OppFi Inc. 2026 Q2 Earnings Call

Thanks, Jared, and good afternoon, everyone. Thank you for joining us today. I'll first share a business update, and then Pam will review our strategic investments and Q2 financial performance in detail. While Q2 fell short of our original financial expectations, we believe it was one of our most productive quarters from a strategic standpoint. We invested meaningfully in testing new products and improving existing products with the goal of strengthening our competitive positioning. We also took the additional time needed to refine our LOLA system, laying what we believe to be a strong foundation for future growth and efficiency. That work pushed back rollout by a few months, but we're encouraged by the results and remain confident in our ability to hit our long-term financial targets. I will provide more detail on new product initiatives later in my remarks.

First, I'd like to provide an update on our pending acquisition of BNC National Bank. We're pleased to announce that we've officially submitted our regulatory applications to the OCC and other governing agencies. We look forward to working with regulators throughout the approval process and aim to close the transaction in Q4 of this year. We're excited to work with the BNC team to integrate and build the strongest possible strategic footprint, expanding product offerings, consumer choice, and credit access while reducing costs for our customers and extending community banking access to more of them. We'll provide further updates on this throughout the year. Next, I'd like to highlight an important development at OppFi, the upcoming line of credit launch with one of our bank partners. During the second quarter, we completed extensive testing around pricing, term structure, and customer behavior, and we are very encouraged with the results.

The testing reinforced our belief that the line of credit product fills an important need for consumers, particularly during macro periods when affordability and monthly payment flexibility become increasingly important. Customers are increasingly gravitating towards products with lower monthly payments but longer repayment terms, as these options offer greater affordability and cash flow flexibility on a month-to-month basis. That preference was reflected in our testing results and reinforces why the line of credit product is such an important addition to our platform. The testing demonstrated meaningful opportunities to drive additional growth from both new and existing customers while diversifying our product offerings. We expect to launch the line of credit product next month. That timing was intentional and reflects a deliberate measure twice, cut once approach. Before its launch, we wanted to be fully confident in its pricing structure, customer experience, conversion dynamics, and expected performance.

With testing now complete, we feel good about its readiness. The technical aspects of this product will have been developed and brought to market in under six months, a relatively short period of time. This is made possible by our new modular technology platform. Beyond enabling this launch, the modular platform creates a scalable foundation for future product innovation, allowing us to develop and introduce new offerings more efficiently. As a result of the slight timing shift in both the line of credit launch and LOLA migration completion, originations came in below our original expectations during the quarter. Accordingly, we are revising our 2026 guidance. Our expectations for 2027 and 2028 remain unchanged, and we continue to believe we are on a path towards achieving approximately $3 of earnings per share by the end of 2028.

Taken together, this has been an important quarter of progress for OppFi in laying the foundation for growth. We are well underway in our effort to strategically transform the business, investing more than $150 million this year to enable continued growth on our path to achieve $500 million of adjusted net income in the next five years. We remain focused on executing our shared vision of becoming a leading technology-enabled bank platform that offers essential credit access and community banking services to everyday Americans and businesses. With that, I'll turn the call over to Pam.

Thanks, Todd, and good afternoon, everyone. I want to build on Todd's comments regarding the quarter and our updated outlook. While we continue to see some variability in consumer credit trends, we are prioritizing balance sheet strength, unit economics, and margin stability over shorter-term volume growth. OppFi has demonstrated throughout its history that disciplined underwriting, strong credit performance, and sustainable profitability create more long-term value than pursuing growth at any cost in the near term. Importantly, we continue to direct our focus toward building the foundation to unlock new long-term growth, and our planned acquisition of BNC is expected to be financially transformative. We anticipate significant revenue synergies beginning in 2027 as we expand our ability to deliver a broader suite of financial products across a larger geographic footprint. These synergies are expected to be driven primarily by geographic expansion and cross-selling opportunities.

In addition, we believe OppFi will be able to leverage BNC's capabilities and relationships to further grow our existing business lines. The combination of OppFi and BNC is expected to create a banking organization with capital levels well in excess of regulatory and market standards. Looking ahead to 2028, we expect the combined company to generate return on assets of at least 10% and returns on equity of at least 35%. Turning to our financial performance for the second quarter, we generated revenue of $145 million, a 1.9% increase over Q2 2025, and a company record for any second quarter. Originations for the quarter decreased by approximately 9% to $212 million compared to the prior-year quarter as we tightened underwriting in segments where we believe risk-adjusted returns were less attractive. These actions were designed to help preserve portfolio quality and support long-term profitability.

Net charge-offs as a percentage of revenue during the quarter increased to approximately 40% from 32% in the prior-year period. Net charge-offs as a percentage of receivables increased to approximately 52% from 43% in the prior-year period. Given the denominator effect, these charge-off metrics appear inflated in times of slower growth. Importantly, these charge-offs are partially offset by a meaningful improvement in recoveries, an area where we believe we maintain a distinct competitive advantage. Recoveries increased to approximately $15 million from $11 million in the prior-year period. We continue to closely monitor consumer payment behavior and adjust our underwriting posture with agility as conditions evolve, and we remain confident that the actions we have taken position the portfolio for stronger performance over time. Operating expenses remained well controlled as we continued to balance investment in strategic initiatives with disciplined expense management.

Total adjusted operating expenses were approximately $49 million, or 34% of revenue, down slightly from 35% in the prior-year period. On an unadjusted basis, given one-time expenses related to the BNC transaction and corporate simplification, expenses were 43% of revenue compared with 39% of revenue in the prior-year period. While we continued investing in strategic initiatives, particularly those related to the BNC transaction and platform development, we maintained disciplined expense management across the rest of the organization. Taken together, adjusted net income decreased by 27% in the second quarter to approximately $29 million compared to the prior-year period, and adjusted earnings per share decreased to $0.33 from $0.45 in the prior-year period. Despite that, our adjusted net income margin remains strong at 19.8%.

Looking at the balance sheet, we continue to maintain a robust financial position, ending the quarter with approximately $92 million in cash equivalents, and restricted cash, alongside $277 million in total debt and $414 million in total stockholders' equity. Our total funding capacity was $541.8 million at quarter end, including $173.5 million of unused debt capacity. With strong liquidity position and balance sheet flexibility, it continues to provide a solid foundation for our capital allocation strategy and long-term growth objectives. On capital allocation, our balance sheet remains a significant source of strength. Our business continues to generate meaningful free cash flow, allowing us to invest in growth initiatives while simultaneously returning capital to shareholders. During the quarter, we began repurchasing shares under the board-authorized $40 million repurchase program, reflecting our belief that the current valuation does not appropriately reflect the long-term earnings potential of the company.