Oportun is working to reduce credit write-offs and plans to sell its card portfolio

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postage is trying to improve the performance of its credit products from several angles. The company is also close to selling its three-year-old credit card portfolio, which will reduce its business to secured and unsecured personal loans and an automated savings product.

The San Carlos, California-based consumer lender reported in its second-quarter earnings call that its annualized net charge-off rate of 12.3% was roughly in line with its own prior-quarter estimate of 12.4%, plus or minus 15 basis points, and beat the year-ago figure by 23 basis points. Wall Street analysts had expected a net charge-off rate of 12.3%. According to the Federal Reserve Bank of St. Louis, the average charge-off rate for consumer loans at U.S. commercial banks was 2.81% in the first quarter. Oportun has also reduced average loan sizes in an effort to improve its loan performance.

“Credit trends showed continued improvement,” Jefferies analyst John Hecht wrote in a research note. “The company has made good progress on credit and growth trends while taking steps to focus on its core business by selling its card portfolio.”

The company has reported lower loan origination rates year-over-year for several consecutive quarters, but “these negative growth rates are due to our stated focus on quality, not quantity, of loan originations,” CEO Raul Vazquez said during the second-quarter earnings call. “We have focused on conservative lending and improving our loss ratios.”

Other second-quarter earnings metrics beat or were close to prior-quarter estimates. The consumer lender reported total revenue of $250 million, down 6% from the year-ago quarter. However, the number was at the high end of the first-quarter guidance range of $245 million to $250 million and beat Wall Street’s average estimate of $245 million. Second-quarter adjusted EBITDA of $30 million beat the last estimate of $14 million to $17 million. Diluted earnings per share showed a loss of $0.78, compared to a diluted loss of $0.41 in the same period last year.

Net income reported a loss of $31 million, about double the loss in the same quarter of 2023 and more than double analysts’ expectations – a change the company attributes in part to an unfavorable net change in the fair value of its card portfolio of $36 million due to the need to write it down to the expected sale price. Oportun announced that it has signed a non-binding letter of intent to sell this portfolio, with the sale expected to be completed by the end of the third quarter. As of June 30, 2024, Oportun had a credit card accounts receivable balance of $94 million, compared to $118 million at the same time last year.

“Given the smaller size of the portfolio, we find it difficult to assess the likelihood of a sale,” Hecht wrote in his commentary.

Oportun is also launching a new loan-as-a-service relationship with Western Union. Oportun did not provide many details, but said executives hope it will increase applications and generate additional new loan volume. On August 5, the company announced a new $245 million warehouse line that will fund unsecured and secured personal loans through 2027. Deutsche Bank is the senior lender on the warehouse line, while Jefferies is the mezzanine lender.

The lender expects third-quarter total revenue to be between $248 million and $252 million and forecasts an annualized net charge-off rate of 12.3%, plus or minus 15 basis points. Oportun also raised the lower bound of its full-year guidance, forecasting total revenue to be between $995 million and $1,010 million, compared to the estimated lower bound of the range that began last quarter at $985. Additionally, Oportun raised its net charge-off rate estimates to 12.1% from 11.9% for 2024.