SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Dec. 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements include the accounts of PMI and its wholly owned subsidiaries including PFL, Prosper Healthcare Lending LLC (“PHL”), BillGuard, Inc. (“BillGuard”), and its consolidated VIEs including Prosper Warehouse I Trust (“PWIT,” terminated March 28, 2024), Prosper Warehouse II Trust (“PWIIT,” terminated September 25, 2023), Prosper Marketplace Issuance Trust, Series 2023-1 (“PMIT 2023-1”), Prosper Marketplace Issuance Trust, Series 2024-1 (“PMIT 2024-1”), Prosper Credit Card 2024-1 Issuer LLC (“PMCC 2024-1”) and Prosper Grantor Trust (“PGT”). All intercompany balances and transactions between PMI and its subsidiaries have been eliminated in consolidation. PMI and PFL’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). PMI did not have any items of other comprehensive income (loss) during any of the periods presented in the consolidated financial statements as of and for the years ended December 31, 2025, 2024 and 2023. Notes Issued by Securitization Trusts are notes held by certain third-party investors pursuant to Prosper’s securitization transactions, and are distinguishable from the borrower payment dependent Notes available to investors through the Company’s Note Channel. Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures, including contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include but are not limited to the following: (i) the valuation of Borrower Loans and associated Notes, Receivable from Credit Card Partner, Credit Card Derivative, servicing rights and obligations and the loan trailing fee liability; and (ii) the accounting for the valuation allowance on deferred tax assets, stock-based compensation expense, Goodwill, Convertible Preferred Stock Warrant Liability, Transaction Fee refund liability, repurchase obligations and contingent liabilities. These judgments, estimates and assumptions are inherently subjective in nature and actual results may differ materially from these estimates and assumptions. Consolidation of Variable Interest Entities The determination of whether to consolidate a VIE in which we have a variable interest requires a significant amount of analysis and judgment regarding whether we are the primary beneficiary of a VIE due to our holding a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if we have both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance and a potentially significant economic interest in the VIE. The determination of whether an entity is a VIE considers factors, such as (i) whether the entity’s equity investment at risk is insufficient to allow the entity to finance its activities without additional subordinated financial support and (ii) whether a holder’s equity investment at risk lacks any of the following characteristics of a controlling financial interest: the direct or indirect ability through voting rights or similar rights to make decisions about a legal entity’s activities that have a significant effect on the entity’s success, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the legal entity. Management regularly reviews and reconsiders its previous conclusions regarding the status of an entity as a VIE and whether we are required to consolidate or deconsolidate such VIE in the consolidated financial statements. Transfers of Financial Assets Prosper sells Borrower Loans through its Whole Loan Channel, as discussed above. In accordance with Accounting Standards Codification (“ASC”) 860, Transfers and Servicing, the Company accounts for transfers of financial assets as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from Prosper, the transferee has the right to pledge or exchange the assets without any significant constraints, and Prosper has not entered into a repurchase agreement, does not hold unconditional call options and has not written put options on the transferred assets. In assessing whether control has been surrendered, Prosper considers whether the transferee would be a consolidated affiliate and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of the transfer, even if they were not entered into at the time of transfer. Prosper measures gain or loss on sale of financial assets as the net proceeds received on the sale less the carrying amount of the loans sold. The net proceeds of the sale include the fair value of any assets obtained or liabilities incurred as part of the transaction, including, but not limited to Servicing Assets, retained securities, and recourse obligations. In November 2024, Prosper completed the PMCC 2024-1 Credit Card securitization transaction, which is more fully described in Note 7, Securitizations. Based on an analysis of the terms of that transaction, it was determined that the transfers of the underlying Credit Card receivables from Coastal to PMCC 2024-1 do not meet sale accounting requirements under ASC 860. In particular, as cardholders make additional draws on the Credit Cards associated with PMCC 2024-1, they lose their identity and become part of a larger outstanding balance. Further, the interests in the Credit Card receivables do not meet the definition of a participating interest given their lack of stated maturity dates, among other requirements. As a result, the Company derecognizes cash paid to Coastal for the transfer of the underlying Credit Card receivables, and has recorded an offsetting Receivable from Credit Card Partner on its consolidated balance sheets. Receivable from Credit Card Partner is secured by and effectively mirrors the value of the underlying Credit Card receivables. Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments measured at fair value consist principally of Borrower Loans and Notes (Notes 4 and 7), Servicing Assets (Note 6), Receivable from Credit Card Partner (Notes 5 and 7), Credit Card Derivative and servicing obligation (Note 5) and Loan Trailing Fee Liabilities (Note 10). The Company believes that applying the fair value option to these financial instruments achieves consistent accounting for certain assets and liabilities and more accurately reflects their in-period economic performance as compared to alternate methodologies. In addition, the Convertible Preferred Stock Warrant Liability (Note 13) is recorded at fair value, as required by U.S. GAAP. The estimated fair values of other financial instruments, including Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Payable to Investors approximate their carrying values because of their short-term nature. The estimated fair values of the Term Loan (Note 11) and Notes Issued by Securitization Trusts (Note 7) do not approximate their carrying values due primarily to differences in the stated and market rates associated with these instruments. The fair value hierarchy includes a three-level classification, which is based on whether the inputs to the valuation methodology used for measurement are observable: Level 1 — Quoted market prices in active markets for identical assets or liabilities. Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Level 3 — Unobservable inputs. When developing fair value measurements, Prosper maximizes the use of observable inputs and minimizes the use of unobservable inputs. However, for certain instruments Prosper must utilize unobservable inputs in determining fair value due to the lack of observable inputs in the market, which requires greater judgment in measuring fair value. In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are determined using assumptions that management believes a market participant would use in pricing the asset or liability. As observable market prices are not available for the Borrower Loans, Notes, Servicing Assets, Receivable from Credit Card Partner and Credit Card Derivative, or for similar assets and liabilities, Prosper believes they should be considered level 3 financial instruments. Prosper primarily uses a discounted cash flow model to estimate their fair values, and key assumptions used in valuation include default rates and prepayment rates derived from market data and historical performance and discount rates based on estimates of the rates of return that investors would require when investing in financial instruments with similar characteristics. The obligation to pay principal and interest on any series of Notes is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is 1.0% of the outstanding balance. The fair value election for Borrower Loans and Notes allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to investors that are dependent upon borrower payments. As such, the fair value of a series of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of loan purchase, Note issuance and borrower payments. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing in payments. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. Refer to Note 8, Fair Value of Assets and Liabilities, for additional fair value disclosures. Cash and Cash Equivalents Cash includes various unrestricted deposits with investment-grade rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, US treasury securities and US agency securities. Cash equivalents are recorded at cost, which approximates fair value. At times, our cash balances may exceed federally insured amounts and potentially subject the Company to a concentration of credit risk. The Company believes that no significant concentration of credit risk exists with respect to these balances based on its assessment of the creditworthiness of these financial institutions. Restricted Cash Restricted cash consists primarily of cash deposits, money market funds and short term certificate of deposit accounts held as collateral as required for loan funding and servicing activities, and cash that investors or Prosper have on the marketplace that has not yet been invested in Borrower Loans or disbursed to the investor. Borrower Loans, Loans Held for Sale and Notes Borrower Loans are funded either through the Note Channel or through the Whole Loan Channel. Through the Note Channel, Prosper purchases Borrower Loans from WebBank, then issues Notes and holds the Borrower Loans until maturity. The obligation to repay a series of Notes issued through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans funded and Notes issued through the Note Channel are carried on Prosper’s consolidated balance sheets as assets and liabilities, respectively. Borrower Loans funded through the Whole Loan Channel are sold to unrelated third-party buyers and the outstanding balances of these loans are not presented on the Company’s consolidated balance sheets. Until March 2024, Prosper used Warehouse Lines to purchase personal loans that could be subsequently contributed to securitization transactions or sold to investors. These personal loans were included in Loans Held for Sale, at Fair Value on the consolidated balance sheets. In September 2023 and March 2024, in connection with the securitization transactions discussed below, the Loans Held for Sale in these Warehouse Lines were fully contributed to the securitization entities or purchased by Prosper, and the outstanding balances of the Warehouse Lines were fully paid down. See Note 11, Debt, for more details on the termination of the Warehouse Lines. In September 2023 and March 2024, Prosper closed two separate securitization transactions, PMIT 2023-1 and PMIT 2024-1, respectively, with personal loans previously funded through its PWIIT Warehouse Line and PWIT Warehouse Line, respectively. These newly formed securitization entities issued notes acquired by third parties and residual certificates acquired by PMI (the wholly owned parent of PFL, the sole sponsor of the securitizations). PMIT 2023-1 and PMIT 2024-1 are deemed consolidated VIEs, and as a result the Borrower Loans they hold are presented in Borrower Loans, at Fair Value, and the notes sold to third-party investors are included in Notes Issued by Securitization Trusts on the accompanying consolidated balance sheets. See Note 7, Securitizations, for additional disclosures related to these securitizations. Prosper has elected the fair value option for Borrower Loans and Notes. Changes in the fair value of Borrower Loans funded through the Note Channel are largely offset by the changes in fair value of Notes due to the borrower payment-dependent design of the Notes. Changes in the fair value of Borrower Loans are recorded through Proper's earnings and Prosper collects interest on Borrower Loans. Changes in the fair values of Borrower Loans and Notes are included in Change in Fair Value of Financial Instruments on the accompanying consolidated statements of operations. See Note 4, Borrower Loans and Notes, at Fair Value, for further details on the methodologies utilized to value these financial instruments. Credit Card Credit Card Derivative The Company evaluated the terms of the Credit Card Program Agreement with Coastal and determined that it contained features that met the definition of derivatives under ASC 815, Derivatives and Hedging. These features are freestanding financial instruments (as defined under ASC 480, Distinguishing Liabilities from Equity), and have been valued separately as derivatives. A right of offset exists between the derivatives, and they are presented net, at fair value, on the accompanying consolidated balance sheets. Prosper uses a discounted cash flow model to estimate the fair value of the Credit Card Derivative. The key assumptions used in the valuation include average portfolio interest rates, as well as default and prepayment rates derived primarily from relevant market data and historical performance, adjusted as necessary based on the perceived credit risk of the underlying cardholders. In addition, a single discount rate based on the estimate of the rate of return that investors would require when investing in similar credit card portfolios, is applied to the individual freestanding derivatives. Changes in the fair value of the Credit Card Derivative, as well as settled transactions from the Credit Card portfolio, are recorded in Change in Fair Value of Financial Instruments on the accompanying consolidated statements of operations. In March 2024, the Company executed an amendment to the Credit Card Program Agreement that revised the allocation of new customer accounts designated as Prosper Allocations and Coastal Allocations from 90% and 10%, respectively, to 95% and 5%, respectively. Additionally, the maximum outstanding Credit Card principal balance for Prosper Allocations was increased from $300 million to $350 million. These changes went into effect on April 1, 2024. In September 2024, the Company executed a second amendment to the Credit Card Program Agreement that temporarily increased the maximum outstanding Credit Card principal balance for Prosper Allocations from $350 million to $375 million through November 1, 2024. In December 2025, the Company executed a third amendment to the Credit Card Program Agreement that primarily (a) increases the maximum outstanding Credit Card principal balance for Prosper Allocations to $375 million, (b) reduces the program fee percentage that the Company pays to Coastal by 0.75% and (c) provides Coastal with the discretion to adjust the Coastal Allocation percentage anywhere between 0% and 5% with advance notice. The Credit Card Program Agreement term is scheduled to end on December 31, 2027, but will automatically renew for one-year periods thereafter, unless terminated by either party in accordance with the agreement. Refer to Note 5, Credit Card, for additional details on revenues and expenses related to the Credit Card product, and to Note 8, Fair Value of Assets and Liabilities, for additional details related to the valuation methodology for the Credit Card Derivative. Receivable from Credit Card Partner In November 2024, Prosper closed a securitization transaction, PMCC 2024-1, with performing Credit Card receivables previously included within the Prosper Allocations on Coastal’s balance sheet. This securitization entity issued notes acquired by third parties, and a residual certificate to PMI, the sole sponsor of the securitization. PMCC 2024-1 is structured as a limited liability company in which PMI is the sole member, but was determined to be a VIE due to its lack of equity at risk. As PMI is considered the primary beneficiary of the VIE, it fully consolidates PMCC 2024-1 and all transactions between the two entities are eliminated. As discussed above, because the transfers of the underlying Credit Card receivables do not meet the requirements for sale accounting treatment under ASC 860, Transfers and Servicing, the Company has recorded a Receivable from Credit Card Partner on the consolidated balance sheets. Notes sold to third-party investors are included in Notes Issued by Securitization Trusts on the accompanying consolidated balance sheets. The Company elected to carry the Receivable from Credit Card Partner at fair value, effectively consisting of the fair value of the underlying Credit Card receivables, in order to align with the measurement and presentation of the Borrower Loans and Credit Card Derivative. Prosper uses a discounted cash flow model to estimate the fair value of the securitization residual interest, given that the Company is the sole sponsor of the securitization and is entitled to all residual cash flows it generates. This involves utilizing certain assumptions similar to those used to value the Credit Card Derivative, including the discount and prepayment rates. Additional assumptions are adjusted to reflect the specific characteristics of the securitized Credit Card receivables, including the average portfolio interest rate and the default rate. The residual interest fair value is then added to the applicable securitization advance rate applied to the outstanding balance of the Credit Card receivables to calculate the estimated fair value of Receivable from Credit Card Partner. Changes in the fair value of the Receivable from Credit Card Partner are recorded in Changes in Fair Value of Financial Instruments on the consolidated statements of operations. See Note 5, Credit Card, and Note 7, Securitizations, for additional disclosures related to this securitization. Charge-offs Prosper places Borrower Loans on non-accrual status when they are 120 days past due. When a Borrower Loan is placed on non-accrual status, Prosper stops accruing interest and reverses all accrued but unpaid interest as of such date. Additionally, Prosper generally charges-off Borrower Loans when they are 120 days past due or reach the end of a settlement program. The fair value of loans 120 or more days past due generally consists of the expected recovery from debt sales in subsequent periods. For Credit Cards, Prosper generally charges off the related receivable in the period the account becomes 180 days past due or reaches the end of a settlement program. Credit Card receivables in probate are generally charged off within a period not to exceed the end of the month in which the death notification is received, and Credit Card receivables in bankruptcy are generally charged off within a period not to exceed 60 days following receipt of the bankruptcy notification. Servicing Assets and Obligation Prosper records Servicing Assets at their estimated fair values for servicing rights retained when Prosper sells Borrower Loans to unrelated third-party buyers. The change in fair value of Servicing Assets is recognized in Servicing Fees, Net. The gain or loss on a loan sale is recorded in Gain (Loss) on Sale of Borrower Loans while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market servicing rate is recorded in Servicing Assets on the consolidated balance sheets. Prosper uses a discounted cash flow model to estimate the fair value of the loan Servicing Assets which considers the contractual servicing fee revenue that Prosper earns on the Borrower Loans, the estimated market servicing rates to service such loans, the prepayment rates, the default rates and the current principal balances of the Borrower Loans. Prosper is also responsible for servicing the entire Credit Card portfolio and recognizes a servicing obligation liability for the Credit Card receivables that are not included in the Receivable from Credit Card Partner. This Credit Card servicing obligation is measured and recorded to the extent servicing fees the Company expects to earn do not exceed the estimated market servicing rate a market participant would require to service the portfolio, and is recorded within Other Liabilities on the consolidated balance sheets. Prosper uses a discounted cash flow model to estimate the fair value of the Credit Card servicing obligation which incorporates observable inputs such as the contractual servicing fee revenue that the Company earns on the Credit Card portfolio and the current outstanding principal balances of the related Credit Card receivables, as well as significant unobservable inputs such as the estimated market servicing rate to service the portfolio, the prepayment rates, the default rates and the discount rate. Changes in the fair value of the Servicing Assets and Credit Card servicing obligation are recorded in Servicing Fees, Net on the accompany statements of operations. Property and Equipment Property and Equipment consists of computer equipment, office furniture and equipment, leasehold improvements, software purchased or developed for internal use and web site development costs. Property and Equipment is stated at cost, less accumulated depreciation and amortization, and is computed using the straight-line method based upon estimated useful lives of the assets. Estimated useful lives of the assets are as follows:
The costs to develop software for the website and other internal uses are capitalized when management has authorized and committed project funding, when preliminary development efforts are successfully completed, and when it is probable that the project will be completed, and the software will be used as intended. Capitalized software and website development costs primarily include software licenses acquired, fees paid to outside consultants and salaries and payroll-related costs for employees directly involved in the development efforts. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed. Costs incurred for upgrades and enhancements that are considered probable to result in additional functionality are capitalized. Capitalized costs are included in Property and Equipment and amortized to expense using the straight-line method over their expected lives. Software and website development assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset group to the future net undiscounted cash flows expected to be generated by the asset group. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development asset group. Leases Management determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are included on the Consolidated Balance Sheets in Property and Equipment, Net and in Other Liabilities, respectively. For certain leases with original terms of twelve months or less, PMI recognizes the lease expense as incurred and does not record ROU assets and lease liabilities. If a contract contains a lease, management evaluates whether it should be classified as an operating or finance lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of PMI's leases do not provide an implicit rate, management uses an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The operating lease ROU assets are evaluated for impairment utilizing the same impairment model used for Property and Equipment. Goodwill Goodwill associated with business combinations is computed by recognizing the portion of the purchase price that is not tied to individually identifiable and separately recognizable assets. Goodwill is assigned to the Company’s reporting units at the acquisition date according to the expected economic benefits that the acquired business will provide to the reporting unit. A reporting unit is a business operating segment or a component of a business operating segment. The Company identifies its reporting units based on how the operating segments and reporting units are managed. Accordingly, the Company allocated the entire balance of goodwill to the Personal Loan reportable and operating segment. Refer to Note 21 for further information on the Company’s reportable and operating segments. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Annual impairment testing occurs on October 1. Impairment exists whenever the carrying value of Goodwill exceeds its implied fair value. Adverse changes in impairment indicators such as loss of key personnel, increased regulatory oversight or unplanned changes in operations could result in impairment. Payable to Investors Payable to Investors primarily represents the obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. Term Loans Prosper entered into a Credit Agreement, which provided for a Term Loan, with a third-party financial institution in November 2022. That Credit Agreement was terminated and the related Term Loan fully repaid in November 2025, when the Company entered into a new Credit Agreement and underlying Term Loan with a separate third-party financial institution. These agreements are fully described in Note 11, Debt. These Term Loans are carried at amortized cost, net of discounts, issuance costs and modification costs, which are subsequently amortized to Interest Expense on Term Loan over the life of the underlying agreements. Interest Expense on Term Loan is presented as a component of Expenses on the accompanying consolidated statements of operations. Convertible Preferred Stock Warrant Liability Prosper has entered into varying arrangements with investors to issue preferred stock warrants in exchange for their participation as a purchaser of Borrower Loans. In all cases, these warrants are free standing financial instruments due to their status as legally detached and separately exercisable warrants without conditions requiring Prosper to repurchase those warrants or the underlying preferred shares. These freestanding warrants are accounted for in accordance with ASC 480, Distinguishing Liabilities from Equity. Under ASC 480, vested freestanding warrants to purchase the Company’s convertible redeemable preferred stock are classified as a liability on the Consolidated Balance Sheets and carried at fair value because the warrants may conditionally obligate the Company to transfer assets at some point in the future. The Company records the warrants at fair value on issuance. The warrants are subject to remeasurement to fair value at each balance sheet date, and any change in their fair value is recognized as Change in Fair Value of Convertible Preferred Stock Warrants in the Consolidated Statements of Operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event or the conversion of convertible redeemable preferred stock into Common Stock. Loan Trailing Fee Liability On July 1, 2016, Prosper signed a series of agreements with WebBank which, among other things, includes an additional program fee (the “Loan Trailing Fee”) paid to WebBank in connection with the performance of each loan sold to Prosper. These agreements became effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by Prosper, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by Prosper to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, Prosper is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to Prosper is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of Transaction Fees, Net. Any changes in the fair value of this liability are recorded in “Servicing Fees, Net” on the Consolidated Statements of Operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and default rates. Revenue Recognition Revenue primarily results from Transaction Fees, Servicing Fees and Net Interest Income earned, partially offset by Loss on Sale of Borrower Loans. Fees include Transaction Fees for services performed on behalf of WebBank to originate a loan, as well as program fees generated from the Company’s Credit Card product. PMI also has other smaller sources of revenue reported as Other Revenues, including referral and incentive fees. Changes in Fair Value of Financial Instruments are included as a component of Total Net Revenue, and include changes in the fair value of Borrower Loans and Notes, Credit Card Derivative (including realized transactions) and Receivable from Credit Card Partner. Transaction Fees Prosper has a customer contract with WebBank to facilitate the origination of all Borrower Loans through Prosper’s marketplace. In exchange for these services, Prosper earns a transaction fee from WebBank that is recognized when performance is complete and upon the successful origination of a Borrower Loan. The transaction fee Prosper earns is determined by the term and credit grade of the Borrower Loan that is facilitated on Prosper’s marketplace, and ranges from 1.00% to 9.99% of the original principal amount of each Borrower Loan that WebBank originates. Prosper records the transaction fee net of any fees paid to WebBank because Prosper does not receive an identifiable benefit from WebBank other than the borrower loan that has been recognized at fair value. Additionally, the Company assumes WebBank’s obligation under Utah law to refund the pro-rated amount of the transaction fee in excess of 5% in the event of a borrower prepayment of the loan in full before maturity. Actual and expected refunds are recorded as a reduction of “Transaction Fees, Net” on the Company’s Consolidated Statements of Operations, and are included in “Accounts Payable and Accrued Liabilities” on the Company’s Consolidated Balance Sheets (Note 17). The Company also generates various Credit Card program fees through its partnership with Coastal. These include interchange fees, annual fees and late fees, which compensate Prosper for its role in marketing and managing the Credit Card product. Interchange and late fees are recognized as they are generated each month, while annual fees received are deferred and recognized over the annual period to which they relate. Transaction Fee Refunds Prosper assumes WebBank’s obligation under Utah law to refund the pro-rated amount of any Transaction Fees collected in excess of 5% of Borrower Loan principal, in the event the underlying borrower prepays the loan in full before maturity. Liabilities under this obligation are estimated upon the origination of Borrower Loans and recorded within Accounts Payable and Accrued Liabilities on the accompanying consolidated balance sheets. The key assumptions used in the estimated refund liability include prepayment rates and default rates derived primarily from historical performance. Changes in the liability are recorded within Transaction Fees, Net on the accompanying consolidated Statements of Operations. Refer to Note 17, Commitments and Contingencies, for details on the amounts recorded under this obligation. Servicing Fees Investors who purchase Borrower Loans from Prosper typically pay Prosper a servicing fee which is generally set at 1.0% per annum of the outstanding principal balance of the borrower loan prior to applying the current payment, plus an additional 0.075% per annum to cover the Loan Trailing Fee. The servicing fee compensates Prosper for the costs incurred in servicing the borrower loan, including managing payments from borrowers, managing payments to investors and maintaining investors’ account portfolios. Prosper records Servicing Fees from investors as a component of operating revenue when received. Under the Credit Card program agreement, Prosper is responsible for servicing the entire underlying Credit Card portfolio. Coastal pays the Company a 1% per annum servicing fee on the daily outstanding balance of receivables designated as Coastal Allocations. To the extent these servicing fees do not exceed the market servicing rate a market participant would require to service the Credit Card portfolio (excluding the Receivable from Credit Card Partner), the Company records a servicing obligation liability and measures it at fair value throughout the servicing period. Changes in the fair value of the servicing obligation liability are recorded in Servicing Fees. Loss on Sale of Borrower Loans Prosper recognizes a Gain or Loss on Sale of Borrower Loans as the net proceeds received on a sale through the Whole Loan Channel, less the fair value of the Borrower Loans sold. The net proceeds of the sale represent the fair value of any assets obtained or liabilities incurred as part of the transaction, including, but not limited to Servicing Assets, retained securities, incentives and repurchase obligations provided or received at the time of sale. Due to market volatility and incentives offered by competitors, incentives provided to Whole Loan Channel buyers have increased in recent years. Interest Income on Financial Instruments and Interest Expense on Financial Instruments Prosper recognizes interest income on Borrower Loans and Receivable from Credit Card Partner using the accrual method based on the contractual interest rate to the extent the Company believes it to be collectible. The Company also records interest expense on the corresponding Notes, at Fair Value and Notes Issued by Securitization Trusts based on the contractual interest rates. Other Revenues Other Revenues consist primarily of credit referral fees. These fees are earned from partner companies for the referral of customers on the Company’s platform. The transaction price is a fixed amount per referral and is recognized by the Company upon a successful referral. Other revenues also include incentive fees related to the Company’s Credit Card program, net of any Credit Card network fees. As of December 31, 2025, Prosper had no contract assets, contract liabilities or deferred contract costs. As of December 31, 2025, Prosper had no unsatisfied performance obligations related to Transaction Fees or Other Revenues. Advertising Costs Advertising costs are expensed when incurred and are included in “Sales and Marketing” expense in the accompanying Consolidated Statements of Operations. Prosper incurred advertising costs of $17.8 million, $13.7 million and $17.6 million for the years ended December 31, 2025, 2024 and 2023, respectively. Stock-Based Compensation Management determines the fair value of the Company's stock options issued to employees on the date of grant using the Black-Scholes option pricing model, which is impacted by the fair value of Common Stock as well as by changes in assumptions that include, but are not limited to, the expected Common Stock price volatility over the term of the option awards, the expected term of the awards, risk-free interest rates and the expected dividend yield. PMI uses an expected dividend yield of zero as it does not anticipate paying any dividends in the foreseeable future. PMI recognizes compensation expense for stock-based awards on a straight-line basis over the period during which an employee is required to provide services in exchange for the award (the vesting period of the award). Stock-based compensation expense is recognized only for those awards expected to vest. PMI estimates future forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from estimates. Stock-based awards issued to non-employees are marked-to-market up until the point that the awards measurement period has been achieved. Compensation expense for stock options issued to non-employees is calculated using the Black-Scholes option pricing model and is recorded over the vesting period of the award. Income Taxes The asset and liability method is used to account for income taxes. Under this method, deferred income tax assets and liabilities are based on the differences between the financial statement carrying values and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Prosper’s policy is to include interest and penalties related to gross unrecognized tax benefits within its provision for income taxes. U.S. Federal, California and other state income tax returns are filed. Prosper is not currently undergoing any income tax examinations. Due to the cumulative net operating loss, generally all tax years remain open. Prosper recognizes benefits from uncertain tax positions only if management believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Other Income, Net Other Income, Net consists primarily of interest income from Cash and Cash Equivalents and sublease income. Recent Accounting Pronouncements Accounting Standards Issued, Recently Adopted by the Company In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances effective tax rate reconciliation disclosure requirements and provides clarity to the disclosures of income taxes paid, income before taxes and provision for income taxes. The Company adopted this ASU for the full year ended December 31, 2025, on a prospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. See Note 15, Income Taxes, for further detail. Accounting Standards Issued, to be Adopted by the Company in Future Periods In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s Disclosure Update and Simplification Initiative.” The amendments in this update modify the disclosure or presentation requirements of a variety of Topics in the ASC in response to the SEC’s Release No. 33-10532, “Disclosure Update and Simplification Initiative,” and align the ASC’s requirements with the SEC’s regulations. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. The Company does not expect the adoption of this ASU to have a material impact on the Company’s Consolidated Financial Statements and related disclosures. In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures,” that requires more detailed disclosure about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expense and depreciation expense. The guidance is effective for annual periods beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company’s disclosures. In May 2025, the FASB issued ASU No. 2025-03, “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.” This standard clarifies the guidance in determining the accounting acquirer in a business combination effected primarily by exchanging equity interests when the acquiree is a VIE that meets the definition of a business. The standard is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. Early adoption is permitted, and the standard is to be applied prospectively to acquisitions after the adoption date. The Company is currently evaluating this ASU to determine its impact on the Company’s consolidated financial statements and related disclosures. In April 2025, the FASB issued ASU No. 2025-05, “Financial Instruments—Credit Losses (Topic 326): Practical Expedient for Estimating Expected Credit Losses on Current Receivables,” which provides a practical expedient for measuring expected credit losses on current accounts receivable and contract assets. The expedient allows an entity to assume that current economic conditions will remain unchanged for the remaining life of the asset when developing forecasts. The standard is effective for fiscal years beginning after December 15, 2025. The Company expects to elect this practical expedient for its short-term fee receivables and does not expect the adoption to have a material impact on its consolidated financial statements. In September 2025, the FASB issued ASU No. 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software,” which modernizes the capitalization criteria for internal-use software costs by removing references to project stages. The amendments are effective for fiscal years beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The amendments in this update should be applied on a prospective basis. The Company is currently evaluating this ASU to determine its impact on the consolidated financial statements, and expects to adopt it for the year ending December 31, 2028. In December 2025, the FASB issued ASU No. 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements,” which clarifies the requirements for interim financial statements and notes. The amendments compile existing interim disclosure requirements into a comprehensive list within Topic 270 and introduce a disclosure principle requiring an entity to disclose events or changes occurring since the end of the most recent annual reporting period that have a material effect on the entity. For public business entities, the standard is effective for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied either prospectively or retrospectively. The Company is currently evaluating this ASU to determine its impact on the Company’s interim financial statements and related disclosures. In December 2025, the FASB issued ASU No. 2025-12, “Codification Improvements,” which clarifies, corrects errors in, and makes minor improvements to a variety of Topics in the ASC. Key amendments include clarifications to the calculation of diluted earnings per share during loss periods, explicit permission for certain treasury stock retirement accounting methods, and refinements to disclosure requirements for lease receivables. The amendments are effective for all entities for annual periods beginning after December 15, 2026, and interim periods within those years. Early adoption is permitted on an issue-by-issue basis. The Company is currently evaluating this ASU, but does not expect the adoption to have a material impact on its consolidated financial statements or related disclosures. Other recent accounting pronouncements issued by the FASB did not, or are not believed by management to, have a material impact on the Company’s present or future financial statements.
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| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNT POLICIES Basis of Presentation PFL’s consolidated financial statements include the accounts of PFL and its wholly-owned subsidiary, Prosper Depositor LLC. All intercompany balances and transactions between PFL and Prosper Depositor LLC have been eliminated in consolidation. PFL’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). PFL did not have any items of other comprehensive income (loss) during any of the periods presented in the consolidated financial statements as of and for the years ended December 31, 2025, 2024 and 2023. Use of Estimates The preparation of PFL’s consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates, judgments and assumptions include, but are not limited to, the following: valuation of Borrower Loans and associated Notes, valuation of servicing rights, valuation of loan trailing fee liability, repurchase obligations, and contingent liabilities. PFL bases its estimates on historical experience from all Borrower Loans and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ materially from estimates. Consolidation of Variable Interest Entities A variable interest entity (“VIE”) is a legal entity that has either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. PFL’s variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity’s net assets. A VIE is consolidated by its primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. PFL consolidates a VIE when it is deemed to be the primary beneficiary. PFL assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis. Transfers of Financial Assets PFL accounts for transfers of financial assets as sales when it has surrendered control over the transferred assets. Control is generally considered to have been surrendered when the transferred assets have been legally isolated from PFL, the transferee has the right to pledge or exchange the assets without any significant constraints, and PFL has not entered into a repurchase agreement, does not hold unconditional call options and has not written put options on the transferred assets. In assessing whether control has been surrendered, PFL considers whether the transferee would be a consolidated affiliate and the impact of all arrangements or agreements made contemporaneously with, or in contemplation of the transfer, even if they were not entered into at the time of transfer. PFL measures gain or loss on sale of financial assets as the net proceeds received on the sale less the carrying amount of the loans sold. The net proceeds of the sale represent the fair value of any assets obtained or liabilities incurred as part of the transaction, including, but not limited to Servicing Assets, retained securities, and recourse obligations. Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments measured at fair value consist principally of Borrower Loans and Notes, Servicing Assets and loan trailing fee liabilities. The Company believes that applying the fair value option to these financial instruments achieves consistent accounting for certain assets and liabilities and more accurately reflects their in-period economic performance as compared to alternate methodologies. The estimated fair values of other financial instruments, including Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Payable to Investors approximate their carrying values because of their short-term nature. The fair value hierarchy includes a three-level classification, which is based on whether the inputs to the valuation methodology used for measurement are observable: Level 1 — Quoted market prices in active markets for identical assets or liabilities. Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Level 3 — Unobservable inputs. When developing fair value measurements, PFL maximizes the use of observable inputs and minimizes the use of unobservable inputs. However, for certain instruments PFL must utilize unobservable inputs in determining fair value due to the lack of observable inputs in the market, which requires greater judgment in measuring fair value. In instances where there is limited or no observable market data, fair value measurements for assets and liabilities are determined using assumptions that management believes a market participant would use in pricing the asset or liability. As observable market prices are not available for the Borrower Loans, Notes, and Servicing Assets, or for similar assets and liabilities, PFL believes the Borrower Loans, Notes, and Servicing Assets should be considered Level 3 financial instruments. PFL primarily uses a discounted cash flow model to estimate their fair value and key assumptions used in valuation include default rates and prepayment rates derived from historical performance and discount rates based on estimates of the rates of return that investors would require when investing in financial instruments with similar characteristics. The obligation to pay principal and interest on any series of Notes is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of our servicing fee which is generally 1.0% of the outstanding balance. The fair value election for Notes and Borrower Loans allows both the assets and the related liabilities to receive similar accounting treatment for expected losses which is consistent with the subsequent cash flows to investors that are dependent upon borrower payments. As such, the fair value of a series of Notes is approximately equal to the fair value of the corresponding Borrower Loan, adjusted for the 1.0% servicing fee and the timing of loan purchase, Note issuance and borrower payments. As a result, the valuation of the Notes uses the same methodology and assumptions as the Borrower Loans, except that the Notes incorporate the 1.0% servicing fee and any differences in timing in payments. Any unrealized gains or losses on the Borrower Loans and Notes for which the fair value option has been elected is recorded as a separate line item in the statement of operations. The effective interest rate associated with a group of Notes is less than the interest rate earned on the corresponding Borrower Loan due to the 1.0% servicing fee. Refer to Note 8 for additional fair value disclosures. Cash and Cash Equivalents Cash includes various unrestricted deposits with highly rated financial institutions. Cash equivalents consist of highly liquid marketable securities with original maturities of three months or less at the time of purchase and consist primarily of money market funds, commercial paper, U.S. treasury securities and U.S. agency securities. Cash equivalents are recorded at cost, which approximates fair value. Restricted Cash Restricted Cash consists primarily of cash deposits, money market funds and short-term certificate of deposit accounts held as collateral as required for long term leases, loan funding and servicing activities, and cash that investors have on our marketplace that has not yet been invested in Borrower Loans or disbursed to the investor. Borrower Loans and Notes With respect to the Note Channel, PFL purchases Borrower Loans from WebBank, then issues Notes and holds the Borrower Loans until maturity. The obligation to repay a series of Notes funded through the Note Channel is dependent upon the repayment of the associated Borrower Loan. Borrower Loans and Notes funded through the Note Channel are carried on PFL’s consolidated balance sheets as assets and liabilities, respectively. PFL places Borrower Loans on non-accrual status when they are 120 days past due. When a loan is placed on non-accrual status, PFL stops accruing interest and reverses all accrued but unpaid interest as of such date. Additionally, PFL charges-off Borrower Loans when they are 120 days past due or reach the end of a settlement program. The fair value of loans 120 days past due generally consists of the expected recovery from debt sales in subsequent periods. Management has elected the fair value option for Borrower Loans and Notes. Changes in fair value of Borrower Loans are largely offset by the changes in fair value of Notes due to the borrower payment-dependent design of the Notes. Changes in fair value of Borrower Loans and Notes are included in Change in Fair Value of Financial Instruments, Net on the consolidated statements of operations. PFL primarily uses a discounted cash flow model to estimate the fair value of Borrower Loans and Notes. The key assumptions used in the valuation include default rates and prepayment rates derived primarily from historical performance and discount rates based on estimates of the rates of return that investors would require when investing in financial instruments with similar characteristics. Servicing Assets PFL records Servicing Assets at their estimated fair values for servicing rights retained when PFL sells Borrower Loans to unrelated third-party buyers. The change in fair value of Servicing Assets is recognized in revenue as Servicing Fees, Net. The gain or loss on a loan sale is recorded in Gain (Loss) on Sale of Borrower Loans while the fair value of the servicing rights, which is based on the degree to which the contractual loan servicing fee is above or below an estimated market loan servicing rate, is recorded in Servicing Assets on the Consolidated Balance Sheets. PFL uses a discounted cash flow model to estimate the fair value of Servicing Assets which considers the contractual servicing fee revenue that PFL earns on the Borrower Loans, estimated market servicing fees to service such loans, prepayment rates, default rates and the current principal balances of the Borrower Loans. Software and Website Development Software and website development represents the software and website development costs that PMI transferred to PFL. PFL does not develop any of its own software or its website. Software and website development are included in Property and Equipment, Net and amortized to depreciation expense using the straight-line method over their expected lives, which are generally to five years. PFL evaluates its software assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software and website development assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software and website development assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software and website development assets. Payable to Investors Payable to Investors primarily represents the Company's obligation to investors related to cash held in an account for the benefit of investors and payments-in-process received from borrowers. Loan Trailing Fee Liability On July 1, 2016, PMI signed a series of agreements with WebBank which, among other things, includes an additional program fee (the “Loan Trailing Fee”) paid to WebBank in connection with the performance of each loan sold to PMI. These agreements were effective as of August 1, 2016. The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, irrespective of whether the loans are sold by PMI, and gives WebBank an ongoing financial interest in the performance of the loans it originates. This fee is paid by PMI to WebBank over the term of the respective loans and is a function of the principal and interest payments made by borrowers of such loans. In the event that principal and interest payments are not made with respect to any loan, PMI is not required to make the related Loan Trailing Fee payment. The obligation to pay the Loan Trailing Fee for any loan sold to PMI is recorded at fair value at the time of the origination of such loan within Other Liabilities and recorded as a reduction of “Transaction Fees, net.” Any changes in the fair value of this liability are recorded in “Servicing Fees, Net” on the Consolidated Statements of Operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee payments, which takes into consideration certain assumptions related to expected prepayment rates and defaults rates. Revenue Recognition Revenue primarily results from fees, net interest earned and gains on the sale of Borrower Loans. Fees consist of related party administrative fees and Servicing Fees paid by investors. The Company also has other smaller sources of revenue reported as Other Revenues including fees charged in relation to securitizations by third-party investors. Administration Agreement License Fees PFL primarily generates revenues through license fees it earns through an Administration Agreement with PMI. The Administration Agreement contains a license granted by PFL to PMI that entitles PMI to use the platform for and in relation to: (i) PMI’s performance of its duties and obligations under the Administration Agreement relating to corporate administration, loan platform services, Borrower Loan and Note servicing and marketing, and (ii) PMI’s performance of its duties and obligations to WebBank in relation to loan origination and funding. The license fees are primarily made up of (i) reimbursements for all incentives paid out to whole loan investors, (ii) a fee based on the number of listings that are posted to the platform and (iii) a $0.3 million fixed monthly fee. On November 14, 2025, PFL and PMI executed Amendment 7 to the Administration Agreement, and as a result, effective on that date the license fee now includes a reimbursement of all whole loan investor performance-based payments and transaction fee refunds issued by PFL each month. Servicing Fees Investors who purchase Borrower Loans from PFL through the Whole Loan Channel typically pay PFL a servicing fee which is currently set at 1.0% per annum of the outstanding principal balance of the Borrower Loan prior to applying the current payment, plus an additional 0.075% per annum to cover the Loan Trailing Fee. The servicing fee compensates PFL for the costs incurred in servicing the Borrower Loan, including managing payments from borrowers, managing payments to investors and maintaining investors’ account portfolios. PFL records Servicing Fees from investors as a component of operating revenue when received. Transaction Fee Refunds Prosper assumes WebBank’s obligation under Utah law to refund the pro-rated amount of any Transaction Fees collected in excess of 5%, in the event the underlying borrower prepays the loan in full before maturity. Liabilities under this obligation are estimated upon the origination of Borrower Loans and recorded within Accounts Payable and Accrued Liabilities on the accompanying consolidated Balance Sheets. The key assumptions used in the estimated refund liability include prepayment rates and default rates derived primarily from historical performance. Changes in the liability are recorded within Administration Fee - Related Party on the accompanying consolidated Statements of Operations. Refer to Note 8, Commitments and Contingencies, for details on the amounts recorded under this obligation. Loss on Sale of Borrower Loans PFL recognizes a Gain or Loss on Sale of Borrower Loans as the net proceeds received on a sale through the Whole Loan Channel, less the fair value of the Borrower Loans sold. The net proceeds of the sale represent the fair value of any assets obtained or liabilities incurred as part of the transaction, including, but not limited to Servicing Assets, retained securities, incentives and repurchase obligations provided or received at the time of sale. Due to market volatility and incentives offered by competitors, incentives provided to Whole Loan Channel buyers have increased in recent years. Interest Income on Borrower Loans and Interest Expense on Notes PFL recognizes interest income on Borrower Loans originated through the Note Channel and interest expense on the corresponding Notes using the accrual method based on the stated interest rate to the extent PFL believes it to be collectable. Administration Fee Expense - Related Party Pursuant to the Administration Agreement between PFL and PMI, PMI manages the marketplace on behalf of PFL. Accordingly each month, PFL is required to pay PMI an administration fee that is based on (a) PMI’s finance and legal personnel costs, (b) the number of Borrower Loans originated through the marketplace, (c) Servicing Fees collected by or on behalf of PFL, and (d) nonsufficient funds fees collected by or on behalf of PFL. Recent Accounting Pronouncements Accounting Standards Adopted in the Current Period No accounting standards were adopted in the current period for PFL. Accounting Standards Issued, to be Adopted in Future Periods In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures,” that requires more detailed disclosure about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expense and depreciation expense. The guidance is effective for annual periods beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating this ASU to determine its impact on the Company’s disclosures. In April 2025, the FASB issued ASU No. 2025-05, “Financial Instruments—Credit Losses (Topic 326): Practical Expedient for Estimating Expected Credit Losses on Current Receivables,” which provides a practical expedient for measuring expected credit losses on current accounts receivable and contract assets. The expedient allows an entity to assume that current economic conditions will remain unchanged for the remaining life of the asset when developing forecasts. The standard is effective for fiscal years beginning after December 15, 2025. The Company expects to elect this practical expedient for its short-term fee receivables and does not expect the adoption to have a material impact on its consolidated financial statements. In December 2025, the FASB issued ASU No. 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements,” which clarifies the requirements for interim financial statements and notes. The amendments compile existing interim disclosure requirements into a comprehensive list within Topic 270 and introduce a disclosure principle requiring an entity to disclose events or changes occurring since the end of the most recent annual reporting period that have a material effect on the entity. For public business entities, the standard is effective for interim reporting periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied either prospectively or retrospectively. The Company is currently evaluating this ASU to determine its impact on the Company’s interim financial statements and related disclosures.
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