Fair Value of Assets and Liabilities |
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| Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities Prosper measures the fair value of assets and liabilities in accordance with its fair value hierarchy which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. The Company applies this framework whenever other standards require (or permit) assets or liabilities to be measured at fair value. Assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial Instruments Recorded at Fair Value The fair value of the Borrower Loans, Notes, Servicing Assets and Liabilities and loan trailing fee liability are estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary assumptions used in the discounted cash flow model include default and prepayment rates primarily derived from historical performance and discount rates applied to each credit grade based on the perceived credit risk of each credit grade. The fair value of the Credit Card Derivative is also estimated using a discounted cash flow model using certain assumptions. The key assumptions used in the valuation include default and prepayment rates derived primarily from historical performance and relevant market data, adjusted as necessary based on the perceived credit risk of the underlying portfolio. In addition, a discount rate based on the estimated residual return derived from a recent market securitization transaction sponsored by the Company is applied to the individual freestanding derivatives. In order to determine the fair value of the Receivable from Credit Card Partner, 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. The Convertible Preferred Stock Warrant Liability is valued using a Black-Scholes option pricing model. Refer to Note 13 for further details. The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
As PMI’s Borrower Loans, Receivable from Credit Card Partner, Credit Card Derivative, Servicing Assets, Notes, Credit Card servicing obligation liability, loan trailing fee liability and Convertible Preferred Stock Warrant Liability 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. Financial instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. Prosper did not transfer any assets or liabilities in or out of Level 3 for the nine months ended September 30, 2026 and 2025. Significant Unobservable Input Ranges The following tables present quantitative information about the ranges of significant unobservable inputs used for the Company’s Level 3 fair value measurements at September 30, 2026 and December 31, 2025:
For Borrower Loans and Notes funded through the Note Channel, the Company utilizes the same projected cash flows to estimate the fair values of these financial instruments.
(1) Servicing assets associated with loans enrolled in a relief program offered by the Company as of September 30, 2026 and December 31, 2025 were measured using a market servicing rate assumption of 84.2 basis points. This rate was estimated using a multiplier consistent with observable market rates for other loan types, applied to the base market servicing rate assumption. (2) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of September 30, 2026 and December 31, 2025, the market rate for collection fees and non-sufficient fund fees was assumed to be 11 basis points and 10 basis points, respectively, for a total market servicing rate range of 70.3 - 95.2 basis points and 69.3 - 94.2 basis points, respectively.
Ranges of inputs are not applied to the Credit Card Derivative and Credit Card servicing obligation liability, as they are valued at the portfolio level. Refer below for a summary of the significant unobservable inputs associated with those Level 3 fair value measurements. Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis The following tables present additional information about Level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
The outstanding balance of Loans Held for Sale was reduced to zero following the contribution of loans held in consolidated warehouse trusts to the PMIT 2023-1 and PMIT 2024-1 securitization transactions, as more fully described in Note 7, Securitizations. The Company has not designated any new personal loans as Loans Held for Sale since these transactions, other than loans that are purchased and immediately sold through the Whole Loan Channel. This movement of loans through the Whole Loan Channel is reflected in the accompanying consolidated statements of cash flows and the Level 3 tables above. Details on the fair value of the Servicing Asset associated with loans sold through the Whole Loan Channel are discussed below. The following table presents additional information about the Level 3 Receivable from Credit Card Partner, measured at fair value on a recurring basis for the three and nine month period ending September 30, 2026 (in thousands):
The following tables present additional information about Level 3 Servicing Assets measured at fair value on a recurring basis for the three and nine month periods ending September 30, 2026 and 2025 (in thousands):
The following tables present additional information about the Level 3 Credit Card Derivative measured at fair value on a recurring basis for the three and nine month periods ending September 30, 2026 and 2025 (in thousands):
The following tables present additional information about the Level 3 Credit Card servicing obligation liability (a component of Other Liabilities on the condensed consolidated balance sheets) measured at fair value on a recurring basis for the three and nine month periods ending September 30, 2026 and 2025 (in thousands):
The following tables present additional information about the Level 3 Convertible Preferred Stock Warrant Liability measured at fair value on a recurring basis for the three and nine month periods ending September 30, 2026 and 2025 (in thousands):
Loan Trailing Fee 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 using a discounted cash flow model. The assumptions used are the same as those used for the valuation of Servicing Assets, as described below. The following tables present additional information about the Level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis for the three and nine month periods ending September 30, 2026 and 2025 (in thousands):
Significant Recurring Level 3 Fair Value Input Sensitivity Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and December 31, 2025 for Borrower Loans and Loans Held for Sale are presented in the following table (in thousands, except percentages).
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and December 31, 2025 for Notes are presented in the following table (in thousands, except percentages).
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and December 31, 2025 for Servicing Assets is presented in the following table (in thousands, except percentages).
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and December 31, 2025 for Receivable from Credit Card Partner is presented in the following table (in thousands, except percentages).
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and December 31, 2025 for the Credit Card Derivative is presented in the following table (in thousands, except percentages).
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at September 30, 2026 and 2025 for the Credit Card servicing obligation liability is presented in the following table (in thousands, except percentages).
These sensitivities are hypothetical and should be evaluated with care. 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. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Changes in Estimates The Company periodically reviews the underlying assumptions and data sources that drive the fair values of its financial instruments. Accordingly, effective March 31, 2026, and on a prospective basis, the Company applied a default rate to the projected cash flows that comprise the Credit Card Derivative and Credit Card servicing obligation based solely on the recent credit performance of its underlying Credit Card portfolio. Previously, the default rate was estimated based on a combination of the Company’s recent credit performance, and the credit performance of comparable third-party credit card products. This change was made to better align with how management believes a market participant would estimate the fair value of these cash flows, given there is now more than four years of historical data available for the underlying Credit Card portfolio. The effect of this change in estimate increased the Credit Card Derivative by $5.2 million and increased the Credit Card servicing obligation by $0.7 million as of March 31, 2026. In addition, effective September 30, 2026, and on a prospective basis, the Company applied a discount rate to the projected cash flows that comprise the Credit Card Derivative, Receivable from Credit Card Partner and Credit Card servicing obligation based on an estimated residual return derived from recent market securitization transactions sponsored by the Company. Previously, the discount rate was estimated using an external high-yield corporate debt benchmark. This change was made because management concluded the external benchmark is no longer representative of the returns a market participant would seek when investing in consumer credit, and the residual yield required by investors on recent market transactions provides a more representative measure. The effect of this change in estimate (i) increased the Credit Card Derivative by $2.7 million, (ii) increased the Receivable from Credit Card Partner by $6.0 million and (iii) increased the net Credit Card servicing obligation by $0.4 million as of September 30, 2026. Accordingly, it increased Total Net Revenue and Net Income by $8.4 million for the three and nine months ended September 30, 2026. Assets and Liabilities Not Recorded at Fair Value The following table presents the fair value hierarchy for assets, and liabilities not recorded at fair value (in thousands):
The estimated fair values of Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable and Accrued Liabilities, Transaction Fee Refund Liability and Payable to Investors approximate their carrying values because of their short-term nature.
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| Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities PFL has elected to record certain financial instruments at fair value on the balance sheet. PFL classifies Borrower Loans, Loans Held for Sale and Notes as financial instruments and assesses their fair value each on a quarterly basis for financial statement presentation purposes. Gains and losses on these financial instruments are shown separately on the condensed consolidated statements of operations. As of September 30, 2026 and December 31, 2025, the discounted cash flow methodology used to estimate the Notes fair values used the same projected cash flows as the related Borrower Loans. As demonstrated in the table below, the fair value adjustments for Borrower Loans were largely offset by the fair value adjustments of the Notes due to the borrower payment dependent design of the Notes and because the principal balances of the Borrower Loans approximated the principal balances of the Notes. Assets and liabilities carried at fair value on the balance sheets are classified among three levels based on the observability of the inputs used to determine fair value: Level 1 — The valuation is based on quoted prices in active markets for identical instruments. Level 2 — The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation methodologies for which all significant assumptions are observable in the market. Level 3 — The valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar methodologies, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation. Fair values of assets or liabilities are determined based on the fair value hierarchy, which requires an entity to maximize the use of quoted prices and observable inputs and to minimize the use of unobservable inputs when measuring fair value. Various valuation methodologies are utilized, depending on the nature of the financial instrument, including the use of market prices for identical or similar instruments, or discounted cash flow models. When possible, active and observable market data for identical or similar financial instruments are utilized. Alternatively, fair value is determined using assumptions that management believes a market participant would use in pricing the asset or liability. Financial Instruments Recorded at Fair Value The fair value of the Borrower Loans and Notes are estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The primary cash flow assumptions used to value such Borrower Loans and Notes include default and prepayment rates derived primarily from historical performance and discount rates that reflect estimates of the rates of return that investors would require when investing in financial instruments with similar characteristics. The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
As PFL’s Borrower Loans, Notes, Servicing Assets and loan trailing fee liability do not trade in an active market with readily observable prices, PFL uses significant unobservable inputs to measure the fair value of these assets and liabilities. Financial instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, the realized and unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. PFL did not transfer any assets or liabilities in or out of Level 3 for the nine months ended September 30, 2026 or September 30, 2025. Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs used for PFL’s Level 3 fair value measurements at the dates presented:
(1) Servicing assets associated with loans enrolled in a relief program offered by the Company as of September 30, 2026 and December 31, 2025 were measured using a market servicing rate assumption of 84.2 basis points. This rate was estimated using a multiplier consistent with observable market rates for other loan types, applied to the base market servicing rate assumption. (2) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of September 30, 2026 and December 31, 2025, the market rate for collection fees and non-sufficient fund fees was assumed to be 11 basis points and 10 basis points, respectively, for a total market servicing rate range of 70.3 - 95.2 basis points and a total market servicing rate of 69.3 - 94.2 basis points, respectively.
Changes in Level 3 Fair Value Assets and Liabilities on a Recurring Basis The following tables present additional information about Level 3 Borrower Loans, Loans Held for Sale and Notes measured at fair value on a recurring basis (in thousands):
The following tables present additional information about Level 3 Servicing Assets recorded at fair value (in thousands):
Loan Trailing Fee Liability The fair value of the Loan Trailing Fee Liability (included in Other Liabilities on the accompanying condensed consolidated balance sheets) 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 using a discounted cash flow model. The assumptions used are the same as those used for the valuation of Servicing Assets, as described below. The following tables present additional information about Level 3 Loan Trailing Fee Liability measured at fair value on a recurring basis (in thousands):
Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity Key economic assumptions are used to compute the fair value of Borrower Loans. The sensitivity of the fair value to immediate changes in assumptions at September 30, 2026 and December 31, 2025 for Borrower Loans are presented in the following table (in thousands, except percentages).
Key economic assumptions are used to compute the fair value of Notes. The sensitivity of the fair value to immediate changes in assumptions at September 30, 2026 and December 31, 2025 for Notes funded through the Note Channel are presented in the following table (in thousands, except percentages).
Key economic assumptions are used to compute the fair value of Servicing Assets. The sensitivity of the current fair value to immediate changes in assumptions at September 30, 2026 and December 31, 2025 for Servicing Assets are presented in the following table (in thousands, except percentages).
These sensitivities are hypothetical and should be evaluated with care. 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. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
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