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Fair Value Measurements

12 Months Ended

Dec. 31, 2023

For a description of the fair value hierarchy and the Company’s fair value methodologies, see “Note 1. Summary of Significant Accounting Policies.” The Company records certain assets and liabilities at fair value as listed in the following tables.

Recurring Fair Value Measurements

The following tables present, by level within the fair value hierarchy, the Company’s assets and liabilities measured at fair value on a recurring basis:


December 31, 2023	Level 1		Level 2		Level 3		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	407,773	$	407,773
Loans held for investment at fair value	—		—		262,190		262,190
Retail and certificate loans held for investment at fair value	—		—		10,488		10,488
Securities available for sale:
Senior asset-backed securities related to Structured Program transactions	—		—		1,176,403		1,176,403
U.S. agency residential mortgage-backed securities	—		224,596		—		224,596
U.S. agency securities	—		80,104		—		80,104
Other asset-backed securities related to Structured Program transactions	—		—		73,393		73,393
Mortgage-backed securities	—		37,076		—		37,076
Other asset-backed securities	—		26,101		—		26,101
Municipal securities	—		2,589		—		2,589

Total securities available for sale	—		370,466		1,249,796		1,620,262
Servicing assets	—		—		77,680		77,680
Other assets	—		3,525		—		3,525
Total assets	$	—	$	373,991	$	2,007,927	$	2,381,918

Liabilities:
Borrowings	$	—	$	—	$	2,468	$	2,468
Retail notes and certificates	—		—		10,488		10,488
Other liabilities	—		12,072		7,655		19,727
Total liabilities	$	—	$	12,072	$	20,611	$	32,683


December 31, 2022	Level 1		Level 2		Level 3		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	110,400	$	110,400
Loans held for investment at fair value	—		—		925,938		925,938
Retail and certificate loans held for investment at fair value	—		—		55,425		55,425
Securities available for sale:
U.S. agency residential mortgage-backed securities	—		214,427		—		214,427
U.S. agency securities	—		74,394		—		74,394
Mortgage-backed securities	—		22,518		—		22,518
Other asset-backed securities	—		14,203		—		14,203
Asset-backed securities related to Structured Program transactions	—		5,248		12,469		17,717
Municipal securities	—		2,443		—		2,443
Total securities available for sale	—		333,233		12,469		345,702
Servicing assets	—		—		84,308		84,308
Other assets	—		—		5,099		5,099
Total assets	$	—	$	333,233	$	1,193,639	$	1,526,872

Liabilities:
Borrowings	$	—	$	—	$	8,085	$	8,085
Retail notes and certificates	—		—		55,425		55,425
Other liabilities	—		—		8,583		8,583
Total liabilities	$	—	$	—	$	72,093	$	72,093

Financial instruments are categorized in the valuation hierarchy based on the significance of observable or unobservable factors in the overall fair value measurement. For the financial instruments listed in the tables above that do not trade in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of these assets and liabilities. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, changes in fair value for assets and liabilities within the Level 2 or Level 3 categories may include changes in fair value that were attributable to observable and unobservable inputs, respectively. The Company primarily uses a DCF 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 the Company’s best estimates of the assumptions a market participant would use to calculate fair value. The Company did not transfer any assets or liabilities in or out of Level 3 during the years ended December 31, 2023 and 2022.

As of December 31, 2023, the Company updated the significant unobservable inputs used in the fair value measurement of its Level 3 assets from a cumulative credit loss rate and cumulative prepayment rate to an annualized net charge-off rate and annualized prepayment rate, respectively. The Company believes the updated inputs are more comparable to those used by other companies in the financial services industry. As such, the prior period comparative disclosures below have been conformed to the current period presentation.

The following significant unobservable inputs were used in the fair value measurement of the Company’s Level 3 assets:

•Discount rate – The weighted-average rate at which the expected cash flows are discounted to arrive at the net present value of the loan. The discount rate is primarily determined based on marketplace investor return expectations.

•Annualized net charge-off rate – The annualized rate of average charge-offs, net of recoveries, expressed as a percentage of the average principal balance of loan pools with similar risk characteristics. The calculation of this annualized rate also incorporates a qualitative estimate of credit losses based on the Company’s current macroeconomic outlook.

•Annualized prepayment rate – The annualized rate of prepayments expressed as a percentage of the average principal balance of loan pools with similar risk characteristics.

An increase in each of the inputs above, in isolation, would result in a decrease in the fair value measurement.

The sensitivity calculations are hypothetical and should not be considered to be predictive of future performance. The effect on fair value of a variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Changes in one factor may lead to changes in other factors, which could impact the hypothetical results.

Loans Held for Sale at Fair Value

In the third quarter of 2023, the Company established an extended seasoning program for which it began accumulating loans into the HFS portfolio to meet investor demand for seasoned loans. As a result, the balance of the HFS portfolio increased significantly compared to the same period in the prior year.

Significant Unobservable Inputs

The following significant unobservable inputs were used in the fair value measurement of loans HFS:



	December 31, 2023						December 31, 2022
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted-Average
Discount rate	8.1	%	10.3	%	9.0	%	5.0	%	12.6	%	9.1	%
Annualized net charge-off rate (1)	2.7	%	12.9	%	6.5	%	1.9	%	23.2	%	11.6	%
Annualized prepayment rate (1)	15.7	%	22.5	%	19.9	%	18.5	%	27.7	%	22.9	%

(1) The weighted-average rate is calculated using the original principal balance of each loan pool.

Fair Value Sensitivity

The sensitivity of loans HFS at fair value to adverse changes in key assumptions was as follows:


	December 31, 2023		December 31, 2022
Loans held for sale at fair value	$	407,773	$	110,400
Expected remaining weighted-average life (in years)	1.5		1.4
Discount rate:
100 basis point increase	$	(5,093)	$	(1,334)
200 basis point increase	$	(10,051)	$	(2,643)
Annualized net charge-off rate:
10% increase	$	(5,102)	$	(2,289)
20% increase	$	(10,184)	$	(4,505)
Annualized prepayment rate:
10% increase	$	(851)	$	(529)
20% increase	$	(1,628)	$	(1,008)

Fair Value Reconciliation

The following table presents loans HFS at fair value activity:




Balance at December 31, 2021	$	142,370
Originations and purchases	9,045,701

Sales	(9,039,892)
Principal payments	(31,253)
Transfers	(11,907)
Fair value adjustments recorded in earnings	5,381
Balance at December 31, 2022	$	110,400
Originations and purchases	4,942,457
Sales	(4,634,155)
Principal payments	(70,350)

Transfers	195,106
Fair value adjustments recorded in earnings	(135,685)
Balance at December 31, 2023	$	407,773

The following table summarizes the aggregate fair value of the Company’s HFS loans, as well as the amount that was 90 days or more past due:


	December 31, 2023				December 31, 2022
	Total		90 or more days past due		Total		90 or more days past due
Aggregate unpaid principal balance	$	431,955	$	1,395	$	114,920	$	188
Cumulative fair value adjustments	(24,182)		(1,102)		(4,520)		(153)
Fair value of loans held for sale	$	407,773	$	293	$	110,400	$	35

Loans Held for Investment at Fair Value

Significant Unobservable Inputs

The following significant unobservable inputs were used in the fair value measurement of loans HFI held at fair value:



	December 31, 2023						December 31, 2022
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted-Average
Discount rate	8.4	%	16.2	%	12.8	%	8.8	%	17.1	%	12.7	%
Annualized net charge-off rate (1)	1.9	%	5.9	%	3.7	%	1.6	%	5.3	%	3.2	%
Annualized prepayment rate (1)	18.6	%	27.7	%	22.6	%	19.5	%	31.0	%	24.0	%

(1) The weighted-average rate is calculated using the original principal balance of each loan pool.

Fair Value Sensitivity

The sensitivity of loans HFI at fair value to adverse changes in key assumptions was as follows:


	December 31, 2023		December 31, 2022
Loans held for investment at fair value	$	262,190	$	925,938
Expected remaining weighted-average life (in years)	0.9		0.9
Discount rate:
100 basis point increase	$	(1,957)	$	(7,471)
200 basis point increase	$	(3,888)	$	(14,830)
Annualized net charge-off rate:
10% increase	$	(1,753)	$	(5,574)
20% increase	$	(3,595)	$	(11,307)
Annualized prepayment rate:
10% increase	$	(857)	$	(4,311)
20% increase	$	(1,675)	$	(7,480)

Fair Value Reconciliation

The following table presents loans HFI at fair value activity:




Balance at December 31, 2021	$	21,240
Purchases	954,086
Principal payments	(74,393)
Transfers	22,294

Interest income accretion and fair value adjustments recorded in earnings	2,711
Balance at December 31, 2022	$	925,938
Purchases	4,243
Principal payments	(485,043)

Transfers	(195,106)
Interest income accretion and fair value adjustments recorded in earnings	12,158
Balance at December 31, 2023	$	262,190

The following table summarizes the aggregate fair value of the Company’s HFI loans held at fair value, as well as the amount that was 90 days or more past due:


	December 31, 2023				December 31, 2022
	Total		90 or more days past due		Total		90 or more days past due
Aggregate unpaid principal balance	$	281,031	$	3,774	$	1,002,465	$	6,345
Cumulative fair value adjustments	(18,841)		(3,037)		(76,527)		(5,158)
Fair value of loans held for investment	$	262,190	$	737	$	925,938	$	1,187

Retail and Certificate Loans and Related Notes and Certificates

The Company does not assume principal or interest rate risk on loans that were funded by its member payment-dependent self-directed retail program (Retail Program) because loan balances, interest rates and maturities are matched and offset by an equal balance of notes with the exact same interest rates and maturities. At December 31, 2023 and 2022, the DCF methodology used to estimate the retail note and certificate’s fair values used the same projected net cash flows as their related loans. Therefore, the fair value adjustments for retail loans held for investment were largely offset by the corresponding fair value adjustments due to the payment-dependent design of the retail notes and certificates.

Asset-Backed Securities Related to Structured Program Transactions

Prior year comparative disclosures related to significant unobservable inputs, fair value sensitivities and fair value rollforwards for asset-backed securities related to Structured Program transactions are not presented below as the comparability between periods would not be meaningful given that the current period consists primarily of its newly launched Structured Certificates that the Company began entering into in the second quarter of 2023. See “Note 7. Securitizations and Variable Interest Entities” for more information.

Senior Asset-Backed Securities Related to Structured Program Transactions

As of December 31, 2023, the fair value of the senior asset-backed securities related to Structured Program transactions was $1.2 billion with an expected remaining weighted-average life of 1.5 years. Discount rate, which includes credit spreads, was the significant unobservable input used to measure the fair value of this Level 3 asset. The minimum, maximum and weighted-average discount rate assumptions were 7.0% as of December 31, 2023. A hypothetical 100 and 200 basis point increase in the discount rate would decrease the fair value by $18.0 million and $36.0 million, respectively.

The following table presents senior asset-backed securities related to Structured Program transactions activity:


	December 31, 2023
Fair value at beginning of period	$	—
Additions	1,225,796

Cash received	(60,283)
Change in unrealized gain	10,890

Fair value at end of period	$	1,176,403

Other Asset-Backed Securities Related to Structured Program Transactions

Significant Unobservable Inputs

The following significant unobservable inputs were used in the fair value measurement of other asset-backed securities related to Structured Program transactions:


	December 31, 2023
	Minimum		Maximum		Weighted- Average
Discount rate	8.1	%	10.3	%	9.0	%
Annualized net charge-off rate (1)	4.9	%	5.9	%	5.5	%
Annualized prepayment rate (1)	19.2	%	21.0	%	20.1	%

(1) The weighted-average rate is calculated using the original principal balance of each security.

Fair Value Sensitivity

The sensitivity in the fair value of other asset-backed securities related to Structured Program transactions to changes in key assumptions was as follows:


	December 31, 2023

Fair value of interests held	$	73,393
Expected remaining weighted-average life (in years)	1.5
Discount rate
100 basis point increase	$	(927)
200 basis point increase	$	(1,836)
Annualized net charge-off rate
10% increase	$	(882)
20% increase	$	(1,771)
Annualized prepayment rate
10% increase	$	(203)
20% increase	$	(430)

Fair Value Reconciliation

The following table presents additional information about Level 3 other asset-backed securities related to Structured Program transactions measured at fair value:


	December 31, 2023
Fair value at beginning of period	$	12,469
Additions	73,516

Cash received	(12,634)
Change in unrealized gain	42

Fair value at end of period	$	73,393

Servicing Assets

Significant Unobservable Inputs

The following significant unobservable inputs were used in the fair value measurement for servicing assets related to loans sold to investors:



	December 31, 2023						December 31, 2022
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted-Average
Discount rate	8.7	%	17.3	%	11.3	%	7.5	%	16.4	%	10.1	%
Annualized net charge-off rate (1)	1.9	%	24.0	%	8.7	%	1.3	%	23.7	%	9.3	%
Annualized prepayment rate (1)	15.6	%	25.7	%	20.3	%	16.3	%	30.9	%	24.4	%
Market servicing rate (2)	0.62	%	0.62	%	0.62	%	0.62	%	0.62	%	0.62	%

(1) The weighted-average rate is calculated using the original principal balance of each loan pool.

(2) The fees a willing market participant would require for the servicing of loans with similar characteristics as those in the Company’s serviced portfolio.

Fair Value Sensitivity

The sensitivity of the fair value of servicing assets to adverse changes in key assumptions was as follows:



	December 31, 2023		December 31, 2022
Fair value of servicing assets	$	77,680		$	84,308
Expected remaining weighted-average life (in years)	1.2			1.2
Discount rate:
100 basis point increase	$	(675)		$	(726)
200 basis point increase	$	(1,349)		$	(1,451)
Annualized net charge-off rate:
10% increase	$	(878)		$	(1,037)
20% increase	$	(1,756)		$	(2,074)
Annualized prepayment rate:
10% increase	$	(1,550)		$	(1,994)
20% increase	$	(3,100)		$	(3,989)

The Company’s selection of the most representative market servicing rates for servicing assets is inherently judgmental. The Company reviews third-party servicing rates for its loans, loans in similar credit sectors, and market servicing benchmarking analyses provided by third-party valuation firms, when available. The table below shows the impact on the estimated fair value of servicing assets, calculated using different market servicing rate assumptions:



	December 31, 2023			December 31, 2022
Weighted-average market servicing rate assumptions	0.62		%		0.62		%
Change in fair value from:
Market servicing rate increase by 0.10%	$	(8,719)			$	(10,505)
Market servicing rate decrease by 0.10%	$	8,719			$	10,505

Fair Value Reconciliation

The following table presents servicing assets measured at fair value activity:



Fair value at December 31, 2021	$	67,726
Issuances (1)	93,352
Change in fair value, included in Marketplace Revenue	(73,229)
Other net changes	(3,541)
Fair value at December 31, 2022	$	84,308
Issuances (1)	56,032
Change in fair value, included in Marketplace Revenue	(62,581)
Other net changes	(79)
Fair value at December 31, 2023	$	77,680

(1) Represents the servicing assets recorded when loans are sold. Included in “Gain on sales of loans” within “Marketplace revenue” on the Income Statement.

Financial Instruments Not Recorded at Fair Value

The following tables present the carrying amount and estimated fair values, by level within the fair value hierarchy, of the Company’s assets and liabilities that are not recorded at fair value on a recurring basis:


December 31, 2023	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets:
Loans and leases held for investment, net	$	4,539,915	$	—	$	—	$	4,675,354	$	4,675,354
Other assets	37,605		—		36,884		1,017		37,901
Total assets	$	4,577,520	$	—	$	36,884	$	4,676,371	$	4,713,255

Liabilities:
Deposits (1)	$	1,714,889	$	—	$	—	$	1,714,203	$	1,714,203
Borrowings	6,398		—		—		6,398		6,398


Other liabilities	59,015		—		36,823		22,192		59,015
Total liabilities	$	1,780,302	$	—	$	36,823	$	1,742,793	$	1,779,616


December 31, 2022	Carrying Amount		Level 1		Level 2		Level 3		Balance at Fair Value
Assets:

Loans and leases held for investment, net	$	4,705,302	$	—	$	—	$	4,941,825	$	4,941,825
Other assets	36,646		—		35,300		1,397		36,697
Total assets	$	4,741,948	$	—	$	35,300	$	4,943,222	$	4,978,522
Liabilities:
Deposits (1)	$	860,808	$	—	$	—	$	860,808	$	860,808
Borrowings	66,773		—		2,619		64,154		66,773


Other liabilities	62,247		—		30,311		31,936		62,247
Total liabilities	$	989,828	$	—	$	32,930	$	956,898	$	989,828

(1) Excludes deposit liabilities with no defined or contractual maturities.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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