The San Carlos, California-based consumer lender reported in its second-quarter earnings call that its annualized net charge-off rate of 12.3% roughly met its own prior-quarter estimate of 12.4% plus or minus 15 basis points and beat last year's level by 23 basis points. Wall Street analysts expected a net charge-off rate of 12.3%. According to the Federal Reserve Bank of St. Louis, the average charge-off rate on consumer loans among U.S. commercial banks in the first quarter was 2.81%. Oportun has also been decreasing average loan sizes in its bid to improve credit performance.
"Credit trends showed continued improvement," wrote Jefferies analyst John Hecht in a research note. "The company showed good progress in credit and growth trends, while taking steps to focus on the core business via the sale of its card portfolio."
The company has posted lower loan origination levels for several consecutive quarters compared to the previous year, but, "these negative growth rates have been driven by our stated focus on quality, not quantity, of originations," said CEO Raul Vazquez during the second-quarter earnings call. "We have been laser focused on conservative underwriting and improving our loss rates."
Other second-quarter earnings metrics beat or hovered close to prior-quarter estimates. The consumer lender pulled in a total revenue of $250 million, a 6% decrease over the prior-year quarter. But the figure was at the top end of first-quarter guidance of $245 to $250 million and beat average Wall Street estimates of $245 million. Adjusted EBITDA of $30 million for the second quarter topped its latest estimate of $14 to $17 million. Diluted earnings per share showed a loss of $0.78, compared to a diluted loss of $0.41 this time last year.
The San Carlos, California, consumer lender said it's "exploring strategic options" for its credit card portfolio, discontinuing its investment and retirement products and sunsetting a partnership with Sezzle in addition to embarking on a new round of job cuts.
Net income showed a loss of $31 million, about double the loss for the same quarter in 2023 and more than double what analysts expected — a change the company chalks up partly to a $36 million unfavorable net change in fair value of its card portfolio, due to the need to mark it down to the anticipated sales price. Oportun announced that it had signed a nonbinding letter of intent to sell this portfolio, with the sale expected to close by the end of the third quarter. As of June 30, 2024, Oportun had a credit card receivable balance of $94 million, down from $118 million this time last year.
"Given the smaller size of the portfolio, we believe it is difficult to assess the likelihood of a sale," wrote Hecht in his note.
Oportun is also launching a new lending-as-a-service relationship with Western Union. Oportun did not share many details, but said executives hope this will boost applications and generate incremental new loan volume. On August 5, the company announced a new $245 million warehouse line that will fund unsecured and secured personal loan activity into 2027. Deutsche Bank is the senior lender for the warehouse line, while Jefferies is the mezzanine lender.
The lender expects total revenue in the third quarter to hover between $248 and $252 million and predicts an annualized net charge-off rate of 12.3%, give or take 15 basis points. Oportun also lifted the lower end of its full-year guidance, predicting total revenue to range from $995 to $1,010 million, compared with its estimated low end of the range starting at $985 last quarter. It also increased net charge-off rate estimates from 11.9% to 12.1% for 2024.
