| Fair Value Measurements | Fair Value Measurements Recurring Fair Value Measurements The following table summarizes, by level within the fair value hierarchy, the estimated fair values of our assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets: December 31, 2022 December 31, 2021 Fair Value Fair Value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Investments in AFS debt securities (1)(2) $ 137,032 $ 58,406 $ — $ 195,438 $ 129,835 $ 65,072 $ — $ 194,907 Asset-backed bonds (2)(3) — 155,093 — 155,093 — 253,669 — 253,669 Residual investments (2)(3) — — 46,238 46,238 — — 121,019 121,019 Loans at fair value — — 13,557,074 13,557,074 — — 5,952,972 5,952,972 Servicing rights — — 149,854 149,854 — — 168,259 168,259 Non-securitization investments – ETFs (4) — — — — 1,486 — — 1,486 Third party warrants (4)(5) — — 630 630 — — 1,369 1,369 Derivative assets (4)(6)(7) — 24,612 — 24,612 — 5,444 — 5,444 Purchase price earn-out (4)(8) — — 54 54 — — 4,272 4,272 IRLCs (4)(9) — — 216 216 — — 3,759 3,759 Student loan commitments (4)(9) — — — — — — 2,220 2,220 Interest rate caps (4)(7) — 9,178 — 9,178 — 493 — 493 Digital assets safeguarding asset (4)(10) — 106,826 — 106,826 — — — — Total assets $ 137,032 $ 354,115 $ 13,754,066 $ 14,245,213 $ 131,321 $ 324,678 $ 6,253,870 $ 6,709,869 Liabilities Debt (11) $ — $ 89,142 $ — $ 89,142 $ — $ — $ — $ — Residual interests classified as debt — — 17,048 17,048 — — 93,682 93,682 Derivative liabilities (4)(6)(7) — 9,331 — 9,331 196 668 — 864 Student loan commitments (4)(9) — — 236 236 — — — — Digital assets safeguarding liability (4)(10) — 106,826 — 106,826 — — — — Total liabilities $ — $ 205,299 $ 17,284 $ 222,583 $ 196 $ 668 $ 93,682 $ 94,546 _____________________ (1) The investments in AFS debt securities that were classified as Level 2 rely upon observable inputs other than quoted prices, dealer quotes in markets that are not active and implied pricing derived from new issuances of similar securities. See Note 6 for additional information. (2) These assets are presented within investment securities in the consolidated balance sheets. (3) These assets represent the carrying value of our holdings in VIEs wherein we were not deemed the primary beneficiary. See Note 6 for additional information. We classify asset-backed bonds as Level 2 due to the use of quoted prices for similar assets in markets that are not active, as well as certain factors specific to us. The key inputs used to value the asset-backed bonds include the discount rate and conditional prepayment rate. The fair value of our asset-backed bonds was not materially impacted by default assumptions on the underlying securitization loans, as the subordinate residual interests are expected to absorb all estimated losses based on our default assumptions for the period. We classify the residual investments as Level 3 due to the reliance on significant unobservable valuation inputs. (4) These assets and liabilities are presented within other assets and accounts payable, accruals and other liabilities , respectively, in the consolidated balance sheets. (5) The key unobservable assumption used in the fair value measurement of the third party warrants was the price of the stock underlying the warrants. The fair value was measured as the difference between the stock price and the strike price of the warrants. As the strike price was insignificant, we concluded that the impact of time value on the fair value measure was immaterial. (6) For certain derivative instruments for which an enforceable master netting agreement exists, we elected to net derivative assets and derivative liabilities by counterparty. These instruments are presented on a gross basis herein. See Note 1 and Note 14 for additional information. (7) Home loan pipeline hedges represent TBAs used as economic hedges of loan fair values and are classified as Level 2, as we rely on quoted market prices from similar loan pools that transact in the marketplace. Interest rate swaps and interest rate caps are classified as Level 2, because these financial instruments do not trade in active markets with observable prices, but rely on observable inputs other than quoted prices. As of December 31, 2022, interest rate swaps and interest rate caps were valued using the overnight SOFR curve and the implied volatilities suggested by the SOFR rate curve. As of December 31, 2021, interest rate swaps were valued using the three-month LIBOR swap yield curve. These were determined to be observable inputs from active markets. (8) The purchase price earn-out provision is classified as Level 3 because of our reliance on unobservable inputs related to the underlying loan portfolio performance, such as conditional prepayment rates, annual default rates and discount rates. (9) IRLCs and student loan commitments are classified as Level 3 because of our reliance on assumed loan funding probabilities. The assumed probabilities are based on our internal historical experience with home loans and student loans similar to those in the funding pipelines on the measurement date. (10) The digital assets safeguarding liability and corresponding safeguarding asset are classified as Level 2, because they do not trade in active markets, and are valued using quoted prices on an active exchange that has been identified as the principal market for the underlying digital assets that are being held by our third-party custodians for the benefit of our members. (11) The fair value of our securitization debt was classified as Level 2 and valued using a discounted cash flow model, with key inputs relating to the underlying contractual coupons, terms, discount rate and expectations for defaults and prepayments. As of December 31, 2022, the unpaid principal related to debt measured at fair value was $98,868. For the year ended December 31, 2022, losses from changes in fair value were $586. The estimated amounts of gains (losses) included in earnings attributable to changes in instrument-specific credit risk, which were derived principally from observable changes in credit spread as observed in the bond market, were immaterial. Level 3 Recurring Fair Value Rollforward The following tables present the changes in our assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). We did not have any transfers into or out of Level 3 during the years presented. Fair Value at Fair Value at January 1, 2022 Impact on Earnings Purchases Sales Issuances Settlements December 31, 2022 Assets Personal loans $ 2,289,426 $ 103,746 $ 1,677,682 $ (2,911,491) $ 9,773,705 $ (2,322,634) $ 8,610,434 Student loans 3,450,837 (24,166) 817,864 (877,920) 2,245,499 (734,937) 4,877,177 Home loans 212,709 (10,840) 2,901 (1,094,981) 966,177 (6,503) 69,463 Loans at fair value (1) 5,952,972 68,740 2,498,447 (4,884,392) 12,985,381 (3,064,074) 13,557,074 Servicing rights 168,259 39,651 3,712 (22,020) 45,126 (84,874) 149,854 Residual investments (2) 121,019 2,240 — (36,732) — (40,289) 46,238 Purchase price earn out 4,272 1,094 — — — (5,312) 54 IRLCs (3) 3,759 (2,630) — — — (913) 216 Third party warrants 1,369 (739) — — — — 630 Total assets $ 6,251,650 $ 108,356 $ 2,502,159 $ (4,943,144) $ 13,030,507 $ (3,195,462) $ 13,754,066 Liabilities Residual interests classified as debt (2) $ (93,682) $ (6,608) $ — $ — $ — $ 83,242 $ (17,048) Student loan commitments (3) 2,220 (1,876) — — — (580) (236) Total liabilities $ (91,462) $ (8,484) $ — $ — $ — $ 82,662 $ (17,284) Net impact on earnings $ 99,872 Fair Value at Fair Value at January 1, 2021 Impact on Earnings Purchases Sales Issuances Settlements December 31, 2021 Assets Personal loans $ 1,812,920 $ 29,022 $ 405,051 $ (4,290,424) $ 5,386,934 $ (1,054,077) $ 2,289,426 Student loans 2,866,459 (6,231) 44,850 (2,854,778) 4,293,526 (892,989) 3,450,837 Home loans 179,689 (5,124) 1,144 (2,935,038) 2,978,222 (6,184) 212,709 Loans at fair value (1) 4,859,068 17,667 451,045 (10,080,240) 12,658,682 (1,953,250) 5,952,972 Servicing rights 149,597 (2,651) 370 (1,052) 111,582 (89,587) 168,259 Residual investments (2) 139,524 10,603 — (4,291) 49,317 (74,134) 121,019 IRLCs (3) 15,620 23,211 — — — (35,072) 3,759 Purchase price earn out — 2,147 — — 7,165 (5,040) 4,272 Student loan commitments (3) — 6,410 — — — (4,190) 2,220 Third party warrants — 573 — — 796 — 1,369 Total assets $ 5,163,809 $ 57,960 $ 451,415 $ (10,085,583) $ 12,827,542 $ (2,161,273) $ 6,253,870 Liabilities Residual interests classified as debt (2) $ (118,298) $ (22,802) $ — $ — $ (2,170) $ 49,588 $ (93,682) Total liabilities $ (118,298) $ (22,802) $ — $ — $ (2,170) $ 49,588 $ (93,682) Net impact on earnings $ 35,158 _____________________ (1) For loans at fair value, issuances represent the principal balance of loans originated during the year. Purchases reflect unpaid principal balance and relate to previously transferred loans or additions of loans to consolidated securitizations. Purchase activity during the years ended December 31, 2022 and 2021 included securitization clean-up calls of $518,659 and $425,302, respectively. Additionally, during the years ended December 31, 2022 and 2021, we elected to purchase $1,843,575 and $17,596, respectively, of previously sold loans from certain investors. We were not required to buy back these loans. The remaining purchases during the years presented related to standard representations and warranties pursuant to our various loan sale agreements. Gains and losses recognized in earnings include changes in accumulated interest and fair value adjustments on loans originated during the year and on loans held at the balance sheet date, as well as loan charge-offs. Changes in fair value are impacted by valuation assumption changes, as well as sales price execution and amount of time the loans are held prior to sale. The estimated amount of gains (losses) included in earnings attributable to changes in instrument-specific credit risk were $(49,453), $4,143 and $13,896 during the years ended December 31, 2022, 2021 and 2020, respectively. The gains (losses) attributable to instrument-specific credit risk were estimated by incorporating our current default and loss severity assumptions for the loans. These assumptions are based on historical performance, market trends and performance expectations over the term of the underlying instrument. (2) For residual investments, sales include the derecognition of investments associated with securitization clean up calls. The estimated amounts of gains and losses for residual investments included in earnings attributable to changes in instrument-specific credit risk were immaterial during the years presented. For residual investments and residual interests classified as debt, we record changes in fair value within noninterest income—securitizations in the consolidated statements of operations and comprehensive income (loss), a portion of which is subsequently reclassified to interest expense—securitizations and warehouses for residual interests classified as debt and to interest income—securitizations for residual investments, but does not impact the liability or asset balance, respectively. (3) For IRLCs and student loan commitments, settlements reflect funded and unfunded adjustments representing the unpaid principal balance of funded and unfunded loans during the quarter multiplied by the IRLC or student loan commitment price in effect at the beginning of the quarter. For the year-to-date periods, amounts represent the summation of the per-quarter effects. Changes in fair value are recorded within noninterest income—loan origination and sales in the consolidated statements of operations and comprehensive income (loss). Level 3 Significant Inputs Loans The following key unobservable assumptions were used in the fair value measurement of our loans: December 31, 2022 December 31, 2021 Range Weighted Average Range Weighted Average Personal loans Conditional prepayment rate 17.3% – 25.5% 19.1% 18.4% – 37.7% 20.5% Annual default rate 3.8% – 37.7% 4.4% 4.2% – 30.0% 4.4% Discount rate 5.4% – 8.3% 6.1% 3.9% – 7.0% 4.0% Student loans Conditional prepayment rate 16.3% – 21.8% 20.4% 16.5% – 26.3% 19.2% Annual default rate 0.2% – 4.5% 0.5% 0.2% – 4.2% 0.4% Discount rate 3.6% – 8.7% 4.0% 1.9% – 7.1% 2.9% Home loans Conditional prepayment rate 2.0% – 10.2% 7.0% 4.8% – 16.4% 12.4% Annual default rate 0.1% – 1.3% 0.1% 0.1% – 0.2% 0.1% Discount rate 5.7% – 14.1% 5.9% 2.5% – 13.0% 2.6% The key assumptions are defined as follows: • Conditional prepayment rate — The monthly annualized proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. An increase in the conditional prepayment rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Annual default rate — The annualized rate of borrowers who do not make loan payments on time. An increase in the annual default rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Discount rate — The weighted average rate at which the expected cash flows are discounted to arrive at the net present value of the loans. The discount rate is primarily determined based on the federal funds rate, our weighted average coupon rate and expected duration of the assets, the last of which is also impacted by expected prepayment rates. An increase in the discount rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. See Note 4 for additional loan fair value disclosures. Servicing Rights Servicing rights for personal loans and student loans do not trade in an active market with readily observable prices. Similarly, home loan servicing rights infrequently trade in an active market. At the time of the underlying loan sale or the assumption of servicing rights, the fair value of servicing rights is determined using a discounted cash flow methodology based on observable and unobservable inputs. Management classifies servicing rights as Level 3 due to the use of significant unobservable inputs in the fair value measurement. The following key unobservable inputs were used in the fair value measurement of our classes of servicing rights: December 31, 2022 December 31, 2021 Range Weighted Average Range Weighted Average Personal loans Market servicing costs 0.2% – 0.5% 0.3% 0.2% – 1.1% 0.2% Conditional prepayment rate 17.9% – 31.3% 22.7% 22.5% – 41.4% 26.0% Annual default rate 3.4% – 7.9% 4.9% 3.2% – 7.0% 4.4% Discount rate 7.8% – 7.8% 7.8% 7.3% – 7.3% 7.3% Student loans Market servicing costs 0.1% – 0.2% 0.1% 0.1% – 0.2% 0.1% Conditional prepayment rate 15.4% – 21.9% 17.8% 15.2% – 25.6% 20.4% Annual default rate 0.3% – 4.3% 0.4% 0.2% – 4.3% 0.4% Discount rate 7.8% – 7.8% 7.8% 7.3% – 7.3% 7.3% Home loans Market servicing costs 0.1% – 0.1% 0.1% 0.1% – 0.1% 0.1% Conditional prepayment rate 4.9% – 11.0% 5.2% 10.0% – 16.4% 11.5% Annual default rate 0.1% – 0.1% 0.1% 0.1% – 0.2% 0.1% Discount rate 9.0% – 9.0% 9.0% 7.5% – 7.5% 7.5% The key assumptions are defined as follows: • Market servicing costs — The fee a willing market participant, which we validate through actual third-party bids for our servicing, would require for the servicing of personal loans, student loans and home loans with similar characteristics as those in our serviced portfolio. An increase in the market servicing cost, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Conditional prepayment rate — The monthly annualized proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. An increase in the conditional prepayment rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Annual default rate — The annualized rate of default within the total serviced loan balance. An increase in the annual default rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Discount rate — The weighted average rate at which the expected cash flows are discounted to arrive at the net present value of the servicing rights. An increase in the discount rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. The following table presents the estimated decrease to the fair value of our servicing rights if the key assumptions had each of the below adverse changes: December 31, 2022 2021 Market servicing costs 2.5 basis points increase $ (10,395) $ (10,822) 5.0 basis points increase (20,807) (21,644) Conditional prepayment rate 10% increase $ (4,036) $ (6,260) 20% increase (7,833) (12,031) Annual default rate 10% increase $ (166) $ (205) 20% increase (331) (408) Discount rate 100 basis points increase $ (3,905) $ (3,782) 200 basis points increase (7,562) (7,349) The sensitivity calculations above 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. Additionally, the effect of an adverse variation in a particular assumption on the fair value of our servicing rights is calculated while holding the other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects. Residual Investments and Residual Interests Classified as Debt Residual investments and residual interests classified as debt do not trade in active markets with readily observable prices, and there is limited observable market data for reference. The fair values of residual investments and residual interests classified as debt are determined using a discounted cash flow methodology. Management classifies residual investments and residual interests classified as debt as Level 3 due to the use of significant unobservable inputs in the fair value measurements. The following key unobservable inputs were used in the fair value measurements of our residual investments and residual interests classified as debt: December 31, 2022 December 31, 2021 Range Weighted Average Range Weighted Average Residual investments Conditional prepayment rate 17.9% – 32.0% 19.9% 19.5% – 33.6% 23.0% Annual default rate 0.4% – 5.4% 1.1% 0.3% – 5.7% 0.9% Discount rate 4.8% – 10.5% 6.7% 2.6% – 10.5% 4.4% Residual interests classified as debt Conditional prepayment rate 17.2% – 18.1% 17.8% 20.0% – 41.8% 31.5% Annual default rate 0.6% – 0.8% 0.7% 0.5% – 5.6% 3.2% Discount rate 7.5% – 7.5% 7.5% 5.0% – 9.5% 5.7% The key assumptions are defined as follows: • Conditional prepayment rate — The monthly annualized proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period for the pool of loans in the securitization. An increase in the conditional prepayment rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Annual default rate — The annualized rate of borrowers who fail to remain current on their loans for the pool of loans in the securitization. An increase in the annual default rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. • Discount rate — The weighted average rate at which the expected cash flows are discounted to arrive at the net present value of the residual investments and residual interests classified as debt. An increase in the discount rate, in isolation, would result in a decrease in a fair value measurement. The weighted average assumption was weighted based on relative fair value. Loan Commitments We classify student loan commitments as Level 3 because the assets do not trade in an active market with readily observable prices and, as such, our valuations utilize significant unobservable inputs. Additionally, we classify IRLCs as Level 3, as our IRLCs are inherently uncertain and unobservable given that a home loan origination is contingent on a plethora of factors. The following key unobservable inputs were used in the fair value measurements of our IRLCs and student loan commitments: December 31, 2022 December 31, 2021 Range Weighted Average Range Weighted Average IRLCs Loan funding probability (1) 11.1% – 58.6% 46.3% 75.0% – 75.0% 75.0% Student loan commitments Loan funding probability (1) 95.0% – 95.0% 95.0% 95.0% - 95.0% 95.0% _____________________ (1) The aggregate amount of student loans we committed to fund was $69,712 as of December 31, 2022. See Note 14 for the aggregate notional amount associated with IRLCs. The key assumption is defined as follows: • Loan funding probability — Our expectation of the percentage of IRLCs or student loan commitments which will become funded loans. A significant difference between the actual funded rate and the assumed funded rate at the measurement date could result in a significantly higher or lower fair value measurement of our IRLCs and student loan commitments. An increase in the loan funding probabilities, in isolation, would result in an increase in a fair value measurement. The weighted average assumptions were weighted based on relative fair values. Safeguarding Assets and Liabilities The following table presents the significant digital assets held by our third-party custodians on behalf of our members: December 31, 2022 Bitcoin (BTC) $ 44,346 Ethereum (ETH) 37,826 Cardano (ADA) 5,217 Dogecoin (DOGE) 4,784 Litecoin (LTC) 2,492 Ethereum Classic (ETC) 2,333 All other (1) 9,828 Digital assets safeguarding liability and corresponding safeguarding asset $ 106,826 ___________________ (1) Includes 24 digital assets, none of which were determined to be individually significant. Financial Instruments Not Measured at Fair Value The following table summarizes the carrying values and estimated fair values, by level within the fair value hierarchy, of our assets and liabilities that are not measured at fair value on a recurring basis in the consolidated balance sheets: Fair Value Carrying Value Level 1 Level 2 Level 3 Total December 31, 2022 Assets Cash and cash equivalents (1) $ 1,421,907 $ 1,421,907 $ — $ — $ 1,421,907 Restricted cash and restricted cash equivalents (1) 424,395 424,395 — — 424,395 Loans at amortized cost (2) 307,957 — — 328,775 328,775 Other investments (3) 28,651 — 28,651 — 28,651 Total assets $ 2,182,910 $ 1,846,302 $ 28,651 $ 328,775 $ 2,203,728 Liabilities Deposits (4) $ 7,342,296 $ — $ 7,340,160 $ — $ 7,340,160 Debt (5) 5,396,740 826,242 4,219,574 — 5,045,816 Total liabilities $ 12,739,036 $ 826,242 $ 11,559,734 $ — $ 12,385,976 December 31, 2021 Assets Cash and cash equivalents (1) $ 494,711 $ 494,711 $ — $ — $ 494,711 Restricted cash and restricted cash equivalents (1) 273,726 273,726 — — 273,726 Loans at amortized cost (2) 115,912 — — 118,412 118,412 Total assets $ 884,349 $ 768,437 $ — $ 118,412 $ 886,849 Liabilities Debt (5) $ 3,947,983 $ 1,240,560 $ 2,807,253 $ — $ 4,047,813 Total liabilities $ 3,947,983 $ 1,240,560 $ 2,807,253 $ — $ 4,047,813 _____________________ (1) The carrying amounts of our cash and cash equivalents and restricted cash and restricted cash equivalents approximate their fair values due to the short-term maturities and highly liquid nature of these accounts. (2) The fair value of our credit cards was determined using a discounted cash flow model with key inputs relating to weighted average lives, expected lifetime loss rates and discount rate. The fair value of our commercial and consumer banking loans was determined using a discounted cash flow model with key inputs relating to the underlying contractual coupons, terms, discount rate and expectations for defaults. (3) Other investments include FRB and FHLB stock, which are presented within other assets in the consolidated balance sheets. (4) The fair values of our deposits without contractually defined maturities (such as demand and savings deposits) and our noninterest-bearing deposits approximate the carrying values. The fair value of our time-based deposits was determined using a discounted cash flow model based on rates currently offered for deposits of similar remaining maturities. (5) The carrying value of our debt is net of unamortized discounts and debt issuance costs. The fair value of our Convertible Notes was classified as Level 1, as it was based on an observable market quote. The fair values of our warehouse facility debt and revolving credit facility debt were classified as Level 2 and based on market factors and credit factors specific to these financial instruments. The fair value of our securitization debt was classified as Level 2 and valued using a discounted cash flow model, with key inputs relating to the underlying contractual coupons, terms, discount rate and expectations for defaults and prepayments. Nonrecurring Fair Value Measurements Investments in equity securities of $22,825 and $6,054 as of December 31, 2022 and 2021, respectively, which are presented within other assets in the consolidated balance sheets, include investments for which fair values are not readily determinable, which we elect to measure using the measurement alternative method of accounting. The fair value measurements are classified within Level 3 of the fair value hierarchy due to the uses of unobservable inputs in the fair value measurements. As of December 31, 2022, the balance was primarily composed of a $19,739 investment valued under the measurement alternative method during 2022 that was a former equity method investment. |
