addition, our historical rapid growth has placed, and our future growth will continue to place significant demands on our management and our operational and financial resources. We will need to improve our operational, financial and management controls and our reporting systems and procedures as we continue to grow our business and add more personnel. If we cannot manage our growth effectively, our results of operations will suffer.

Further, many economic and other factors outside of our control, including general economic and market conditions, global pandemics, consumer and commercial credit availability, inflation, unemployment, consumer debt levels and other challenges affecting the global economy, may adversely affect our ability to sustain revenue growth consistent with recent history. For example, since the onset of the COVID-19 pandemic in March 2020, we have experienced a slowdown in our loan originations and it is uncertain how long this slowdown may continue. If we experience additional slowdown in our loan origination due to the COVID-19 pandemic or other factors outside of our control, our results of operations, financial condition, and cash flows will suffer.

Our risk management efforts may not be effective, which may expose us to market risks that harm our results of operations.

We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, monitor and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk and liquidity risk, as well as operational risks. Our risk management policies, procedures and models may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify additional risks that arise in the future.

As our loan mix changes and as our product offerings evolve, our risk management strategies may not always adapt to such changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and management’s judgment. Other of our methods for managing risk depend on the evaluation of information regarding markets, customers or other matters that are publicly available or otherwise accessible to us. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the timing of such outcomes. If our risk management efforts are ineffective, we could suffer losses that could harm our business, financial condition, and results of operations.

We rely extensively on models in managing many aspects of our business. If our models contain errors or are otherwise ineffective, our business could be adversely affected.

Our ability to attract customers and to build trust in our loan products is significantly dependent on our ability to effectively evaluate a customer’s creditworthiness and likelihood of default. In deciding whether to extend credit to prospective customers, we rely heavily on our proprietary credit risk models, which are statistical models built using third-party alternative data, credit bureau data, customer application data and our credit experience gained through monitoring the performance of our customers over time. These models are built using forms of artificial intelligence ("A.I."), such as machine learning. If our credit risk models fail to adequately predict the creditworthiness of our customers or their ability to repay their loans due to programming or other errors, or if any portion of the information pertaining to the prospective customer is incorrect, incomplete or becomes stale (whether by fraud, negligence or otherwise), and our systems do not detect such errors, inaccuracies or incompleteness, or any of the other components of our credit decision process described herein fails, we may experience higher than forecasted loan losses. Also, if
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we are unable to access certain third-party data used in our credit risk models, or access to such data is limited, our ability to accurately evaluate potential customers may be compromised. Credit and other information that we receive from third parties about a customer may also be inaccurate or may not accurately reflect the customer’s creditworthiness, which may adversely affect our loan pricing and approval process, resulting in mispriced loans, incorrect approvals or denials of loans. In addition, this information may not always be complete, up-to-date or properly evaluated. As a result, these methods may not predict future risk exposures, which could be significantly greater than the historical measures or available information indicate.

Our reliance on our credit risk models and other models to manage many aspects of our business, including valuation, pricing, collections management, marketing targeting models, fraud prevention, liquidity and capital planning, direct mail and telesales, may prove in practice to be less predictive than we expect for a variety of reasons, including as a result of errors in constructing, interpreting or using the models or the use of inaccurate assumptions (including failures to update assumptions appropriately in a timely manner, or the use of A.I.). We rely on our credit risk models and other models to develop and manage new products and services with which we have limited development or operating experience as well as new geographies where we have not historically operated. Our assumptions may be inaccurate, and our models may not be as predictive as expected for many reasons, in particular because they often involve matters that are inherently difficult to predict and beyond our control, such as macroeconomic conditions, credit market volatility and interest rate environment, particularly in light of the COVID-19 pandemic, and they often involve complex interactions between a number of dependent and independent variables and factors. In particular, even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the models. The errors or inaccuracies in our models may be material and could lead us to make wrong or sub-optimal decisions in managing our business, and this could harm our business, results of operations, and financial condition.

Additionally, if we make errors in the development, validation or implementation of any of the models or tools we use to underwrite the loans that we then securitize or sell to investors, those investors may experience higher delinquencies and losses. We may also be subject to liability to those investors if we misrepresented the characteristics of the loans sold because of those errors. Moreover, future performance of our customers’ loans could differ from past experience because of macroeconomic factors, policy actions by regulators, lending by other institutions or reliability of data used in the underwriting process. To the extent that past experience has influenced the development of our underwriting procedures and proves to be inconsistent with future events, delinquency rates and losses on loans could increase. Errors in our models or tools and an inability to effectively forecast loss rates could also inhibit our ability to sell loans to investors or draw down on borrowings under our warehouse and other debt facilities, which could limit originations of new loans and could hinder our growth and harm our financial performance. Additionally, the use of A.I. in credit models is relatively new and its impact from a regulatory standpoint is unproven, and any negative regulatory action based upon this could have an adverse impact on our financial performance.

Our business may be adversely affected by disruptions in the credit markets, including reduction in our ability to finance our business.*

We depend on securitization transactions, loan warehouse facilities and other forms of debt financing, as well as whole loan sales, in order to finance the principal amount of most of the loans we make to our customers. See more information about our outstanding debt in Note 8 to the Notes to the Condensed Consolidated Financial Statements (Unaudited). However, there is no assurance that these sources of capital will continue to be available in the future on terms favorable to us or at all, particularly in light of capital markets volatility stemming from the COVID-19 pandemic. The availability of debt financing and other sources of capital depends on many factors, some of which are outside of our control. The risk of volatility surrounding the global economic system, including due to the COVID-19 pandemic and other disruptions, as well as uncertainty surrounding the future of regulatory reforms such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") continue to create uncertainty around access to the capital markets. Events of default or breaches of financial, performance or other covenants, as a result of the underperformance of certain pools of loans underpinning our securitizations or other debt facilities, could reduce or terminate our access to funding from institutional investors, including investment banks, traditional and alternative asset managers and other entities. Such events could also result in default rates at a higher interest rate and therefore increase our cost of capital. In addition, our ability to access future capital may be impaired because our interests in our financed pools of loans are “first loss” interests and so these interests will only be realized to the extent all amounts owed to investors or lenders and service providers under our securitizations and debt facilities are paid in full. In the event of a sudden or unexpected shortage or restriction on the availability of funds, we cannot be sure that we will be able to maintain the necessary levels of funding to retain current levels of originations without incurring higher funding costs, a reduction in the term of funding instruments or increasing the rate of whole loan sales or be able to access funding at all. If we are unable to arrange financing on favorable terms, we may not be able to grow our business as planned and we may have to curtail our origination of loans. Regulators in certain jurisdictions including the United Kingdom and the United States have announced the desire to phase out the use of LIBOR by the end of 2021, though the ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult to extend the timeline for ceasing publication for certain tenors of U.S. dollar LIBOR to June 30, 2023. The transition from LIBOR to a new replacement benchmark is uncertain at this time and the consequences of such developments cannot be entirely predicted, but could increase our interest rate risk related to our Personal Loan Warehouse facility which is currently tied to LIBOR. Changes in interest rates or foreign currency exchange rates could affect our interest expense, which could result in volatility in our results of operations, financial condition, and cash flows.

We have elected the fair value option and we use estimates in determining the fair value of our loans and our asset-backed notes. If our estimates prove incorrect, we may be required to write down the value of these assets or write up the value of these liabilities, which could adversely affect our results of operations.

Our ability to measure and report our financial position and results of operations is influenced by the need to estimate the impact or outcome of future events on the basis of information available at the time of the issuance of the financial statements. We use estimates, assumptions, and judgments when certain financial assets and liabilities are measured and reported at fair value. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available. During periods of market disruption, including periods of significantly rising or high interest rates, rapidly
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widening credit spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent or market data becomes less observable. In such cases, certain asset valuations may require significant judgment, and may include inputs and assumptions that require greater estimation, including credit quality, liquidity, interest rates, and other relevant inputs. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. Management has processes in place to monitor these judgments and assumptions, including review by our internal valuation committee, but these processes may not ensure that our judgments and assumptions are correct.

We use estimates and assumptions in determining the fair value of our Fair Value Loans and Fair Value Notes. Our Fair Value Loans represented 84% of our total assets and Fair Value Notes represented 63% of our total liabilities as of September 30, 2021. Our Fair Value Loans are determined using Level 3 inputs and Fair Value Notes are determined using Level 2 inputs. Changes to these inputs could significantly impact our fair value measurements. Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies. In addition, a variety of factors such as changes in the interest rate environment and the credit markets, changes in average life, higher than anticipated delinquency and default levels or financial market illiquidity, may ultimately affect the fair values of our loans receivable and asset-backed notes. Material differences in these ultimate values from those determined based on management’s estimates and assumptions may require us to adjust the value of certain assets and liabilities, including in a manner that is not comparable to others in our industry, which could adversely affect our results of operations.

If we are unable to collect payment and service the loans we make to customers, our net charge-off rates may exceed expected loss rates, and our business and results of operations may be harmed.*

Our unsecured personal loans, which comprise a significant portion of our overall portfolio, are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way. We are therefore limited in our ability to collect on these loans if a customer is unwilling or unable to repay them. A customer’s ability to repay us can be negatively impacted by increases in his or her payment obligations to other lenders under mortgage, credit card and other loans, or loss of employment due to economic turmoil, particularly in light of the COVID-19 pandemic. These changes can result from increases in base lending rates or structured increases in payment obligations and could reduce the ability of our customers to meet their payment obligations to other lenders and to us. In addition, the success of any additional economic assistance program or stimulus legislation is unknown, and we cannot determine the impact of any such program has had or will have on our net charge-off rates.

Our ability to adequately service our loans is dependent on our ability to grow and appropriately train our customer service and collections staff, our ability to expand our servicing capabilities as the number of our loans increase, and our ability to contact our customers when they default. Additionally, our customer service and collections staff are dependent upon maintaining adequate information technology, telephony, and internet connectivity such that they can complete their job functions. If we fail to adequately leverage these technologies to service and collect amounts owed in respect of our loans, or if our customers opt to block us from calling, texting, emailing or otherwise contacting them, then payments to us may be delayed or reduced.

In August 2020, we changed our small claims filing practices, which included the dismissal of all pending small claims court filings, suspension of all new small claims filings and the commitment to reduce court filings by 60% in the future. If we are unable to employ alternative means of engaging severely delinquent customers the effectiveness of our efforts to collect on defaulted loans may be impacted. Additionally, our contact centers, either owned or through our outsourcing partners, are located in various jurisdictions within three countries, all of which have varying social distancing orders in place. While we have been successful thus far in complying with these orders and keeping contact centers operational, predominantly by moving the majority of contact center staff to remote working environments, our ability to perform collections activities is highly dependent on the ability of our contact center staff to continue to work, either in the contact center or remotely. If a significant percentage of our contact center workforce is unable to work as a result of the COVID-19 pandemic, including because of illness, quarantines, ineffective remote work environments or technology, utility, or other failures or limitations, our ability to collect payment may be adversely affected. Because our net charge-off rate depends on the collectability of the loans, if we experience an unexpected significant increase in the number of customers who fail to repay their loans or an increase in the principal amount of the loans that are not repaid, our revenue and results of operations could be adversely affected. Furthermore, personal unsecured loans are dischargeable in bankruptcy. If we experience an unexpected, significant increase in the number of customers who successfully discharge their loans in a bankruptcy action, our revenue and results of operations could be adversely affected.

We incorporate our estimate of lifetime loan losses in our measurement of fair value for our Fair Value Loans. While this evaluation process uses historical and other objective information, the classification of loans and the forecasts and establishment of loan losses and fair value are also dependent on our subjective assessment based upon our experience and judgment. Given the unprecedented nature of the COVID–19 pandemic and its impact on the economy, the amount of subjective assessment and judgment applied to develop our forecasts has increased materially, since no directly corresponding historical data set exists. Our methodology for establishing our fair value is based on the guidance in Accounting Standards Codification, 820 and 825, and, in part, on our historic loss experience. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate and general economic uncertainty may affect our estimate of lifetime loan losses, the fair value may be reduced for our Fair Value Loans, which will decrease Net Revenue. Our calculations of fair value are estimates, and if these estimates are inaccurate, our results of operations could be adversely affected. Neither state regulators nor federal regulators regulate our calculations of fair value, and unlike traditional banks, we are not subject to periodic review by bank regulatory agencies of our loss estimates or our calculations of fair value. In addition, because our debt financings include delinquency triggers as predictors of losses, increased delinquencies or losses may reduce or terminate the availability of debt financings to us.

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Our results of operations and financial condition and our customers’ willingness to borrow money from us and ability to make payments on their loans have been, and may in the future be, adversely affected by economic conditions and other factors that we cannot control.*

Uncertainty and negative trends in general economic conditions in the United States and abroad have historically created a difficult operating environment for our business and other companies in our industry. Many factors, including factors that are beyond our control, may impact our results of operations or financial condition, our customers’ willingness to incur loan obligations and/or affect our customers’ willingness or capacity to make payments on their loans. These factors include: unemployment levels, housing markets, immigration policies, gas prices, energy costs, government shutdowns, delays in tax refunds, significant tightening of credit markets, and interest rates, as well as events such as natural disasters, acts of war, terrorism, social unrest, catastrophes, epidemics, and pandemics, including COVID-19.

In addition, major medical expenses, divorce, death, or other issues that affect our customers could affect our customers’ willingness or ability to make payments on their loans. Further, our business currently is heavily concentrated on consumer lending and, as a result, we are more susceptible to fluctuations and risks particular to U.S. consumer credit than a company with a more diversified lending portfolio. We are also more susceptible to the risks of increased regulations and legal and other regulatory actions that are targeted towards consumer credit. If the United States experiences an economic downturn, or if we become affected by other events beyond our control, we may experience a significant reduction in revenue, earnings and cash flows. If our customers default under a loan receivable held directly by us, we will experience loss of principal and anticipated interest payments, which could adversely affect our cash flow from operations. The cost to service our loans may also increase without a corresponding increase in our interest on loans. We may also become exposed to increased credit risk from our customers and third parties who have obligations to us. For example, since the beginning of January 2020, the COVID-19 pandemic has caused disruption and volatility in the global financial markets and led to an economic slowdown that increased unemployment levels and affected our customers' ability to satisfy their obligations. In addition, the cost to service our loans has and may continue to increase without a corresponding increase in our interest on loans. As a result of the COVID-19 pandemic, we have and may continue to be exposed to increased credit risk from our customers and third parties who have obligations to us.

An economic downturn may also be accompanied by decreased consumer demand for automobiles, and declining values of vehicles securing outstanding secured personal loans, which would weaken collateral coverage for secured personal loans and increase the amount of loss in the event of default. Significant increases in the inventory of used vehicles during periods of economic slowdown or recession may also depress the prices at which repossessed vehicles may be sold or delay the timing of these sales. Consequently, if a vehicle securing a secured personal loan is repossessed while the used car auction market is depressed, the sale proceeds for such vehicle may be lower than expected, resulting in higher than expected losses.

If aspects of our business, including the quality of our loan portfolio or our customers’ ability to pay, are significantly affected by economic changes or any other conditions in the future, we cannot be certain that we will adequately adapt our business to such changes, so our business would be adversely affected.

Negative publicity or public perception of our company or our industry could adversely affect our reputation, business, and results of operations.*

Negative publicity about our industry or our company, including the terms of the consumer loans, effectiveness of the proprietary credit risk model, privacy and security practices, originations, marketing, servicing and collections, other business practices or initiatives, litigation, regulatory compliance and the experience of customers, even if inaccurate, could adversely affect our reputation and the confidence in our brand and business model or lead to changes in our business practices. For example, on July 28, 2020 we published a press release and a blog post announcing, among other things, changes to our legal collections practices to better align with our mission. In the blog post, we acknowledged that this move was partially the result of inquiries we received from certain consumer advocates and media outlets. Despite our responsiveness to the inquiries, certain media outlets and consumer advocates chose to highlight and have continued to highlight the very past practices that we had already modified. The proliferation of social media may increase the likelihood that negative public opinion will impact our reputation and business. Our reputation is very important to attracting new customers and retaining existing customers. While we believe that we have a good reputation and that we provide customers with a superior experience, there can be no assurance that we will continue to maintain a good relationship with customers.

Consumer advocacy groups, politicians, and certain government and media reports have on occasion advocated governmental action to prohibit or severely restrict the dollar amount, interest rate, or other terms of consumer loans, particularly “small dollar” loans and those with short terms. The consumer groups and media reports typically focus on the cost to a consumer for this type of loan, which may be higher than the interest typically charged by issuers to consumers with more historical creditworthiness; for example, some groups are critical of loans with APRs greater than 36%. The consumer groups, public officials and government and media reports frequently characterize these short-term consumer loans as predatory or abusive toward consumers. In August 2020, we implemented an APR cap of 36% for all newly originated loans, however, until such previously originated loans are paid-off, a portion of our portfolio will consist of loans with APRs greater than 36%. If the negative characterization of short-term consumer loans becomes associated with this remaining portion of our portfolio, or there are critiques of our business practices or loan terms, even if inaccurate, demand for our consumer loans could significantly decrease, and it could be less likely that investors purchase our loans or our asset-backed securities, or our lenders extend or renew lines of credit to us, any of which could adversely affect our results of operations and financial condition.

Negative perception of our consumer loans, our loan origination, marketing, servicing and collections practices, or other activities may also result in us being subject to more restrictive laws and regulations and potential investigations, enforcement actions and lawsuits. If there are changes in the laws affecting any of our consumer loans, or our marketing and servicing of such loans, or if we become subject to such investigations, enforcement actions and lawsuits, our financial condition and results of operations would be adversely affected. Entry into new products, as well as into the banking business or new origination channels, such as bank partnerships, other partnerships, or Oportun Bank could lead to negative publicity or draw additional scrutiny.
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Harm to our reputation can also arise from many other sources, including employee or former employee misconduct, misconduct by outsourced service providers or other counterparties, failure by us or our partners to meet minimum standards of service and quality, and inadequate protection of customer information and compliance failures and claims. Our reputation may also be harmed if we fail to maintain our certification as a CDFI. Similar to relief options we have previously offered to customers impacted by natural disasters such as hurricanes and wildfires, since the onset of the COVID-19 pandemic we have been working with certain customers to waive fees and offer deferrals of loan payments and reduced payment plans. We believe our actions are consistent with our mission and regulatory guidance, but we cannot be certain that our approaches to servicing our customers will not lead to criticism which could harm our reputation.

If we do not compete effectively in our target markets, our results of operations could be harmed.*

The consumer lending market is highly competitive and increasingly dynamic as emerging technologies continue to enter into the marketplace. Technological advances and heightened e-commerce activities have increased consumers’ accessibility to products and services, which has intensified the desirability of offering loans to consumers through digital-based solutions. Our current and potential future competition primarily includes other consumer finance companies, credit card issuers, financial technology companies, technology platforms, and financial institutions, as well as payday lenders and pawn shops focused on low- and moderate-income customers. Many of our competitors operate with different business models, such as lending as a service, lending through partners or point-of-sale lending, have different cost structures or participate selectively in different market segments. We may also face competition from companies that have not previously competed in the consumer lending market for customers with little or no credit history. For example, it is possible that the companies commonly referred to as “challenger banks” offering low-cost digital only deposit accounts may also begin to offer lending products catered to our target customers. In addition, it is possible that traditional banks may introduce new approaches to small-dollar lending. Many of our current or potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels. We face competition in areas such as compliance capabilities, financing terms, promotional offerings, fees, approval rates, speed and simplicity of loan origination, ease-of-use, marketing expertise, service levels, products and services, technological capabilities and integration, customer service, strategic partnerships, brand and reputation. Our competitors may also have longer operating histories, lower financing costs or costs of capital, more extensive customer bases, more diversified products and customer bases, operational efficiencies, more versatile technology platforms, greater brand recognition and brand loyalty, and broader customer and partner relationships than we have. Our competitors may be better at developing new products, responding more quickly to new technologies and undertaking more extensive marketing campaigns. Furthermore, our existing and potential competitors may decide to modify their pricing and business models to compete more directly with our model. If we are unable to compete with such companies or fail to meet the need for innovation in our industry, the demand for our products could stagnate or substantially decline, or our products could fail to maintain or achieve more widespread market acceptance.

Our success and future growth depend on our Oportun brand and our successful marketing efforts across channels, and if we are unable to attract or retain customers, our business and financial results may be harmed.*

Our business model relies on our ability to scale rapidly, and if our marketing efforts are not successful or if we are unsuccessful in developing our brand marketing campaigns, it could continue to have an adverse effect on our ability to attract customers. If we fail to successfully promote and maintain our brand or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may lose existing customers to our competitors or be unable to attract new customers, which in turn would harm our business, results of operations and financial condition. Even if our marketing efforts result in increased revenue, we may be unable to recover our marketing costs through increased loan volume. Any incremental increases in Customer Acquisition Cost could have an adverse effect on our business, results of operations, and financial condition. Furthermore, increases in marketing and other Customer Acquisition Costs may not result in increased loan originations at the levels we anticipate or at all, which could result in a higher Customer Acquisition Cost per account.

In the future, we intend to continue to dedicate significant resources to our marketing efforts, particularly as we develop our brand. Our ability to attract qualified customers depends in large part on the success of these marketing efforts and the success of the marketing channels we use to promote our products. In the past, we marketed primarily through word of mouth at our retail locations and direct mail, and more recently, through radio and digital advertising, such as paid and unpaid search, e-mail marketing and paid display advertisements. Our future marketing programs may include direct mail, radio, television, print, online display, video, digital advertising, search engine optimization, search engine marketing, social media, events and other grassroots activities, as well as retail and digital sources of leads, such as lead aggregators and retail referral partners. The marketing channels that we employ may become more crowded and saturated by other lenders or the methodologies, policies and regulations applicable to marketing channels may change, which may decrease the effectiveness of our marketing campaigns and increase our Customer Acquisition Costs, which may in turn adversely affect our results of operations.

As we continue to expand our loan origination and acquisition channels, introduce new products and services and enter into new states, we also face the risks that our mobile and other channels could be unprofitable, increase costs, decrease operating margins or take longer than anticipated to achieve our target margins due to: difficulties with user interface or disappointment with the user experience; defects, errors or failures in our mobile service; negative publicity about our financial products and services or our mobile service’s performance or effectiveness; delays in releasing to the market new mobile service enhancements; uncertainty in applicable consumer protection laws and regulations to the mobile loan environment; and increased risks of fraudulent activity associated with our mobile channel.

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If we are unable to effectively optimize the mix of our channel ecosystem and serve our customers in their preferred channel, our business and results of operations may be adversely affected.*

Our future growth strategy depends in part on our ability to optimize the mix of our channel ecosystem and serve our customers in their preferred channel. If we are unable to optimize our channel mix, our ability to serve and attract customers may be harmed and our profit margins may decline. If we are unsuccessful in serving customers through their preferred channel, our results of operations could be adversely affected. We will continue to assess our growth strategy and our channel mix will continue to evolve and may change as the business grows.

We could experience a decline in repeat customers.*

As of December 31, 2020 and 2019, returning customers comprised 85% and 80%, respectively, of our Owned Principal Balance at End of Period. In order for us to maintain or improve our operating results, it is important that we continue to extend loans to returning customers who have successfully repaid their previous loans. Our repeat loan rates may decline or fluctuate as a result of pricing changes, our expansion into new products and markets or because our customers are able to obtain alternative sources of funding based on their credit history with us, and new customers we acquire in the future may not be as loyal as our current customer base. If our repeat loan rates decline we may not realize consistent or improved operating results from our existing customer base.

We are, and intend in the future to continue, developing new financial products and services, and our failure to accurately predict their demand or growth could have an adverse effect on our business.*

We are, and intend in the future to continue, developing new financial products and services, such as credit cards and secured personal loans. We intend to continue investing significant resources in developing new tools, features, services, products and other offerings. New initiatives are inherently risky, as each involves unproven business strategies and new financial products and services with which we have limited or no prior development or operating experience.

We can provide no assurance that we will be able to develop, commercially market and achieve acceptance of our new products and services. In addition, our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of revenue actually originated from these new products and services. Product or service introductions may not always be successful and we have previously invested resources to develop and launch new products and services and subsequently decided to discontinue these products and services in order to strategically realign our resources. In addition, the borrower profile of customers using our new products and services may not be as attractive as the customers that we currently serve, which may lead to higher levels of delinquencies or defaults than we have historically experienced. We have limited experience with new products such as credit cards or secured personal loans. There can be no assurances that these new products will have the same delinquency and default rates as we have historically experienced with our unsecured personal loans. Failure to accurately predict demand or growth with respect to our new products and services could adversely impact our business, and these new products and services may be unprofitable, which would increase our costs or decrease operating margins or increase the time it takes us to achieve target margins. Additionally, the growth of revenue from new products may be much slower than previously anticipated in the near term. New products and services may not become profitable, and even if they are profitable, operating margins of some new products may not be as high as the margins we have experienced historically. Further, our development efforts with respect to these initiatives could distract management from current operations and will divert capital and other resources from our existing business.

We may change our strategy or underwriting and servicing practices, which may adversely affect our business.*

We may change our strategy or any of our underwriting guidelines at any time without notice. For example, in late March 2020, we significantly tightened our underwriting criteria. In addition, in August 2020, we implemented a nationwide 36% APR cap for newly originated loans which may have a potential impact on our yield or other unanticipated impacts that could adversely affect our results of operations and financial condition. We may also decide to retain more loans rather than sell them to third parties. We continue to evaluate our business strategies and underwriting and servicing practices and in the future, may make additional changes, including due to changing economic conditions, regulatory requirements and industry practices. For example, on July 28, 2020, we published a press release and a blog post announcing, among other things, changes to our legal collections practices to better align with our mission, including a reduction in future case filings. In addition, if we reapply in the future and receive the “preliminary conditional approval” to obtain a national bank charter from the Office of the Comptroller of the Currency (OCC) to establish Oportun Bank, such approval may be conditioned on, among other things, substantial changes to our origination, servicing or collection practices, policies and procedures or other business practices or initiatives and in the future, Oportun Bank would be subject to additional federal supervision and regulation, which may require additional changes to our origination, servicing or collection practices, policies and procedures or other business practices or initiatives. Any changes in strategy, underwriting or servicing practices could result in us holding a loan portfolio with a different risk profile from our current risk profile. Additionally, a change in our strategy or underwriting and servicing practices may reduce our credit spread and may increase our exposure to interest rate risk, default risk and liquidity risk, all of which could adversely affect our business, results of operations and financial condition.

We may evaluate, and potentially consummate, acquisitions, which could require significant management attention, consume our financial resources, disrupt our business, and adversely affect our financial results.*

Our success will depend, in part, on our ability to grow our business. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. We have previously acquired, and in the future, may acquire, complementary assets or businesses. The risks we face in connection with acquisitions include:
         
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diversion of management time and focus from operating our business to addressing acquisition integration challenges;
utilization of our financial resources for acquisitions or investments that may fail to realize the anticipated benefits;
inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits;
coordination of technology, product development and sales and marketing functions and integration of administrative systems;
transition of the acquired company’s customers to our systems;
retention of employees from the acquired company;
regulatory risks, including maintaining good standing with existing regulatory bodies or receiving any necessary approvals, as well as being subject to new regulators with oversight over an acquired business;
attractive financing;
cultural challenges associated with integrating employees from the acquired company into our organization;
the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
potential write-offs of loans or intangibles or other assets acquired in such transactions that may have an adverse effect on our results of operations in a given period;
liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, security weaknesses and incidents, tax liabilities and other known and unknown liabilities;
assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property or increase our risk for liability; and
litigation, claims or other liabilities in connection with the acquired company.

Our failure to address these risks or other problems encountered in connection with our future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the write-off of goodwill, any of which could harm our financial condition.

We are, and intend in the future to continue, expanding into new geographic regions, and our failure to comply with applicable laws or regulations, or accurately predict demand or growth, related to these geographic regions could have an adverse effect on our business.*

We intend to continue expanding into new geographic regions, including through strategic partnerships or Oportun Bank. Through our bank partnership, we recently entered into an additional 21 states, increasing our geographical presence to 33 states as of September 30, 2021. In addition, each of the new states where we do not currently operate may have different laws and regulations that apply to our products and services. As such, we expect to be subject to significant additional legal and regulatory requirements, including various federal and state consumer lending laws. We have limited experience in managing risks and the compliance requirements attendant to these additional legal and regulatory requirements in new geographies or related to strategic partnerships. The costs of compliance and any failure by us to comply with such regulatory requirements in new geographies could harm our business. If our partners decide to or are no longer able to provide their services, we could incur temporary disruptions in our loan transactions or we may be unable to do business in certain states or certain locations.

We are exposed to geographic concentration risk.*

The geographic concentration of our loan originations may expose us to an increased risk of loss due to risks associated with certain regions. Certain regions of the United States from time to time will experience weaker economic conditions and higher unemployment and, consequently, will experience higher rates of delinquency and loss than on similar loans nationally. In addition, natural, man-made disasters or health epidemics or pandemics such as the COVID-19 pandemic in specific geographic regions may result in higher rates of delinquency and loss in those areas. A significant portion of our outstanding receivables is originated in certain states, and within the states where we operate, originations are generally more concentrated in and around metropolitan areas and other population centers. Therefore, economic conditions, natural, man-made disasters, health epidemics or pandemics or other factors affecting these states or areas in particular could adversely impact the delinquency and default experience of the receivables and could adversely affect our business. Further, the concentration of our outstanding receivables in one or more states would have a disproportionate effect on us if governmental authorities in any of those states take action against us or take action affecting how we conduct our business.

As of September 30, 2021, 52.6%, 26.8%, 6.2% and 5.5% of our Owned Principal Balance at End of Period related to customers from California, Texas, Florida, and Illinois, respectively. If any of the events noted in these risk factors were to occur in or have a disproportionate impact in regions where we operate or plan to commence operations, it may negatively affect our business in many ways, including increased delinquencies and loan losses or a decrease in future originations.

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Our proprietary credit risk models rely in part on the use of third-party data to assess and predict the creditworthiness of our customers, and if we lose the ability to license or use such third-party data, or if such third-party data contain inaccuracies, it may harm our results of operations.

We rely on our proprietary credit risk models, which are statistical models built using third-party alternative data, credit bureau data, customer application data and our credit experience gained through monitoring the payment performance of our customers over time. If we are unable to access certain third-party data used in our credit risk models, or our access to such data is limited, our ability to accurately evaluate potential customers will be compromised, and we may be unable to effectively predict probable credit losses inherent in our loan portfolio, which would negatively impact our results of operations. Third-party data sources include credit bureau data and other alternative data sources. Such data is electronically obtained from third parties and is aggregated by our risk engine to be used in our credit risk models to score applicants and make credit decisions and in our verification processes to confirm customer reported information. Data from consumer reporting agencies and other information that we receive from third parties about a customer may be inaccurate or may not accurately reflect the customer’s creditworthiness, which may cause us to provide loans to higher risk customers than we intend through our underwriting process and/or inaccurately price the loans we make. We use numerous third-party data sources and multiple credit factors within our proprietary credit risk models, which helps mitigate, but does not eliminate, the risk of an inaccurate individual report. In addition, there are risks that the costs of our access to third-party data may increase or our terms with such third-party data providers could worsen. In recent years, well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. These types of laws and regulations could prohibit or significantly restrict our third-party data sources from sharing information, or could restrict our use of personal data when developing our proprietary credit risk models, or for fraud prevention purposes. These restrictions could also inhibit our development or marketing of certain products or services, or increase the costs of offering them to customers or make the models less effective at predicting credit outcomes or preventing fraud.

We follow procedures to verify each customer’s identity, income, and address, which are designed to minimize fraud. These procedures may include visual inspection of customer identification documents to ensure authenticity, review of paystubs or bank statements for proof of income and employment, and review of analysis of information from credit bureaus, fraud detection databases and other alternative data sources for verification of identity, employment, income and other debt obligations. If any of the information that is considered in the loan review process is inaccurate, whether intentional or not, and such inaccuracy is not detected prior to loan funding, the loan may have a greater risk of default than expected. If any of our procedures are not followed, or if these procedures fail, fraud may occur. Additionally, there is a risk that following the date of the loan application, a customer may have defaulted on, or become delinquent in the payment of, a pre-existing debt obligation, taken on additional debt, lost his or her job or other sources of income or experienced other adverse financial events. Fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negatively impact our results of operations, brand and reputation and require us to take additional steps to reduce fraud risk, which could increase our costs.

Changes in immigration patterns, policy or enforcement could affect some of our customers, including those who may be undocumented immigrants, and consequently impact the performance of our loans, our business and results of operations.

Some of our customers are immigrants and some may not be U.S. citizens or permanent resident aliens. We follow appropriate customer identification procedures as mandated by law, including accepting government issued picture identification that may be issued by non-U.S. governments, as permitted by the USA PATRIOT Act, but we do not verify the immigration status of our customers, which we believe is consistent with industry best practices and is not required by law. While our credit models look to approve customers who have stability of residency and employment, it is possible that a significant change in immigration patterns, policy or enforcement could cause some customers to emigrate from the United States, either voluntarily or involuntarily, or slow the flow of new immigrants to the United States. Changes to current laws or the adoption of new laws could make it more difficult or less desirable for immigrants to work in the United States, resulting in increased delinquencies and losses on our loans or a decrease in future originations due to more difficulty for potential customers to earn income. In addition, if we or our competitors receive negative publicity around making loans to undocumented immigrants, it may draw additional attention from regulatory bodies or consumer advocacy groups, all of which may harm our brand and business. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action.

Our current level of interest rate spread may decline in the future. Any material reduction in our interest rate spread could adversely affect our results of operations.*

We earn over 90% of our revenue from interest payments on the loans we make to our customers. Financial institutions and other funding sources provide us with the capital to fund a substantial portion of the principal amount of our loans to customers and charge us interest on funds that we borrow. In the event that the spread between the interest rate at which we lend to our customers and the rate at which we borrow from our lenders decreases, our Net Revenue will decrease. The interest rates we charge to our customers and pay to our lenders could each be affected by a variety of factors, including our ability to access capital markets, the volume of loans we make to our customers, loan mix, competition and regulatory limitations. See Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market interest rate changes may adversely affect our business forecasts and expectations and are highly sensitive to many macroeconomic factors beyond our control, such as inflation, recession, the state of the credit markets, global economic disruptions, unemployment and the fiscal and monetary policies of the federal government and its agencies. Interest rate changes may require us to make adjustments to the fair value of our Fair Value Loans or Fair Value Notes, which may in turn adversely affect our results of operations. For instance, interest rates recently declined significantly. When interest rates fall, the fair value of our Fair Value Loans increases, which increases Net Revenue. In addition, decreasing interest rates also increase the fair value of our Fair Value Notes, which reduces Net Revenue. Because the duration and fair value of our loans and asset- backed notes are different, the respective changes in fair value did not fully offset each other resulting in a negative impact on Net Revenue. Any reduction in our interest rate spread could have an adverse effect on our business, results of operations and financial condition. In August 2020, we
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implemented a nationwide 36% APR cap for newly originated loans, which we expect will reduce our interest rate spread and may have an adverse effect on our business, results of operations, and financial condition. We do not currently hedge our interest rate exposure associated with our debt financing or fair market valuation of our loans.

Fraudulent activity could negatively impact our business, operating results, brand and reputation and require us to take steps to reduce fraud risk.*

Fraud is prevalent in the financial services industry and is likely to increase as perpetrators become more sophisticated, as well as during the COVID-19 pandemic due to fraud with COVID-19 related themes. We are subject to the risk of fraudulent activity associated with customers and third parties handling customer information. Also, we continue to develop and expand our mobile origination channel, which involves the use of internet and telecommunications technologies (including mobile devices) to offer our products and services. We expect that originations in states where we do not currently operate will likely initially occur on a “mobile-first” basis without physical locations, increasing reliance on mobile technologies which may be more susceptible to the fraudulent activities of organized criminals, perpetrators of fraud, hackers, terrorists and others. Additionally, expanding into other products may introduce opportunities for fraudulent activity that we have not previously experienced. Our resources, technologies and fraud prevention tools may be insufficient to accurately detect and prevent fraud. If the level of our fraud losses increases, our results of operations could be harmed, our brand and reputation may be negatively impacted, we may be subjected to higher regulatory scrutiny and our costs may increase as we attempt to reduce such fraud.

Security breaches and incidents impacting customers’ confidential information that we store may harm our reputation, adversely affect our results of operations, and expose us to liability.*

We are increasingly dependent on information technology systems and infrastructure, including mobile and cloud-based technologies, to operate our business. In the ordinary course of our business, we collect, store, transmit and otherwise process large amounts of sensitive information relating to customers and potential customers, including non-public personal information, credit information and other sensitive information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such sensitive information. We also collect, store, transmit and otherwise process certain sensitive, proprietary, and other information in the operation of our business, including personal data and personal information relating to employees, trade secrets, intellectual property, confidential business information, and other confidential data. We have arrangements in place with certain of our third-party vendors that require us to share this information as permitted by law. We have also outsourced elements of our operations (including elements of our information technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may have access to our computer networks or the information that we collect, process, transmit, and store. In addition, many of those third parties may in turn subcontract or outsource some of their responsibilities to third parties. As a result, our information technology systems, including the functions of third parties that are involved or have access to those systems, is very large and complex. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed nature of our information technology systems, and the large amounts of sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks.

There have been and may continue to be significant supply chain attacks, and we cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our products and services. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, contractors, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to unauthorized access to, or loss, extraction, disclosure, or other misuse of personal information, confidential information, or other sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information and systems. In addition, the prevalent use of mobile devices increases the risk of data security incidents. Several large organizations recently have been affected by "ransomware" attacks and these highly publicized events may embolden individuals or groups to target our systems or the third-party systems on which we rely. Significant disruptions of our, our third-party vendors’ and/or business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation, or unauthorized access, use or disclosure of, or the prevention of access to, personal information, confidential information, or other sensitive information, which could result in financial, legal, regulatory, business, and reputational harm to us. The automated nature of our business may make us attractive targets for hacking and potentially vulnerable to computer malware, physical or electronic break-ins and similar disruptions. Despite efforts to ensure the integrity of our systems, it is possible that we and the third parties who support our business and operations may not be able to anticipate or to implement effective preventive measures against all security breaches and incidents, in which case there would be an increased risk of fraud or identity theft, and we may experience losses on, or delays in the collection of amounts owed on, a fraudulently induced loan.

While we regularly monitor data flow inside and outside the company, techniques used to obtain unauthorized access or to sabotage systems change frequently and are difficult to detect. As a result, we, our third-party hosting facilities and other service providers may be unable to anticipate these techniques or to implement adequate preventative measures. Any event that leads, or is believed to have led, to unauthorized access, to, or use, access, loss, corruption, disclosure or other processing of personal information, including but not limited to personal information regarding our customers, potential customers, loan applicants, and employees, could disrupt our business, harm our reputation, compel us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us to litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs for us, and result in significant legal and financial exposure and/or reputational harm. In particular, these mandatory disclosures regarding a security breach are costly to
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implement and often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. In addition, any failure or perceived failure by us or our vendors to comply with our privacy, confidentiality, or data security-related legal or other obligations to third parties, or any security breaches or incidents or other inappropriate access events that result in the unauthorized access, release or transfer of personal or sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others and could cause third parties, to lose trust or subject us to claims by third parties that we have breached our privacy- and confidentiality-related obligations, which could harm our business and prospects. The COVID-19 pandemic has increased attack opportunities available to criminals, as they attempt to profit from disruptions and the resulting shift in companies and individuals working remotely and online, as well as the increase in electronic transfers and other online activity.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including vendors, payment processors, and other parties who have access to confidential information due to our agreements with them. The establishment of bank partnerships could leave us exposed to additional information security risks arising as a result of the interaction between our and any partners' information technology infrastructure, and the sharing between us of confidential customer information. In addition, any security compromise in our industry, whether actual or perceived, or information technology system disruptions, natural disasters, terrorism, war and telecommunication and electrical failures, could interrupt our business or operations, harm our reputation, erode customer confidence, negatively affect our ability to attract new customers, or subject us to third-party claims, lawsuits, regulatory investigations, proceedings, fines or other action or liability.

We incur significant costs in an effort to detect and prevent security breaches and other security-related incidents, and we expect our costs will increase as we work to continuously improve our systems and processes to prevent future breaches and incidents. In the event of an actual or perceived breach or incident, we could be required to expend additional significant capital and other resources in an effort to prevent further breaches or incidents. Moreover, we could be required to expend significant capital and other resources to address the incident and any future security breach or incident.

Like other financial services firms, we have been and continue to be the subject of actual or attempted unauthorized access, mishandling or misuse of information, computer viruses or malware, and cyber-attacks that could obtain confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, distributed denial of service attacks, security breaches and incidents, and other infiltration, exfiltration or other similar events.

Our retail locations also process physical customer loan documentation that contain confidential information about our customers, including financial and personally identifiable information. We retain physical records in various storage locations outside of our retail locations. The loss or theft of, or other unauthorized access to or use of, customer information and data from our retail locations or other storage locations could subject us to additional regulatory scrutiny, possible civil litigation and possible financial liability and losses.

Further, any belief by customers or others that a security breach or other incident has affected us or any of our service providers, even if a security breach or other incident has not affected us or any of our service providers or has not actually occurred, could have any or all of the foregoing impacts on us, including damage to our reputation. Even the perception of inadequate security may damage our reputation and negatively impact our ability to attract new customers and retain existing customers.

We cannot ensure that any provisions in our agreements with customers, contracts with service providers and other contracts relating to limitations of liability, including those in connection with a security lapse or breach or other privacy- or security-related incident, would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim. We maintain errors, omissions, and cyber liability insurance policies covering certain security and privacy damages. However, we cannot be certain that our coverage will continue to be available on economically reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have an adverse effect on our business, financial condition and results of operations.

Any significant disruption in our computer systems could prevent us from processing or posting payments on loans, reduce the effectiveness of our credit risk models and result in a loss of customers.*

In the event of a system outage, including any outage involving and any loss or corruption of data, our ability to service our loans, process applications or make loans available would be adversely affected. We also rely on facilities, components, and services supplied by third parties, including data center facilities and cloud storage services. Any interference or disruption of our technology and underlying infrastructure or our use of our third-party providers’ services could materially and adversely affect our business, relationships with our customers and our reputation. Also, as our business grows, we may be required to expand and improve the capacity, capability and reliability of our infrastructure. If we are not able to effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and infrastructure to reliably support our business, our results of operations may be harmed.

In addition, the software that we have developed to use in our daily operations is highly complex and may contain undetected technical errors that could cause our computer systems to fail. Because each loan that we make involves our proprietary automated underwriting process and depends on the efficient and uninterrupted operation of our computer systems, and all of our loans are underwritten using an automated underwriting process that does not require manual review, any failure of our computer systems involving our automated underwriting process and any technical or other errors contained in the software pertaining to our automated underwriting process could compromise our ability to accurately evaluate potential customers, which would negatively impact our results of operations. Our computer systems and other computer systems used in our business,
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including those provided by third-party service providers, may encounter service interruptions at any time due to system or software failure, natural disasters, severe weather conditions, health epidemics or pandemics, terrorist attacks, cyber-attacks, computer viruses, physical or electronic break-ins, technical errors, power outages or other events, and any failure of our computer systems could cause an interruption in operations and result in disruptions in, or reductions in the amount of, collections from the loans we make to our customers. While we have taken steps to prevent such activity from affecting our systems, if we are unable to prevent such activity, we may be subject to significant claims and liability, negative publicity and a loss of customers, all of which may negatively affect our business.

Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on the loans, damage our brand and reputation, divert our employees’ attention, subject us to liability and cause customers to abandon our business, any of which could adversely affect our business, results of operations and financial condition.

We may not be able to make technological improvements as quickly as demanded by our customers which could harm our ability to attract customers and adversely affect our results of operations, financial condition and liquidity.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology, such as mobile and online services, to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services as quickly as competitors or be successful in marketing these products and services to our customers. Furthermore, our technology may become obsolete or uncompetitive, and there is no guarantee that we will be able to successfully develop, obtain or use new technologies to adapt our models and systems. Failure to successfully keep pace with technological change affecting the financial services industry could harm our ability to attract customers and adversely affect our results of operations, financial condition and liquidity. If we are not able to implement these changes quickly enough, it could impact our credit performance.

Because we receive a significant amount of cash in our retail locations through customer loan repayments, we may be subject to theft and cash shortages due to employee errors.

Since our business requires us to receive a significant amount of cash in each of our retail locations, we are subject to the risk of theft (including by or facilitated by employees) and cash shortages due to employee errors. Although we have implemented various procedures and programs to reduce these risks, maintain insurance coverage for theft and provide security measures for our facilities, we cannot make assurances that theft and employee error will not occur. We have experienced theft and attempted theft in the past.

A deterioration in the financial condition of counterparties, including financial institutions, could expose us to credit losses, limit access to liquidity or disrupt our business operations.

We have entered into, and may in the future enter into, financing and derivative transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, hedge funds, and other financial institutions. Furthermore, the operations of U.S. and global financial services institutions are interconnected, and a decline in the financial condition of one or more financial services institutions, or the perceived lack of creditworthiness of such financial institutions, may expose us to credit losses or defaults, limit access to liquidity or otherwise disrupt the operations of our business. As such, our financing and derivative transactions expose us to credit risk in the event of a default by the counterparty, which can be exacerbated during periods of market illiquidity, such as is currently being experienced due to the COVID-19 pandemic.

Our vendor relationships subject us to a variety of risks, and the failure of third parties to comply with legal or regulatory requirements or to provide various services that are important to our operations could have an adverse effect on our business.*

We have vendors that, among other things, provide us with key services, including financial, technology and other services to support our loan servicing and other activities. Our expansion into new channels, products or markets may introduce additional third-party service providers, strategic partners and other third parties on which we may become reliant. For example, in connection with the secured personal loan product, we work with third parties that provide information and/or services in connection with valuation, title management and title processing, repossessions, and remarketing. The CFPB issued guidance stating that institutions under its supervision may be held responsible for the actions of the companies with which they contract. Additionally, the OCC has issued similar guidance for institutions under its supervision, which apply to bank partners and would apply to Oportun Bank (if established as a national bank). Accordingly, we could be adversely impacted to the extent our vendors fail to comply with the legal requirements applicable to the particular products or services being offered. Our use of third-party vendors is subject to increasing regulatory attention.

The CFPB, the OCC, and other regulators have issued and may issue additional regulatory guidance to focus on the need for financial institutions to perform increased due diligence and ongoing monitoring of third-party vendor relationships, thus increasing the scope of management involvement and decreasing the benefit that we receive from using third-party vendors. Moreover, if our regulators conclude that we have not met the heightened standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary penalties, supervisory orders to cease and desist or other remedial actions.

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In some cases, third-party vendors are the sole source, or one of a limited number of sources, of the services they provide to us. Most of our vendor agreements are terminable on little or no notice, and if our current vendors were to stop or were unable to continue providing services to us on acceptable terms, we may be unable to procure alternatives from other vendors in a timely and efficient manner on acceptable terms or at all. If any third-party vendor fails to provide the services we require, due to factors outside our control, we could be subject to regulatory enforcement actions, suffer economic and reputational harm and incur significant costs to resolve any such disruptions in service.

If we lose the services of any of our key management personnel, our business could suffer.

Our future success significantly depends on the continued service and performance of our key management personnel. Competition for these employees is intense and we may not be able to replace, attract and retain key personnel. We do not maintain key-man insurance for every member of our senior management team. The loss of the service of our senior management team or key team members, and the process to replace any of them, or the inability to attract additional qualified personnel as needed, all of which would involve significant time and expense, could harm our business.

Competition for our highly skilled employees is intense, and we may not be able to attract and retain the employees we need to support the growth of our business.

Competition for highly skilled personnel, including engineering and data analytics personnel, is extremely intense, particularly in the San Francisco Bay Area where our headquarters is located. We have experienced and expect to continue to face difficulty identifying and hiring qualified personnel in many areas, especially as we pursue our growth strategy. In addition, the recent move by companies to offer a remote or hybrid work environment may increase the competition for such employees from employers outside of our geographic footprint. We may not be able to hire or retain such personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In particular, employee candidates, specifically in high-technology industries, often consider the value of any equity they may receive in connection with their employment, so significant volatility or a decline in the price of our stock may adversely affect our recruitment strategies. Additionally, changes to U.S. immigration policies, as well as restrictions on global travel due to public health crises requiring quarantines or other precautions to limit exposure to infectious diseases, may limit our ability to hire and/or retain talent.

In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve our customers could be adversely affected.

We are dependent on hiring an adequate number of hourly bilingual employees to run our business and are subject to government regulations concerning these and our other employees, including minimum wage laws.

Our workforce is comprised primarily of bilingual employees who work on an hourly basis. In certain areas where we operate, there is significant competition for hourly bilingual employees and the lack of availability of an adequate number of hourly bilingual employees could adversely affect our operations. In addition, we are subject to applicable rules and regulations relating to our relationship with our employees, including minimum wage and break requirements, health benefits, unemployment and sales taxes, overtime and working conditions and immigration status. We are from time to time subject to employment-related claims, including wage and hour claims. Further, legislated increases in minimum wage, as well as increases in additional labor cost components, such as employee benefit costs, workers’ compensation insurance rates, and compliance costs and fines, would increase our labor costs, which could have an adverse effect on our business.

Our mission to provide inclusive, affordable financial services that empower our customers to build a better future may conflict with the short-term interests of our stockholders.

Our mission is to provide inclusive, affordable financial services that empower our customers to build a better future. Therefore, we have made in the past, and may make in the future, decisions that we believe will benefit our customers and therefore provide long-term benefits for our business, even if our decision negatively impacts our short-term results of operations. For example, we constrain the maximum interest rates we charge in order to further our goal of making our loans affordable for our target customers. Our decisions may negatively impact our short-term financial results or not provide the long-term benefits that we expect and may decrease the spread between the interest rate at which we lend to our customers and the rate at which we borrow from our lenders.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, collaboration and focus on the mission that contribute to our business.*

We believe that a critical component of our success is our corporate culture and our deep commitment to our mission. We believe this mission-based culture fosters innovation, encourages teamwork and cultivates creativity. Our mission defines our business philosophy as well as the emphasis that we place on our customers, our people and our culture and is consistently reinforced to and by our employees. As we continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture and our long-term mission. We recently adopted a remote-first policy that permits most of our employees to work remotely should their particular positions allow. While we believe that most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed and many employees may have additional personal needs to attend to or distractions in their remote work environment. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork, and effectively focus on and pursue our mission and corporate objectives.

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Misconduct by our employees could harm us by subjecting us to monetary loss, significant legal liability, regulatory scrutiny and reputational harm.

Our reputation is critical to maintaining and developing relationships with our existing and potential customers and third parties with whom we do business. There is a risk that our employees could be accused of or engage in misconduct that adversely affects our business, including fraud, theft, the redirection, misappropriation or otherwise improper execution of loan transactions, disclosure of personal and business information and the failure to follow protocol when interacting with customers that could lead us to suffer direct losses from the activity as well as serious reputational harm. Employee misconduct could also lead to regulatory sanctions and prompt regulators to allege or to determine based upon such misconduct that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect and deter violations of such rules. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could harm our reputation and our business.

Our international operations and offshore service providers involve inherent risks which could result in harm to our business.*

As of September 30, 2021, we had 1,519 employees related to three contact centers in Mexico. These employees provide certain English/Spanish bilingual support related to customer-facing contact center activities, administrative and technology support of the contact centers and back-office support services. We have also engaged outsourcing partners in the United States that provide offshore customer-facing contact center activities in Mexico, Colombia, and Jamaica, and may in the future include additional locations in other countries. In addition, we opened a technology development center in India in 2019, staffed through outsourcing partners, and more recently, our own employees. We have engaged vendors that utilize employees or contractors based outside of the United States. As of September 30, 2021, our outsourcing partners have provided us, on an exclusive basis, the equivalent of 468 full-time equivalents in Colombia, Jamaica, and India. These international activities are subject to inherent risks that are beyond our control, including:

risks related to government regulation or required compliance with local laws;
local licensing and reporting obligations;
difficulties in developing, staffing and simultaneously managing a number of varying foreign operations as a result of distance, language and cultural differences;
different, uncertain, overlapping or more stringent local laws and regulations;
political and economic instability, tensions, security risks and changes in international diplomatic and trade relations;
state or federal regulations that restrict offshoring of business operational functions or require offshore partners to obtain additional licenses, registrations or permits to perform services on our behalf;
geopolitical events, including natural disasters, public health issues, epidemics or pandemics, acts of war, and terrorism;
the impact of, and response of local governments to, the COVID-19 pandemic;
compliance with applicable U.S. laws and foreign laws related to consumer protection, intellectual property, privacy, data security, corruption, money laundering, and export/trade control;
misconduct by our outsourcing partners and their employees or even unsubstantiated allegations of misconduct;
risks due to lack of direct involvement in hiring and retaining personnel; and
potentially adverse tax developments and consequences.

Violations of the complex foreign and U.S. laws, rules and regulations that apply to our international operations and offshore activities of our service providers may result in heightened regulatory scrutiny, fines, criminal actions or sanctions against us, our directors, our officers or our employees, as well as restrictions on the conduct of our business and reputational damage.

If we discover a material weakness in our internal control over financial reporting that we are unable to remedy or otherwise fail to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to report our financial results on a timely and accurate basis and the market price of our common stock may be adversely affected.

We have developed our disclosure controls, internal control over financial reporting and other procedures to ensure information required to be disclosed by us in the reports that we will file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate we will continue to expend significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. If our internal controls are perceived as inadequate or we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

Section 404 of the Sarbanes-Oxley Act requires our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. We are also required to have our independent registered public accounting firm attest to, and issue an opinion on, the effectiveness of our internal control over financial reporting. If we are unable to assert that our internal control over financial reporting is effective, or if, when required, our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could subject us to sanctions or investigations by the SEC or other regulatory authorities, adversely affect our ability to access the credit markets and sell additional equity and commit additional financial and management resources to remediate deficiencies.
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Our business is subject to the risks of natural disasters, public health crises and other catastrophic events, and to interruption by man-made problems.*

A significant natural disaster, such as an earthquake, fire, hurricanes, flood or other catastrophic event (many of which are becoming more acute and frequent as a result of climate change), or interruptions by strikes, crime, terrorism, social unrest, cyber-attacks, pandemics or other public health crises, power outages or other man-made problems, could have an adverse effect on our business, results of operations and financial condition. Our headquarters is located in the San Francisco Bay Area, and our systems are hosted in multiple data centers across Northern California, a region known for seismic activity and wildfires and related power outages. Additionally, certain of our contact centers and retail locations are located in areas prone to natural disasters, including earthquakes, tornadoes, and hurricanes, and certain of our retail locations and our contact centers may be located in areas with high levels of criminal activities.

Our IT systems are backed up regularly to highly available, alternate data centers in a different region, and we have conducted disaster recovery testing of our mission critical systems. Despite any precautions we may take, however, the occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our services. In addition, acts of war, terrorism, and other geopolitical unrest could cause disruptions in our business and lead to interruptions, delays or loss of critical data.

In addition, a large number of customers make payments and apply for loans at our retail locations. If one or more of our retail locations becomes unavailable for any reason, including as a result of the COVID-19 pandemic or other public health crisis, localized weather events, or natural or man-made disasters, our ability to conduct business and collect payments from customers on a timely basis may be adversely affected, which could result in lower loan originations, higher delinquencies and increased losses. For example, during parts of the COVID-19 pandemic, we temporarily closed a few of our retail locations due to public health orders or other concerns, which we believe resulted in lower Aggregate Originations. While all of our retail locations are currently open, it is possible that we will have to temporarily close retail locations as necessary due to public health orders or other concerns relating to COVID-19 or other highly contagious disease. The closure of retail locations could further adversely affect our loan originations, customer experience, results of operations, and financial condition.

All of the aforementioned risks may be further increased if our business continuity plans prove to be inadequate and there can be no assurance that both personnel and non-mission critical applications can be fully operational after a declared disaster within a defined recovery time. If our personnel, systems, or primary data center facilities are impacted, we may suffer interruptions and delays in our business operations. In addition, to the extent these events impact our customers or their ability to timely repay their loans, our business could be negatively affected.

We may not maintain sufficient business interruption or property insurance to compensate us for potentially significant losses, including potential harm to our business that may result from interruptions in our ability to provide our financial products and services.

Unfavorable outcomes in legal proceedings may harm our business and results of operations.

We are, and may in the future become, subject to litigation, claims, investigations, legal and administrative cases and proceedings, whether civil or criminal, or lawsuits by governmental agencies or private parties, which may affect our results of operations. See Item 1. Legal Proceedings for more information regarding this and other proceedings.

If the results of any pending or future legal proceedings are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay monetary damages or fulfill our indemnification obligations or we may be subject to fines, penalties, injunctions or other censure. Even if we adequately address the issues raised by an investigation or proceeding or successfully defend a third-party lawsuit or counterclaim, we may have to devote significant financial and management resources to address these issues.

The enactment of tax reform legislation could adversely impact our financial position and results of operations.*

Legislation or other changes in U.S. and international tax laws could increase our liability and adversely affect our after-tax profitability. For example, the Biden administration has proposed to increase the U.S. corporate income tax rate to 28% from 21%, increase the U.S. taxation of our international business operations and impose a global minimum tax. Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses and net deferred tax assets in future periods.

Risks Related to Our Intellectual Property

It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection.

Our ability to lend to our customers depends, in part, upon our proprietary technology. We may be unable to protect our proprietary technology effectively which would allow competitors to duplicate our products and adversely affect our ability to compete with them. We rely on a combination of copyright, trade secret, trademark laws and other rights, as well as confidentiality procedures and contractual provisions to protect our proprietary technology, processes and other intellectual property and do not have patent protection. However, the steps we take to protect our intellectual property rights may be inadequate. For example, a third party may attempt to reverse engineer or otherwise obtain and use our proprietary technology without our consent. The pursuit of a claim against a third party for infringement of our intellectual property could be costly, and there can be no guarantee that any such efforts would be successful. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

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We have been, and may in the future be, sued by third parties for alleged infringement of their proprietary rights.

Our proprietary technology, including our credit risk models, may infringe upon claims of third-party intellectual property, and we may face intellectual property challenges from such other parties. The expansion of our suite of financial products and services may create additional trademark risk. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. If we are unsuccessful, such claim or litigation could result in a requirement that we pay significant damages or licensing fees, which would negatively impact our financial performance. We may also be obligated to indemnify parties or pay substantial legal settlement costs, including royalty payments, and to modify applications or refund fees. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time consuming and divert the attention of our management and key personnel from our business operations.

For example, in January 2018, we received a complaint by a third party alleging various claims for trademark infringement, unfair competition, trademark dilution and misappropriation against us. The complaint calls for monetary damages and injunctive relief requiring us to cease using our trademarks. We believe this claim is without merit and intend to vigorously defend this matter. The final outcome with respect to the claims in the lawsuits, including our liability, if any, is uncertain. Furthermore, we cannot be certain that any of these claims would be resolved in our favor. For example, an adverse litigation ruling against us could result in a significant damages award against us, could result in injunctive relief, could result in a requirement that we make substantial royalty payments, and could result in the cancellation of certain Oportun trademarks which would require that we rebrand. Moreover, an adverse finding could cause us to incur substantial expense, could be a distraction to management, and any rebranding as a result may not be well received in the market. To the extent that we reach a negotiated settlement, the settlement could require that we pay substantial compensation and could require that we make modifications to our name, branding, marketing materials, and advertising that may not be well received in the market. See Item 1. Legal Proceedings for more information regarding these proceedings.

Moreover, it has become common in recent years for individuals and groups to purchase intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies such as ours. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management and employees. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations. In other cases, our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant.

Our credit risk models and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.

Our credit risk models and internal systems rely on internally developed software that is highly technical and complex. In addition, our models and internal systems depend on the ability of such software to store, retrieve, process and manage immense amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected errors, bugs or other defects, which risk may be heightened in light of the numerous changes we have implemented to our systems in a short amount of time in reaction to the COVID-19 pandemic. Some errors may only be discovered after the code has been released for external or internal use. Errors, bugs or other defects within the software on which we rely may result in a negative experience for our customers, result in errors or compromise our ability to protect customer data or our intellectual property. Specifically, any defect in our credit risk models could result in the approval of unacceptably risky loans. Such defects could also result in harm to our reputation, loss of customers, loss of revenue, adjustments to the fair value of our Fair Value Loans or Fair Value Notes, challenges in raising debt or equity, or liability for damages, any of which could adversely affect our business and results of operations.

Some aspects of our business processes include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

We incorporate open source software into processes supporting our business. Such open source software may include software covered by licenses like the GNU General Public License and the Apache License. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that limits our use of the software, inhibits certain aspects of our systems and negatively affects our business operations.

Some open source licenses contain requirements that we make source code available at no cost for modifications or derivative works we create based upon the type of open source software we use. We may face claims from third parties claiming ownership of, or demanding the release or license of, such modifications or derivative works (which could include our proprietary source code or credit risk models) or otherwise seeking to enforce the terms of the applicable open source license. If portions of our proprietary credit risk models are determined to be subject to an open source license, or if the license terms for the open source software that we incorporate change, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our model or change our business activities, any of which could negatively affect our business operations and our intellectual property rights.

In addition to risks related to license requirements, the use of open source software can lead to greater risks than the use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open source software.

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Risks Related to Our Industry and Regulation

The lending industry is highly regulated. Changes in regulations or in the way regulations are applied to our business could adversely affect our business.

Our business is subject to numerous federal, state and local laws and regulations. Statutes, regulations and policies affecting lending institutions are continually under review by Congress, state legislatures and federal and state regulatory agencies. Changes in laws or regulations, or the regulatory application or interpretation of the laws and regulations applicable to us, could adversely affect our ability to operate in the manner in which we currently conduct business. Such changes in, and in the interpretation and enforcement of, laws and regulations may also make it more difficult or costly for us to originate additional loans, or for us to collect payments on our loans to customers or otherwise operate our business by subjecting us to additional licensing, registration and other regulatory requirements in the future. For instance, bills have been introduced in Congress and in several states in recent years proposing various usury caps and other provisions that could otherwise greatly restrict the rates and fees that lenders can charge customers for late and returned payments. If such a bill were to be enacted, it could restrict profitability for us.

Furthermore, judges or regulatory agencies could interpret current rules or laws differently than the way we do, leading to such adverse consequences as described above. A failure to comply with any applicable laws or regulations could result in regulatory actions, loss of licenses, lawsuits and damage to our reputation, any of which could have an adverse effect on our business and financial condition and our ability to originate and service loans and perform our obligations to investors and other constituents. It could also result in a default or early amortization event under our debt facilities and reduce or terminate availability of debt financing to us to fund originations.

Our failure to comply with the regulations in the jurisdictions in which we conduct our business could harm our results of operations.

Federal and state agencies have broad enforcement powers over us, including powers to periodically examine and continuously monitor our operations and to investigate our business practices and broad discretion to deem particular practices unfair, deceptive, abusive or otherwise not in accordance with the law. All of our operations are subject to regular examination by state regulators and, in the future, may be subject to regular examination by federal regulators. These examinations may result in requirements to change our policies or practices, and in some cases, we may be required to pay monetary fines or make reimbursements to customers.

State attorneys general have a variety of legal mechanisms at their disposal to enforce state and federal consumer financial laws. For example, Section 1042 of the Dodd-Frank Act grants state attorneys general the ability to enforce the Dodd-Frank Act and regulations promulgated under the Dodd-Frank Act’s authority and to secure remedies provided in the Dodd-Frank Act against entities within their jurisdiction. State attorneys general also have enforcement authority under state law with respect to unfair or deceptive practices. Also, the California Consumer Financial Protection Law expands the jurisdiction of and reorganizes the existing state regulator to have broad authority over providers of financial services and products and gives the regulator broad enforcement authority against covered persons with respect to unfair, deceptive or abusive act and discrimination violations. Generally, under these statutes, state attorneys general may conduct investigations, bring actions, and recover civil penalties or obtain injunctive relief against entities engaging in unfair, deceptive, or fraudulent acts. Attorneys general may also coordinate among themselves to enter into multi-state actions or settlements. Finally, several consumer financial laws like the Truth in Lending Act and Fair Credit Reporting Act grant enforcement or litigation authority to state attorneys general.

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations, but we may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have an adverse effect on our operations. There is also a chance that a regulator will believe that we or our service providers or strategic partners should obtain additional licenses above and beyond those currently held by us or our service providers, if any. Changes in laws or regulations applicable to us could subject us or our service providers to additional licensing, registration and other regulatory requirements in the future or could adversely affect our ability to operate or the manner in which we conduct business, including restrictions on our ability to open retail locations in certain counties, municipalities or other geographic locations.

A failure to comply with applicable laws and regulations could result in additional compliance requirements, limitations on our ability to collect all or part of the principal of or interest on loans, fines, an inability to continue operations, regulatory actions, loss of our license to transact business in a particular location or state, lawsuits, potential impairment, voiding, or voidability of loans, rescission of contracts, civil and criminal liability and damage to our reputation.

A proceeding relating to one or more allegations or findings of our violation of law could also result in modifications in our methods of doing business, including our servicing and collections procedures. It could result in the requirement that we pay damages and/or cancel the balance or other amounts owing under loans associated with such violation. It could also result in a default or early amortization event under certain of our debt facilities and reduce or terminate availability of debt financing to us to fund originations. To the extent it is determined that the loans we make to our customers were not originated in accordance with all applicable laws as we are required to represent under our securitization and other debt facilities and in loan sales to investors, we could be obligated to repurchase for cash, or swap for qualifying assets, any such loan determined not to have been originated in compliance with legal requirements. We may not have adequate liquidity and resources to make such cash repurchases or swap for qualifying assets.

For more information with respect to the regulatory framework affecting our businesses, see “Business - Regulations and Compliance” in our 2020 Form 10-K.

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Financial regulatory reform relating to asset-backed securities has not been fully implemented and could have a significant impact on our ability to access the asset-backed securities market.

We rely upon asset-backed financing for a significant portion of our funds with which to carry on our business. Asset-backed securities and the securitization markets were heavily affected by the Dodd-Frank Act and have also been a focus of increased regulation by the SEC. For example, the Dodd-Frank Act mandates the implementation of rules requiring securitizers or originators to retain an economic interest in a portion of the credit risk for any asset that they securitize or originate. Furthermore, sponsors are prohibited from diluting the required risk retention by dividing the economic interest among multiple parties or hedging or transferring the credit risk the sponsor is required to maintain. Rules relating to securitizations rated by nationally-recognized statistical rating agencies require that the findings of any third-party due diligence service providers be made publicly available at least five business days prior to the first sale of securities, which has led and will continue to lead us to incur additional costs in connection with each securitization.

However, some of the regulations to be implemented under the Dodd-Frank Act relating to securitization have not yet been finalized. Additionally, there is general uncertainty regarding what changes, if any, may be implemented with regard to the Dodd-Frank Act. Any new rules or changes to the Dodd-Frank Act (or the current rules thereunder) could adversely affect our ability and our cost to access the asset-backed securities market.

Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses.*

In the ordinary course of business, we have been named as a defendant in various legal actions, including class actions and other litigation. Generally, this litigation arises from the dissatisfaction of a consumer with our products or services; some of this litigation, however, has arisen from other matters, including claims of violation of do-not-call, credit reporting and collection laws, bankruptcy and practices. The complexity of the laws related to secured personal loans regarding vehicle titling and repossession may enhance the risk of consumer litigation. Further, the origination of loans through bank partnerships may increase the risk of litigation or regulatory scrutiny including based on the "true lender" theory that seeks to recharacterize a lending transaction. All such legal and regulatory actions are inherently unpredictable and, regardless of the merits of the claims, legal and regulatory actions are often expensive, time-consuming, disruptive to our operations and resources, and distracting to management. In addition, certain of those actions include claims for indeterminate amounts of damages. Our involvement in any such matter also could cause significant harm to our reputation and divert management attention from the operation of our business, even if the matters are ultimately determined in our favor. If resolved against us, legal actions could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business. We have in the past chosen to settle (and may in the future choose to settle) certain matters in order to avoid the time and expense of litigating them. Although none of the settlements has been material to our business, there is no assurance that, in the future, such settlements will not have a material adverse effect on our business.

In addition, a number of participants in the consumer financial services industry have been the subject of putative class action lawsuits, state attorney general actions and other state regulatory actions, federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive or abusive acts or practices, violations of state licensing and lending laws, including state usury laws, actions alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases, and allegations of noncompliance with various state and federal laws and regulations relating to originating and servicing consumer finance loans and other consumer financial services and products. The current regulatory environment, increased regulatory compliance efforts, and enhanced regulatory enforcement have resulted in significant operational and compliance costs and may prevent us from providing certain products and services. There is no assurance that these regulatory matters or other factors will not, in the future, affect how we conduct our business or adversely affect our business. In particular, legal proceedings brought under state consumer protection statutes or under several of the various federal consumer financial services statutes subject to the jurisdiction of the CFPB may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities.

Some of our consumer financing agreements include arbitration clauses. If our arbitration agreements were to become unenforceable for any reason, we could experience an increase to our consumer litigation costs and exposure to potentially damaging class action lawsuits.

In addition, from time to time, through our operational and compliance controls, we identify compliance issues that require us to make operational changes and, depending on the nature of the issue, result in financial remediation to impacted customers. These self-identified issues and voluntary remediation payments could be significant, depending on the issue and the number of customers impacted, and could generate litigation or regulatory investigations that subject us to additional risk.

Internet-based and electronic signature-based loan origination processes may give rise to greater risks than paper-based processes.

We use the internet and internet-enabled mobile phones to obtain application information, distribute certain legally required notices to applicants for, and borrowers of, the loans, and to obtain electronically signed loan documents in lieu of paper documents with tangible borrower signatures. In addition, we have introduced the use of electronic signature-based loan origination processes with a tablet in our retail locations. These processes may entail greater risks than would paper-based loan origination processes, including risks regarding the sufficiency of notice for compliance with consumer protection laws, risks that borrowers may challenge the authenticity of their signature or of the loan documents, risks that a court of law may not enforce electronically signed loan documents and risks that, despite controls, unauthorized changes are made to the electronic loan documents. If any of those factors were to cause any loans, or any of the terms of the loans, to be unenforceable against the borrowers, our ability to service these loans could be adversely affected.

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The CFPB has sometimes taken expansive views of its authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other new agency could impact our business.*

The CFPB has broad authority to create and modify regulations under federal consumer financial protection laws and regulations, such as the Truth in Lending Act and Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Electronic Funds Transfer Act and Regulation E, and to enforce compliance with those laws. The CFPB is charged with the examination and supervision of certain participants in the consumer financial services market, including short-term, small dollar lenders, and larger participants in other areas of financial services. In addition, if at any point Oportun Bank holds over $10 billion in assets, which is not expected initially, the CFPB would be its primary regulator for consumer compliance purposes. The CFPB is also authorized to prevent “unfair, deceptive or abusive acts or practices” through its regulatory, supervisory and enforcement authority. To assist in its enforcement, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including the lending products we offer. This system could inform future CFPB decisions with respect to its regulatory, enforcement or examination focus. The CFPB may also request reports concerning our organization, business conduct, markets and activities and conduct on-site examinations of our business on a periodic basis if the CFPB were to determine, through its complaint system, that we were engaging in activities that pose risks to consumers.

On March 3, 2021, we received a Civil Investigative Demand (CID) from the CFPB (the "Initial CID"). The stated purpose of the Initial CID is to determine whether small-dollar lenders or associated persons, in connection with lending and debt-collection practices, have not been in compliance with certain federal consumer protection laws over which the CFPB has jurisdiction. On May 19, 2021 and September 24, 2021, we received additional information requests in the form of CIDs (the "Additional CIDs") related to the Initial CID. The information requests in the Initial CID, as well as the Additional CIDs, are focused on our legal collection practices from 2019 to 2021 and hardship treatments offered to customers during the COVID-19 pandemic.

Actions by the CFPB could result in requirements to alter or cease offering affected financial products and services, making them less attractive and restricting our ability to offer them. The CFPB could also implement rules that restrict our effectiveness in servicing our financial products and services. Future actions by the CFPB (or other regulators) against us or our competitors that discourage the use of our or their services or restrict our business activities could result in reputational harm and adversely affect our business. If the CFPB changes regulations that were adopted in the past by other regulators and transferred to the CFPB by the Dodd-Frank Act, or modifies through supervision or enforcement past regulatory guidance or interprets existing regulations in a different or stricter manner than they have been interpreted in the past by us, the industry or other regulators, our compliance costs and litigation exposure could increase materially. If future regulatory or legislative restrictions or prohibitions are imposed that affect our ability to offer certain of our products or that require us to make significant changes to our business practices, and if we are unable to develop compliant alternatives with acceptable returns, our business could be adversely affected.

The collection, storage, use, disclosure, and other processing of personal information could give rise to liabilities as a result of existing or new governmental regulation, conflicting legal requirements or differing views of personal privacy rights.*

We receive, transmit, store, and otherwise process a large volume of personally identifiable information and other sensitive data from customers and potential customers, and otherwise collect, store, use, disclose, and process other personal information, including that relating to employees. There are federal, state and foreign laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and sensitive data. Specifically, cybersecurity and data privacy issues, particularly with respect to personally identifiable information are increasingly subject to legislation and regulations to protect the privacy and security of personal information that is collected, transmitted, stored or otherwise processed.

For example, in June 2018, California enacted the California Consumer Privacy Act (the "CCPA"), which broadly defines personal information and took effect on January 1, 2020. The CCPA gives California residents expanded privacy rights and protections and provides for civil penalties for CCPA violations, in addition to providing for a private right of action for data breaches. In addition, a new ballot initiative, the California Privacy Rights Act (the "CPRA") was passed in November 2020. Effective starting on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates the California Privacy Protection Agency to enforce the laws. Some observers have noted the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential liability and adversely affect our business. For example, the CCPA has encouraged “copycat” or other similar laws to be considered and proposed in other states across the country, such as in Virginia, New Hampshire, Illinois and Nebraska. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, a comprehensive privacy statute that becomes effective on January 1, 2023 and shares similarities with the CCPA, CPRA, and legislation proposed in other states. Whereas we have implemented measures designed to comply with applicable obligations under the CCPA and other applicable laws and regulations relating to privacy, data protection and information security, several other states are working to pass comprehensive privacy laws and compliance with these and other current and future laws and regulations relating to privacy, data protection and information security could result in higher compliance, technical or operating costs, require significant changes to our operations or prevent us from providing our products and services or certain features. Despite our efforts to comply with applicable laws, regulations, and other obligations relating to privacy, data protection and information security, it is possible that our interpretations of the law, practices or products and services could be inconsistent with or fail or be alleged to fail to meet all requirements of, such laws, regulations or obligations. Our failure, or the failure by our third-party providers or others with whom we do business, to comply with applicable laws or regulations or any other obligations relating to privacy, data protection or information security, or the perception that any of the foregoing has occurred, could damage our reputation and market reputation, harm our ability to obtain market adoption, discourage new and existing customers and prospective customers from using our products and services, require us to change our business practices or operational structure or result in fines, investigations, or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, financial condition and results of operations.

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In addition, an increase in third-party arrangements, including, for example, with lead aggregators and retail referral partners, could lead to increased complexity around our compliance obligations with respect to these laws or regulations. We could also be adversely affected if new legislation or regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems, products or services or require changes to our business practices or policies relating to privacy, data protection, or information security. Even if not subject to legal challenge, the perception of concerns relating to privacy, data protection and information security, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition, and results of operations. For example, on April 21, 2021, the United States Court of Appeals for the Eleventh Circuit issued an opinion in Hunstein v. Preferred Collection and Management Services, Inc., holding that a debt collector’s transmittal of the plaintiff’s personal information to the vendor used to generate and send collection letters violated the federal Fair Debt Collections Practices Act’s (the “FDCPA”) provision which generally prohibits a debt collector from communicating with anyone other than the debtor in connection with the collection of any debt without the debtor’s consent. Although we do not utilize third-party debt collectors and collect our own debts, and as a result are not directly subject to the requirements of the FDCPA, including those at issue in Hunstein, certain states in which we operate have state laws that either incorporate the FDCPA’s provisions and apply them to lenders collecting their own debts, or include similar provisions which apply to lenders collecting their own debts. None of the states in the Eleventh Circuit have such provisions in their laws. However, if other courts were to decide cases in a similar manner to Hunstein, we could determine that changes to our business practices, policies, and procedures are necessary, including the arrangements we have in place with certain of our third-party vendors that require us to share consumer information. These changes could adversely affect our ability to collect and as a result, our results of operations and financial condition could be negatively impacted.

We may have to constrain our business activities to avoid being deemed an investment company under the Investment Company Act.

The Investment Company Act of 1940, as amended (the "Investment Company Act") contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. We believe we have conducted, and we intend to continue to conduct, our business in a manner that does not result in our company being characterized as an investment company, including by relying on certain exemptions from registration as an investment company. We rely on guidance published by the SEC staff or on our analyses of such guidance to determine our qualification under these and other exemptions. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our business operations accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could inhibit our ability to conduct our business operations. There can be no assurance that the laws and regulations governing our Investment Company Act status or SEC guidance regarding the Investment Company Act will not change in a manner that adversely affects our operations. If we are deemed to be an investment company, we may attempt to seek exemptive relief from the SEC, which could impose significant costs and delays on our business. We may not receive such relief on a timely basis, if at all, and such relief may require us to modify or curtail our operations. If we are deemed to be an investment company, we may also be required to institute burdensome compliance requirements and our activities may be restricted.

Our bank partnership products may lead to regulatory risk and may increase our regulatory burden.*

We currently have a bank partnership program with WebBank for our credit card product. In August 2021, we rolled out a bank partnership program with MetaBank, N.A. to offer unsecured installment loans.

State and federal agencies have broad discretion in their interpretation of laws and their interpretation of requirements related to bank partnership programs and may elect to alter standards or the interpretation of the standards applicable to these programs. There has been state legislative action, litigation, and regulatory enforcement that has challenged, or is currently challenging, the contention that a bank acting as a loan’s lender is the true lender and asserting that the party providing the source of loan financing or marketing, purchasing and servicing the loan, is instead the true lender. In the event of any recharacterization of the applicable originator’s status as a true lender, any affected customer loans may not be enforceable, could be subject to offset and may further result in fines, penalties, damages, compliance costs or related operational burdens. Additionally, the OCC and Federal Deposit Insurance Corporation ("FDIC") recently issued "Valid when made" rules for which both regulators were sued by various states. The “true lender” rule issued by the OCC and effective as of December 2020 was recently repealed under the Congressional Review Act. The uncertainty of the federal and state regulatory environments around bank partnership programs means that our efforts to launch an installment loan product through a bank partner may not ultimately be successful, or it may be challenged by federal legislation or regulatory action, or by one or more states in which we have or intend to launch such a program. Our business may also be adversely affected if we are unable to continue our bank partnership programs in existing states or expand into new states due to legislative or regulatory changes, court decisions or other governmental action that challenge the use of bank partnership programs. Furthermore, federal regulation of the banking industry, along with tax and accounting laws, regulations, rules and standards may limit the business activity of banks and affiliates under these structures and control the method by which we can conduct business. Regulation by a federal banking regulator may also subject us to increased compliance, legal and operational costs, and could subject our business model to scrutiny or limit our ability to expand the scope of our activities in a manner that could have a material adverse effect on us.

We may pursue a national bank charter which could subject us to significant new regulation.*

In November 2020, we applied to obtain a national bank charter through the establishment of a de novo bank to, among other things, allow us to offer additional products and services, provide us with new sources of lower cost funding and give our business regulatory clarity. On October 8, 2021, we announced that we were voluntarily withdrawing our previously filed application and planned to amend elements of the application to reflect changes in our business. If we were to reapply for a national bank charter and an approval was received, the OCC’s approval may be conditioned on requirements that we enhance our governance, compliance, controls and management infrastructure and capabilities in order to be compliant with all applicable regulations and operate to the satisfaction of the banking regulators. Additionally, such conditions may require substantial changes to our origination, servicing or collection practices, policies and procedures or other business practices or initiatives.

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If we were to reapply and a preliminary conditional approval was received, it is anticipated that we would be required, as a condition, to apply for and receive approval on our FDIC insurance application and our application with the Federal Reserve to become a bank holding company. Preliminary conditional approval does not guarantee that Oportun Bank would receive final approval from the OCC or commence operations within a specific time frame or at all. There can be no assurances that we will successfully complete the national bank application and approval process, and it is possible that we could establish or acquire a banking entity in a different form, or none at all.

If we were to obtain a national bank charter, we would be subject to supervision and regulation by the OCC under the National Bank Act, by the FDIC and by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act which could be subject to certain restrictions and requirements, including capital requirements and shareholder requirements. In addition, if at any point Oportun Bank holds over $10 billion in assets, which is not expected initially, the CFPB would be its primary regulator for consumer compliance purposes. Due to their broad authority to regulate compliance, as well as safety and soundness, examinations by such federal regulators may involve more scrutiny or cover a broader range than those examinations conducted by our current regulators.

In addition, as a bank holding company, we would generally be prohibited from engaging, directly or indirectly, in any activities other than those permissible for bank holding companies. This restriction might limit our ability to pursue future business opportunities which we might otherwise consider but which might fall outside the scope of permissible activities.

If we obtain a national bank charter, certain of our stockholders may need to comply with applicable federal banking statutes and regulations, including the Change in Bank Control Act and the Bank Holding Company Act. Specifically, stockholders holding 10.0% or more of our voting interests may be required to provide certain information and/or commitments on a confidential basis to, among other regulators, the Federal Reserve. This requirement may deter certain existing or potential stockholders from purchasing shares of our common stock, which may suppress demand for the stock and cause the price to decline.

Oportun Bank would be subject to similar additional regulation if established as a banking entity in another form. Our efforts to comply with such additional regulation may require substantial time and monetary commitments. If any new regulations or interpretations of existing regulations to which we are subject impose requirements on us that are impractical or that we cannot satisfy, our financial performance may be adversely affected.

If we are unable to obtain or decide not to pursue a national bank charter, our ability to grow, improve our capital efficiency, or funding resilience, may be adversely affected. Without a national bank charter, we would be required to continue to maintain several state licenses and our business, including our ability to offer a broader range of products and services, may be adversely affected.

Anti-money laundering, anti-terrorism financing and economic sanctions laws could have adverse consequences for us.

We maintain a compliance program designed to enable us to comply with all applicable anti-money laundering and anti-terrorism financing laws and regulations, including the Bank Secrecy Act and the USA PATRIOT Act and U.S. economic sanctions laws administered by the Office of Foreign Assets Control. This program includes policies, procedures, processes and other internal controls designed to identify, monitor, manage and mitigate the risk of money laundering and terrorist financing and engaging in transactions involving sanctioned countries persons and entities. These controls include procedures and processes to detect and report suspicious transactions, perform customer due diligence, respond to requests from law enforcement, and meet all recordkeeping and reporting requirements related to particular transactions involving currency or monetary instruments. No assurance is given that our programs and controls will be effective to ensure compliance with all applicable anti-money laundering and anti-terrorism financing laws and regulations, and our failure to comply with these laws and regulations could subject us to significant sanctions, fines, penalties and reputational harm.

We are subject to governmental export and import controls that could subject us to liability, impair our ability to compete in international markets and adversely affect our business.

Although our business does not involve the commercial sale or distribution of hardware, software or technology, in the normal course of our business activities we may from time to time ship general commercial equipment outside the United States to our subsidiaries or affiliates for their internal use. In addition, we may export, transfer or provide access to software and technology to non-U.S. persons such as employees and contractors, as well as third-party vendors and consultants engaged to support our business activities. In all cases, the sharing of software and/or technology is solely for the internal use of the company or for the use by business partners to provide services to us, including software development. However, such shipments and transfers may be subject to U.S. and foreign regulations governing the export and import of goods, software and technology. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to significant sanctions, fines, penalties and reputational harm. Further, any change in applicable export, import or economic sanctions regulations or related legislation, shift in approach to the enforcement or scope of existing regulations or change in the countries, persons or technologies targeted by these regulations could adversely affect our business.

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Risks Related to Our Indebtedness

We have incurred substantial debt and may issue debt securities or otherwise incur substantial debt in the future, which may adversely affect our financial condition and negatively impact our operations.

We have in the past incurred, and expect to continue to incur, substantial debt to fund our loan activities. We depend on securitization transactions, warehouse facilities, whole loan sales and other forms of debt financing in order to finance the growth of our business and the origination of most of the loans we make to our customers. The incurrence of debt could have a variety of negative effects, including:

default and foreclosure on our and our subsidiaries’ assets if asset performance and our operating revenue are insufficient to repay debt obligations;
mandatory repurchase obligations for any loans conveyed or sold into a debt financing or under a whole loan purchase facility if the representations and warranties we made with respect to those loans were not correct when made;
acceleration of obligations to repay the indebtedness (or other outstanding indebtedness to the extent of cross default triggers), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios with respect to us or the loan portfolio securing our indebtedness or the maintenance of certain reserves or tangible net worth and do not obtain a waiver for such breach or renegotiate our covenant;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
our inability to obtain necessary additional financing if changes in the characteristics of our loans or our collection and other loan servicing activities change and cease to meet conditions precedent for continued or additional availability under our debt financings;
diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions, and other general corporate purposes;
creating limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
defaults based on loan portfolio performance or default in our collection and loan servicing obligations could result in our being replaced by a third-party or back-up servicer and notification to our customers to redirect payments;
downgrades or revisions of agency ratings for our debt financing; and
monitoring, administration and reporting costs and expenses, including legal, accounting and other monitoring reporting costs and expenses, required under our debt financings.

In addition, our Personal Loan Warehouse facility carries a floating rate of interest linked to LIBOR. In July 2017, the U.K. announced the discontinuation of LIBOR which could result in interest rate increases on our Personal Loan Warehouse facility which could adversely affect our results of operations.

A breach of early payment triggers or covenants or other terms of our agreements with lenders could result in an early amortization, default, and/or acceleration of the related funding facilities.

The primary funding sources available to support the maintenance and growth of our business include, among others, asset-backed securitization, revolving debt facilities (including the Secured Financing facilities) and whole loan sale facilities. Our liquidity would be adversely affected by our inability to comply with various conditions precedent to availability under these facilities (including the eligibility of our loans), covenants and other specified requirements set forth in our agreements with our lenders which could result in the early amortization, default and/or acceleration of our existing facilities. Such covenants and requirements include financial covenants, portfolio performance covenants and other events. For example, our securitizations contain collateral performance threshold triggers related to the three-month average annualized gross charge–off or net charge-off rate which, if exceeded, would lead to early amortization. If the economic impact of the COVID-19 pandemic causes our charge-offs to increase; depending upon how high charge-offs increase, the thresholds on our securitizations could be exceeded leading to an early amortization event. In addition, in response to the COVID-19 pandemic, we implemented certain credit tightening measures. Those measures, combined with lower customer demand, have led to lower originations. As such, to support our collateral requirements under our financing agreements, we have been using a random selection process to take loans off our warehouse line to pledge to our securitizations. An inability to originate enough loans to meet the collateral requirements in our financing arrangements, could result in the early amortization, default and/or acceleration of our existing facilities. Moreover, we currently act as servicer with respect to the unsecured consumer loans held by our subsidiaries. If we default in our servicing obligations or fail to meet certain financial covenants, an early amortization event or event of default could occur, and/or we could be replaced by our backup servicer or another replacement servicer. If we are replaced as servicer to these loans, there is no guarantee that the backup services will be adequate. Any disruptions in services may cause the inability to collect and process repayments. For more information on covenants, requirements and events, see Note 8 of the Notes to the Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report.

During an early amortization period or if an event of default exists, principal and interest collections from the loans in our asset-backed facilities would be applied to repay principal under such facilities and principal collections would no longer be available on a revolving basis to fund purchases of newly originated loans. If an event of default exists under our revolving debt or loan sale facilities, the applicable lenders’ or purchasers’ commitments to extend further credit or purchase additional loans under the related facility would terminate. If loan collections were insufficient to repay the amounts due under our securitizations and our revolving debt facility, the applicable lenders, trustees and noteholders could seek remedies, including against the collateral pledged under such facilities.

An early amortization event or event of default would negatively impact our liquidity, including our ability to originate new loans, and require us to rely on alternative funding sources. This may increase our funding costs or alternative funding sources might not be available when needed. If
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we were unable to arrange new or alternative methods of financing on favorable terms, we might have to curtail the origination of loans, and we may be replaced by our backup servicer or another replacement servicer.

Our securitizations and whole loan sales may expose us to certain risks, and we can provide no assurance that we will be able to access the securitization or whole loan sales market in the future, which may require us to seek more costly financing.*

We have securitized, and may in the future securitize, certain of our loans to generate cash to originate new loans or pay our outstanding indebtedness. In each such transaction and in connection with our warehouse facilities, we sell and convey a pool of loans to a special purpose entity ("SPE"). Concurrently, each SPE issues notes or certificates pursuant to the terms of an indenture. The securities issued by the SPE are secured by the pool of loans owned by the SPE. In exchange for the sale of a portion of the pool of loans to the SPE, we receive cash, which are the proceeds from the sale of the securities. We also contribute a portion of the pool of loans in consideration for the equity interests in the SPE. Subject to certain conditions in the indenture governing the notes issued by the SPE (or the agreement governing the SPE’s revolving loan), the SPE is permitted to purchase additional loans from us or distribute to us residual amounts received by it from the loan pool, which residual amounts are the cash amounts remaining after all amounts payable to service providers and the noteholders have been satisfied. We also have the ability to swap pools of loans with the SPE. Our equity interest in the SPE is a residual interest in that it entitles us as the equity owner of the SPE to residual cash flows, if any, from the loans and to any assets remaining in the SPE once the notes are satisfied and paid in full (or in the case of a revolving loan, paid in full and all commitments terminated). As a result of challenging credit and liquidity conditions, the value of the subordinated securities we retain in our securitizations might be reduced or, in some cases, eliminated.

During the financial crisis that began in 2008, the securitization market was constrained, and we can give no assurances that we will be able to complete additional securitizations in the future. Similar to 2008, there is no assurance that sources of capital will continue to be available in the future on terms favorable to us or at all, particularly in light of capital markets volatility stemming from the COVID-19 pandemic. The availability of debt financing and other sources of capital depends on many factors, some of which are outside of our control. The risk of volatility surrounding the global economic system, including due to other disruptions and uncertainty surrounding the COVID-19 pandemic, continue to create uncertainty around access to the capital markets. Further, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding asset-backed securities, could result in decreased investor demand for securities issued through our securitization transactions, or increased competition from other institutions that undertake securitization transactions. In addition, compliance with certain regulatory requirements may affect the type of securitizations that we are able to complete.

If it is not possible or economical for us to securitize our loans in the future, we would need to seek alternative financing to support our operations and to meet our existing debt obligations, which may not be available on commercially reasonable terms, or at all. If the cost of such alternative financing were to be higher than our securitizations, we would likely reduce the fair value of our Fair Value Loans, which would negatively impact our results of operations.

The gain on sale generated by our whole loan sales and servicing fees earned on sold loans also represents a significant source of our earnings. Demand for our loans at the current premiums may be impacted by factors outside our control, including availability of loan pools, demand by investors for whole loan assets and attractiveness of returns offered by competing investment alternatives offered by other loan originators with more attractive characteristics than our loan pools and loan purchaser interest. In addition, currently 100% of our whole loan sales are to one third-party institutional investor. If this institutional investor were unable or unwilling to continue to purchase loans during the term of our agreement, we may choose not to or may be unable to replace the agreement with a favorable alternate whole loan sale opportunity. In that event, our revenue and liquidity may be negatively impacted, which may adversely affect our financial condition.

Our results of operations are affected by our ability to sell our loans for a premium over their net book value. Potential loan purchasers might reduce the premiums they are willing to pay, or even require a discount to principal balance, for the loans that they purchase during periods of economic slowdown or recession to compensate for any increased risks. A reduction in the sale price of the loans we sell under our whole loan sale program would likely result in a reduction in the fair value of our Fair Value Loans, which would negatively impact our results of operations. Any sustained decline in demand for our loans or increase in delinquencies, defaults or foreclosures may reduce the price we receive on future loan sales below our loan origination cost.

In connection with our securitizations, Secured Financing facilities, and whole loan sales, we make representations and warranties concerning these loans. If those representations and warranties are not correct, we could be required to repurchase the loans. Any significant required repurchases could have an adverse effect on our ability to operate and fund our business.

In our asset-backed securitizations, our Secured Financing facilities, and our whole loan sales, we make numerous representations and warranties concerning the characteristics of the loans we transfer and sell, including representations and warranties that the loans meet the eligibility requirements of those facilities and investors. If those representations and warranties are incorrect, we may be required to repurchase the loans. Failure to repurchase so-called ineligible loans when required would constitute an event of default under our securitizations, our Secured Financing facilities and our whole loan sales and a termination event under the applicable agreement. We can provide no assurance, however, that we would have adequate cash or other qualifying assets available to make such repurchases.

General Risk Factors

You may be diluted by the future issuance of additional common stock in connection with our equity incentive plans, acquisitions or otherwise.

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Our amended and restated certificate of incorporation authorizes us to issue shares of common stock authorized but unissued and rights relating to common stock for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise. We have authorized 8,152,800 shares for issuance under our 2019 Equity Incentive Plan and 996,217 shares for issuance under our 2019 Employee Stock Purchase Plan, subject to adjustment in certain events. Any common stock that we issue, including under our 2019 Equity Incentive Plan, our 2019 Employee Stock Purchase Plan or other equity incentive plans that we may adopt in the future, could dilute your percentage ownership.

The price of our common stock may be volatile, and you could lose all or part of your investment.*

The trading price of our common stock has been and may continue to be volatile and will depend on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock, because you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following:

failure to meet quarterly or annual guidance with regard to revenue, margins, earnings or other key financial or operational metrics;
fluctuations in the trading volume of our share or the size of our public float;
price and volume fluctuations in the overall stock market from time to time;
changes in operating performance and stock market valuations of similar companies;
failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
public reaction to our press releases, other public announcements, and filings with the SEC;
any major change in our management;
sales of shares of our common stock by us or our stockholders;
rumors and market speculation involving us or other companies in our industry;
actual or anticipated changes in our results of operations or fluctuations in our results of operations;
actual or perceived data security breaches or incidents impacting us or our third-party service providers;
changes in prevailing interest rates;
quarterly fluctuations in demand for our loans;
actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
litigation, government investigations and regulatory actions;
developments or disputes concerning our intellectual property or other proprietary rights;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidelines, interpretations, or principles;
widespread public health crises such as the COVID-19 pandemic; and
other general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers, employees, and contractors are located.

If financial or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. Because we are a new public company, the analysts who publish information about our common stock have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. If any of the analysts who cover us issue an adverse or misleading opinion regarding our stock price, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our directors, officers, and principal stockholders have substantial control over our company, which could limit your ability to influence the outcome of key transactions, including a change of control.

Our directors, executive officers, and each of our 5% stockholders and their affiliates, in the aggregate, beneficially own a significant number of the outstanding shares of our common stock. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours, and they may vote in a way with which you disagree or which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

We may need to raise additional funds in the future, including through equity, debt, or convertible debt financings, to support business growth and those funds may not be available on acceptable terms, or at all.

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We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new loan products, enhance our risk management model, improve our operating infrastructure, expand to new retail locations or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity, debt or convertible debt financings to secure additional funds. If we raise additional funds by issuing equity securities or securities convertible into equity securities, our stockholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our stockholders.

If we are unable to obtain adequate financing or on terms satisfactory to us when we require it, we may be unable to pursue certain opportunities and our ability to continue to support our growth and to respond to challenges could be impaired.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified Board members.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended ( the "Exchange Act"), the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing standards of the Nasdaq Stock Market, and other applicable securities rules and regulations, including changes in corporate governance practices and the establishment and maintenance of effective disclosure and financial controls. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs.

Being a public company also makes it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage, incur substantially higher costs to obtain coverage or only obtain coverage with a significant deductible. These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our Board, particularly to serve on our audit and risk committee and compensation and leadership committee.

In addition, changing laws, regulations and standards or interpretations thereof relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us.

Certain of our market opportunity estimates, growth forecasts, and key metrics could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.

Market opportunity estimates and growth forecasts, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts relating to the size and expected growth of our target market may prove to be inaccurate. It is impossible to offer every loan product, term or feature that every customer wants, and our competitors may develop and offer loan products, terms or features that we do not offer. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of the individuals covered by our market opportunity estimates will generate any particular level of revenues for us. Even if the markets in which we compete meet our size estimates and growth forecasts, our business could fail to grow at similar rates, if at all, for a variety of reasons outside of our control, including competition in our industry. Furthermore, in order for us to successfully address this broader market opportunity, we will need to successfully expand into new geographic regions where we do not currently operate. Our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. If investors or analysts do not perceive our metrics to be accurate representations of our business, or if we discover material inaccuracies in our metrics, our reputation, business, results of operations, and financial condition would be adversely affected.

Certain provisions in our charter documents and under Delaware law could limit attempts by our stockholders to replace or remove our Board, delay or prevent an acquisition of our company, and adversely affect the market price of our common stock.

Provisions in our amended and restated certificate of incorporation, and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our Board. These provisions include the following:

a classified Board with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our Board;
our Board has the right to elect directors to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill Board vacancies;
our stockholders may not act by written consent or call special stockholders’ meetings;
our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the Board or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and
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our Board may issue, without stockholder approval, shares of undesignated preferred stock, which may make it possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the Board has approved the transaction. Such provisions could allow our Board to prevent or delay an acquisition of our company.

Certain of our executive officers may be entitled, pursuant to the terms of their employment arrangements, to accelerated vesting of their stock options following a change of control of our company under certain conditions. In addition to the arrangements currently in place with some of our executive officers, we may enter into similar arrangements in the future with other officers. Such arrangements could delay or discourage a potential acquisition.

Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a potential acquisition could limit the opportunity for our stockholders to receive a premium for their shares of our common stock in connection with such acquisition, and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware or the U.S. federal district courts will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, (4) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws, or (5) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act of 1933, as amended (“Securities Act”), creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition, and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sale of Equity Securities

None.

Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.
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Item 6. Exhibit Index

Incorporated by Reference
ExhibitDescriptionFormFile No.ExhibitFiling DateFiled Herewith
10.1.1¥10-Q001-3905010.28/6/2021
10.1.2¥x
10.1.3¥x
10.2¥x
10.3¥x
31.1x
31.2x
32.1*x
101Interactive data files pursuant to Rule 405 of Regulation S-T:
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and Comprehensive Income,
(iii) Condensed Consolidated Statements of Changes in Stockholders' Equity,
(iv) Condensed Consolidated Statements of Cash Flows, and
(v) Notes to the Condensed Consolidated Financial Statements
104Cover Page Interactive Data File in Inline XBRL format (Included in Exhibit 101).

¥ Portions of this exhibit have been omitted from the exhibit because they are both not material and would be competitively harmful if publicly disclosed.


* The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

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Signature

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the date set forth below.

OPORTUN FINANCIAL CORPORATION
(Registrant)
Date:November 4, 2021By:/s/ Jonathan Coblentz
Jonathan Coblentz
Chief Financial Officer and Chief Administrative Officer
(Principal Financial and Accounting Officer and duly authorized signatory of the Registrant)

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