Prosper Marketplace Inc.

05/14/2026 | Press release | Distributed by Public on 05/14/2026 13:42

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
Commission
File Number
Exact Name of Registrant as Specified in its Charter
I.R.S. Employer
Identification Number
333-179941-01
333-204880
333-225797-01
333-257739-01
333-280336
PROSPER MARKETPLACE, INC.
a Delaware corporation
221 Main Street, 3rd Floor
San Francisco, CA 94105
Telephone: (415) 593-5426
73-1733867
333-179941
333-204880-01
333-225797
333-257739
333-280336-01
PROSPER FUNDING LLC
a Delaware limited liability company
221 Main Street, 3rd Floor
San Francisco, CA 94105
Telephone: (415) 593-5426
45-4526070
Securities registered pursuant to Section 12(b) of the Act:
Registrant Title of Each Class Name of Each Exchange on Which Registered
Prosper Marketplace, Inc. None None
Prosper Funding LLC None None
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class Name of Each Exchange on Which Registered
Prosper Marketplace, Inc. None None
Prosper Funding LLC None None
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Prosper Marketplace, Inc.
Yes x No ¨
Prosper Funding LLC
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Prosper Marketplace, Inc.
Yes x No ☐
Prosper Funding LLC
Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large
Accelerated
Filer
Accelerated
Filer
Non-accelerated Filer
Smaller
Reporting
Company
Emerging Growth Company
Prosper Marketplace, Inc.
☐ ☐
x
☐ ☐
Prosper Funding LLC
☐ ☐
x
☐ ☐
1
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Prosper Marketplace, Inc.
Yes ☐ No x
Prosper Funding LLC
Yes ☐ No x
Prosper Funding LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format specified in General Instruction H(2) of Form 10-Q.
As of May 11, 2026, there were 78,914,214 shares of Prosper Marketplace, Inc. common stock outstanding. Prosper Funding LLC does not have any common stock outstanding.
THIS COMBINED FORM 10-Q IS SEPARATELY FILED BY PROSPER MARKETPLACE, INC. AND PROSPER FUNDING LLC. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANT.
2
TABLE OF CONTENTS
Page No.
Forward-Looking Statements
4
PART I.
FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements
6
Prosper Marketplace, Inc.
6
Condensed Consolidated Balance Sheets (Unaudited)
6
Condensed Consolidated Statements of Operations (Unaudited)
8
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit
9
Condensed Consolidated Statements of Cash Flows (Unaudited)
12
Notes to Condensed Consolidated Financial Statements (Unaudited)
14
Prosper Funding LLC
49
Condensed Consolidated Balance Sheets (Unaudited)
49
Condensed Consolidated Statements of Operations (Unaudited)
50
Condensed Consolidated Statements of Member's Equity
51
Condensed Consolidated Statements of Cash Flows (Unaudited)
52
Notes to Condensed Consolidated Financial Statements (Unaudited)
53
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
65
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
86
Item 4.
Controls and Procedures
87
PART II.
OTHER INFORMATION
87
Item 1.
Legal Proceedings
87
Item 1A.
Risk Factors
87
Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds
87
Item 3.
Defaults upon Senior Securities
87
Item 4.
Mine Safety Disclosures
88
Item 5.
Other Information
88
Item 6.
Exhibit Index
88
Signatures
89
Except as the context requires otherwise, as used herein, "Registrants" refers to Prosper Marketplace, Inc. ("PMI"), a Delaware corporation, and its wholly owned subsidiary, Prosper Funding LLC ("PFL"), a Delaware limited liability company; "we," "us," "our," "Prosper," and the "Company" refers to (i) PMI, (ii) its wholly owned subsidiaries, PFL, BillGuard, Inc. ("BillGuard"), a Delaware corporation, and Prosper Healthcare Lending LLC ("PHL"), a Delaware limited liability company, and (iii) its variable interest entities, Prosper Warehouse I Trust ("PWIT," terminated March 28, 2024), a Delaware statutory trust, Prosper Warehouse II Trust ("PWIIT," terminated September 25, 2023), a Delaware statutory trust, Prosper Marketplace Issuance Trust, Series 2023-1 ("PMIT 2023-1"), a Delaware statutory trust, Prosper Marketplace Issuance Trust, Series 2024-1 ("PMIT 2024-1"), a Delaware statutory trust, Prosper Credit Card Issuer LLC ("PMCC 2024-1"), a Delaware limited liability company and Prosper Grantor Trust ("PGT"), a Delaware statutory trust, on a consolidated basis; and "Prosper Funding" refers to PFL and its wholly owned subsidiary, Prosper Depositor LLC, a Delaware limited liability company, on a consolidated basis. In addition, the unsecured personal loans originated through our marketplace are referred to as "Borrower Loans," and the borrower payment dependent notes issued through our marketplace, whether issued by PMI or PFL, are referred to as "Notes." Investors currently invest in Borrower Loans through two channels: (i) the "Note Channel," which allows investors to purchase Notes from PFL, the payments of which are dependent on the payments made on the corresponding Borrower Loan; and (ii) the "Whole Loan Channel," which allows accredited and institutional investors to purchase Borrower Loans in their entirety directly from PFL. The Notes available to Note Channel investors are distinguishable from notes held by certain third party investors pursuant to Prosper's securitization transactions, which are referred to herein as "Notes Issued by Securitization Trust."
3
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as "may," "believe," "expect," "project," "estimate," "intend," "anticipate," "plan," "continue" or similar expressions. These statements may appear throughout this Quarterly Report on Form 10-Q, including the sections titled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, PFL or PMI expresses an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of their respective managements, expressed in good faith and is believed to have a reasonable basis. Nevertheless, there can be no assurance that the expectation or belief will result or be achieved or accomplished.
The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
•the performance of the Notes, which, in addition to being speculative investments, are special, limited obligations that are not guaranteed or insured;
•PFL's ability to make payments on the Notes, including in the event that borrowers fail to make payments on the corresponding Borrower Loans;
•our ability to attract potential borrowers and investors to our personal loan marketplace, and borrowers to our unsecured credit card ("Credit Card") product;
•the reliability of the information about borrowers that is supplied by borrowers including actions by some borrowers to defraud investors;
•our ability to service the Borrower Loans, and our ability or the ability of a third-party debt collector to pursue collection against any borrower, including in the event of fraud or identity theft;
•credit risks posed by the credit worthiness of borrowers of our Personal Loan and Credit Card products and the effectiveness of our credit rating systems;
•potential efforts by state regulators or litigants to impose liability that could affect PFL's (or any subsequent assignee's) ability to continue to charge to borrowers the interest rates that they agreed to pay at origination of their loans;
•the impact of future economic conditions on the performance and the loss rates for the Borrower Loans and the Credit Card product;
•our ability to manage loss rates associated with our Credit Card product;
•our compliance with applicable local, state and federal law, including the Investment Advisers Act of 1940, the Investment Company Act of 1940 and other laws;
•our compliance with applicable regulations and regulatory developments or court decisions affecting our business;
•potential efforts by state regulators or litigants to characterize PFL or PMI, rather than WebBank, as the lender of the loans originated through our marketplace;
•the application of federal and state bankruptcy and insolvency laws to borrowers and to PFL and PMI;
•the impact of borrower delinquencies, defaults and prepayments on the returns on the Notes;
•the impact of rising interest rates and inflation on our business, results of operations, financial condition and future prospects;
•the lack of a public trading market for the Notes and the current lack of any trading platform on which investors can resell the Notes;
•the federal income tax treatment of an investment in the Notes and the PMI Management Rights;
•our ability to prevent security breaches, disruptions in service, and comparable events that could compromise the personal and confidential information held on our data systems, reduce the attractiveness of the platform or adversely impact our ability to service Borrower Loans; and
4
•the potential adverse legal, reputational, and financial effects on the Company resulting from the cybersecurity incident that we reported in September 2025 (the "September 2025 Incident"), and
•the other risks discussed under the "Risk Factors" section of our Annual Report on Form 10-K.
There may be other factors that may cause actual results to differ materially from the forward-looking statements in this Quarterly Report on Form 10-Q. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does occur, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the "Risk Factors" section of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025 for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.
Where You Can Find More Information
The following filings are available for download free of charge at www.prosper.com as soon as reasonably practicable after such filings are electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"): Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports. Our SEC filings are also available to the public on the SEC's website at www.sec.gov. The information contained on our website is not incorporated into this Quarterly Report on Form 10-Q.
5
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Prosper Marketplace, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except for share and per share amounts)
March 31, 2026 December 31, 2025
Assets:
Cash and Cash Equivalents $ 46,204 $ 46,755
Restricted Cash (1)
125,462 94,363
Accounts Receivable 11,240 11,947
Borrower Loans, at Fair Value 281,083 309,737
Receivable from Credit Card Partner, at Fair Value (1)
99,393 99,865
Property and Equipment, Net 44,138 45,097
Prepaid and Other Assets (1)
31,507 30,263
Credit Card Derivative 52,718 48,290
Servicing Assets 18,421 17,402
Goodwill 36,368 36,368
Total Assets $ 746,534 $ 740,087
Liabilities, Convertible Preferred Stock and Stockholders' Deficit:
Accounts Payable and Accrued Liabilities $ 74,308 $ 73,692
Payable to Investors 110,955 77,604
Notes, at Fair Value 230,283 243,900
Notes Issued by Securitization Trust (1)
135,249 149,902
Term Loan 74,769 74,759
Other Liabilities 33,519 34,778
Convertible Preferred Stock Warrant Liability 85,115 230,060
Total Liabilities $ 744,198 $ 884,695
Commitments and Contingencies (Note 17)
Convertible Preferred Stock - $0.01 par value; 444,760,848 shares authorized as of March 31, 2026 and December 31, 2025; 338,605,739 issued and outstanding as of March 31, 2026 and 261,227,694 issued and outstanding as of December 31, 2025. Aggregate liquidation preference of $479,328 as of March 31, 2026 and $414,019 as of December 31, 2025.
$ 478,326 $ 396,556
Less: Convertible Preferred Stock Held by Consolidated VIE (Note 13), 51,247,915 shares issued and outstanding as of March 31, 2026 and December 31, 2025
(2,381) (2,381)
Stockholders' Deficit:
Common Stock - $0.01 par value; 625,000,000 shares authorized; 79,235,290 shares issued and 78,299,355 shares outstanding, as of March 31, 2026; 79,138,710 shares issued and 78,202,775 shares outstanding, as of December 31, 2025
307 307
Additional Paid-In Capital 164,763 164,240
Less: Treasury Stock (23,417) (23,417)
Accumulated Deficit (615,262) (679,913)
Total Stockholders' Deficit $ (473,609) $ (538,783)
Total Liabilities, Convertible Preferred Stock and Stockholders' Deficit $ 746,534 $ 740,087
(1) Includes amounts in consolidated variable interest entities ("VIEs") presented separately in the table below.
6
The following table presents the assets and liabilities of consolidated VIEs, which are included in the condensed consolidated balance sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. Refer to Note 7, Securitizations, and Note 11, Debt, within the notes to the condensed consolidated financial statements for additional information.
March 31, 2026 December 31, 2025
Assets of consolidated VIEs, included in total assets above:
Restricted Cash $ 10,417 $ 11,892
Accounts Receivable 1,242 1,376
Borrower Loans, at Fair Value 48,337 64,400
Receivable from Credit Card Partner, at Fair Value 99,393 99,865
Total assets of consolidated VIEs $ 159,389 $ 177,533
Liabilities of consolidated VIEs, included in total liabilities above:
Notes Issued by Securitization Trust $ 135,249 $ 149,902
Other Liabilities 2,056 2,163
Total liabilities of consolidated VIEs $ 137,305 $ 152,065
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Prosper Marketplace, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except for share and per share amounts)
Three Months Ended March 31,
2026 2025
Revenues:
Operating Revenues:
Transaction Fees, Net $ 62,089 $ 52,078
Servicing Fees, Net 8,481 7,357
Loss on Sale of Borrower Loans (17,275) (13,576)
Other Revenues 1,655 2,189
Total Operating Revenues 54,950 48,048
Interest Income (Expense):
Interest Income on Financial Instruments 16,249 23,301
Interest Expense on Financial Instruments (12,366) (16,329)
Total Interest Income, Net 3,883 6,972
Change in Fair Value of Financial Instruments (465) (12,356)
Total Net Revenue 58,368 42,664
Expenses:
Origination and Servicing 14,378 11,675
Sales and Marketing 19,019 13,432
General and Administrative 23,177 22,094
Change in Fair Value of Convertible Preferred Stock Warrants (63,949) (57,226)
Interest Expense on Term Loan 1,982 3,076
Other Income, Net (928) (790)
Total Expenses (6,321) (7,739)
Net Income Before Taxes 64,689 50,403
Income Tax Expense (38) (28)
Net Income $ 64,651 $ 50,375
Less: Net Income Allocated to Participating Securities (46,889) (33,166)
Net Income Attributable to Common Stockholders $ 17,762 $ 17,209
Net Income Per Share - Basic $ 0.23 $ 0.22
Net Income Per Share - Diluted $ 0.06 $ 0.05
Weighted Average Shares - Basic 78,250,600 77,506,964
Weighted Average Shares - Diluted 288,473,777 344,379,929
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Prosper Marketplace, Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit (Unaudited)
(in thousands, except for share amounts)
Convertible Preferred Stock Convertible Preferred Stock Held by Consolidated VIE Common Stock Treasury Stock Additional
Paid-In
Capital 		Accumulated
Deficit 		Total
Shares Amount Shares Amount Shares Amount Shares Amount
Balance as of January 1, 2026 261,227,694 396,556 (51,247,915) (2,381) 83,380,010 307 (5,177,235) (23,417) 164,240 (679,913) (538,783)
Exercise of vested stock options - - - - 96,580 - - - 2 - 2
Exercise of Series E-1 and F convertible preferred stock warrants (Note 13) 77,378,045 81,770 - - - - - - - - -
Stock-based compensation expense - - - - - - - - 521 - 521
Net income - - - - - - - - - 64,651 64,651
Balance as of March 31, 2026 338,605,739 478,326 (51,247,915) (2,381) 83,476,590 307 (5,177,235) (23,417) 164,763 (615,262) (473,609)
Convertible Preferred Stock Convertible Preferred Stock Held by Consolidated VIE Common Stock Treasury Stock Additional
Paid-In
Capital 		Accumulated
Deficit 		Total
Shares Amount Shares Amount Shares Amount Shares Amount
Balance as of January 1, 2025 209,613,570 322,748 (51,247,915) (2,381) 82,642,684 300 (5,177,235) (23,417) 162,643 (644,211) (504,685)
Exercise of vested stock options - - - - 127,206 1 - - 6 - 7
Stock-based compensation expense - - - - - - - - 416 - 416
Net income - - - - - - - - - 50,375 50,375
Balance as of March 31, 2025 209,613,570 322,748 (51,247,915) (2,381) 82,769,890 301 (5,177,235) (23,417) 163,065 (593,836) (453,887)
The accompanying notes are an integral part of these consolidated financial statements.
9
Prosper Marketplace, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Three Months Ended March 31,
2026 2025
Cash flows from Operating Activities:
Net Income $ 64,651 $ 50,375
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Change in Fair Value of Financial Instruments 465 12,356
Depreciation and Amortization 4,304 2,947
Amortization of Operating Lease Right-of-use Asset 595 487
Gain on Sale of Borrower Loans (4,264) (2,767)
Change in Fair Value of Servicing Rights 3,244 2,516
Stock-Based Compensation Expense 464 327
Change in Fair Value of Convertible Preferred Stock Warrants (63,949) (57,226)
Amortization of Debt Discount and Debt Issuance Costs 442 847
Other, Net 339 (6)
Changes in Operating Assets and Liabilities:
Purchase of Loans Held for Sale, at Fair Value (698,218) (532,834)
Proceeds from Sales and Principal Payments of Loans Held for Sale, at Fair Value 712,755 565,504
Accounts Receivable 707 (50)
Prepaid and Other Assets (1,244) 1,780
Credit Card Derivative 1,196 (4,612)
Accounts Payable and Accrued Liabilities 2,607 4,585
Payable to Investors 33,351 22,155
Other Liabilities (1,288) (192)
Interest payable (49) (120)
Net Cash Provided by Operating Activities 56,108 66,072
Cash Flows from Investing Activities:
Purchase of Borrower Loans, at Fair Value (35,726) (42,938)
Proceeds from Principal Payments and Sales of Borrower Loans, at Fair Value 41,683 47,842
Purchases of Credit Card Receivables from Credit Card Partner (16,357) (21,210)
Principal Payments on Credit Card Receivable from Credit Card Partner 12,571 20,289
Purchases of Property and Equipment (5,874) (3,321)
Net Cash (Used in) Provided by Investing Activities (3,703) 662
Cash Flows from Financing Activities:
Proceeds from Issuance of Notes, at Fair Value 34,346 42,139
Payments of Notes, at Fair Value (41,943) (47,864)
Principal Payments on Notes Issued by Securitization Trusts (15,036) (34,817)
Principal Payments on Term Loan - (2,500)
Proceeds from Exercises of Stock Options 2 7
Proceeds from Exercises of Series E-1 and Series F Convertible Preferred Stock Warrants (Note 13) 774 -
Net Cash Used in Financing Activities (21,857) (43,035)
Net Increase in Cash, Cash Equivalents and Restricted Cash 30,548 23,699
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period 141,118 145,087
Cash, Cash Equivalents and Restricted Cash at End of the Period $ 171,666 $ 168,786
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest, Net $ 14,258 $ 19,184
12
Three Months Ended March 31,
2026 2025
Cash Paid for Income Taxes 3 -
Cash Paid for Operating Leases Included in the Measurement of Lease Liabilities 1,149 993
Non-Cash Investing Activity - Accrual for Property and Equipment, Net 596 3,092
Reconciliation to Amounts on Condensed Consolidated Balance Sheets:
Cash and Cash Equivalents $ 46,204 $ 31,694
Restricted Cash 125,462 137,092
Total Cash, Cash Equivalents and Restricted Cash $ 171,666 $ 168,786
The accompanying notes are an integral part of these condensed consolidated financial statements.
13
PROSPER MARKETPLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Prosper Marketplace, Inc. ("PMI" or the "Company") was incorporated in the state of Delaware on March 22, 2005. Except as the context requires otherwise, as used in these notes to the condensed consolidated financial statements of PMI, "Prosper," "we," "us," and "our" refer to PMI and its wholly-owned subsidiaries, on a consolidated basis.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and disclosure requirements for interim financial information and the requirements of Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2025. The balance sheet at December 31, 2025 has been derived from the audited financial statements at that date. Management believes these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
PMI did not have any items of other comprehensive income or loss for any of the periods presented in the condensed consolidated financial statements as of and for the three months ended March 31, 2026 and 2025.
The preparation of Prosper's condensed consolidated financial statements and related disclosures in conformity with US GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in Prosper's financial statements and accompanying notes. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. These judgments, estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions.
The accompanying interim condensed consolidated financial statements include the accounts of PMI, its wholly-owned subsidiaries and consolidated VIEs. All intercompany balances have been eliminated in consolidation.
Notes Issued by Securitization Trust 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.
2. Summary of Significant Accounting Policies
Prosper's significant accounting policies are included in Note 2, Summary of Significant Accounting Policies, in Prosper's Annual Report on Form 10-K for the year ended December 31, 2025. There have been no changes to these accounting policies during the first three months of 2026.
Fair Value Measurements
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), loan trailing fee liability (Note 10), Debt (Note 11) and Convertible Preferred Stock Warrant Liability (Note 13). 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 value of the Term Loan (Note 11) does not approximate its carrying value primarily due to differences in the stated and market rates associated with that instrument.
Refer to Note 8, Fair Value of Assets and Liabilities, for additional fair value disclosures.
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.
14
Consolidation of Variable Interest Entities
The determination of whether to consolidate a VIE in which the Company has a variable interest requires a significant amount of analysis and judgment regarding whether the Company is the primary beneficiary of a VIE due to its holding a controlling financial interest in the VIE. A controlling financial interest in a VIE exists if the Company has 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 the Company is required to consolidate or deconsolidate such VIE in the condensed consolidated financial statements.
Transfers of Financial Assets
Prosper sells Borrower Loans through its Whole Loan Channel, as discussed below. 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 (i) the transferred assets have been legally isolated from Prosper, (ii) the transferee has the right to pledge or exchange the assets without any significant constraints, and (iii) 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 the Company's Credit Card banking partner, Coastal Community Bank ("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 condensed consolidated balance sheets. Receivable from Credit Card Partner is secured by and effectively mirrors the value of the underlying Credit Card receivables.
Borrower Loans 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 condensed 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.
Prosper previously 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 condensed 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.
15
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 condensed 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 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 condensed 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 accordance with the Credit Card Program Agreement, as amended, new customer accounts are designated as Prosper Allocations and Coastal Allocations on a 95% and 5% basis, respectively. Coastal may adjust the Coastal Allocation percentage between 0% and 5% at its discretion and with advance notice. The maximum outstanding Credit Card principal balance for Prosper Allocations is $375 million. 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 condensed consolidated balance sheets. Notes sold to third-party investors are included in Notes Issued by Securitization Trusts on the accompanying condensed consolidated balance sheets.
16
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.
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 condensed 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.
On March 23, 2026, Utah signed into law Senate Bill 230, Consumer Credit Amendments ("S.B. 230"), which eliminates the requirement to refund Transaction Fees in excess of 5% of Borrower Loan principal upon prepayment. The law became effective on May 6, 2026. Accordingly, the Company no longer accrues or remits Transaction Fee refunds under this requirement for Borrower Loans originated on or after that effective date. Borrower Loans originated prior to May 6, 2026, remain subject to the prior refund requirements.
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 Loans over the life of the underlying agreements. Interest Expense on Term Loans is presented as a component of Expenses on the accompanying condensed consolidated statements of operations.
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 Condensed 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.
Recent Accounting Pronouncements
Accounting Standards Adopted In The Current Period
No accounting standards were adopted in the current period.
17
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 condensed 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 condensed 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 condensed 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 condensed 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 condensed 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.
18
3. Property and Equipment, Net
Property and Equipment consists of the following at the dates presented (in thousands):
March 31, 2026 December 31, 2025
Internal-use software and website development costs $ 80,283 $ 87,842
Operating lease right-of-use assets 22,690 22,690
Computer equipment 5,023 4,805
Leasehold improvements 7,184 7,183
Office equipment and furniture 3,072 3,067
Assets not yet placed in service 6,903 5,172
Property and equipment 125,155 130,759
Less: Accumulated depreciation and amortization (81,017) (85,662)
Total Property and Equipment, Net $ 44,138 $ 45,097
Depreciation and amortization expense for Property and Equipment, Net for the three months ended March 31, 2026 and 2025 was $4.3 million and $2.9 million, respectively. These charges are included in Origination and Servicing and General and Administrative expenses on the condensed consolidated statements of operations. PMI capitalized internal-use software and website development costs in the amount of $3.7 million and $4.0 million for the three months ended March 31, 2026 and 2025, respectively. Additionally, disclosures around the operating lease right-of-use assets are included in Note 16, Leases.
4. Borrower Loans and Notes, at Fair Value
The aggregate principal balances outstanding and fair values of Borrower Loans and Notes, at Fair Value as of March 31, 2026 and December 31, 2025, are presented in the following table (in thousands):
Borrower Loans Notes
March 31, 2026 December 31, 2025 March 31, 2026 December 31, 2025
Aggregate principal balance and interest outstanding $ 295,179 $ 324,505 $ 243,293 $ 256,929
Fair value adjustments (14,096) (14,768) (13,010) (13,029)
Fair value $ 281,083 $ 309,737 $ 230,283 $ 243,900
Borrower Loans
As of March 31, 2026, outstanding Borrower Loans had original terms to maturity of 24, 36, 48 or 60 months, had monthly payments with fixed interest rates ranging from 6.00% to 33.00%, and had various original maturity dates through March 2031. As of December 31, 2025, outstanding Borrower Loans had original terms to maturity of 24, 36, 48 or 60 months, had monthly payments with fixed interest rates ranging from 6.00% to 33.00%, and had various original maturity dates through December 2030.
As of March 31, 2026, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $1.9 million and a fair value of $0.3 million. As of December 31, 2025, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $2.9 million and a fair value of $0.6 million. Prosper places loans on non-accrual status when they are over 120 days past due. As of March 31, 2026 and December 31, 2025, Borrower Loans in non-accrual status had a fair value of $0.3 million and $0.4 million, respectively.
19
5. Credit Card
Credit Card Derivative
Prosper recognizes unrealized and settled gains and losses on the Credit Card Derivative within Change in Fair Value of Financial Instruments on the accompanying consolidated statements of operations. These settled gains and losses primarily consist of interest income and debt sales on charged off balances, less Coastal program fees, credit losses and fraud losses.
For the three months ended March 31, 2026 and 2025, the Company recognized $4.4 million of unrealized gains and $1.8 million of unrealized losses, respectively, from estimated fair value changes on the Credit Card Derivative. Changes from settled transactions underlying the Credit Card Derivative were gains of $1.2 million and losses of $4.8 million for the three months ended March 31, 2026 and 2025, respectively.
Receivable from Credit Card Partner
Fair value gains and losses on the Receivable from Credit Card Partner, which effectively consists of the underlying Credit Card receivables securitized through PMCC 2024-1 (as discussed at Note 7, Securitizations), are also recognized within Change in Fair Value of Financial Instruments. These gains and losses include changes related to estimated future cash flows, as well as actual charge-offs and debt sale recoveries. For the three months ended March 31, 2026, and 2025, the Company recognized fair value losses of $4.1 million and $2.1 million, respectively, related to the Receivable from Credit Card Partner, which primarily consisted of net charge-offs.
As of March 31, 2026 and December 31, 2025, the outstanding principal balance of Credit Card receivables held by PMCC 2024-1 was $90.1 million and $90.1 million, respectively.
Program Fees
The Company records revenue from various fees generated from the Credit Card program and PMCC 2024-1, including interchange fees, annual fees and late fees, net of a portion of the interchange fees that must be remitted to Coastal. These fees are included in Transaction Fees, Net on the accompanying consolidated statements of operations. For the three months ended March 31, 2026 and 2025, these fees totaled $6.8 million and $5.7 million, respectively.
Servicing Obligation and Fees
Under the 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 principal balance of receivables designated as Coastal Allocations, which is approximately 5% of the portfolio. To the extent these servicing fees do not exceed the market servicing rate a market participant would require to service the entire Credit Card portfolio, the Company records a servicing obligation liability and measures it at fair value through the servicing period. The net balance of this servicing obligation liability is included in Other Liabilities on the accompanying condensed consolidated balance sheets (see Note 10, Other Liabilities). Changes in the fair value of the servicing obligation liability are recorded in Servicing Fees, Net on the accompanying condensed consolidated statements of operations, and totaled a loss of less than $0.1 million and a gain of $0.5 million for the three months ended March 31, 2026 and 2025, respectively. No servicing asset or obligation is recognized for the Credit Card receivables securitized within PMCC 2024-1, which is a consolidated entity.
6. Servicing Assets
Prosper accounts for Servicing Assets at their estimated fair values with changes in fair values recorded in Servicing Fees, Net on the accompanying condensed consolidated statement of operations. The initial asset or liability is recognized in Gain (Loss) on the Sale of Borrower Loans on the condensed consolidated statements of operations when the Company sells Borrower Loans to unrelated third-party buyers through the Whole Loan Channel and the servicing rights are retained. The Servicing Assets are measured at fair value throughout the servicing period. The Company recognized gains from the initial recognition of Servicing Assets on the sale of Borrower Loans in the amounts of $4.3 million and $2.8 million for the three months ended March 31, 2026 and 2025, respectively. These amounts are recorded in Loss on Sale of Borrower Loans on the condensed consolidated statements of operations, and are offset primarily by incentives provided to loan buyers at the time of sale.
As of March 31, 2026, Borrower Loans that were sold but for which Prosper retained servicing rights had a total outstanding principal balance of $3.9 billion, original terms to maturity of 24, 36, 48 or 60 months, monthly payments with fixed interest rates ranging from 5.75% to 33.00%, and various original maturity dates through March 2031. As of December 31, 2025, Borrower Loans that were sold but for which Prosper retained servicing rights had a total outstanding
20
principal balance of $3.8 billion, original terms to maturity of either 24, 36, 48 or 60 months, monthly payments with fixed interest rates ranging from 5.75% to 33.00%, and various original maturity dates through December 2030.
Contractually-specified personal loan servicing fees and ancillary fees totaling $11.4 million and $10.0 million for the three months ended March 31, 2026 and 2025, respectively, are included in the condensed consolidated statements of operations in Servicing Fees, Net.
Fair Value Valuation Method
Prosper uses a discounted cash flow valuation methodology generally consisting of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounts those cash flows at a rate of return that results in the fair value amount.
Significant unobservable inputs presented in the table within Note 8 below are those that Prosper considers significant to the estimated fair values of the Level 3 Servicing Assets. The following is a description of the significant unobservable inputs provided in the table.
Market Servicing Rate
Prosper estimates adequate market servicing rates that would fairly compensate a substitute servicer should one be required, which includes the profit that would be demanded in the marketplace. This rate is stated as a fixed percentage of outstanding principal balance on a per annum basis. With the assistance of a valuation specialist, Prosper estimates these market servicing rates based on observable market rates for other loan types in the industry and bids from subservicing providers, adjusted for the unique loan attributes that are present in the specific loans that Prosper sells and services and information from backup service providers.
In September 2025, as a result of an updated assessment of market rates, the Company lowered the estimated base market servicing rate used to value its Servicing Asset from 63.3 basis points to 59.3 basis points.
Discount Rate
The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loan servicing rights. We use a range of discount rates for the Servicing Assets based on comparable observed valuations of similar assets and publicly available disclosures related to servicing valuations, with comparability adjustments made to account for differences with Prosper's servicing assets.
Default Rate
The default rate presented in Note 8 is an annualized, average estimate considering all Borrower Loan categories (i.e., risk ratings and duration), and represents an aggregate of conditional default rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category's curve represents the percentage of principal expected to default per period based on the term and age of the underlying Borrower Loans. The assumption regarding defaults directly reduces servicing revenues because the amount of servicing revenues received is based on the amount collected each period.
Prepayment Rate
The prepayment rate presented in Note 8 is an annualized, average estimate considering all Borrower Loan categories (i.e., risk ratings and duration), and represents an aggregate of conditional prepayment rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category's curve represents the percentage of principal expected to prepay per period based on the term and age of the underlying Borrower Loans. Prepayments reduce servicing revenues as they shorten the period over which we expect to collect fees on the Borrower Loans, which is used to project future servicing revenues.
7. Securitizations
Personal Loan Securitizations
Prosper served as the sole sponsor of two securitizations of unsecured personal whole loans facilitated through the Company's marketplace that were previously held in consolidated warehouse trusts: PMIT 2023-1 in September 2023 and PMIT 2024-1 in March 2024, respectively. These transactions benefit the Company by reducing the financing costs associated with the underlying Borrower Loans. Both securitizations issued senior notes and residual certificates to finance the purchase of Borrower Loans. The notes were sold to third-party investors and a majority-owned affiliate of the sole sponsor of the
21
securitizations, PFL, retained the residual certificates. In addition to the residual certificates, Prosper's continued involvement includes servicing responsibilities over the life of the underlying loans.
PMIT 2023-1 and PMIT 2024-1 (together, the "PMITs") are deemed VIEs, and the Company consolidates them as the primary beneficiary. Through Prosper's role as the servicer, it has the power to direct the activities that most significantly affect the PMITs' economic performance. Additionally, because the Company holds the residual certificates, it has a variable interest that could potentially be significant to the PMITs. In evaluating whether Prosper is the primary beneficiary, management considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the PMITs. Management assesses whether Prosper is the primary beneficiary of the PMITs on an on-going basis. For the PMITs, the creditors have no recourse to the general credit of Prosper and the liabilities of the PMITs can only be settled by their respective assets. Additionally, the assets of the PMITs can be used only to settle obligations of the PMITs. Because Prosper consolidates the PMITs' securitization trusts, the Borrower Loans held in those trusts are included in Borrower Loans, at Fair Value, and the notes sold to third-party investors are presented in Notes Issued by Securitization Trusts on the condensed consolidated balance sheets. Because Prosper holds 100% of the residual certificates issued by the PMITs, they eliminate through consolidation and are thus not presented on the condensed consolidated balance sheets.
PMIT 2023-1
In September 2023, Prosper closed the PMIT 2023-1 securitization. Based on the terms of the underlying agreements, the PWIIT Warehouse Line (see Note 11, Debt) agreed to contribute Borrower Loans with an aggregate outstanding principal balance of $275.9 million as of the established cutoff date of August 31, 2023, to the PMIT 2023-1 securitization. On September 25, 2023, these Borrower Loans, with an updated aggregate outstanding principal balance of $266.1 million, were contributed to the PMIT 2023-1 securitization.
The notes under PMIT 2023-1 were issued in five classes: Class A in the amount of $165.5 million, Class B in the amount of $25.4 million, Class C in the amount of $25.1 million, Class D in the amount of $22.3 million and Class E in the amount of $13.1 million (collectively, the "2023-1 Notes"). The Class A, Class B, Class C, Class D and Class E notes bear interest at fixed rates of 7.06%, 7.48%, 8.29%, 11.24% and 15.49%, respectively. Principal and interest payments began in October 2023 and are payable monthly. The 2023-1 Notes are recorded at amortized cost, net of original issue discounts totaling approximately $0.8 million. These discounts, along with debt issuance costs incurred of $2.7 million, are deferred and amortized into interest expense over the contractual lives of the 2023-1 Notes using the effective interest method.
As of March 31, 2026 the outstanding principal and accrued interest of the 2023-1 Notes was $34.3 million, secured by an aggregate outstanding principal balance of $32.6 million of borrower loans included in Borrower Loans, at Fair Value on the condensed consolidated balance sheets, and $5.1 million in cash collections held in collateral and reserve accounts included in Restricted Cash on the condensed consolidated balance sheets. As of December 31, 2025, the outstanding principal and accrued interest of the 2023-1 Notes was $43.3 million, secured by an aggregate outstanding principal balance of $43.1 million of borrower loans included in Borrower Loans, at Fair Value on the condensed consolidated balance sheets, and $5.4 million in cash collections held in collateral and reserve accounts included in Restricted Cash on the condensed consolidated balance sheets.
PMIT 2024-1
In March 2024, Prosper closed the PMIT 2024-1 securitization. Based on the terms of the underlying agreements, the PWIT Warehouse Line (see Note 11, Debt) agreed to contribute Borrower Loans with an aggregate outstanding principal balance of $148.9 million as of the established cutoff date of February 14, 2024, to the PMIT 2024-1 securitization. On March 28, 2024, these Borrower Loans, with an updated aggregate outstanding principal balance of $138.0 million, were contributed to the PMIT 2024-1 securitization.
The notes under PMIT 2024-1 were issued in four classes: Class A in the amount of $105.2 million, Class B in the amount of $10.8 million, Class C in the amount of $10.3 million and Class D in the amount of $10.2 million (collectively, the "2024-1 Notes"). The Class A, Class B, Class C and Class D notes bear interest at fixed rates of 6.12%, 6.13%, 6.96%, 10.98%, respectively. The 2024-1 Notes are recorded at amortized cost, net of debt issuance costs incurred of $1.5 million. These debt issuance costs are deferred and amortized into interest expense over the contractual lives of the 2024-1 Notes using the effective interest method.
As of March 31, 2026, the outstanding principal and accrued interest of the 2024-1 Notes was $19.0 million, secured by an aggregate outstanding principal balance of $18.9 million of borrower loans included in Borrower Loans, at Fair Value on the condensed consolidated balance sheets, and $2.9 million in cash collections held in collateral and reserve accounts included in Restricted Cash on the condensed consolidated balance sheets. As of December 31, 2025, the outstanding principal and accrued interest of the 2024-1 Notes was $25.1 million, secured by an aggregate outstanding principal balance of $25.4 million of borrower loans included in Borrower Loans, at Fair Value on the condensed consolidated balance sheets, and $3.4 million in
22
cash collections held in collateral and reserve accounts included in Restricted Cash on the condensed consolidated balance sheets.
Credit Card Securitization
PMCC 2024-1
In November 2024, PMI closed the PMCC 2024-1 Transaction, a securitization of Credit Card receivables previously classified as Prosper Allocations on Coastal's balance sheet. Based on the terms of the underlying agreements, PMI and Coastal agreed to transfer Credit Card receivables with an aggregate outstanding principal balance of $90.9 million as of the established cutoff date of September 30, 2024, to the PMCC 2024-1 Transaction. On November 1, 2024, these Credit Card receivables, with an updated aggregate outstanding principal balance of approximately $94.7 million, along with associated interest receivable of $2.2 million, were transferred to the PMCC 2024-1 Transaction. PMCC 2024-1 issued notes and a residual certificate to finance the payment to Coastal for the transfer of the Credit Card receivables. The notes were sold to the third-party investors, and the residual certificate was acquired by PMI, as the sole sponsor of the PMCC 2024-1 Transaction. In addition to the residual certificate, PMI's continued involvement includes servicing responsibilities over the life of the underlying Credit Card receivables, including curing any Asset Deficiency (see below).
PMCC 2024-1 is structured as a limited liability company and is wholly owned by PMI, but is considered a deemed VIE due to its lack of equity at risk. PMI consolidates it as the primary beneficiary, as through its role as the servicer, the Company has the power to direct the activities that most significantly affect the PMCC 2024-1 Transaction's economic performance. Additionally, because the Company holds the residual certificate, it has a variable interest that could potentially be significant to PMCC 2024-1. In evaluating whether PMI is the primary beneficiary, management considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with PMCC 2024-1. Management assesses whether PMI is the primary beneficiary of the VIE on an on-going basis. For PMCC 2024-1, the creditors have no recourse to the general credit of Prosper and the liabilities of the limited liability company can only be settled by PMCC 2024-1's assets. Additionally, the assets of PMCC 2024-1 can be used only to settle obligations of PMCC 2024-1. Because the transfers of the underlying Credit Card receivables from Coastal to PMCC 2024-1 do not meet the requirements for sales accounting treatment under ASC 860, Transfers and Servicing, the Company has recorded on its condensed consolidated balance sheet a Receivable from Credit Card Partner that effectively consists of the underlying Credit Card receivables securitized through PMCC 2024-1. Notes sold to third-party investors are presented in Notes Issued by Securitization Trust on the condensed consolidated balance sheets. The only residual certificate issued by PMCC 2024-1 is held by PMI, and thus eliminates through consolidation and is not presented on the condensed consolidated balance sheets.
The notes under PMCC 2024-1 were issued in four classes: Class A in the amount of $46.3 million, Class B in the amount of $10.7 million, Class C in the amount of $11.1 million and Class D in the amount of $14.8 million (collectively, the "PMCC 2024-1 Notes"). The Class A, Class B, Class C and Class D notes bear interest at fixed rates of 6.15%, 7.15%, 10.05% and 14.64%, respectively. No principal payments will be due on the PMCC 2024-1 Notes for the first two years of the PMCC 2024-1 Transaction, through November 1, 2026, which is referred to as the revolving period. At the end of that two-year period, if the revolving period is not extended the PMCC 2024-1 Transaction enters the amortization period, whereby the PMCC 2024-1 Notes will be repaid in accordance with a waterfall calculation, generally tied to the collections of the associated Credit Card receivables. Interest is payable monthly. These notes are recorded at amortized cost, net of original issue discounts totaling $0.3 million. These discounts, along with debt issuance costs incurred of $2.2 million, are being deferred and amortized into interest expense over the two-year revolving period of the notes using the effective interest method. As of March 31, 2026, the outstanding principal and accrued interest of the PMCC 2024-1 Notes was $83.2 million, secured by a total outstanding balance of Credit Card receivables (inclusive of principal, interest and fees) of $94.0 million, and approximately $0.9 million in cash held in a reserve account and included in Restricted Cash on the condensed consolidated balance sheets. As of December 31, 2025, the outstanding principal and accrued interest of the PMCC 2024-1 Notes was $83.2 million, secured by a total outstanding balance of Credit Card receivables (inclusive of principal, interest and fees) of $94.3 million, and approximately $0.9 million in cash held in a reserve account and included in Restricted Cash on the condensed consolidated balance sheets. For the three months ended March 31, 2026 and 2025, the Company recorded $3.3 million and $5.0 million, respectively, in Total Interest Income, Net related to the PMCC 2024-1 Credit Card receivables and Notes Issued by Securitization Trust.
Until the end of the amortization period, PMCC 2024-1 is required to cure any Asset Deficiency, which is deemed to have occurred if the ratio of (i) notes outstanding to (ii) the aggregate pool balance plus amounts in the excess funding account minus the dilutional balance, exceeds 89.5%. In order to maintain this ratio, PMI will purchase additional Credit Card receivables from the accounts designated as eligible for the securitization, and may designate additional eligible accounts from Prosper Allocations, as necessary.
23
8. 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, discount rates based on estimates of the rates of return that investors would require when investing in similar credit card portfolios are 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.
24
The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
March 31, 2026 Level 1 Level 2 Level 3 Total
Assets:
Borrower Loans, at Fair Value (Notes 4 and 7) $ - $ - $ 281,083 $ 281,083
Receivable from Credit Card Partner, at Fair Value (Notes 5 and 7) - - 99,393 99,393
Servicing Assets (Note 6) - - 18,421 18,421
Credit Card Derivative (Note 5) - - 52,718 52,718
Total Assets $ - $ - $ 451,615 $ 451,615
Liabilities:
Notes, at Fair Value $ - $ - $ 230,283 $ 230,283
Convertible Preferred Stock Warrant Liability - - 85,115 85,115
Loan Trailing Fee Liability (Note 10) - - 3,491 3,491
Credit Card servicing obligation liability (Note 5) - - 9,276 9,276
Total Liabilities $ - $ - $ 328,165 $ 328,165
December 31, 2025 Level 1 Level 2 Level 3 Total
Assets:
Borrower Loans, at Fair Value (Notes 4 and 7) - - 309,737 309,737
Receivable from Credit Card Partner, at Fair Value (Notes 5 and 7) - - 99,865 99,865
Servicing Assets (Note 6) - - 17,402 17,402
Credit Card Derivative (Note 5) - - 48,290 48,290
Total Assets $ - $ - $ 475,294 $ 475,294
Liabilities:
Notes, at Fair Value (Note 4) $ - $ - $ 243,900 $ 243,900
Convertible Preferred Stock Warrant Liability (Note 13) - - 230,060 230,060
Loan Trailing Fee Liability (Note 10) - - 3,328 3,328
Credit Card servicing obligation liability (Note 5) - - 9,276 9,276
Total Liabilities $ - $ - $ 486,564 $ 486,564
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 three months ended March 31, 2026 and 2025.
25
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 March 31, 2026 and December 31, 2025:
Range
Borrower Loans and Notes: March 31, 2026 December 31, 2025
Discount rate
5.1% - 16.7%
5.0% - 15.5%
Default rate
1.5% - 14.0%
1.9% - 14.5%
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.
Range
Servicing Assets: March 31, 2026 December 31, 2025
Discount rate
15.0% - 25.0%
15.0% - 25.0%
Default rate
1.8% - 14.0%
2.0% - 15.0%
Prepayment rate
10.9% - 34.5%
13.3% - 35.6%
Market servicing rate (1) (2)
0.593% - 0.842%
0.593% - 0.842%
(1) Servicing assets associated with loans enrolled in a relief program offered by the Company as of March 31, 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 March 31, 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.
Range
Loan Trailing Fee Liability: March 31, 2026 December 31, 2025
Discount rate
15.0% - 25.0%
15.0% - 25.0%
Default rate
1.8% - 14.0%
2.0% - 15.0%
Prepayment rate
10.9% - 34.5%
13.3% - 35.6%
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):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets Liabilities
Borrower
Loans
Loans Held For Sale Notes Total
Balance as of January 1, 2026 $ 309,737 $ - $ (243,900) $ 65,837
Purchases of Borrower Loans/Issuance of Notes 35,726 698,218 (34,346) 699,598
Principal repayments (55,428) - 41,943 (13,485)
Borrower Loans sold to third parties (792) (698,218) - (699,010)
Other changes (436) - 295 (141)
Changes in fair value (7,724) - 5,725 (1,999)
Balance as of March 31, 2026 $ 281,083 $ - $ (230,283) $ 50,800
26
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets Liabilities
Borrower
Loans
Loans Held for Sale Notes Total
Balance as of January 1, 2025 $ 461,785 $ - $ (283,030) $ 178,755
Purchases of Borrower Loans/Issuance of Notes 42,938 532,834 (42,139) 533,633
Principal repayments (79,836) - 47,864 (31,972)
Borrower Loans sold to third parties (676) (532,834) - (533,510)
Other changes (488) - 280 (208)
Changes in fair value (8,334) - 4,525 (3,809)
Balance as of March 31, 2025 $ 415,389 $ - $ (272,500) $ 142,889
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 month period ending March 31, 2026 (in thousands):
Receivable from Credit Card Partner
Balance as of January 1, 2026 $ 99,865
Purchases of Credit Card principal receivables 16,357
Principal repayments on Credit Card receivables (12,194)
Other changes (545)
Change in fair value (4,090)
Balance as of March 31, 2026 $ 99,393
Receivable from Credit Card Partner
Balance as of January 1, 2025 $ 104,153
Purchases of Credit Card principal receivables 21,210
Principal repayments on Credit Card receivables (20,289)
Other changes 226
Change in fair value (2,099)
Balance as of March 31, 2025 $ 103,201
The following tables present additional information about Level 3 Servicing Assets measured at fair value on a recurring basis for the three month periods ending March 31, 2026 and 2025 (in thousands):
Servicing Assets
Balance as of January 1, 2026 $ 17,402
Additions 4,263
Less: Changes in fair value (3,244)
Balance as of March 31, 2026 $ 18,421
27
Servicing Assets
Balance as of January 1, 2025 $ 13,718
Additions 2,768
Less: Changes in fair value (3,030)
Balance as of March 31, 2025 $ 13,456
The following tables present additional information about the Level 3 Credit Card Derivative measured at fair value on a recurring basis for the three month periods ending March 31, 2026 and 2025 (in thousands):
Credit Card Derivative
Balance as of January 1, 2026 $ 48,290
Change in fair value 4,428
Balance as of March 31, 2026 $ 52,718
Credit Card Derivative
Balance as of January 1, 2025 $ 38,739
Change in fair value (1,836)
Balance as of March 31, 2025 $ 36,903
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 month periods ending March 31, 2026 and 2025 (in thousands):
Credit Card Servicing Obligation Liability
Balance as of January 1, 2026 $ 9,276
Change in fair value -
Balance as of March 31, 2026 $ 9,276
Credit Card Servicing Obligation Liability
Balance as of January 1, 2025 $ 8,947
Change in fair value (514)
Balance as of March 31, 2025 $ 8,433
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 month periods ending March 31, 2026 and 2025 (in thousands):
Convertible Preferred Stock Warrant Liability
Balance as of January 1, 2026 $ 230,060
Reclassification to Convertible Preferred Stock upon exercise of Series E-1 and F Warrants (Note 13) (80,996)
Change in fair value (63,949)
Balance as of March 31, 2026 $ 85,115
Convertible Preferred Stock Warrant Liability
Balance as of January 1, 2025 $ 261,249
Change in fair value (57,226)
Balance as of March 31, 2025 $ 204,023
Loan Trailing Fee
28
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 month periods ending March 31, 2026 and 2025 (in thousands):
Loan Trailing Fee Liability
Balance as of January 1, 2026 $ 3,328
Issuances 708
Cash Payment of Loan Trailing Fee (709)
Change in Fair Value 164
Balance as of March 31, 2026 $ 3,491
Loan Trailing Fee Liability
Balance as of January 1, 2025 $ 3,004
Issuances 521
Cash Payment of Loan Trailing Fee (652)
Change in Fair Value 60
Balance as of March 31, 2025 $ 2,933
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 March 31, 2026 and December 31, 2025 for Borrower Loans and Loans Held for Sale are presented in the following table (in thousands, except percentages).
Borrower Loans March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 281,083 $ 309,737
Weighted-average discount rate 8.95 % 8.53 %
Weighted-average default rate 11.56 % 11.79 %
Fair value resulting from:
100 basis point increase in discount rate
$ 278,607 $ 307,014
200 basis point increase in discount rate
276,189 304,354
Fair value resulting from:
100 basis point decrease in discount rate
$ 283,619 $ 312,526
200 basis point decrease in discount rate
286,216 315,384
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 278,855 $ 307,253
Applying a 1.2 multiplier to default rate
276,626 304,767
Fair value resulting from:
Applying a 0.9 multiplier to default rate
$ 283,309 $ 312,219
Applying a 0.8 multiplier to default rate
285,533 314,699
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at March 31, 2026 and December 31, 2025 for Notes are presented in the following table (in thousands, except percentages).
29
Notes March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 230,283 $ 243,900
Weighted-average discount rate 9.10 % 8.67 %
Weighted-average default rate 11.27 % 11.48 %
Fair value resulting from:
100 basis point increase in discount rate
$ 228,252 $ 241,752
200 basis point increase in discount rate
226,269 239,655
Fair value resulting from:
100 basis point decrease in discount rate
$ 232,361 $ 246,096
200 basis point decrease in discount rate
234,495 248,352
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 228,458 $ 241,944
Applying a 1.2 multiplier to default rate
226,632 239,987
Fair value resulting from:
Applying a 0.9 multiplier to default rate
$ 232,107 $ 245,853
Applying a 0.8 multiplier to default rate
233,928 247,806
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at March 31, 2026 and December 31, 2025 for Servicing Assets is presented in the following table (in thousands, except percentages).
Servicing Assets March 31, 2026 December 31, 2025
Fair value, using the following assumptions $ 18,421 $ 17,402
Weighted-average market servicing rate
0.599 % 0.598 %
Weighted-average prepayment rate 21.54 % 21.65 %
Weighted-average default rate 11.50 % 11.84 %
Fair value resulting from:
Market servicing rate increase of 0.025%
$ 17,362 $ 16,398
Market servicing rate decrease of 0.025%
19,480 18,405
Fair value resulting from:
Applying a 1.1 multiplier to prepayment rate
$ 17,941 $ 16,949
Applying a 0.9 multiplier to prepayment rate
18,912 17,863
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 18,122 $ 17,114
Applying a 0.9 multiplier to default rate
18,720 17,689
30
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at March 31, 2026 and December 31, 2025 for Receivable from Credit Card Partner is presented in the following table (in thousands, except percentages).
Receivable from Credit Card Partner: March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 99,393 $ 99,865
Discount rate on Credit Card receivable cash flows 24.52 % 23.15 %
Prepayment rate on Credit Card receivables 8.23 % 8.22 %
Default rate on Credit Card receivables 15.00 % 15.00 %
Fair value resulting from:
100 basis point increase in discount rate
$ 99,224 $ 99,689
200 basis point increase in discount rate
99,059 99,518
Fair value resulting from:
100 basis point decrease in discount rate
$ 99,568 $ 100,045
200 basis point decrease in discount rate
99,747 100,231
Fair value resulting from:
Applying a 1.1 multiplier to prepayment rate
$ 99,210 $ 99,676
Applying a 0.9 multiplier to prepayment rate
99,579 100,055
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 96,957 $ 97,376
Applying a 0.9 multiplier to default rate
101,933 102,459
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at March 31, 2026 and December 31, 2025 for the Credit Card Derivative is presented in the following table (in thousands, except percentages).
31
Credit Card Derivative March 31, 2026 December 31, 2025
Fair value, based on the following notional amount and rate assumptions: $ 52,718 $ 48,290
Outstanding Credit Card Principal Balance, Prosper and Coastal Allocations 331,679 330,409
Discount rate on Prosper Allocations 24.52 % 23.15 %
Discount rate on Coastal Program Fee 24.52 % 23.15 %
Prepayment rate applied to Credit Card portfolio 8.23 % 8.22 %
Default rate applied to Credit Card portfolio (1)
14.59 % 15.33 %
Fair value resulting from:
100 basis point increase in both discount rates
$ 52,036 $ 47,654
200 basis point increase in both discount rates
51,374 47,036
Fair value resulting from:
100 basis point decrease in both discount rates
$ 53,419 $ 48,945
200 basis point decrease in both discount rates
54,141 49,619
Fair value resulting from:
Applying a 1.1 multiplier to prepayment rate
$ 51,998 $ 47,625
Applying a 0.9 multiplier to prepayment rate
53,449 48,964
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 43,149 $ 38,254
Applying a 0.9 multiplier to default rate
62,588 58,663
(1) Refer to Change in Estimate section below.
Key economic assumptions and the sensitivity of the fair value to immediate changes in those assumptions at March 31, 2026 and 2025 for the Credit Card servicing obligation liability is presented in the following table (in thousands, except percentages).
Credit Card servicing obligation liability: March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 9,276 $ 9,276
Discount rate on Credit Card portfolio servicing obligation 24.52 % 23.15 %
Prepayment rate applied to Credit Card portfolio 8.23 % 8.22 %
Default rate applied to Credit Card portfolio (1)
14.59 % 15.33 %
Market servicing rate 2.00 % 2.00 %
Fair value resulting from:
Market servicing rate increase of 0.10%
$ 9,761 $ 9,761
Market servicing rate decrease of 0.10%
8,792 8,792
Fair value resulting from:
Applying a 1.1 multiplier to prepayment rate
$ 9,174 $ 9,174
Applying a 0.9 multiplier to prepayment rate
9,380 9,380
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 9,069 $ 9,056
Applying a 0.9 multiplier to default rate
9,488 9,501
(1) Refer to Change in Estimate section below.
32
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.
Change in Estimate
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. Accordingly, it increased Total Net Revenue and Net Income by $4.5 million for the three months ended March 31, 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):
March 31, 2026 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value
Assets:
Cash and Cash Equivalents $ 46,204 $ 46,204 $ - $ - $ 46,204
Restricted Cash - Cash and Cash Equivalents 123,952 123,952 - - 123,952
Restricted Cash - Certificates of Deposit 1,510 - 1,510 - 1,510
Accounts Receivable 11,240 - 11,240 - 11,240
Total Assets $ 182,906 $ 170,156 $ 12,750 $ - $ 182,906
Liabilities:
Accounts Payable and Accrued Liabilities $ 54,631 $ - $ 54,631 $ - $ 54,631
Transaction Fee Refund Liability (Note 17) 19,677 - - 19,677 19,677
Payable to Investors 110,955 - 110,955 - 110,955
Notes Issued by Securitization Trust 135,249 - 135,907 - 135,907
Term Loan (Note 11) 75,000 - 77,007 - 77,007
Total Liabilities $ 395,512 $ - $ 378,500 $ 19,677 $ 398,177
33
December 31, 2025 Carrying Amount Level 1 Level 2 Level 3 Balance at Fair Value
Assets:
Cash and Cash Equivalents $ 46,755 $ 46,755 $ - $ - $ 46,755
Restricted Cash - Cash and Cash Equivalents 92,854 92,854 - - 92,854
Restricted Cash - Certificates of Deposit 1,509 - 1,509 - 1,509
Accounts Receivable 11,947 - 11,947 - 11,947
Total Assets $ 153,065 $ 139,609 $ 13,456 $ - $ 153,065
Liabilities:
Accounts Payable and Accrued Liabilities $ 56,501 $ - $ 56,501 $ - $ 56,501
Transaction Fee Refund Liability (Note 17) 17,191 - - 17,191 17,191
Payable to Investors 77,604 - 77,604 - 77,604
Notes Issued by Securitization Trust 149,902 - 151,325 - 151,325
Term Loan (Note 11) 75,000 - 76,089 - 76,089
Total Liabilities $ 376,198 $ - $ 361,519 $ 17,191 $ 378,710
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.
34
9. Goodwill
Prosper's goodwill balance of $36.4 million at December 31, 2025 did not change during the three months ended March 31, 2026. The Goodwill is associated with the Company's Personal Loan reporting unit, which has a negative carrying amount as of March 31, 2026. The Company recorded no goodwill impairment for the three months ended March 31, 2026 and 2025.
10. Other Liabilities
Other Liabilities consist of the following for the periods presented (in thousands):
March 31, 2026 December 31, 2025
Operating lease liabilities (Note 16) $ 8,327 $ 9,193
Deferred revenue 11,231 11,819
Credit Card servicing obligation liability (Notes 2 and 5) 9,276 9,276
Loan trailing fee liability 3,491 3,328
Deferred income tax liability 839 839
Other 355 323
Total Other Liabilities $ 33,519 $ 34,778
Additionally, disclosures around the operating lease liabilities are included in Note 16.
11. Debt
Term Loans
On November 14, 2022, the Company entered into a Credit Agreement (the "2022 Credit Agreement") with a third-party financial institution, which provided for a $75.0 million senior secured credit facility (the "2022 Term Loan"), originally set to mature on November 14, 2026. Prior to that maturity date, on November 14, 2025, the Company entered into a new Credit Agreement (the "2025 Credit Agreement") with a separate third-party financial institution. The 2025 Credit Agreement provides for a $75.0 million senior unsecured credit facility (the "2025 Term Loan"), maturing on November 14, 2030. Proceeds received from 2025 Term Loan were used to repay all of the outstanding principal and interest on the 2022 Term Loan, totaling $68.4 million, and the 2022 Credit Agreement was terminated at that time. Refer to the following section for a description of key terms and features of the 2025 Credit Agreement.
2025 Credit Agreement
Proceeds received from the 2025 Term Loan were net of $0.2 million in debt issuance costs, which are being amortized over the life of the 2025 Term Loan to Interest Expense on Term Loan using the effective interest method. The 2025 Credit Agreement also provides the option to upsize the credit facility by up to $25.0 million upon the Company's request and subject to lender approval. As of March 31, 2026, the Company had not exercised this option, and no amount was due under this incremental facility.
Borrowings under the 2025 Term Loan accrue interest at SOFR plus 7.0% per annum, and interest is payable in cash on a quarterly basis. The 2025 Term Loan is a senior unsecured credit facility.
The 2025 Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions and thresholds, restrict the Company's ability to incur new indebtedness (including finance leases); incur certain liens; and make fundamental changes to the business. In addition, the 2025 Credit Agreement contains certain financial covenants with which the Company must remain in compliance as of the last business day of each quarter during the life of the 2025 Term Loan:
•a minimum tangible net worth
•a minimum net liquidity
•a maximum leverage ratio
The Company is in compliance with all covenants as of March 31, 2026, as well as prior quarterly periods. In addition, the Company believes it is in compliance with all covenants through the date of issuance of these condensed consolidated financial statements. The 2025 Credit Agreement also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations. The 2025 Term Loan lender will be permitted to accelerate all outstanding
35
borrowings, terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject to certain grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults to other indebtedness, certain events of bankruptcy and insolvency, certain judgments and change of control.
Prosper Warehouse Trust Agreements
Prosper consolidated two warehouse VIEs, PWIT and PWIIT (together, the "Warehouse VIEs"), that each entered into an agreement (together, the "Warehouse Agreements") with certain lenders for committed revolving lines of credit ("Warehouse Lines") during 2018 and 2019, respectively. In connection with the Warehouse Agreements, the Warehouse VIEs each entered into a security agreement with a bank as administrative agent and a national banking association as collateral trustee and paying agent. Proceeds under the Warehouse Lines could only be used to purchase certain unsecured consumer loans and related rights and documents from Prosper and to pay fees and expenses related to the Warehouse Lines. Both Warehouse VIEs were consolidated because Prosper was the primary beneficiary of the VIEs. The assets of the VIEs could be used only to settle obligations of the VIEs. Additionally, the creditors of the Warehouse Lines had no recourse to the general credit of Prosper. The loans held in the Warehouse VIEs were included in Loans Held for Sale, at Fair Value and Warehouse Lines were in Warehouse Lines in the condensed consolidated balance sheets.
In conjunction with the PMIT 2023-1 and PMIT 2024-1 securitizations (see Note 7, Securitizations), all outstanding loans held by the Warehouse VIEs were transferred to either the individual securitization transactions or PFL, with proceeds used to pay down the outstanding principal and interest on the Warehouse Lines. Both facilities are now terminated.
12. Net Income (Loss) Per Share
PMI computes its net income (loss) per share in accordance with ASC Topic 260, Earnings Per Share ("ASC Topic 260"). Under ASC Topic 260, basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities.
PMI's net income (loss) per share is calculated using the two-class method in accordance with ASC Topic 260. The two-class method allocates earnings that otherwise would have been available to common shareholders to holders of participating securities. Management considers all series of our Convertible Preferred Stock to be participating securities due to their rights to participate in dividends with Common Stock. As such, earnings allocated to these participating securities, which include participation rights in undistributed earnings, are subtracted from net income to determine total undistributed earnings to be allocated to common stockholders.
All participating securities are excluded from basic weighted-average common shares outstanding. Prior to any conversion to common shares, each series of Prosper's Convertible Preferred Stock is entitled to participate on an if-converted basis in distributions of earnings, when and if declared by the Board of Directors (the "Board"), that are made to common stockholders and consequently, these shares were considered participating securities. During the three months ended March 31, 2026 and 2025, certain shares issued as a result of the early exercise of stock options which are subject to a repurchase right by PMI were entitled to receive non-forfeitable dividends during the vesting period and consequently, are considered participating securities.
Basic and diluted net (loss) income per share were calculated as follows for the periods presented (in thousands, except share and per share amounts):
36
Three Months Ended March 31,
2026 2025
Numerator:
Net Income $ 64,651 50,375
Less: Net Income Allocated to Participating Securities (46,889) (33,166)
Net Income Attributable to Common Stockholders $ 17,762 $ 17,209
Denominator:
Weighted average shares used in computing basic net income per share 78,250,600 77,506,964
Effect of dilutive securities:
Stock options 53,705,762 53,232,934
Common stock warrants 444,548 375,186
Convertible preferred stock warrants 156,072,867 213,264,845
Weighted-average shares used in computing diluted net income per share 288,473,777 344,379,929
Net Income Per Share - Basic $ 0.23 $ 0.22
Net Income Per Share - Diluted $ 0.06 $ 0.05
The following common stock equivalents were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been anti-dilutive:
Three Months Ended March 31,
2026 2025
(shares) (shares)
Excluded securities:
Convertible preferred stock issued and outstanding, excluding shares held by consolidated VIE 215,557,633 158,365,655
Stock options issued and outstanding 23,010,519 26,881,536
Common stock warrants issued and outstanding 260,801 330,163
Total common stock equivalents excluded from diluted net income per common share computation
238,828,953 185,577,354
13. Convertible Preferred Stock, Convertible Preferred Stock Warrant Liability and Common Stock
Convertible Preferred Stock and Warrants
Under PMI's amended and restated certificate of incorporation, preferred stock is issuable in series, and the Board is authorized to determine the rights, preferences, and terms of each series.
On July 13, 2020, the Company established Prosper Grantor Trust ("PGT"), a revocable grantor trust administered by an independent trustee, with the intention of contributing assets to PGT for the benefit of PMI employees in the event of a change in control through an Eligible Employee Retention Plan. PGT was determined to be a VIE and PMI was determined to be its primary beneficiary due to the fact that the Company, through its role as the grantor, has both (a) the power to direct the activities that most significantly affect the VIE's economic performance, including its funding decisions and investment strategy, and (b) the obligation to absorb losses that could be potentially significant to the economic performance of the VIE by virtue of the Company's requirement to fund PGT in the event that it is unable to meet its obligations to PMI's employees. PMI also maintains a contingent call liability on PGT's assets in the event of a bankruptcy. As a result, PGT is fully consolidated into PMI's condensed consolidated financial statements.
On July 21, 2020, PGT entered into a Stock Transfer Agreement with a PMI investor to purchase 34,670,420 shares of Series A Convertible Preferred Stock and 16,577,495 shares of Series B Convertible Preferred Stock for nominal consideration. Upon execution of the Stock Transfer Agreement, these shares were purchased by a consolidated VIE of the Company, and thus the difference between the fair value of the repurchased stock and the purchase price is included in Convertible Preferred Stock
37
Held by Consolidated VIE on PMI's accompanying condensed consolidated balance sheets. These shares remain outstanding for legal purposes and retain their voting rights, but are excluded from the earnings per share calculation.
The number of authorized, issued and outstanding shares, their par value and liquidation preference for each series of convertible preferred stock as of March 31, 2026 are disclosed in the table below (amounts in thousands except share and par value amounts):
Convertible Preferred Stock
Par Value
Authorized
Shares
Outstanding and Issued Shares
Liquidation
Preference, Outstanding Shares
Series A $ 0.01 68,558,220 66,428,185 * $ 19,160
Series A-1 $ 0.01 24,760,915 22,515,315 45,031
Series B $ 0.01 35,775,880 35,127,160 * 21,190
Series C $ 0.01 24,404,770 24,404,770 70,075
Series D $ 0.01 23,888,640 23,888,640 165,000
Series E-1 $ 0.01 35,544,141 35,544,141 30,000
Series E-2 $ 0.01 16,858,078 - -
Series F $ 0.01 177,720,707 93,448,031 78,872
Series G $ 0.01 37,249,497 37,249,497 50,000
Total 444,760,848 338,605,739 $ 479,328
* Series A and Series B Convertible Preferred Stock totals are inclusive of 34,670,420 and 16,577,495 shares, respectively, held by PGT, a consolidated VIE.
Dividends
Dividends on shares of the Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F and Series G convertible preferred stock are payable only when, as, and if declared by the Board. No dividends will be paid with respect to the common stock until any declared dividends on the Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, and Series G convertible preferred stock have been paid or set aside for payment to the Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, and Series G convertible preferred stockholders. After payment of any such dividends, any additional dividends or distributions will be distributed among all holders of common stock and preferred stock in proportion to the number of shares of common stock that would be held by each such holder if all shares of preferred stock were converted to common stock at the then-effective conversion rate. The Series A-1 convertible preferred shares have no dividend rights. To date, no dividends have been declared on any of PMI's preferred stock or common stock.
Conversion
Under the terms of PMI's amended and restated certificate of incorporation, the holders of preferred stock have the right to convert such preferred stock into common stock at any time. In addition, all preferred stock automatically converts into common stock (i) immediately prior to the closing of an initial public offering that values Prosper at least at $2 billion and that results in aggregate proceeds to Prosper of at least $100 million or (ii) upon a written request from the holders of at least 60% of the voting power of the outstanding preferred stock (on an as-converted basis), provided that (i) the Series A-1 convertible preferred stock shall not be converted without at least 14% of the voting power of the outstanding Series A-1 convertible preferred stock; (ii) the Series D shall not be converted without at least 60% of the voting power of the outstanding Series D; (iii) the Series E-1 and Series E-2 shall not be converted without at least 60% of the voting power of the outstanding Series E-1 and Series E-2, voting together as a single class; (iv) the Series F shall not be converted without at least 60% of the voting power of the outstanding Series F, and (v) the shares of Series G Preferred Stock will not be automatically converted unless the holders of at least 60% of the outstanding shares of Series G Preferred Stock approve such conversion. In addition, if a holder of the Series A convertible preferred stock has converted any of the Series A convertible preferred stock, then all of such holder's shares of Series A-1 convertible preferred stock also will be converted upon a liquidation event (as defined under the certificate of incorporation). In lieu of any fractional shares of common stock to which a holder would otherwise be entitled, PMI shall pay such holder cash in an amount equal to the fair market value of such fractional shares, as determined by the Board. At present, each of the Series A, Series B, Series C, Series D, Series E-1, Series E-2, and Series F convertible preferred stock converts into PMI common stock at a 1:1 ratio. The Series A-1 convertible preferred stock converts into common stock at a 1,000,000:1 ratio and the Series G convertible preferred stock converts into common stock at a 1:1.36 ratio. The Series G convertible preferred stock conversion ratio reflects the Series G true-up that occurred at end of the vesting period for the Series E-2 and Series F Preferred Stock warrants.
38
For the Series G true-up, the conversion price of the Series G Convertible Preferred Stock was reduced to a number equal to the Series G Preferred Stock original issuance price, divided by the quotient obtained by dividing the Series G true-up amount by the total number of Series G Preferred Stock issued as of the Series G closing date. The Series G true-up amount means the aggregate number of shares of Series G Preferred Stock that would have been issued to the purchasers of the Series G Preferred Stock on the Series G closing date, if warrants to purchase shares of Series E-2 Preferred Stock or Series F Preferred Stock that were exercisable or exercised as of the true-up time (end of vesting period) had been exercisable or exercised as of such Series G closing date.
Liquidation Rights
PMI's convertible preferred stock has been classified as temporary equity on the condensed consolidated balance sheets. The preferred stock is not redeemable; however, in the event of a voluntary or involuntary liquidation, dissolution, change in control or winding up of PMI, holders of the convertible preferred stock may have the right to receive its liquidation preference under the terms of PMI's certificate of incorporation.
Each holder of Series E-1, Series E-2, and Series F convertible preferred stock is entitled to receive prior and in preference to any distribution of proceeds from a liquidation event (as defined under the certificate of incorporation) to the holders of Series A, Series B, Series C, Series D, Series G and Series A-1 convertible preferred stock or common stock, an amount per share for (i) each share of Series E-1 convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, (ii) each share of Series E-2 convertible preferred stock equal to the sum of two-thirds the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, and (iii) each share of Series F convertible preferred stock equal to the sum of two-thirds of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share.
After the payment or setting aside for payment to the holders of Series E-1, Series E-2, and Series F convertible preferred stock, each holder of Series A, Series B, Series C and Series D, Series E-2, Series F, and Series G convertible preferred stock is entitled to receive, on a pari passu basis, prior to and in preference to any distribution of proceeds from a liquidation event (as defined under the certificate of incorporation) to the holders of Series A-1 convertible preferred stock or common stock, (i) an amount per share for each share of Series E-2 and Series F convertible preferred stock equal to the sum of one-third of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share, and (ii) an amount per share for each share of Series A, Series B, Series C, Series D and Series G convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share.
After the payment or setting aside for payment to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, and Series G convertible preferred stock, the holders of Series A-1 convertible preferred stock are entitled to receive, prior and in preference to any distribution of proceeds to the holders of common stock, an amount per share for each such share of Series A-1 convertible preferred stock equal to the sum of the liquidation preference specified for such share and all declared but unpaid dividends, if any, on such share.
After the payment or setting aside for payment to the holders of Series A, Series B, Series C, Series D, Series E-1, Series E-2, Series F, Series G, and Series A-1 convertible preferred stock, the entire remaining proceeds legally available for distribution will be distributed pro rata to the holders of Series A convertible preferred stock and common stock in proportion to the number of shares of common stock held by them assuming the Series A convertible preferred stock has been converted into shares of common stock at the then effective conversion rate, provided that the maximum aggregate amount per share of Series A convertible preferred stock which the holders of Series A convertible preferred stock shall be entitled to receive is three times the original issue price for the Series A convertible preferred stock.
At present, the liquidation preferences are equal to $0.29 per share for the Series A convertible preferred stock, $2.00 per share for the Series A-1 convertible preferred stock, $0.60 per share for the Series B convertible preferred stock, $2.87 per share for the Series C convertible preferred stock, $6.91 per share for the Series D convertible preferred stock, $0.84 per share for the Series E-1 convertible preferred stock, $0.84 per share for the Series E-2 convertible preferred stock, $0.84 per share for the Series F convertible preferred stock and $1.34 per share for the Series G convertible preferred stock.
Voting
Each holder of shares of convertible preferred stock is entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted and has voting rights and powers equal to the voting rights and powers of the common stock. The holders of convertible preferred stock and the holders of common stock vote together as a single class (except with respect to certain matters that require separate votes or as required by law), and are entitled to notice of any stockholders' meeting in accordance with the by-laws of PMI.
39
Convertible Preferred Stock Warrant Liability
Series E-1 Warrants
In connection with the Settlement and Release Agreement dated November 17, 2016 among PMI, its wholly owned subsidiary Prosper Funding LLC ("PFL") and Colchis, on December 16, 2016, PMI issued the First Series E-1 Warrant for 20,267,135 shares of Series E-1 convertible preferred stock. The Second Series E-1 Warrant for an additional 15,277,006 shares of Series E-1 convertible preferred stock was granted on the signing of the Consortium Purchase Agreement (as described in Note 13 of PMI's 10-K for the year ended December 31, 2025) on February 27, 2017. On March 31, 2026, one warrant holder exercised all of the outstanding 35,544,141 shares of Series E-1 warrants at the exercise price of $0.01 per share for total proceeds of $0.4 million. The estimated fair value of these warrants as of the date of the exercise was approximately $38.7 million, which was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock.
For the three months ended March 31, 2026 and 2025, Prosper recognized income of $13.5 million and $9.2 million, respectively, from the re-measurement of the fair value of the warrants. The income or expense resulting from the remeasurement of the fair value of the warrants is recorded in Change in Fair Value of Convertible Preferred Stock Warrants on the condensed consolidated statements of operations.
To determine the fair value of the Series E-1 Warrants, the Company first determined the value of a share of Series E-1 Convertible Preferred Stock. To determine the fair value of the Convertible Preferred Stock, the Company first derived the business equity value ("BEV") of the Company using a variety of valuation methods, including discounted cash flow models and market based methods, as deemed appropriate under the circumstances applicable at the valuation date. Once the Company determined an estimated BEV, the option pricing method ("OPM") was used to allocate the BEV to the various classes of equity, including the preferred stock. The concluded per share value for the Series E-1 Convertible Preferred Stock was utilized as an input to the Black-Scholes option pricing model.
The Company determined the fair value of the outstanding Series E-1 preferred stock warrants utilizing the following assumptions as of the following dates:
March 31, 2026 (1)
December 31, 2025
Volatility 56.0 % 57.0 %
Risk-free interest rate 3.80 % 3.50 %
Expected term (in years) 2.75 2.75
Dividend yield - % - %
(1) Assumptions prior to the exercise of all of the outstanding shares of Series E-1 preferred stock warrants, as discussed above.
The above assumptions were determined as follows:
Volatility: The volatility is derived from historical volatilities of several unrelated publicly listed peer companies over a period approximately equal to the term of the warrant as the Company has limited information on the volatility of its preferred stock since there is currently no trading history. When making the selections of industry peer companies to be used in the volatility calculation, the Company considered the size, operational, and economic similarities to the Company's principal business operations.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury yield in effect as of March 31, 2026, and for zero coupon U.S. Treasury notes with maturities approximately equal to the term of the warrant.
Expected Term: The expected term is the period of time for which the warrants are expected to be outstanding.
Dividend Yield: The expected dividend assumption is based on the Company's current expectations about the Company's anticipated dividend policy.
Series F Warrants
In connection with the Consortium Purchase Agreement on February 27, 2017, PMI issued warrants to purchase up to 177,720,706 shares of PMI's Series F convertible preferred stock at $0.01 per share. The warrants expire ten years from the date of issuance.
On July 29, 2025, a warrant holder exercised warrants to purchase an aggregate of 51,614,124 shares of Series F Convertible Preferred Stock for cash proceeds of $0.5 million. On the exercise date, the aggregate fair value of these warrants was approximately $73.3 million, which was reclassified from Convertible Preferred Stock Warrant Liability to Convertible
40
Preferred Stock. On March 19, 2026, another warrant holder exercised 41,833,904 shares of Series F warrants for total proceeds of $0.4 million. The estimated fair value of these warrants as of the date of exercise, totaling $42.3 million, was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock.
For the three months ended March 31, 2026 and 2025, Prosper recognized income of $50.4 million and $48.0 million, respectively, from the re-measurement of the fair value of the warrants. The income or expense resulting from changes in the fair value of the warrant is recorded through Change in Fair Value of Convertible Preferred Stock Warrants on the condensed consolidated statements of operations.
To determine the fair value of the Series F Warrants, the Company first determines the value of a share of Series F Convertible Preferred Stock. To determine the fair value of the Convertible Preferred Stock, the Company first derives the BEV using valuation methods, including a combination of methods, as deemed appropriate under the circumstances applicable at the valuation date. Once the Company determines an estimated BEV, the OPM is used to allocate the BEV to the various classes of Prosper's equity, including its preferred stock. The concluded per share value for the Series F Convertible Preferred Stock warrants utilizes the Black-Scholes option pricing model.
The Company determined the fair value of the outstanding Series F Warrants utilizing the following assumptions as of the following dates:
March 31, 2026 December 31, 2025
Volatility 56.0 % 57.0 %
Risk-free interest rate 3.80 % 3.50 %
Expected term (in years) 2.75 2.75
Dividend yield - % - %
These assumptions were determined using the same criteria described above for the Series E-1 warrants.
Common Stock
PMI, through its Amended and Restated Certificate of Incorporation, is the sole issuer of common stock and related options, RSUs and warrants. On February 16, 2016, PMI amended and restated its Certificate of Incorporation to, among other things, effect a 5-for-1 forward stock split. On September 20, 2017, PMI further amended its Amended and Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance. The total number of shares of stock which PMI has the authority to issue is 1,069,760,848, consisting of 625,000,000 shares of common stock, $0.01 par value per share, and 444,760,848 shares of preferred stock, $0.01 par value per share. As described above, the Company repurchased 2,196,665 shares of Common Stock on December 23, 2019. As of March 31, 2026, 79,235,290 shares of common stock were issued and 78,299,355 shares of common stock were outstanding. As of December 31, 2025, 79,138,710 shares of common stock were issued and 78,202,775 shares of common stock were outstanding. Each holder of common stock is entitled to one vote for each share of common stock held.
Common Stock Issued upon Exercise of Stock Options
For the three months ended March 31, 2026, PMI issued 96,580 shares of common stock upon the exercise of vested options for cash proceeds of $2 thousand.
14. Stock-Based Compensation
PMI grants equity awards primarily through the Company's 2025 Equity Incentive Plan (the "2025 Plan"), which was approved by the Board on April 7, 2025, and was approved by a majority of the Company's stockholders on April 25, 2025. As a result of the Board and stockholders' respective approvals, the Company's 2015 Equity Incentive Plan (as amended, the "2015 Plan") was terminated, replaced and superseded by the 2025 Plan, except that any grants awarded under the 2015 Plan will remain in effect pursuant to their terms.
The 2025 Plan provides for grants in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and unrestricted stock. The maximum number of shares of common stock which may be issued under the 2025 Plan as of the date of the Board's approval is 6,344,184 shares of common stock, plus any shares of common stock returned to the 2025 Plan (which, together with the 6,344,184 shares, may not exceed 91,417,252 shares of common stock). Under the 2025 Plan, incentive stock options may be granted solely to the Company's employees, including its officers. Awards other than incentive stock options may be granted to the Company's directors, consultants or employees, including its officers. The 2025 Plan is administered by the Board, which in turn has delegated
41
authority to administer the plans to the Compensation Committee of the Board. The 2025 Plan will remain in effect through April 7, 2035, unless sooner terminated under the terms of the 2025 Plan.
Stock Option Activity
Stock option activity under the 2015 Plan and 2025 Plan is summarized for the three months ended March 31, 2026 below:
Options Issued and Outstanding
Weighted Average Exercise Price
Balance as of January 1, 2026 76,886,581 $ 0.17
Options granted 3,534,400 $ 0.77
Options exercised (96,580) $ 0.02
Options forfeited (707,836) $ 0.34
Balance as of March 31, 2026 79,616,565 $ 0.20
Options vested and expected to vest as of March 31, 2026 76,491,419 $ 0.20
Options vested and exercisable as of March 31, 2026 69,181,084 $ 0.14
Other Information Regarding Stock Options
The weighted-average remaining contractual term for options outstanding as of March 31, 2026 is 3.95 years.
The fair value of options granted to employees is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires PMI to make assumptions and judgments about the variables used in the calculation, including the fair value of PMI's common stock, the expected term (the period of time that the options granted are expected to be outstanding), the volatility of PMI's common stock, a risk-free interest rate, and expected dividends. Given the absence of a publicly traded market, the Company considered numerous objective and subjective factors to determine the fair value of PMI's common stock at each grant date. These factors included, but were not limited to: (i) contemporaneous valuations of common stock performed by unrelated third-party specialists, (ii) the prices for PMI's preferred stock sold to outside investors, (iii) the rights, preferences and privileges of PMI's preferred stock relative to PMI's common stock, (iv) the lack of marketability of PMI's common stock, (v) developments in the business, (vi) secondary transactions of PMI's common and preferred shares, and (vii) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of Prosper, given prevailing market conditions. As PMI's stock is not publicly traded, volatility for stock options is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of PMI. The expected term assumptions were determined based on the vesting terms, exercise terms and contractual lives of the options using the simplified method. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. PMI uses an expected dividend yield of zero as it does not anticipate paying any dividends in the foreseeable future.
PMI also estimates forfeitures of unvested stock options. Expected forfeitures are based on the Company's historical experience. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest.
The fair values of PMI's stock option awards granted were estimated at the dates of grant using the Black-Scholes model with the following average assumptions for the periods presented:
Three Months Ended March 31,
2026 2025
Volatility of common stock 63.14 % 65.42 %
Risk-free interest rate 4.00 % 4.03 %
Expected life (in years) 5.9 years 6.0 years
Dividend yield - % - %
Restricted Stock Unit Activity
In previous years, PMI granted RSUs to certain employees that are subject to three-year or four-year vesting terms and the occurrence of a liquidity event. The following table summarizes the Company's RSU activity for three months ended March 31, 2026:
42
Number of Shares Weighted-Average Grant Date Fair Value
Unvested at January 1, 2026 2,559,633 $ 1.03
Activity during the period - -
Unvested at March 31, 2026 2,559,633 $ 1.03
Share Based Compensation
The following table presents the amount of stock-based compensation related to stock-based awards granted to employees recognized in Prosper's condensed consolidated statements of operations for the periods presented (in thousands):
Three Months Ended March 31,
2026 2025
Origination and servicing $ 102 $ 28
Sales and marketing 16 16
General and administrative 346 283
Total stock-based compensation $ 464 $ 327
As of March 31, 2026, the unamortized stock-based compensation expense, adjusted for forfeiture estimates, related to unvested stock-based awards was approximately $2.2 million, which will be recognized over a remaining weighted-average vesting period of approximately 3.0 years.
15. Income Taxes
For the three months ended March 31, 2026 and 2025, PMI recognized $38 thousand and $28 thousand, respectively, of income tax expense. The income tax expense relates to state income tax expense and the amortization of tax deductible goodwill which gives rise to an indefinite-lived deferred tax liability. No other income tax expense or benefit was recorded for the three month periods ended March 31, 2026 and 2025 due to a full valuation allowance recorded against the Company's deferred tax assets.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize our existing deferred tax assets. On the basis of this evaluation, it is not more likely than not that our deferred tax assets will be realized and therefore a full valuation allowance has been recorded.
16. Leases
Prosper has operating leases for corporate offices. These leases have remaining lease terms of approximately one to four years. Some of the lease agreements include options to extend the lease term for up to an additional five years. Rental expense under operating lease arrangements was $0.9 million and $0.9 million for the three months ended March 31, 2026 and 2025, respectively. Additionally, Prosper subleases certain leased office space to third parties when it determines there is excess leased capacity. Sublease income from operating lease arrangements was $0.1 million and $0.1 million for the three months ended March 31, 2026 and 2025, respectively.
Operating Lease Right-of-Use ("ROU") Assets
The following table summarizes the operating lease right-of-use assets as of March 31, 2026, which are included in Property and Equipment, Net on the condensed consolidated balance sheets.
March 31, 2026
Gross
Carrying Value
Accumulated
Amortization
Net
Carrying Value
ROU Assets - Office buildings $ 22,690 $ 16,555 $ 6,135
43
Lease Liabilities
Future maturities of operating lease liabilities as of March 31, 2026 are below (in thousands). The present value of the future minimum lease payments represents our operating lease liabilities as of March 31, 2026 and are included in "Other Liabilities" on the condensed consolidated balance sheets.
March 31, 2026
Remainder of 2026 $ 3,499
2027 3,834
2028 1,948
2029 411
Total future minimum lease payments $ 9,692
Less imputed interest (1,365)
Present value of future minimum lease payments $ 8,327
Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments. Other information related to leases was as follows (dollars in thousands):
March 31, 2026
Weighted average remaining lease term (in years) 2.29
Weighted average discount rate 11.20 %
17. Commitments and Contingencies
In the normal course of its operations, Prosper becomes involved in various legal actions. Prosper maintains provisions it considers to be adequate for such actions. Prosper does not believe it is probable that the ultimate liability, if any, arising out of any such matters will have a material effect on Prosper's financial condition, results of operations or cash flows.
Operating Commitments
PMI, along with PFL, and WebBank have entered into: (i) an Asset Sale Agreement, dated July 1, 2016, between PFL and WebBank, as most recently amended by a Seventh Amendment dated February 28, 2024 (as amended, the "Sale Agreement"); (ii) the Marketing Agreement, dated July 1, 2016, between PMI and WebBank, as most recently amended by a Seventh Amendment dated February 28, 2024 (as amended, the "Marketing Agreement"); and (iii) the Stand By Purchase Agreement, dated July 1, 2016, between PMI and WebBank, as most recently amended by a Fourth Amendment dated February 28, 2024 (as amended, the "Purchase Agreement" and, collectively with the Sale Agreement and the Marketing Agreement, the "Origination and Sale Agreements"). Under the Origination and Sale Agreements, all Borrower Loans originated through the marketplace are made by WebBank under its bank charter.
The Origination and Sale Agreements contain terms through February 1, 2027. Prosper is required, under the Origination and Sale Agreements, to maintain certain collateral requirements. In addition, pursuant to the Marketing Agreement, the marketing fee that Prosper receives in connection with the origination of each loan is partially reduced by an amount (the "Designated Amount") calculated as a percentage of the principal amount of such loan based on the aggregate principal amount of loans originated for the applicable month. To the extent the aggregate Designated Amount for all loans originated during any month is less than $100,000 through February 1, 2027, Prosper is required to pay WebBank an amount equal to such deficiency. Accordingly, the minimum fee is $0.9 million for the remaining nine months of 2026 and $0.1 million in 2027.
Additionally, under the Origination and Sale Agreements, Prosper is required to maintain minimum net liquidity of $15.0 million at all times during the term of the agreement. Net liquidity is defined as the sum of Cash, Cash Equivalents and Available for Sale Investments. Violation of this covenant can result in termination of the contract with WebBank. As of March 31, 2026, Prosper was in compliance with the covenant.
44
Transaction Fee Refund Liability
Prosper assumes WebBank's liability 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 full maturity. Following the passage of S.B. 230, only Borrower Loans originated prior to May 6, 2026, remain subject to this requirement, and no liability is recorded for Borrower Loans originated on or subsequent to that effective date. For the three months ended March 31, 2026 and 2025 the Company issued $5.1 million and $2.8 million, respectively, in refunds under this obligation. As of March 31, 2026 and December 31, 2025, the Company accrued $19.7 million and $17.2 million, respectively, related to anticipated future refunds under this obligation.
Loan Purchase Commitments
Prosper entered into an agreement with WebBank to purchase $29.4 million of Borrower Loans that WebBank originated during the last two business days of the quarter ended March 31, 2026. Prosper will purchase these Borrower Loans within the first two business days of the quarter ending June 30, 2026.
Repurchase Obligation
Under the terms of the loan purchase agreements between Prosper and investors that participate in the Whole Loan Channel, Prosper may, in certain circumstances, become obligated to repurchase a Borrower Loan from an investor. Generally, these circumstances include the occurrence of verifiable identity theft, the failure to properly follow personal loan listing or bidding protocols or a violation of the applicable federal, state or local lending laws. Prosper recognizes a liability at fair value for the repurchase obligation when the Borrower Loans are sold. The fair value of the repurchase obligation is estimated based on historical experience. Repurchased Borrower Loans associated with violations of federal, state or local lending laws or verifiable identity theft are written off at the time of repurchase. The maximum potential amount of future payments associated with this obligation is the outstanding balances of the Borrower Loans issued to third parties through the Whole Loan Channel, which at March 31, 2026 is $3.9 billion. Prosper has accrued $0.3 million and $0.3 million as of March 31, 2026 and December 31, 2025, respectively, in regard to this obligation.
Regulatory Contingencies
Prosper accrues for contingencies when a loss from such contingencies is probable and the amount of loss can be reasonably estimated. In determining whether a loss is probable and if it is possible to quantify the amount of the estimated loss, Prosper reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in light of potentially relevant factual and legal developments. If Prosper determines that an unfavorable outcome is not probable or that the amount of a loss cannot be reasonably estimated, Prosper does not accrue for a potential litigation loss. If an unfavorable outcome is probable and Prosper can estimate a range of outcomes, an amount is recorded which management considers to be the best estimate within the range of potential losses that are both probable and estimable; however, if management cannot quantify the amount of the estimated loss, then the low end of the range of the potential losses is recorded.
Cybersecurity Matter
On September 1, 2025, Prosper identified that an unauthorized third party gained access to the Company's systems that contain proprietary and confidential information. The Company promptly initiated its cybersecurity response plans and began taking steps to investigate, contain and remediate the incident and enhance its security measures with the assistance of cybersecurity experts. The Company also informed law enforcement.
There is evidence that the unauthorized third party was able to obtain confidential, proprietary and personal information, including Social Security numbers, including through unauthorized queries made on Company databases that store customer and applicant data. There is no evidence of unauthorized access to customer accounts and funds as a result of the incident, and the Company's customer-facing operations continued uninterrupted.
Multiple purported class-action lawsuits related to the September 2025 Incident have been filed against the Company. The federal lawsuits filed against Prosper have been consolidated into one proceeding, captioned In re: Prosper Funding, LLC Data Breach Litigation. Prosper is also subject to lawsuits filed in state courts and has received demands for mass and individual arbitrations. The Company may receive additional federal and state lawsuits and arbitration demands in the future.
The Company has accrued for various legal and cybersecurity costs incurred related to this incident that are not covered by insurance. As the lawsuits described herein above are still in their early stages, the Company is unable to accurately predict the ultimate outcome of this incident, or estimate a loss or range of loss that the Company may incur in the event of an unfavorable outcome. Accordingly, the Company has not recorded a provision for any estimated losses in respect to the incident as of March 31, 2026 and December 31, 2025.
45
18. Related Parties
Since Prosper's inception, it has engaged in various transactions with its directors, executive officers, and holders of more than 10% of its voting securities, and immediate family members and other affiliates of its directors, executive officers, and 10% stockholders. Prosper believes that all of the transactions described below were made on terms no less favorable to Prosper than could have been obtained from unaffiliated third parties.
Prosper's executive officers, directors who are not executive officers, and certain affiliates participate in its marketplace by placing bids and purchasing Notes. The aggregate amount of the Notes purchased and the income earned by parties deemed to be affiliates and related parties of Prosper for the three months ended March 31, 2026 and 2025, as well as the Notes outstanding as of March 31, 2026 and December 31, 2025 are summarized below (in thousands):
Aggregate Amount of
Notes Purchased the Three Months
Ended March 31,
Interest Earned on Notes
the Three Months
Ended March 31,
Related Party 2026 2025 2026 2025
Executive officers and management $ 9 $ 3 $ 3 $ 3
Directors (excluding executive officers and management) - - - -
Total $ 9 $ 3 $ 3 $ 3
Notes Balance as of
Related Party March 31, 2026 December 31,
2025
Executive officers and management $ 64 $ 69
Directors (excluding executive officers and management) - -
Total $ 64 $ 69
19. Significant Concentrations
Prosper is dependent on third-party funding sources such as banks, credit unions, asset managers, investment funds and insurance companies to provide the funds to allow WebBank to originate Borrower Loans that the third-party funding sources will later purchase. Of all Borrower Loans originated in the three months ended March 31, 2026, three individual third parties purchased 52.8%, 10.4% and 10.3% of all Borrower Loans originated. For the three months ended March 31, 2025, four individual third parties purchased 16.6%, 14.9%, 13.6%, and 12.7% of all Borrower Loans originated.
Prosper receives all of its personal loan transaction fee revenue from WebBank for its services in facilitating originations of Borrower Loans issued by WebBank. The rate of the transaction fee for each individual Borrower Loan is based on the term and credit grade of the Borrower Loan and currently ranges from 1.00% to 9.99% for newly originated loans. No individual borrower or investor accounted for 10% or more of consolidated net revenue for any of the periods presented.
46
20. Segments
Effective in the fourth quarter of 2025, the Company updated its operating and reportable segments to align with strategic business and management reporting changes. This realignment is reflected in the periodic financial reports provided to the Company's Chief Executive Officer, who serves as the chief operating decision maker ("CODM"), for the purposes of evaluating performance, making operating decisions and allocating resources. As a result of these changes, the Company's former Home Equity segment was eliminated and the related products and services are now combined with the Personal Loan segment, which includes both Personal Loan products and services, as well as general corporate expenses. The Company now has two reportable and operating segments: Personal Loan and Credit Card. Segment information presented for the three months ended March 31, 2025, has been recast to conform to the current reportable segment presentation.
The CODM evaluates the financial performance of the Company's segments based upon segment revenues, as well as segment Adjusted EBITDA, a non-GAAP profitability measure. The Company does not prepare segment assets for the CODM to use to allocate resources or to assess performance of the segments and, therefore, total segment assets have not been disclosed.
The tables below present segment Total Net Revenue, significant segment operating expenses, and segment Adjusted EBITDA reconciled to Net Income (Loss) Before Taxes, as well as interest income and expense included in segment Adjusted EBITDA, for the periods indicated (in thousands).
Three Months Ended March 31, 2026
Personal Loan Credit Card Total
Total Net Revenue $ 47,359 $ 11,009 $ 58,368
Impact of interest rates on fair value of loans held in consolidated trusts 55 - 55
Less: Segment Operating Expenses (1)
Compensation and Benefits (2)
(18,239) (3,000) (21,239)
Marketing and Advertising (13,302) (4,193) (17,495)
Transaction Costs (1,602) (3,382) (4,984)
Other Expenses (3)
(7,764) (202) (7,966)
Segment Adjusted EBITDA $ 6,507 $ 232 $ 6,739
Depreciation expense:
Origination and Servicing (4,142)
General and Administrative - Other (162)
Stock-based compensation (464)
Change in Fair Value of Convertible Preferred Stock Warrants 63,949
Impact of interest rates on fair value of loans held in consolidated trusts (55)
Interest income on cash and cash equivalents 806
Interest Expense on Term Loans (1,982)
Net Income Before Income Taxes $ 64,689
Interest Income (Expense) Included in Segment Adjusted EBITDA
Interest Income on Financial Instruments $ 10,874 $ 5,375 $ 16,249
Interest Expense on Financial Instruments (10,327) (2,039) (12,366)
Total Interest Income, Net $ 547 $ 3,336 $ 3,883
(1) The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM. These amounts exclude items that are adjusted out of Net Income (Loss) for the purposes of calculating Adjusted EBITDA.
(2) Compensation and Benefits includes costs related to certain outsourced headcount in operations.
(3) Other Expenses include, but are not limited to, costs related to professional services, insurance, facilities, software licenses, Cloud platform, and outsourced services in engineering and marketing.
47
Three Months Ended March 31, 2025
Personal Loan Credit Card Total
Total Net Revenue $ 40,739 $ 1,925 $ 42,664
Impact of interest rates on fair value of loans held in consolidated trusts (726) - (726)
Less: Segment Operating Expenses (1)
Compensation and Benefits (2)
(17,822) (2,851) (20,673)
Marketing and Advertising (9,822) (1,331) (11,153)
Transaction Costs (1,678) (3,142) (4,820)
Other Expenses (3)
(7,027) (132) (7,159)
Segment Adjusted EBITDA $ 3,664 $ (5,531) $ (1,867)
Depreciation expense:
Origination and Servicing (2,679)
General and Administrative - Other (268)
Stock-based compensation (327)
Change in Fair Value of Convertible Preferred Stock Warrants 57,226
Impact of interest rates on fair value of loans held in consolidated trusts 726
Interest income on cash and cash equivalents 668
Interest Expense on Term Loan (3,076)
Net Income Before Income Taxes $ 50,403
Interest Income (Expense) Included in Segment Adjusted EBITDA
Interest Income on Borrower Loans and Loans Held for Sale $ 16,262 $ 7,039 $ 23,301
Interest Expense on Financial Instruments (14,339) (1,990) (16,329)
Total Interest Income, Net Included in Segment Adjusted EBITDA $ 1,923 $ 5,049 $ 6,972
(1) The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM. These amounts exclude items that are adjusted out of Net Income (Loss) for the purposes of calculating Adjusted EBITDA.
(2) Compensation and Benefits includes costs related to certain outsourced headcount in operations.
(3) Other Expenses include, but are not limited to, costs related to professional services, insurance, facilities, software licenses, Cloud platform, and outsourced services in engineering and marketing.
48
Prosper Funding LLC
Condensed Consolidated Balance Sheets (Unaudited)
(amounts in thousands)
March 31, 2026 December 31, 2025
Assets:
Cash and Cash Equivalents $ 5,458 $ 2,864
Restricted Cash 111,549 79,033
Borrower Loans, at Fair Value 232,747 245,337
Property and Equipment, Net 20,871 21,983
Servicing Assets 18,561 17,601
Other Assets 470 1,309
Total Assets $ 389,656 $ 368,127
Liabilities and Member's Equity:
Accounts Payable and Accrued Liabilities $ 35,243 $ 26,858
Payable to Related Party 9,689 12,460
Payable to Investors 111,276 77,971
Notes, at Fair Value 230,283 243,900
Other Liabilities 3,806 3,611
Total Liabilities 390,297 364,800
Member's Equity:
Member's Equity 9,998 9,998
Accumulated Deficit (10,639) (6,671)
Total Member's Equity $ (641) $ 3,327
Total Liabilities and Member's Equity $ 389,656 $ 368,127
The accompanying notes are an integral part of these condensed consolidated financial statements.
49
Prosper Funding LLC
Condensed Consolidated Statements of Operations (Unaudited)
(amounts in thousands)
Three Months Ended March 31,
2026 2025
Revenues:
Operating Revenues:
Administration Fee Revenue - Related Party
$ 29,792 $ 21,878
Servicing Fees, Net 8,976 7,678
Loss on Sale of Borrower Loans (17,275) (13,576)
Other Revenue 62 78
Total Operating Revenues 21,555 16,058
Interest Income on Borrower Loans 9,141 11,307
Interest Expense on Notes (8,535) (10,555)
Total Interest Income, Net 606 752
Change in Fair Value of Financial Instruments, Net (684) (646)
Total Net Revenues 21,477 16,164
Expenses:
Administration Fee Expense - Related Party
22,740 17,808
Servicing and Other, Net 2,705 2,005
Total Expenses 25,445 19,813
Net Loss $ (3,968) $ (3,649)
The accompanying notes are an integral part of these condensed consolidated financial statements.
50
Prosper Funding LLC
Condensed Consolidated Statements of Member's Equity (Unaudited)
(amounts in thousands)
Member's
Equity
Accumulated Deficit
Total
Balance as of January 1, 2026 $ 9,998 $ (6,671) $ 3,327
Net Loss - (3,968) (3,968)
Balance as of March 31, 2026 $ 9,998 $ (10,639) $ (641)
Member's
Equity
Retained Earnings
Total
Balance as of January 1, 2025 $ 9,998 $ 7,407 $ 17,405
Net Loss - (3,649) (3,649)
Balance as of March 31, 2025 $ 9,998 $ 3,758 $ 13,756
The accompanying notes are an integral part of these condensed consolidated financial statements.
51
Prosper Funding LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
Three Months Ended March 31,
2026 2025
Cash Flows from Operating Activities:
Net Loss $ (3,968) $ (3,649)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities:
Change in Fair Value of Financial Instruments, Net 684 646
Other Non-Cash Changes in Borrower Loans and Notes (71) (140)
Gain on Sale of Borrower Loans (4,264) (2,767)
Change in Fair Value of Servicing Rights 3,304 3,189
Depreciation and Amortization 2,682 2,068
Changes in Operating Assets and Liabilities:
Purchase of Loans Held for Sale, at Fair Value (698,218) (532,834)
Proceeds from Sales of Loans Held for Sale, at Fair Value 698,218 532,834
Other Assets 839 (115)
Accounts Payable and Accrued Liabilities 8,385 2,663
Payable to Investors 33,305 21,830
Net Related Party Receivable/Payable 7,280 106
Other Liabilities 195 (63)
Net Cash Provided by Operating Activities 48,371 23,768
Cash Flows from Investing Activities:
Purchase of Borrower Loans, at Fair Value (35,726) (42,938)
Proceeds from Principal Payments and Sales of Borrower Loans, at Fair Value 41,683 47,843
Purchases of Property and Equipment (11,621) (2,522)
Net Cash (Used in) Provided by Investing Activities (5,664) 2,383
Cash Flows from Financing Activities:
Proceeds from Issuance of Notes, at Fair Value 34,346 42,139
Payments of Notes, at Fair Value (41,943) (47,864)
Net Cash Used in Financing Activities (7,597) (5,725)
Net Increase in Cash, Cash Equivalents and Restricted Cash 35,110 20,426
Cash, Cash Equivalents and Restricted Cash at Beginning of the Period 81,897 96,740
Cash, Cash Equivalents and Restricted Cash at End of the Period $ 117,007 $ 117,166
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest $ 8,829 $ 10,835
Non-Cash Investing Activity - Accrual for Property and Equipment, Net 743 696
Reconciliation to Amounts on Consolidated Balance Sheets:
Cash and Cash Equivalents $ 5,458 $ 2,628
Restricted Cash 111,549 114,538
Total Cash, Cash Equivalents and Restricted Cash $ 117,007 $ 117,166
The accompanying notes are an integral part of these condensed consolidated financial statements.
52
PROSPER FUNDING LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Prosper Funding LLC ("PFL") was formed in the state of Delaware in February 2012 as a limited liability company with Prosper Marketplace, Inc. ("PMI") as its sole equity member. Except as the context otherwise requires, as used in these Notes to the condensed consolidated financial statements of Prosper Funding LLC, "PFL," and the "Company" refers to Prosper Funding LLC and its wholly owned subsidiary, Prosper Depositor LLC, a Delaware limited liability company, on a consolidated basis.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and disclosure requirements for interim financial information and the requirements of Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2025. The balance sheet at December 31, 2025 has been derived from the audited financial statements at that date. Management believes these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
PFL did not have any items of other comprehensive income or loss for any of the periods presented in the condensed consolidated financial statements as of and for the three months ended March 31, 2026 and 2025.
The preparation of PFL's condensed consolidated financial statements and related disclosures in conformity with US GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. These judgments, estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions, and the differences could be material.
2. Summary of Significant Accounting Policies
PFL's significant accounting policies are included in Note 2, Summary of Significant Accounting Policies, in PFL's Annual Report on Form 10-K for the year ended December 31, 2025. There have been no changes to these accounting policies during the first three months of 2026.
Fair Value Measurements
Financial instruments consist principally of Cash and Cash Equivalents, Restricted Cash, Borrower Loans, Loans Held for Sale, Accounts Receivable, Accounts Payable and Accrued Liabilities, Payable to Investors and Notes. The estimated fair values of 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.
Refer to Note 7 for additional fair value disclosures.
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.
53
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 condensed 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 condensed 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.
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 condensed 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.
On March 23, 2026, Utah signed into law Senate Bill 230, Consumer Credit Amendments ("S.B. 230"), which eliminates the requirement to refund Transaction Fees in excess of 5% of Borrower Loan principal upon prepayment. The law became effective on May 6, 2026. Accordingly, PFL no longer accrues or remits Transaction Fee refunds under this requirement for Borrower Loans originated on or after that effective date. Borrower Loans originated prior to May 6, 2026, remain subject to the prior refund requirements.
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 By PFL 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 condensed 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
54
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.
3. Property and Equipment, Net
Property and equipment consist of the following as of the dates presented (in thousands):
March 31, 2026 December 31, 2025
Internal-use software and web site development costs $ 64,923 $ 63,353
Less: accumulated depreciation and amortization (44,052) (41,370)
Total property and equipment, net $ 20,871 $ 21,983
Depreciation expense for the three months ended March 31, 2026 and 2025 was $2.7 million and $2.1 million, respectively.
4. Borrower Loans and Notes, at Fair Value
The aggregate principal balances outstanding and fair values of Borrower Loans and Notes as of March 31, 2026 and December 31, 2025, are presented in the following table (in thousands):
Borrower Loans Notes
March 31, 2026 December 31, 2025 March 31, 2026 December 31, 2025
Aggregate principal balance outstanding and interest outstanding $ 243,059 $ 255,132 $ 243,293 $ 256,929
Fair value adjustments (10,312) (9,795) (13,010) (13,029)
Fair value $ 232,747 $ 245,337 $ 230,283 $ 243,900
As of March 31, 2026, outstanding Borrower Loans had original terms to maturity of 24, 36, 48 or 60 months, had monthly payments with fixed interest rates ranging from 6.00% to 33.00% and had various original maturity dates through March 2031. As of December 31, 2025, outstanding Borrower Loans had original maturities of either 24, 36, 48 or 60 months, monthly payments with fixed interest rates ranging from 6.00% to 33.00% and had various original maturity dates through December 2030.
As of March 31, 2026, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $1.5 million and a fair value of $0.3 million. As of December 31, 2025, Borrower Loans that were 90 days or more delinquent had an aggregate principal amount of $2.2 million and a fair value of $0.4 million. PFL places loans on non-accrual status when they are over 120 days past due. As of March 31, 2026 and December 31, 2025, Borrower Loans in non-accrual status had a fair value of $0.3 million and $0.3 million, respectively.
5. Servicing Assets
PFL accounts for Servicing Assets at their estimated fair values with changes in fair values recorded in Servicing Fees, Net on the condensed consolidated statements of operations. The initial asset is recognized in Gain (Loss) on the Sale of Borrower Loans on the condensed consolidated statements of operations when PFL sells Borrower Loans to unrelated third-party buyers through the Whole Loan Channel and the servicing rights are retained. The Servicing Assets are measured at fair value throughout the servicing period. PFL recognized gains from the initial recognition of Servicing Assets on the sale of Borrower Loans in the amounts of $4.3 million and $2.8 million for the three months ended March 31, 2026 and 2025, respectively. These amounts are recorded in Loss on Sale of Borrower Loans on the condensed consolidated statements of operations, and are offset primarily by incentives provided to loan buyers at the time of sale.
As of March 31, 2026, Borrower Loans that were sold, but for which PFL retained servicing rights, had a total outstanding principal balance of $4.0 billion, original terms of 24, 36, 48 or 60 months, monthly payments with fixed interest
55
rates ranging from 5.75% to 33.00%, and various original maturity dates through March 2031. As of December 31, 2025, Borrower Loans that were sold, but for which PFL retained servicing rights, had a total outstanding principal balance of $3.8 billion, original terms of either 24, 36, 48 or 60 months, monthly payments with fixed interest rates ranging from 5.75% to 33.00%, and various original maturity dates through December 2030.
Contractually-specified servicing fees and ancillary fees totaled $12.9 million and $11.6 million for the three months ended March 31, 2026 and 2025, respectively, and are included primarily in Servicing Fees, Net on the condensed consolidated statements of operations.
Fair Value Valuation Method
PFL uses a discounted cash flow valuation methodology generally consisting of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounting those cash flows at a rate of return that results in the fair value amount.
Significant unobservable inputs presented in the table within Note 7 are those that PFL considers significant to the estimated fair values of the Level 3 Servicing Assets. The following is a description of the significant unobservable inputs provided in the table.
Market Servicing Rate
PFL estimates adequate market servicing rates that would fairly compensate a substitute servicer should one be required, which includes the profit that would be demanded in the marketplace. This rate is stated as a fixed percentage of outstanding principal balance on a per annum basis. With the assistance of a valuation specialist, PFL estimates these market servicing rates based on observable market rates for other loan types in the industry and bids from sub-servicing providers, adjusted for the unique loan attributes that are present in the specific loans that PFL sells and services and information from backup service providers.
In September 2025, as a result of an updated assessment of market rates, the Company lowered the estimated base market servicing rate used to value its Servicing Asset from 63.3 basis points to 59.3 basis points. This change resulted in a $1.5 million increase to Servicing Assets, Net as of September 30, 2025, and Total Net Revenues for the three months ended September 30, 2025.
Discount Rate
The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loan servicing rights. Management used a range of discount rates for the Servicing Assets based on comparable observed valuations of similar assets and publicly available disclosures related to servicing valuations, with comparability adjustments made to account for differences with PFL's Servicing Assets.
Default Rate
The default rate presented in Note 7 is an annualized, average estimate considering all Borrower Loan categories (i.e., risk ratings and duration), and represents an aggregate of conditional default rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category's curve represents the percentage of principal expected to default per period based on the term and age of the underlying Borrower Loans. The assumption regarding defaults directly reduces servicing revenues because the amount of servicing revenues received is based on the amount collected each period.
Prepayment Rate
The prepayment rate presented in Note 7 is an annualized, average estimate considering all Borrower Loan categories (i.e., risk ratings and duration), and represents an aggregate of conditional prepayment rate curves for each credit grade or Borrower Loan category. Each point on a particular Borrower Loan category's curve represents the percentage of principal expected to prepay per period based on the term and age of the underlying Borrower Loans. Prepayments reduce servicing revenues as they shorten the period over which PFL expects to collect fees on the Borrower Loans, which is used to project future servicing revenues.
6. Income Taxes
PFL incurred no income tax provision for the three months ended March 31, 2026 and 2025. PFL is a U.S. disregarded entity and its income and loss are included in the income tax reporting of its parent, PMI. Since PMI is in a taxable loss position, is not currently subject to income taxes, and has fully reserved against its deferred tax asset, the net effective tax rate for PFL is 0%.
56
7. 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 March 31, 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.
57
The following tables present the fair value hierarchy for assets and liabilities measured at fair value (in thousands):
March 31, 2026 Level 1 Level 2 Level 3 Total
Assets:
Borrower Loans, at Fair Value $ - $ - $ 232,747 $ 232,747
Servicing Assets - - 18,561 18,561
Total Assets $ - $ - $ 251,308 $ 251,308
Liabilities:
Notes, at Fair Value $ - $ - $ 230,283 $ 230,283
Loan Trailing Fee Liability (included in Other Liabilities) - - 3,491 3,491
Total Liabilities $ - $ - $ 233,774 $ 233,774
December 31, 2025 Level 1 Level 2 Level 3 Total
Assets:
Borrower Loans, at Fair Value $ - $ - $ 245,337 $ 245,337
Servicing Assets - - 17,601 17,601
Total Assets $ - $ - $ 262,938 $ 262,938
Liabilities:
Notes, at Fair Value $ - $ - $ 243,900 $ 243,900
Loan Trailing Fee Liability (included in Other Liabilities) - - 3,328 3,328
Total Liabilities $ - $ - $ 247,228 $ 247,228
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 three months ended March 31, 2026 or March 31, 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:
Range
Borrower Loans and Notes March 31, 2026 December 31, 2025
Discount rate
6.2% - 16.7%
6.3% - 15.5%
Default rate
2.1% - 14.0%
2.3% - 14.5%
Range
Servicing Assets March 31, 2026 December 31, 2025
Discount rate
15.0% - 25.0%
15.0% - 25.0%
Default rate
1.5% - 14.0%
1.9% - 15.0%
Prepayment rate
10.9% - 39.6%
3.4% - 41.4%
Market servicing rate (1) (2)
0.593% - 0.842%
0.593% - 0.842%
(1) Servicing assets associated with loans enrolled in a relief program offered by the Company as of March 31, 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.
58
(2) Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of March 31, 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.
Range
Loan Trailing Fee Liability March 31, 2026 December 31, 2025
Discount rate
15.0% - 25.0%
15.0% - 25.0%
Default rate
1.5% - 14.0%
1.9% - 15.0%
Prepayment rate
10.9% - 39.6%
3.4% - 41.4%
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):
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets Liabilities
Borrower
Loans
Loans Held for Sale Notes
Balance as of January 1, 2026 $ 245,337 $ - $ (243,900)
Originations 35,726 698,218 (34,346)
Principal repayments (40,891) - 41,943
Borrower Loans sold to third parties (792) (698,218) -
Other changes (224) - 295
Change in fair value (6,409) - 5,725
Balance as of March 31, 2026 $ 232,747 $ - $ (230,283)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Assets Liabilities
Borrower
Loans
Loans Held for Sale Notes
Balance as of January 1, 2025 $ 285,578 $ - $ (283,030)
Originations 42,938 532,834 (42,139)
Principal repayments (47,167) - 47,864
Borrower Loans sold to third parties (676) (532,834) -
Other changes (140) - 280
Change in fair value (5,171) - 4,525
Balance as of March 31, 2025 $ 275,362 $ - $ (272,500)
The following tables present additional information about Level 3 Servicing Assets recorded at fair value (in thousands):
Servicing Assets
Balance as of January 1, 2026 17,601
Additions 4,263
Less: Changes in fair value (3,303)
Balance as of March 31, 2026 $ 18,561
59
Servicing Assets
Balance as of January 1, 2025 $ 14,333
Additions 2,768
Less: Changes in fair value (3,190)
Balance as of March 31, 2025 $ 13,911
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):
Loan Trailing Fee Liability
Balance as of January 1, 2026 $ 3,328
Issuances 708
Cash payment of Loan Trailing Fee (709)
Change in fair value 164
Balance as of March 31, 2026 $ 3,491
Loan Trailing Fee Liability
Balance as of January 1, 2025 $ 3,004
Issuances 521
Cash payment of Loan Trailing Fee (652)
Change in fair value 60
Balance as of March 31, 2025 $ 2,933
60
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 March 31, 2026 and December 31, 2025 for Borrower Loans are presented in the following table (in thousands, except percentages).
Borrower Loans: March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 232,747 $ 245,337
Weighted-average discount rate 9.10 % 8.67 %
Weighted-average default rate 11.27 % 11.48 %
Fair value resulting from:
100 basis point increase in discount rate
$ 230,697 $ 243,180
200 basis point increase in discount rate
228,695 241,073
Fair value resulting from:
100 basis point decrease in discount rate
$ 234,847 $ 247,547
200 basis point decrease in discount rate
236,998 249,810
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 230,903 $ 243,371
Applying a 1.2 multiplier to default rate
229,057 241,402
Fair value resulting from:
Applying a 0.9 multiplier to default rate
$ 234,591 $ 247,304
Applying a 0.8 multiplier to default rate
236,432 249,269
Key economic assumptions are used to compute the fair value of Notes. The sensitivity of the fair value to immediate changes in assumptions at March 31, 2026 and December 31, 2025 for Notes funded through the Note Channel are presented in the following table (in thousands, except percentages).
Notes March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 230,283 $ 243,900
Weighted-average discount rate 9.10 % 8.67 %
Weighted-average default rate 11.27 % 11.48 %
Fair value resulting from:
100 basis point increase in discount rate
$ 228,252 $ 241,752
200 basis point increase in discount rate
226,269 239,655
Fair value resulting from:
100 basis point decrease in discount rate
$ 232,361 $ 246,096
200 basis point decrease in discount rate
234,495 248,352
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 228,458 $ 241,944
Applying a 1.2 multiplier to default rate
226,632 239,987
Fair value resulting from:
Applying a 0.9 multiplier to default rate
$ 232,107 $ 245,853
Applying a 0.8 multiplier to default rate
233,928 247,806
61
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 March 31, 2026 and December 31, 2025 for Servicing Assets are presented in the following table (in thousands, except percentages).
Servicing Assets March 31, 2026 December 31, 2025
Fair value, using the following assumptions: $ 18,561 $ 17,601
Weighted-average market servicing rate
0.598 % 0.598 %
Weighted-average prepayment rate 21.59 % 21.72 %
Weighted-average default rate 11.52 % 11.86 %
Fair value resulting from:
Market servicing rate increase of 0.025%
$ 17,494 $ 16,586
Market servicing rate decrease of 0.025%
19,629 18,615
Fair value resulting from:
Applying a 1.1 multiplier to prepayment rate
$ 18,077 $ 17,143
Applying a 0.9 multiplier to prepayment rate
19,056 18,068
Fair value resulting from:
Applying a 1.1 multiplier to default rate
$ 18,260 $ 17,310
Applying a 0.9 multiplier to default rate
18,862 17,892
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.
8. Commitments and Contingencies
In the normal course of its operations, PFL becomes involved in various legal actions. PFL maintains provisions it considers to be adequate for such actions. The Company does not believe it is probable that the ultimate liability, if any, arising out of any such matters will have a material effect on financial condition, results of operations or cash flows.
Operating Commitments
PMI, along with PFL, and WebBank has entered into: (i) an Asset Sale Agreement, dated July 1, 2016, between PFL and WebBank, as most recently amended by a Seventh Amendment dated February 28, 2024 (as amended, the "Sale Agreement"); (ii) the Marketing Agreement, dated July 1, 2016, between PMI and WebBank, as most recently amended by a Seventh Amendment dated February 28, 2024 (as amended, the "Marketing Agreement"); and (iii) the Stand By Purchase Agreement, dated July 1, 2016, between PMI and WebBank, as most recently amended by a Fourth Amendment dated February 28, 2024 (as amended, the "Purchase Agreement" and, collectively with the Sale Agreement and the Marketing Agreement, the "Origination and Sale Agreements"). Under the Origination and Sale Agreements, all Borrower Loans originated through the marketplace are made by WebBank under its bank charter.
The Origination and Sale Agreements contain terms through February 1, 2027. Prosper is required, under the Origination and Sale Agreements, to maintain certain collateral requirements. In addition, pursuant to the Marketing Agreement, the marketing fee that Prosper receives in connection with the origination of each loan is partially reduced by an amount (the "Designated Amount") calculated as a percentage of the principal amount of such loan based on the aggregate principal amount of loans originated for the applicable month. To the extent the aggregate Designated Amount for all loans originated during any month is less than $100,000 through February 1, 2027, Prosper is required to pay WebBank an amount equal to such deficiency. Accordingly, the minimum fee is $0.9 million for the remaining months of 2026 and $0.1 million in 2027.
Additionally, under the Origination and Sale Agreements, Prosper is required to maintain minimum net liquidity of $15.0 million at all times during the term of the agreement. Net liquidity is defined as the sum of Cash, Cash Equivalents and
62
Available for Sale Investments. Violation of this covenant can result in termination of the contract with WebBank. As of March 31, 2026, the Company was in compliance with the covenant.
Transaction Fee Refund Liability
Prosper assumes WebBank's liability 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. Following the passage of S.B. 230, only Borrower Loans originated prior to May 6, 2026, remain subject to this requirement, and no liability is recorded for Borrower Loans originated on or subsequent to that effective date. For the three months ended March 31, 2026 and 2025 the Company issued $5.1 million and $2.8 million, respectively, in refunds under this obligation. As of March 31, 2026 and December 31, 2025, the Company accrued $19.7 million and $17.2 million, respectively, related to anticipated future refunds under this obligation. As a result of executing Amendment 7 to the Administration Agreement with PMI on November 14, 2025, all Transaction Fee refunds issued by PFL are now reimbursed by PMI and recorded in the Administration Fee Revenue - Related Party account on the consolidated statements of operations.
Loan Purchase Commitments
Under the terms of PFL's agreement with WebBank, PFL is committed to purchase $29.4 million of Borrower Loans that WebBank originated during the last two business days of the quarter ended March 31, 2026. PFL will purchase these Borrower Loans within the first three business days of the quarter ending June 30, 2026.
Repurchase Obligation
Under the terms of the loan purchase agreements between PFL and investors that participate in the Whole Loan Channel, PFL may, in certain circumstances, become obligated to repurchase a Borrower Loan from an investor. Generally, these circumstances include the occurrence of verifiable identity theft, the failure to properly follow personal loan listing or bidding protocols, or a violation of the applicable federal, state, or local lending laws. The fair value of the indemnification and repurchase obligation is estimated based on historical experience. PFL recognizes a liability for the repurchase and indemnification obligation when the Borrower Loans are issued. Indemnified or repurchased Borrower Loans associated with violations of federal, state, or local lending laws or verifiable identity theft are written off at the time of repurchase or at the time an indemnification payment is made. The maximum potential amount of future payments associated under this repurchase obligation is the outstanding balances of the Borrower Loans issued through the Whole Loan Channel, which as of March 31, 2026 is $4.0 billion. PFL has accrued $0.3 million and $0.3 million as of March 31, 2026 and December 31, 2025, respectively, in regard to this obligation.
Regulatory Contingencies
PFL accrues for contingencies when a loss from such contingencies is probable and the amount of loss can be reasonably estimated. In determining whether a loss is probable and if it is possible to quantify the amount of the estimated loss, PFL reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in light of potentially relevant factual and legal developments. If PFL determines that an unfavorable outcome is not probable or that the amount of a loss cannot be reasonably estimated, PFL does not accrue for a potential litigation loss. If an unfavorable outcome is probable and PFL can estimate a range of outcomes, PFL records the amount management considers to be the best estimate within the range of potential losses that are both probable and estimable; however, if management cannot quantify the amount of the estimated loss, then PFL records the low end of the range of those potential losses.
Cybersecurity Matter
On September 1, 2025, Prosper identified that an unauthorized third party gained access to Prosper's systems that contain proprietary and confidential information. Prosper promptly initiated its cybersecurity response plans and began taking steps to investigate, contain and remediate the incident and enhance its security measures with the assistance of cybersecurity experts. Prosper also informed law enforcement.
There is evidence that the unauthorized third party was able to obtain confidential, proprietary and personal information, including Social Security numbers, including through unauthorized queries made on Prosper databases that store customer and applicant data. There is no evidence of unauthorized access to customer accounts and funds as a result of the incident, and Prosper's customer-facing operations continued uninterrupted.
Multiple purported class-action lawsuits related to the September 2025 Incident have been filed against Prosper. The federal lawsuits filed against Prosper have been consolidated into one proceeding, captioned In re: Prosper Funding, LLC Data Breach Litigation. Prosper is also subject to lawsuits filed in state courts and has received demands for mass and individual arbitrations. The Company may receive additional federal and state lawsuits and arbitration demands in the future.
63
Prosper has accrued for various legal and cybersecurity software costs incurred related to this incident that are not covered by insurance at the PMI corporate level. Due to the significant uncertainties involved, Prosper is not able to accurately predict the ultimate outcome of this incident, or estimate a loss or range of loss that Prosper may incur. Accordingly, Prosper has not recorded a provision for any estimated losses in respect to the incident as of March 31, 2026.
9. Related Parties
Since inception, PFL has engaged in various transactions with its directors, executive officers, PMI, and immediate family members and other affiliates of its directors, executive officers, and PMI. PFL believes that all of the transactions described below were made on terms no less favorable to PFL than could have been obtained from unaffiliated third parties.
PFL's executive officers and directors who are not executive officers participate in its marketplace by placing bids and purchasing Notes. The aggregate amount of the Notes purchased and the income earned by parties deemed to be related parties of PFL for the three months ended March 31, 2026 and 2025 are summarized below (in thousands):
Aggregate Amount of Notes Purchased
Interest Earned on Notes
Three Months Ended March 31, Three Months Ended March 31,
Related Party 2026 2025 2026 2025
Executive officers and management $ 2 $ 2 $ 1 $ 2
Directors (excluding executive officers and management) - - - -
Total $ 2 $ 2 $ 1 $ 2
The balance of Notes held by officers and directors who are not executive officers are as follows (in thousands):
Notes Balance as of
Related Party March 31, 2026 December 31, 2025
Executive officers and management $ 23 $ 27
Directors (excluding executive officers and management) - -
Total $ 23 $ 27
64
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management's discussion and analysis of financial condition and results of operations, or MD&A, contains forward-looking statements that involve risks and uncertainties. Please see "Forward-Looking Statements" in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks, and assumptions associated with these statements. This discussion should be read in conjunction with Prosper's historical condensed consolidated financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and Prosper's actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those included in the "Risk Factors" sections and elsewhere in this Quarterly Report on Form 10-Q and Prosper's Annual Report on Form 10-K for the year ended December 31, 2025.
PROSPER MARKETPLACE, INC.
Overview
Our vision is to transform lives by providing affordable financial solutions through the simplest and most trusted platform. We currently offer access to two primary lending products, each of which supports our vision: (i) unsecured Personal Loans through a personal loan marketplace which connects eligible consumer borrowers with individual and institutional investors, and (ii) a Credit Card product available to eligible borrowers. Historically, we have offered access to Home Equity lending products as well, but we made the strategic decision to discontinue offering Home Equity products in December 2025.
We believe our Personal Loan business model has key advantages relative to traditional banks, including (i) an innovative marketplace model that efficiently connects qualified supply and demand of capital, (ii) online operations that substantially reduce the need for physical infrastructure and improve convenience, and (iii) use of advanced technology and artificial intelligence to deliver simple, fast, personalized, and transparent solutions that can improve consumers' financial health as they move across the credit spectrum. We do not operate physical branches or incur expenses related to infrastructure like traditional banks or consumer finance institutions. As part of operating our marketplace, we verify the identity of borrowers and assess borrowers' credit risk profile using a combination of public and proprietary data. Our proprietary technology automates several loan origination and servicing functions, including the borrower application process, data gathering, underwriting, credit scoring, loan funding, investing and servicing, regulatory compliance and fraud detection.
For the year ended December 31, 2025, our marketplace facilitated $2.7 billion in Borrower Loan originations, of which $2.5 billion were funded through our Whole Loan Channel, representing 94% of the total Borrower Loans originated through our marketplace during this period. For the three months ended March 31, 2026, our marketplace facilitated $730.8 million in Borrower Loan originations, an increase of 28% from the same period in 2025. The percentage of loans funded through the Whole Loan Channel for the three months ended March 31, 2026 was 95%. From inception through March 31, 2026, our marketplace has facilitated $31.3 billion in Borrower Loan originations, of which $28.3 billion were funded through our Whole Loan Channel, representing 90% of the total Borrower Loans originated through our marketplace during this period.
We believe our Credit Card product provides consumers working to build their credit profile with affordable access to the credit they need, when they need it, as well as tools and resources to help them stay on track with their personal finances. As with the Personal Loan product, we manage the credit risk associated with our Credit Card borrowers through a combination of public and proprietary data. From the launch of the Credit Card product through March 31, 2026, approximately 558,000 Credit Card accounts have been booked through our platform, and borrowers have spent $1.4 billion on their Prosper Credit Cards.
As a company that operates a credit marketplace, and offers a Credit Card product, our customers may be highly susceptible to uncertainties and negative trends, real or perceived, in the markets driven by, among other factors, general economic conditions in the United States and abroad. These external economic conditions and resulting trends or uncertainties could adversely impact our customers' ability or desire to participate in our Personal Loan marketplace, as borrowers or investors, or maintain compliance with the repayment terms on a Prosper Credit Card. Consequently, our business and results of operations could be negatively affected.
65
Key Operating and Financial Metrics (in thousands)
The following table displays our key operating and financial metrics for three months ended March 31, 2026 and 2025.
Three Months Ended March 31,
2026 2025
Personal Loan Originations $ 730,842 $ 571,536
Transaction Fees, Net $ 62,089 $ 52,078
Personal Loan Serviced Portfolio (1)
$ 4,225,371 $ 3,798,289
Whole Loans Outstanding (1)
$ 3,984,634 $ 3,513,077
Prosper Credit Card Portfolio (1) (2)
$ 421,755 $ 378,907
Servicing Fees, Net $ 8,481 $ 7,357
Total Net Revenues $ 58,368 $ 42,664
Net Income $ 64,651 $ 50,375
Adjusted EBITDA (3)
$ 6,739 $ (1,867)
(1) Unpaid principal balance as of March 31
(2) Total of Prosper Allocations, Coastal Allocations and securitized PMCC 2024-1 Credit Card receivables
(3) Adjusted EBITDA is a non-GAAP financial measure. For more information regarding this measure and the reconciliation to Net Income (Loss), the most comparable US GAAP measure, see "Non-GAAP Financial Measure - Adjusted EBITDA."
Personal Loan Originations
From inception of the Company through March 31, 2026, a total of 2,417,039 Borrower Loans, totaling $31.3 billion were originated through our marketplace.
For the three months ended March 31, 2026, 46,325 Borrower Loans totaling $730.8 million were originated through our marketplace, compared to 36,399 Borrower Loans totaling $571.5 million during the three months ended March 31, 2025. This represents a unit increase of 27% and a dollar increase of 28%. The originations increase for the quarter ended March 31, 2026 versus the quarter ended March 31, 2025 is primarily due to increased third-party investor demand, updated underwriting models, lower interest rates and a new customer acquisition channel.
Personal loan origination volume by Prosper Rating was as follows for the periods presented (in millions, except percentages):
Three Months Ended March 31,
2026 2025
Amount % Amount %
AA $ 119.6 16 % $ 83.7 15 %
A 209.2 29 % 104.7 18 %
B 127.7 18 % 118.8 20 %
C 89.9 12 % 44.3 8 %
D 75.6 10 % 43.3 8 %
E 72.6 10 % 73.5 13 %
Other (1)
36.2 5 % 103.2 18 %
Total $ 730.8 $ 571.5
(1) Represents personal loans funded through the Prosper platform via the Whole Loan Channel but not assigned Prosper Ratings.
For the three months ended March 31, 2026, compared to the corresponding period in 2025, Personal Loan originations on the Prosper platform reflect increased originations across most loan ratings. Loans not assigned Prosper ratings are sold only to institutional investors based on specific underwriting criteria and custom risk models developed by those investors. These loans decreased from the prior year primarily as a result of our updated underwriting models, which resulted in the assignment of Prosper ratings to a greater number of loans, and reduced risk appetite from investors that purchase loans without Prosper ratings.
66
Personal Loan Serviced Portfolio and Whole Loans Outstanding
Our Personal Loan serviced portfolio consists of all Borrower Loans that we service both through the Note and Whole Loan Channels. Borrower Loans funded through the Whole Loan Channels include loans that we hold in consolidated trusts, as well as those sold to third parties. Our Personal Loan serviced portfolio increased $427.1 million, or 11%, from March 31, 2025 to March 31, 2026. This increase is primarily due to increased originations for the three months ended March 31, 2026, as compared to the corresponding period in the prior year.
The outstanding balance of Borrower Loans sold through our Whole Loan Channel serves as a primary driver of our Servicing Assets. Whole loans outstanding increased $471.6 million, or 13%, from March 31, 2025 to March 31, 2026, due primarily to the year-over-year increase in originations discussed above.
Prosper Credit Card Portfolio
Our Credit Card portfolio consists of the outstanding principal of all Prosper-branded Credit Cards originated through our partnership with Coastal Community Bank ("Coastal"). From March 31, 2025 to March 31, 2026, the principal balance of the Credit Card portfolio increased $42.8 million, or 11%, due to increases in the number of active Credit Cards and cardholder spend during this time.
Net Income (Loss)
See the section titled "Results of Operations" below, for the discussion on significant changes in Net Income (Loss) year-over-year.
67
Results of Operations
Overview
The following table summarizes our net income (loss) for the three months ended March 31, 2026 and 2025 (in thousands, except percentage):
Three Months Ended March 31,
2026 2025 Change % Change
Total Net Revenues $ 58,368 $ 42,664 $ 15,704 37 %
Total Expenses (6,321) (7,739) 1,418 18 %
Net Income Before Taxes 64,689 50,403 14,286 28 %
Income Tax Expense (38) (28) (10) 36 %
Net Income $ 64,651 $ 50,375 $ 14,276 28 %
Total Net Revenues for the three months ended March 31, 2026 increased $15.7 million, or 37%, as compared to the same period in 2025. The increase was largely attributable to an $11.9 million increase to Total Net Revenues from Change in Fair Value of Financial Instruments, primarily due to an increase in the fair value of our Credit Card Derivative, reflective of decreased charge-offs and estimated loss rates, as well as growth in the underlying Credit Card portfolio. There was also a $10.0 million increase in Transaction Fees, Net, primarily as a result of higher Personal Loan origination volume during this period, as discussed above. In addition, there was a $1.1 million increase in Servicing Fees, Net, due primarily to increased Personal Loan servicing income, generally consistent with the increase in whole loans outstanding during this period. We also lowered our Personal Loan market servicing rate in September 2025, increasing the servicing asset and Servicing Fees, Net. These increases were partially offset by a $3.7 million increase in Loss on Sale of Borrower Loans, primarily as a result of additional incentives provided to whole loan investors ("incentives") year-over-year. Total Interest Income (Expense), Net, decreased $3.1 million from the prior year, due largely to a decrease in the outstanding balance of personal loans held in consolidated trusts, as well as lower interest rates, which reduced interest income generated from the securitized Credit Card portfolio. Finally, Other Revenues decreased $0.5 million year-over-year, due primarily to reduced credit referral fees.
Total Expenses include the Change in Fair Value of Convertible Preferred Stock Warrants, which is in turn driven by changes in the fair value of the underlying Convertible Preferred Stock. There were gains recognized related to this item of $63.9 million and $57.2 million for the three months ended March 31, 2026 and 2025, respectively, due to decreases in the fair value of the underlying Convertible Preferred Stock for these periods. Other components of Total Expenses increased $8.1 million for the three months ended March 31, 2026, as compared to the same period in 2025, primarily due to a combined $9.4 million increase in Origination and Servicing, Sales and Marketing and General and Administrative expenses, as costs increased primarily due to higher Personal Loan originations and growth in the Credit Card portfolio. These increases were partially offset by a $1.1 million decrease in Interest Expense on Term Loans, as a result of the lower interest rate on the new Term Loan we executed in November 2025 (see Note 11 of the accompanying condensed consolidated financial statements). Accordingly, the net income for the three months ended March 31, 2026 increased $14.3 million, or 28%, when compared to the net income for the three months ended March 31, 2025.
68
Revenues
The following table summarizes our revenues for the three months ended March 31, 2026 and 2025 (in thousands, except percentages):
Three Months Ended March 31,
2026 2025 $ Change % Change
Operating Revenues:
Transaction Fees, Net $ 62,089 $ 52,078 $ 10,011 19 %
Servicing Fees, Net 8,481 7,357 1,124 15 %
Loss on Sale of Borrower Loans (17,275) (13,576) (3,699) (27) %
Other Revenues 1,655 2,189 (534) (24) %
Total Operating Revenues 54,950 48,048 6,902 14 %
Interest Income (Expense):
Interest Income on Financial Instruments 16,249 23,301 (7,052) (30) %
Interest Expense on Financial Instruments (12,366) (16,329) 3,963 24 %
Total Interest Income (Expense), Net 3,883 6,972 (3,089) (44) %
Change in Fair Value of Financial Instruments (465) (12,356) 11,891 96 %
Total Net Revenues $ 58,368 $ 42,664 $ 15,704 37 %
Transaction Fees, Net
We earn a transaction fee upon the successful origination of all Borrower Loans facilitated through our marketplace. Specifically, we receive payments from WebBank as compensation for the activities we perform on behalf of WebBank. Our fee is determined by the term and credit grade of the Borrower Loans that we facilitate on our marketplace and WebBank originates. We record the transaction fee revenue net of any fees paid by us to WebBank. We also earn various program fees from our Credit Card product, such as interchange fees, annual fees and late fees, all of which are recorded within Transaction Fees, Net.
Transaction Fees, Net increased $10.0 million, or 19%, for the three months ended March 31, 2026, as compared to the corresponding period in 2025, primarily due to the increased Personal Loan originations discussed above. Under our WebBank transaction fee schedule, transaction fees range from 1.0% to 9.99%, depending on the term and credit grade of the Borrower Loan. Transaction fees above 5.0% are refundable on a pro-rated basis upon the full prepayment of the related Borrower Loan prior to maturity under Utah law, where WebBank is domiciled, and thus the impact of these increased transaction fees is reduced by expected refunds.
In addition, we recognized approximately $6.8 million in program fees under our Credit Card product for the three months ended March 31, 2026, which represented a $1.1 million increase from the corresponding period in 2025.
Servicing Fees, Net
Investors who purchase Borrower Loans through the Whole Loan Channel typically pay us 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 us for the costs incurred in servicing the Borrower Loan, including managing payments from borrowers, payments to investors and maintaining investors' account portfolios. We record Servicing Fees from investors as a component of operating revenues when received. We also include any collection fees received, net of collection agency expenses, in Servicing Fees, Net.
In addition, we are contractually obligated to service the entire portfolio under our Credit Card product. Our banking partner, Coastal, pays us a servicing fee of 1.0% per annum of the daily outstanding principal balance of all cards designated as Coastal allocations within the non-securitized portion of the portfolio. These allocations represent approximately 5% of the portfolio. To the extent these contractual fees are less than the market servicing rate that would be required by a market participant to service the portfolio, a servicing obligation is recorded. Changes to the net Credit Card servicing obligation are included in Servicing Fees, Net. We do not recognize a servicing asset or obligation related to any Credit Card receivables that are effectively consolidated on our balance sheet through the PMCC 2024-1 securitization transaction discussed in Note 5 of the accompanying condensed consolidated financial statements.
69
The increase of $1.1 million, or 15%, in Servicing Fees for the three months ended March 31, 2026, as compared to the corresponding period in 2025, is primarily due to a $1.0 million increase in Personal Loan servicing revenue from servicing fees collected, net of amortization of the Servicing Asset, reflective of both (a) the growth in the underlying servicing book discussed above, as well as (b) the reduction in the estimated market servicing rate used to value the Servicing Asset from 63.3 basis points to 59.3 basis points in September 2025. Additionally, there was a $0.4 million increase in net collections and debt sale fees, due to growth in our Personal Loan servicing book and Credit Card portfolio, and our enhanced collections and recovery efforts. We also recognized a $0.3 million increase in Servicing Fees from miscellaneous Credit Card fees.
These increases were partially offset by a $0.5 million decrease in Servicing Fees related to increases in the fair value of the net Credit Card servicing obligation. As discussed in Note 8, Fair Value of Assets and Liabilities, of the accompanying condensed consolidated financial statements, a change in estimate related to the default rate applied to the cash flows that drive the Credit Card servicing obligation resulted in an increase in fair value of that obligation of $0.7 million as of March 31, 2026, accounting for most of the change from the prior year.
Loss on Sale of Borrower Loans
We recognize a Gain or Loss on Sale of Borrower Loans based on 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. We also record changes in any estimated investor performance-based payment liability in Gain or Loss on Sale of Borrower Loans. Since 2022, due to market volatility and incentives offered by competitors, we started providing additional incentives to our investors. For the three months ended March 31, 2026, incentives increased $1.8 million, and changes in the performance-based payment liability increased $3.4 million, from the corresponding period in the prior year. Excluding the impact of these incentives and the performance-based payment liability, the remaining change in Loss on Sale of Borrower Loans for the three months ended March 31, 2026 as compared to the same period in 2025, was an increased gain of $1.5 million, primarily due to the recognition of additional Servicing Assets upon the sale of Personal Loans through the Whole Loan Channel, as well as a decrease in the market servicing rate used to value the Servicing Assets from 63.3 bps to 59.3 basis points in September 2025.
Other Revenues
Other Revenues consists primarily of credit referral fees earned from partner companies for the referral of customers on our Personal Loan platform, as well as incentive fees from our Credit Card network partner, based primarily on the volume of transactions generated on our Credit Cards, net of any fees paid to that network partner. Credit referral fees accounted for approximately of $0.6 million of the total $0.5 million decrease in Other Revenues for the three months ended March 31, 2026, as compared to the corresponding period in 2025.
Interest Income on Financial Instruments and Interest Expense on Financial Instruments
We recognize Interest Income on Borrower Loans and Receivable from Credit Card Partner (consisting of the underlying securitized Credit Card receivables) using the accrual method based on the stated interest rate to the extent we believe it to be collectible. We record interest expense on the corresponding fractional Notes, at Fair Value and Notes Issued by Securitization Trusts based on the contractual interest rates. The interest rate on fractional Notes, at Fair Value is generally 1% lower than the interest rate on the corresponding Borrower Loans to compensate us for servicing the underlying Borrower Loans.
The decrease of $3.1 million, or 44%, in Total Interest Income (Expense), Net for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was primarily due to a $1.7 million decrease in Total Interest Income (Expenses), Net generated from the underlying securitized Credit Card receivables included within Receivable from Credit Card Partner, less interest expense and setup cost amortization incurred on the related Notes Issued by Securitization Trust. This decrease is primarily reflective of lower interest rates and increased charge-offs during this time. In addition, there was a $1.1 million decrease in Total Interest Income (Expense), Net generated from securitized Borrower Loans, net of interest expense and setup cost amortization incurred on the Notes Issued by Securitization Trust, which is primarily reflective of the reduced average outstanding balance of loans held in consolidated trusts year-over-year, as well as the related decrease in the associated financing liabilities as a result of principal repayments. Finally, Total Interest Income (Expense), Net from securitization bank accounts, servicing revenue related to fractional Notes, and Borrower Loans we hold for investment decreased a combined $0.3 million from the prior year.
70
Change in Fair Value of Financial Instruments
We record Borrower Loans, Notes, the Credit Card Derivative and Receivable from Credit Card Partner at fair value on our balance sheets. Changes in the fair values of these financial instruments are presented within Change in Fair Value of Financial Instruments on our statements of operations.
Personal Loan
Changes in the fair value of Borrower Loans funded through the Note Channel are largely offset by the changes in the fair value of the Notes due to their borrower payment-dependent structure. Our obligation to pay principal and interest on Notes is equal to the loan payments, if any, that are received on the corresponding Borrower Loan, net of the servicing fee, which is generally 1.0% of the outstanding balance.
In September 2023 and March 2024, we sponsored and consolidated two Personal Loan securitization transactions, PMIT 2023-1 and PMIT 2024-1, respectively, with loans that were previously funded through consolidated Warehouse Lines. Refer to Note 7, Securitizations, of the accompanying condensed consolidated financial statements for additional information on these securitization transactions. We expect that changes in the fair value of Borrower Loans held by PMIT 2023-1 and PMIT 2024-1 will be negative due to delinquencies and charge-offs, but they could ultimately be negative or positive due to changes in fair value assumptions, such as expected credit performance, prepayment rates and implied market discount rates. Additionally, the impact from fair value adjustments on these securitized Borrower Loans may lessen as they season and the outstanding principal balances decrease. Notes issued by PMIT 2023-1 and PMIT 2024-1 are carried at amortized cost on the accompanying condensed consolidated balance sheets and thus do not impact the Change in Fair Value of Financial Instruments.
We earn interest income on personal loans held in securitization trusts during the period we own or consolidate the loans, which partially offsets changes in the fair value of these loans. The following table illustrates the weighted-average composition of the loans held in consolidated securitization trusts by Prosper Rating for the periods presented, which is an indicator of their credit quality:
Three Months Ended March 31
2026 2025
Borrower Loans - Securitization(1):
AA 21 % 24 %
A 31 % 30 %
B 25 % 23 %
C 10 % 11 %
D 6 % 6 %
E 6 % 5 %
HR 1 % 1 %
Total 100 % 100 %
(1) The percentages are calculated using the weighted-average of month-end principal balances of Borrower Loans by Prosper Rating.
Fair values of Borrower Loans and Notes are estimated using discounted cash flow methodologies based upon a set of valuation assumptions. The key assumptions used include default and prepayment rates derived primarily from historical performance, and discount rates based on estimates of the rates of return that market investors would require when investing in other financial instruments with similar characteristics.
Credit Card
The Credit Card Derivative is recorded at fair value and is primarily reflective of discounted future cash flows from certain features of our Credit Card program that were determined to meet the definition of freestanding derivatives, including interest income, program fees paid to our banking partner Coastal, credit losses and fraud losses. These cash flows are estimated based upon a set of valuation assumptions, including default rates derived from our historical performance, prepayment rates derived from market data and discount rates based on estimates of the rates of return that investors would require when investing in other financial instruments with similar characteristics. We also record the net impact of realized gains and losses under the Credit Card Derivative in Change in Fair Value of Financial Instruments.
71
In November 2024, we sponsored and consolidated a Credit Card securitization transaction, PMCC 2024-1, with existing Credit Card receivables that were previously accounted for through our Credit Card Derivative. See Notes 5 and 7 of the accompanying condensed consolidated financial statements for further details on both the Credit Card Derivative and PMCC 2024-1. We fully consolidate PMCC 2024-1 as a variable interest entity, as it has insufficient equity at risk and we determined that we were its primary beneficiary. Based on an analysis of the facts and circumstances surrounding the transaction, it was determined that the transfer of the Credit Card receivables from Coastal to PMCC 2024-1 did not meet the sales or participating interest criteria under Accounting Standards Codification ("ASC") 860, Transfers and Servicing, and thus could not be recognized on our condensed consolidated balance sheets. As a result, we record a secured Receivable from Credit Card Partner, which we have elected to present at fair value on our condensed consolidated balance sheets. Receivable from Credit Card Partner is secured by and effectively mirrors the value of the underlying Credit Card receivables.
As the sole sponsor of PMCC 2024-1, we are entitled to any residual cash flows it generates, and estimate the fair value of that residual interest using a discounted cash flow analysis based upon valuation assumptions generally similar to those used to value the Credit Card Derivative, adjusted to reflect the specific characteristics of the securitized Credit Card receivables underlying the Receivable from Credit Card Partner. That residual interest fair value is then added to the 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. Consistent with securitized Borrower Loans, Notes issued by PMCC 2024-1 are carried at amortized cost on the accompanying condensed consolidated balance sheets, and thus do not impact the Change in Fair Value of Financial Instruments.
For both the Credit Card Derivative and Receivable from Credit Card Partner, changes in the fair value should generally fluctuate in line with changes in the underlying portfolio and charge-off levels, but could also be impacted by changes in fair value assumptions, such as estimated loss and prepayment rates and implied market discount rates.
Fluctuation Analysis
For the three months ended March 31, 2026 and 2025, the Change in Fair Value of Financial Instruments were losses of $0.5 million and $12.4 million, respectively. The decrease in the loss for this period of $11.9 million was largely driven by the Credit Card Derivative. For the three months ended March 31, 2026, fair value changes related to future cash flows resulted in a gain of $4.4 million, and the net impact of realized transactions resulted in a gain of $1.2 million. This compares to the corresponding period in the prior year, when fair value changes resulted in a loss of $1.8 million, and the net impact of realized transactions resulted in a loss of $4.8 million. As discussed in Note 8, Fair Value of Assets and Liabilities, of the accompanying condensed consolidated financial statements, a change in estimate related to the default rate applied to the cash flows that drive the Credit Card Derivative resulted in an increase in the changes in fair value of $5.2 million for the three months ended March 31, 2026. Remaining fluctuations in gains and losses on the Credit Card Derivative for this period are due primarily to the growth in the underlying non-securitized Credit Card portfolio from the prior year, as well as lower loss rates.
In addition, there was a decrease in the net loss from securitized Borrower Loans year-over-year, due primarily to the overall decrease in the average balance of loans held in consolidated securitization trusts during this time, as these loans continue to season. For the three months ended March 31, 2026, the loss from changes in the fair value of securitized Borrower Loans was $1.3 million, due to a $1.2 million gain from fair value adjustments, offset by $2.5 million in net charge-offs. This compares to the same period in the prior year, when the loss from changes in the fair value of securitized Borrower Loans was $3.2 million, due to a $2.4 million gain from fair value adjustments, offset by $5.5 million in net charge-offs.
These decreases in the net loss were partially offset by the Receivable from Credit Card Partner, for which we recognized a $0.3 million loss from changes in fair value related to future cash flows and $3.8 million in net charge-offs for the three months ended March 31, 2026. This compares to the corresponding period in the prior year, when we recognized $2.0 million in net charge-offs (changes in fair value related to future cash flows were not material). Because of the minimum contractual ratio of Credit Card receivables to outstanding Notes issued by PMCC 2024-1, the underlying securitized Credit Card portfolio has remained generally flat year-over-year, limiting the impact of fair value changes related to future cash flows.
The net impact to the Change in Fair Value of Financial Instruments for fractional Borrower Loans and Notes (as well as the population of whole loans that are owned directly by our wholly-owned subsidiary PFL) was a loss of less than $0.1 million for the three months ended March 31, 2026, due to the borrower payment-dependent structure described above, offset by certain timing factors related to the receipt of borrower payments. During the same period in 2025, the net impact from these fractional Borrower Loans and Notes (as well as the population of whole loans that are owned directly by PFL) was a loss of $0.7 million.
72
The following table details the changes in fair value of our financial instruments for the three months ended March 31, 2026 and 2025, respectively (in thousands, except percentages):
Three Months Ended March 31,
2026 2025
Assets:
Borrower Loans $ (7,724) $ (8,334)
Credit Card Derivative (includes gains and losses from settled transactions) 5,624 (6,448)
Receivable from Credit Card Partner (4,090) (2,099)
Liabilities:
Notes 5,725 4,525
Total $ (465) $ (12,356)
Expenses
The following tables summarize our expenses for the three months ended March 31, 2026 and 2025 (in thousands, except percentages):
Three Months Ended March 31,
2026 2025 Change % Change
Expenses
Origination and Servicing $ 14,378 $ 11,675 $ 2,703 23 %
Sales and Marketing 19,019 13,432 5,587 42 %
General and Administrative - Research and Development 5,559 4,721 838 18 %
General and Administrative - Other 17,618 17,373 245 1 %
Change in Fair Value of Convertible Preferred Stock Warrants (63,949) (57,226) (6,723) 12 %
Interest Expense on Term Loans 1,982 3,076 (1,094) (36) %
Other Income, Net (928) (790) (138) 17 %
Total Expenses $ (6,321) $ (7,739) $ 1,418 18 %
The following table reflects full-time employees as of March 31, 2026 and 2025 by functional area:
March 31, 2026 March 31, 2025
Origination and Servicing 86 94
Sales and Marketing 26 23
General and Administrative - Research and Development 106 106
General and Administrative - Other 168 171
Total Headcount 386 394
Origination and Servicing
Origination and Servicing costs consist primarily of salaries, benefits and stock-based compensation expense related to our capital markets, collections, customer support and payment processing employees and vendor costs associated with facilitating and servicing personal loans and our Credit Card product. The increase for the three months ended March 31, 2026 of $2.7 million, or 23%, as compared to the corresponding period in 2025, is primarily due to a $1.5 million increase in depreciation, reflecting the increased balance of internal-use software during this time. In addition, compensation costs increased $0.6 million, and servicing and origination costs increased $0.4 million, driven by overall growth in our Personal Loan and Credit Card products during this time.
73
Sales and Marketing
Sales and Marketing costs consist primarily of affiliate marketing, search engine marketing, online and offline campaigns, email marketing, public relations and direct mail marketing, as well as compensation expenses such as wages, benefits and stock-based compensation for the employees who support these activities. For the three months ended March 31, 2026, the increase of $5.6 million, or 42%, from the corresponding period in 2025, is due primarily to an overall increase in marketing and advertising costs, including marketing partnership costs of $3.1 million and direct mail marketing costs of $3.3 million. This is generally in line with the increase in Personal Loan originations and growth in our Credit Card portfolio during this time. These increases were partially offset by a $1.0 million decrease in compensation expense, including one-time severance costs incurred in the prior year.
General and Administrative - Research and Development
General and Administrative - Research and Development costs consist primarily of salaries, benefits and stock-based compensation expense related to our engineering and product development employees, as well as related vendor costs. The increase in General and Administrative - Research and Development for the three months ended March 31, 2026, of $0.8 million, or 18%, from the corresponding period in the prior year is primarily due to a $0.6 million increase in compensation costs, including the reinstatement of 401(k) employer contributions at the start of 2026. Additionally, there was a $0.1 million year-over-year decrease in capitalized internal-use software and web development costs (increasing the expense). Specifically, these capitalized costs were $3.6 million and $3.7 million for the three months ended March 31, 2026 and 2025, respectively.
General and Administrative - Other
General and Administrative - Other expenses consist primarily of salaries, benefits and stock-based compensation expense related to our accounting, finance, risk, legal, compliance, human resources and facilities employees; professional fees related to legal and accounting services; and facilities expenses. The increase in General and Administrative - Other expenses for the three months ended March 31, 2026 of $0.2 million, or 1%, from the corresponding period in the prior year is primarily due to a $0.2 million increase in cloud computing costs during this time, primarily to support the growth in our operations.
Change in Fair Value of Convertible Preferred Stock Warrants
Change in Fair Value of Convertible Preferred Stock Warrants were gains of $63.9 million and $57.2 million for the three months ended March 31, 2026 and 2025, respectively, due to decreases in the fair value of the underlying Convertible Preferred Stock for those periods.
As disclosed in Note 13, Convertible Preferred Stock, Convertible Preferred Stock Warrant Liability and Common Stock, of the accompanying condensed consolidated financial statements, on March 19, 2026, one warrant holder exercised 41,833,904 shares of Series F warrants for total proceeds of $0.4 million. At that time, the estimated fair value of these warrants of $42.3 million was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock on our consolidated balance sheet. Subsequently, on March 31, 2026, another warrant holder exercised 35,544,141 shares of Series E-1 warrants for total proceeds of $0.4 million, and the estimated fair value of these warrants of $38.7 million was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock on our consolidated balance sheet.
74
Interest Expense on Term Loan
We entered into a $75.0 million Term Loan with a third party lender in November 2022. In November 2025, we entered into a new $75.0 million Term Loan with a different third-party lender, and simultaneously repaid the outstanding principal and interest balance of approximately $68.4 million on the old Term Loan. Refer to Note 11, Debt, of the accompanying condensed consolidated financial statements for further information on our Term Loans. We incurred interest costs of $2.0 million under the new Term Loan for the three months ended March 31, 2026, as compared to $3.1 million under the old Term Loan for the corresponding period in 2025. This decrease is primarily reflective of more favorable interest terms under the new Term Loan, as the interest rate associated with the new Term Loan is four percentage points lower than the old Term Loan. We expect to continue to incur lower interest expense in the future because of this change.
Other Income, Net
Other Income, Net was $0.9 million and $0.8 million for the three months ended March 31, 2026, and 2025, respectively, and primarily consists of interest income on cash and cash equivalents, sublease income and other miscellaneous items. The $0.1 million increase in Other Income, Net, for the three ended March 31, 2026, as compared to the corresponding period in the prior year, was not considered significant.
Non-GAAP Financial Measure - Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as Net Income (Loss) adjusted for interest income on Cash and Cash Equivalents, Interest Expense on Term Loan, Income Tax Benefit or Expense, depreciation and amortization, impairment of long-lived assets and Goodwill, stock-based compensation expense, Change in Fair Value of Convertible Preferred Stock Warrants, impact of interest rates on the fair value of loans held in consolidated trusts, and certain infrequent or unusual transactions. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
We consider Adjusted EBITDA to be a helpful indicator of the operational strength and performance of our business and a good measure of our historical operating trends. Management uses Adjusted EBITDA, among other things, to understand and compare operating results across accounting periods, to evaluate our operations and financial performance and for internal planning and forecasting purposes. Inclusion of Adjusted EBITDA is intended to provide investors insight into the manner in which management views the performance of the Company, enhance investors' evaluation of our operating results, and to facilitate meaningful comparisons of our results between periods. This non-GAAP financial measure should not be considered an alternative to, or more meaningful than, the GAAP financial information provided herein.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not consider the potentially dilutive impact of equity-based charges;
•Adjusted EBITDA does not reflect interest and tax payments that may represent a reduction in cash available to us; and
•Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
The major non-GAAP adjustments, and our basis for excluding them, are outlined below:
•Changes in the fair value of Convertible Preferred Stock Warrants: We exclude these fair value changes primarily because they are non-cash items and the fair value varies based on the fair value of the underlying preferred stock, varying valuation methodologies and subjective assumptions. Their inclusion makes the comparison of our current financial results to previous and future periods difficult to evaluate.
•Stock-based compensation expense: This consists of expenses for equity awards under our equity incentive plans. Although stock-based compensation is an important aspect of the compensation paid to our employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of our current financial results to previous and future periods difficult to evaluate; therefore, we believe it is useful to exclude stock-based compensation. We also excluded these expenses because they are non-cash.
75
•Amortization or impairment of acquired Intangible Assets and impairment of Goodwill: We incur amortization or impairment of acquired Intangible Assets and Goodwill in connection with acquisitions and therefore exclude these amounts from our non-GAAP measures. We exclude these items because management does not believe they are reflective of our ongoing operating results.
•Impairment of long-lived assets: We incur losses on the impairment of long-lived assets that are disposed of primarily in connection with the exit of facilities. We exclude these items because management does not believe they are reflective of our ongoing operating results.
•Impact of interest rates on the fair value of loans held in consolidated trusts: We believe it is useful to investors to exclude the impact of interest rates on the fair value of loans held in consolidated trusts to gain insight into the performance of our consolidated loans, independent of market factors that are beyond management's control.
•Interest Expense on Term Loans: We incur interest expense on our Term Loan, which is more fully described in Note 11, Debt, of the accompanying condensed consolidated financial statements. This includes any amortization of original issue discount and deferred issuance costs associated with the Term Loan. Proceeds from the Term Loan are used to fund the operations of the business at our discretion, within certain limitations. This may include, but is not limited to, making investments in our Credit Card product or meeting operational obligations. We exclude the Term Loan interest expense as it is based on our overall financing structure. This differs from Interest Expense on Financial Instruments (part of Total Net Revenues), as the proceeds from those instruments are used exclusively for the purposes of purchasing Personal Loans on our marketplace and Credit Card receivables through the underlying securitization transactions.
The following table presents a reconciliation of Net Income (Loss) to Adjusted EBITDA for each of the periods indicated (in thousands):
Three Months Ended March 31,
2026 2025
Net Income $ 64,651 $ 50,375
Depreciation expense:
Servicing and Origination 4,142 2,679
General and Administration - Other 162 268
Stock-Based Compensation 464 327
Change in the Fair Value of Convertible Preferred Stock Warrants (63,949) (57,226)
Impact of interest rates on fair value of loans held in consolidated trusts 55 (726)
Interest Income on Cash and Cash Equivalents (806) (668)
Interest Expense on Term Loan 1,982 3,076
Income Tax Expense 38 28
Adjusted EBITDA $ 6,739 $ (1,867)
The increase in Adjusted EBITDA for the three months ended March 31, 2026 of $8.6 million, as compared to the corresponding period in 2025, is primarily reflective of increased net revenues from (i) Change in Fair Value of Financial Instruments, driven largely by growth in the Credit Card portfolio and decreased loss rates, and (ii) Transaction Fees, Net, driven by the increase in Personal Loan originations during this time. These increases were partially offset by (i) increased incentives provided to whole loan investors, including the estimated performance-based payment liability, (ii) decreased interest
76
income generated from securitized Personal Loans and Credit Card receivables and (iii) increased expenses in response to higher Personal Loan originations and growth in the Credit Card portfolio.
Expenses on the condensed consolidated statements of operations include the following amounts of stock-based compensation expense for the periods presented (in thousands):
Three Months Ended March 31,
2026 2025
Origination and Servicing $ 102 $ 28
Sales and Marketing 16 16
General and Administrative 346 283
Total Stock-Based Compensation Expense $ 464 $ 327
Segment Net Revenues and Adjusted EBITDA
Refer to Note 20, Segments, of the accompanying condensed consolidated financial statements for information on our segment reporting, including reconciliations of segment Adjusted EBITDA to Net Income (Loss) Before Income Taxes, as well as details on segment operating expenses.
Effective in the fourth quarter of 2025, we updated our operating and reportable segments to align with strategic business and management reporting changes. This realignment is reflected in the periodic financial reports provided to our Chief Executive Officer, who serves as the chief operating decision maker, for the purposes of evaluating performance, making operating decisions and allocating resources. As a result of these changes, our former Home Equity segment was eliminated and the related products and services are now combined with the Personal Loan segment, which includes both Personal Loan products and services, as well as general corporate expenses. We now have two reportable and operating segments: Personal Loan and Credit Card. Segment information presented for the three months ended March 31, 2025, has been recast to conform to the current reportable segment presentation.
The following table summarizes our segment net revenues and segment Adjusted EBITDA for the periods presented (in thousands, except percentages).
Three Months Ended March 31,
2026 2025 Change % Change
Segment Net Revenues
Personal Loan $ 47,359 $ 40,739 $ 6,620 16 %
Credit Card 11,009 1,925 9,084 472 %
Subtotal - Reportable Segments $ 58,368 $ 42,664 $ 15,704 37 %
Segment Adjusted EBITDA
Personal Loan $ 6,507 $ 3,664 $ 2,843 78 %
Credit Card 232 (5,531) 5,763 n/m
Subtotal - Reportable Segments $ 6,739 $ (1,867) $ 8,606 n/m
n/m: not meaningful
Segment Adjusted EBITDA is our primary segment profitability metric, and is calculated as segment revenues less operating expenses that are directly attributable to each individual segment's products.
77
Personal Loan
For the three months ended March 31, 2026, Personal Loan segment net revenues increased $6.6 million, or 16%, as compared to the corresponding period in 2025, primarily as a result of (a) a $8.9 million increase in Transaction Fees, Net, due to the impact from higher Personal Loan originations during this time; (b) a $1.8 million increase in net revenues from Change in Fair Value of Financial Instruments related primarily to securitized Borrower Loans, as described above; and (c) a $1.5 million increase in Servicing Fees, Net, due primarily to increased servicing fees collected due to growth in the Personal Loan servicing book. These increases were partially offset by (d) a $3.7 million decrease in net revenues from Loss on Sale of Borrower Loans, due primarily to an increase in incentives provided to our investors year-over-year, including the estimated performance-based payment liability; (e) a $1.4 million decrease in Total Interest Income (Expense), Net, due primarily to the decrease in the average outstanding principal balance of loans held in securitization trusts during this time; and (f) a $0.6 million decrease in Other Revenues, due primarily to reduced credit referral fees generated from our partners.
Adjusted EBITDA associated with the Personal Loan segment increased $2.8 million for the three months ended March 31, 2026, as compared to the corresponding period in 2025. This is primarily reflective of the same factors that drove the increase in net revenues discussed above, excluding the impact of interest rates on the fair value of loans held in consolidated trusts. Changes in the adjustment for this interest rate impact resulted in a $0.8 million increase to Adjusted EBITDA for the three months ended March 31, 2026, relative to the corresponding period in the prior year. This is primarily reflective of the decreased outstanding principal balance of loans held in consolidated trusts, as well as the higher degree of interest rate volatility in 2025. These increases were partially offset by an increase of $4.6 million in segment operating expenses. This increase in segment operating expenses was primarily reflective of increased marketing, outsourced services and cloud computing costs driven by the increase in Personal Loan originations during this time.
Credit Card
For the three months ended March 31, 2026, Credit Card segment net revenues increased $9.1 million as compared to the corresponding period in 2025, primarily as a result of a $10.1 million increase in net revenues from Change in Fair Value of Financial Instruments, related to the Credit Card Derivative, partially offset by the Receivable from Credit Card Partner, as discussed above. Generally, this increase in net revenues from fair value changes is reflective of growth in the non-securitized portion of the Credit Card portfolio, as well as decreased loss rates. In addition, Transaction Fees, Net increased $1.1 million, primarily due to the growth in the Credit Card portfolio, which resulted in additional annual and late fees. These increases were partially offset by a $1.7 million decrease in Total Interest Income (Expense), Net, from the securitized Credit Card receivables underlying the Receivable from Credit Card Partner, as discussed above. Finally, there was a $0.4 million decrease in Servicing Fees, Net, primarily as a result of the increase in the Credit Card servicing obligation due to growth in the Credit Card Portfolio.
Adjusted EBITDA associated with the Credit Card segment increased $5.8 million for the three months ended March 31, 2026, as compared to the corresponding period in 2025, which is primarily reflective of the increase in net revenues discussed above, partially offset by increased segment operating expenses of approximately $3.3 million. This increase in segment operating expenses was largely driven by marketing costs, which was in line with the increase in the underlying Credit Card portfolio during this time.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred operating losses in prior periods and may continue to incur net losses in the future. For the three months ended March 31, 2026 and 2025, we generated net income of $64.7 million and $50.4 million, respectively. This includes the impact from Change in Fair Value of Convertible Preferred Stock Warrants, a non-cash item. Additionally, from our inception through March 31, 2026, we have an accumulated deficit of $615.3 million.
We believe our liquidity needs for the next twelve months, and for the foreseeable future beyond that period, can be met through transaction fees, servicing fees, net interest income, other revenue, proceeds from sales of loans and securitizations, realized gains from the Credit Card portfolio and Cash and Cash Equivalents. Management monitors our financial results and operations. If the anticipated financial results are not achieved or we fail to maintain compliance with the debt covenants under our Term Loan, our sources of liquidity may not be sufficient to meet our operating and liquidity requirements without obtaining additional liquidity, which may not be available on favorable terms or at all. For further details related to our Term Loan, see Note 11, Debt, of the accompanying condensed consolidated financial statements.
The following table summarizes our cash flow activities for the three months ended March 31, 2026 and 2025 (in thousands):
78
Three Months Ended March 31,
2026 2025
Net Income $ 64,651 $ 50,375
Net Cash Provided by Operating Activities 56,108 66,072
Net Cash (Used in) Provided by Investing Activities (3,703) 662
Net Cash Used in Financing Activities (21,857) (43,035)
Net Increase in Cash, Cash Equivalents and Restricted Cash 30,548 23,699
Cash, Cash Equivalents and Restricted Cash at the beginning of the period 141,118 145,087
Cash, Cash Equivalents and Restricted Cash at the end of the period $ 171,666 $ 168,786
Cash, Cash Equivalents and Restricted Cash increased by $30.5 million for the three months ended March 31, 2026, based on the following components:
Operating Activities: $56.1 million in cash was provided by operating activities, due to (a) $35.3 million in cash provided from working capital, primarily due to the timing of payments to investors and third-party vendors, (b) $14.5 million in net proceeds from Loans Held for Sale, including securitized Borrower Loans that were previously classified as Loans Held for Sale and (c) $6.3 million in net income, net of non-cash items.
Investing Activities: $3.7 million in cash was used in investing activities, due to (a) $35.7 million in purchases of Borrower Loans, at Fair Value, (b) $16.4 million in purchases of Credit Card receivables from our Credit Card Partner that were sold to the PMCC 2024-1 securitization and (c) $5.9 million in purchases of property and equipment, primarily consisting of internal-use software, partially offset by (d) $41.7 million from principal payments and sales of Borrower Loans, at Fair Value, and (e) $12.6 million from principal payments on Credit Card Receivable from Credit Card Partner.
Financing Activities: $21.9 million in cash was used in financing activities, due primarily to (a) $15.0 million in payments on Notes Issued by Securitization Trusts and (b) $7.6 million in payments, net of proceeds on Notes, at Fair Value, partially offset by (c) $0.8 million in proceeds from the exercise of Series E-1 and F Convertible Preferred Stock Warrants, as discussed above.
Cash, Cash Equivalents and Restricted Cash increased by $23.7 million for the three months ended March 31, 2025, based on the following components:
Operating Activities: $66.1 million in cash was provided by operating activities, due to (a) $32.7 million in net proceeds from Loans Held for Sale, including securitized Borrower Loans that were previously classified as Loans Held for Sale, (b) $23.5 million in cash provided from working capital, primarily due to the timing of payments to investors and third-party vendors, and (c) $9.9 million in net income, net of non-cash items.
Investing Activities: $0.7 million in cash was provided by investing activities, due to (a) $47.8 million from principal payments and sales of Borrower Loans and (b) $20.3 million from principal payments on Credit Card receivables included in the Receivable from Credit Card Partner, partially offset by (c) $42.9 million in purchases of Borrower Loans, (d) $21.2 million in payments for the transfer of Credit Card receivables from our Credit Card Partner and (e) $3.3 million in purchases of property and equipment, primarily consisting of internal-use software.
Financing Activities: $43.0 million in cash was used in financing activities, due primarily to (a) $34.8 million in payments on Notes Issued by Securitization Trust, (b) $5.7 million in payments, net of proceeds, on Notes, at Fair Value and (c) a $2.5 million repayment on our Term Loan.
Income Taxes
We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets. Based on the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in prior years, we have provided a full valuation allowance against our net deferred tax assets.
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. We are required to make subjective assumptions and judgments regarding our income tax exposures.
79
Interpretations and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the condensed consolidated balance sheets and statements of operations.
Off-Balance Sheet Arrangements
As a result of retaining servicing rights on the sale of Borrower Loans, we are an interest holder in certain special purpose entities that purchase these Borrower Loans. None of these special purpose entities are consolidated as we are not the primary beneficiary. Other than these special purpose entities, as of March 31, 2026, we did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance entities, that were established for the purpose of facilitating off-balance sheet arrangements or other purposes.
CRITICAL ACCOUNTING POLICIES
Certain of Prosper's accounting policies that involve a higher degree of judgment and complexity are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" in Prosper's Annual Report on Form 10-K for the year ended December 31, 2025. There have been no changes to our critical accounting estimates during the first three months of 2026, other than the following changes to our Valuation of Credit Card Derivative and Credit Card Servicing Obligation estimate.
Effective March 31, 2026 and on a prospective basis, we 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 our underlying Credit Card portfolio. Previously, the default rate was estimated based on a combination of our recent credit performance, and the credit performance of comparable third-party credit card products. This change was made to better align with how we believe 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. Accordingly, it increased Total Net Revenue and Net Income by $4.5 million for the three months ended March 31, 2026.
80
PROSPER FUNDING LLC
Overview
Prosper Funding LLC ("PFL") was formed in the state of Delaware in February 2012 as a limited liability company with PMI as its sole equity member. PFL was formed by PMI to hold Borrower Loans originated through the Note Channel and issue related Notes. Although PFL is consolidated with PMI for accounting and tax purposes, PFL has been organized and is operated in a manner that is intended to minimize the likelihood that it would be substantively consolidated with PMI in a bankruptcy proceeding. PFL's intention is to minimize the likelihood that its assets would be subject to claims by PMI's creditors if PMI were to file for bankruptcy, as well as to minimize the likelihood that PFL will become subject to bankruptcy proceedings directly. PFL seeks to achieve this by placing certain restrictions on its activities and by implementing certain formal procedures designed to expressly reinforce its status as a distinct corporate entity from PMI.
PFL and PMI are parties to an Administration Agreement, most recently amended on November 14, 2025, in which PMI serves as the corporate administrator, marketplace manager, and loan servicer for Prosper's marketplace lending platform. In exchange for, among other things, managing the platform, assigning risk ratings, and servicing loans, PFL pays PMI a series of structured monthly fees based primarily on personnel costs and loan volume. PMI in turn pays PFL platform licensing fees based primarily on investor incentives, borrower refunds and loan volume. Specifically, the compensation structure is primarily as follows:
•PFL compensates PMI monthly based on the number of Borrower Loans funded and a flat fee of $0.5 million for legal and accounting personnel costs, as well as 59.3% of servicing fees collected each month.
•PMI compensates PFL monthly based on the number of Borrower Loan listings on the platform and a flat licensing fee of $0.3 million, and reimburses PFL for any whole loan investor incentives and performance-based payments, as well as Transaction Fee refunds issued each month.
As a credit marketplace, we believe our customers are more highly susceptible to uncertainties and negative trends, real or perceived, in the markets driven by, among other factors, general economic conditions in the United States and abroad. These external economic conditions and resulting trends or uncertainties could adversely impact our customers' ability or desire to participate in our marketplace as borrowers or investors, and consequently could negatively affect our business and results of operations.
Results of Operations
Overview
The following tables summarize Prosper Funding's net income (loss) for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025 $ Change % Change
Total Net Revenues $ 21,477 $ 16,164 $ 5,313 33 %
Total Expenses 25,445 19,813 5,632 28 %
Net Loss $ (3,968) $ (3,649) $ (319) (9) %
Total net revenues for the three months ended March 31, 2026 increased $5.3 million, or 33%, from the three months ended March 31, 2025, primarily due to a $7.9 million increase in Administrative Fee Revenue - Related Party as a result of (a) an increase in loan listings on the platform (b) the reimbursement of transaction fee refunds issued under the terms the November 2025 Amendment 7 to the Administration Agreement discussed above and (c) an increase in whole loan investor incentive reimbursements. Transaction fee refunds and incentives incurred are recorded in Administration Fee Expense - Related Party (part of Total Expenses) and Loss on Sale of Borrower Loans, respectively, and as a result, the reimbursement for these items generally does not have a direct impact on the net income (loss), though this may be impacted by timing differences. In addition, Servicing Fees, Net, increased $1.3 million, generally related to increased loan servicing fees, net collections fees and debt sale fees, due to the growth in the underlying servicing book and the impact of lowering our estimated market servicing rate in September 2025. These increases were partially offset by a $3.7 million increase in Loss on Sale of Borrower Loans related to the increase in whole loan investor incentives discussed above, generally due to growth in Personal Loan originations during this time, as well as the increase in the investor performance-based payment liability based on updated loss assumptions.
81
Total expenses for the three months ended March 31, 2026 increased $5.6 million, or 28%, from the corresponding period in 2025, largely due to a $4.9 million increase in Administration Fee Expense - Related Party resulting primarily from an increase in actual and estimated transaction fee refunds due to the increase in Personal Loan originations for this period. As discussed above, under Amendment 7 to the Administration Agreement, transaction fee refunds issued to borrowers are now billed back to PMI through Administration Fee Revenue - Related Party. Administration Fee Expense - Related Party also increased due to an increase in the number of loans funded on the platform during this time. Finally, Servicing and Other expenses increased approximately $0.7 million, primarily due to increased depreciation expense in line with the increase in the balance of internal-use software during this time.
Revenues
The following tables summarize PFL's revenue for the three months ended March 31, 2026 and 2025 (in thousands, except percentages):
Three Months Ended March 31,
2026 2025 $ Change % Change
Revenues:
Operating Revenues:
Administration Fee Revenue - Related Party
$ 29,792 $ 21,878 $ 7,914 36 %
Servicing Fees, Net 8,976 7,678 1,298 17 %
Loss on Sale of Borrower Loans (17,275) (13,576) (3,699) (27) %
Other Revenues 62 78 (16) (21) %
Total Operating Revenues 21,555 16,058 5,497 34 %
Interest Income on Borrower Loans 9,141 11,307 (2,166) (19) %
Interest Expense on Notes (8,535) (10,555) 2,020 19 %
Net Interest Income 606 752 (146) (19) %
Change in Fair Value of Financial Instruments, Net (684) (646) (38) (6) %
Total Net Revenues $ 21,477 $ 16,164 $ 5,313 33 %
Administration Fee Revenue - Related Party
We primarily generate revenues through license fees we earn under our Administration Agreement with PMI. The Administration Agreement contains a license we grant to PMI that entitles PMI to use the marketplace for, and in relation to: (i) PMI's performance of its duties and obligations under the Administration Agreement, and (ii) PMI's performance of its duties and obligations to WebBank under the Loan Account Program Agreement. The Administration Agreement requires PMI to pay us a monthly license fee that is partially based on the number of personal loan listings posted on the marketplace in that month, as well as a fee based on incentives provided to investors to incentivize the purchase of Personal Loans from PFL. As discussed above, as a result of Amendment 7 to the Administration Agreement starting in November 2025, we are also reimbursed by PMI for whole loan investor performance-based payments and transaction fee refunds issued each month. The increase in Administrative Fee Revenue - Related Party of $7.9 million for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was primarily due to increased reimbursements received from PMI for transaction fee refunds issued, which resulted in an increase of $5.1 million. There was also a $1.6 million increase related to reimbursed whole loan investor incentives, and a $1.1 million increase from higher Personal Loan listings posted on the marketplace year-over-year, consistent with the increase in Personal Loan originations during this time.
82
Servicing Fees, Net
Investors who purchase Borrower Loans through the Whole Loan Channel typically pay us 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 us for the costs incurred in servicing the Borrower Loans, including managing payments from borrowers, managing payments to investors and maintaining investors' account portfolios. We record Servicing Fees from investors as a component of operating revenues when received. We also include any collection fees received, net of collection agency expenses, and debt sale fees in Servicing Fees, Net.
The increase in Servicing Fees, Net of $1.3 million for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was largely due to a $0.8 million increase in servicing fees collected and amortization of the Servicing Asset, which is generally in line with the increases in Personal Loan originations and the underlying servicing book during this time. It is also reflective of the impact of lowering the estimated market servicing rate used to value the Servicing Asset from 63.3 basis points to 59.3 basis points in September 2025. Personal Loan servicing fees may increase or decrease net revenues depending on various factors, including timing and the valuation of the underlying Servicing Asset, but are generally reflective of additional servicing fees collected, offset by the continued seasoning of the underlying servicing book. In addition, net collections and debt sale fees contributed a combined $0.5 million increase to Servicing Fees, Net, due to growth in our Personal Loan servicing book, and our enhanced collections and recovery efforts.
Loss on Sale of Borrower Loans
Loss on Sale of Borrower Loans consists primarily of incentives provided to investors at the time Personal Loans are sold through the Whole Loan Channel, net of any gains recognized on those sales, primarily due to the recognition of additional Servicing Assets. Since 2022, due to market volatility and incentives offered by competitors, we started providing additional incentives to our whole loan investors. We also record changes in the estimated investor performance-based payment liability in Loss on Sale of Borrower Loans. For the three months ended March 31, 2026, the increase in Loss on Sale of Borrower Loans of $3.7 million was primarily due to these incentives and changes in the performance-based payment liability, which accounted for $1.8 million and $3.4 million, respectively, of the total year-over-year increase. As discussed above, PFL is reimbursed for the incentives and, effective with Amendment 7 to the Administration Agreement in November 2025, any performance-based payments by PMI through the Administration Fee Revenue - Related Party account. Excluding the impact of these incentives and the performance-based payment liability, the remaining change in Loss on Sale of Borrower Loans for the three months ended March 31, 2026 as compared to the same period in 2025, was an increased gain of $1.5 million, primarily due to the recognition of additional Servicing Assets upon the sale of Personal Loans through the Whole Loan Channel, as well as a decrease in the market servicing rate used to value the Servicing Assets from 63.3 bps to 59.3 basis points in September 2025.
Other Revenues
Other Revenues have historically consisted primarily of miscellaneous fees, including incentive fees earned from partner companies through our incentive programs, or securitization fees earned from sponsoring or facilitating securitization transactions with loans from our marketplace. We also record changes to the reserve for the repurchase of Personal Loans in Other Revenues. The decrease in Other Revenues for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was not considered significant.
Interest Income on Borrower Loans and Interest Expense on Notes
We recognize Interest Income on Borrower Loans using the accrual method based on the stated interest rate to the extent we believe it to be collectible. We record Interest Expense on the corresponding Notes based on the contractual interest rates. The interest rate on Notes is generally 1% lower than the interest rate on the corresponding Borrower Loans to compensate us for servicing the underlying Borrower Loans.
Overall, the $0.1 million decrease in Net Interest Income for the three months ended March 31, 2026, as compared to the corresponding period in 2025, is reflective of the decrease in the outstanding principal balance of Borrower Loans and Notes from the prior year.
Change in Fair Value of Financial Instruments, Net
Change in Fair Value of Financial Instruments, Net captures gains (losses) in fair value estimates using discounted cash flow methodologies that are based upon a set of valuation assumptions. The key assumptions used in valuations include default and prepayment rates derived from historical performance and discount rates that reflect estimates of the rates of return that investors would require when investing in other financial instruments with similar characteristics. Changes in fair value of Borrower Loans funded through the Note Channel are largely offset by the changes in fair value of the corresponding Notes due
83
to the borrower payment-dependent structure, though differences will arise due to the actual and projected impact of cash flows related to charge-offs, debt sales and miscellaneous fees, as well as certain timing differences.
The following table summarizes the fair value adjustments for the three month periods ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025
Borrower Loans $ (6,409) $ (5,171)
Notes 5,725 4,525
Total $ (684) $ (646)
The increase in the loss recognized from Change in Fair Value of Financial Instruments, Net for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was primarily due to changes in the timing of borrower payments received close to quarter-end, and the application of those payments against the related Notes. Other fair value changes were generally not material, which is consistent with the borrower payment-dependent structure described above.
Expenses
The following table summarizes our expenses for the three month periods ended March 31, 2026 and 2025 (in thousands, except percentages):
Three Months Ended March 31,
2026 2025 Change % Change
Expenses:
Administration Fee - Related Party
$ 22,740 $ 17,808 $ 4,932 28 %
Servicing and Other, Net 2,705 2,005 700 35 %
Total Expenses $ 25,445 $ 19,813 $ 5,632 28 %
Administration Fee Expense - Related Party
Pursuant to our Administration Agreement with PMI, PMI manages the marketplace on our behalf. Accordingly, each month we are required to pay PMI (a) a corporate administration fee of $500,000 per month, (b) a fee for each Borrower Loan originated through the marketplace, (c) 59.3% of all Servicing Fees collected by us or on our behalf (was 62.5% prior to executing Amendment 7 to the Administration agreement in November 2025) and (d) all nonsufficient funds fees collected by us or on our behalf. In general, the Administrative Fee Expense - Related Party will not fluctuate directly in line with the Administrative Fee Revenue - Related Party due to both the flat corporate administrative fee, as well as the fact that we pay fees for three different services, but receive a fee that fluctuates based on the number of Personal Loans listed on the platform, as well as the levels of transaction fee refunds, incentive and performance-based payments made to whole loan investors each month. We also include WebBank transaction costs, loan trailing fees and refund liabilities for transaction fees above 5% in Administration Fee Expense - Related Party.
The increase in Administration Fee Expense - Related Party of $4.9 million, or 28%, for the three months ended March 31, 2026, as compared to the same period in the prior year, was primarily due to a $2.9 million increase in changes in actual and estimated refunds for transactions fees above 5% of Borrower Loan principal, as the total of refundable transaction fees continues to increase due to growth in Personal Loan origination volume. As discussed above, actual transaction fee refunds issued are reimbursed by PMI through Administrative Fee Revenue - Related Party account following the execution of Amendment 7 to the Administration Agreement in November 2025. There was also a $1.4 million increase in Administration Fee Expense - Related Party due primarily to a year-over-year increase in loans funded on the platform, and a $0.4 million combined increase in WebBank transaction costs and net loan trailing fees due to the increase in Personal Loan originations discussed above.
Servicing and Other, Net
Servicing costs consist primarily of vendor and borrower costs, as well as depreciation of internal-use software associated with servicing Borrower Loans. Other items consist primarily of interest income earned on cash invested on our platform, as well as bank service charges and professional fees. The increase in Servicing and Other, Net of $0.7 million, or 35%, for the three months ended March 31, 2026, as compared to the corresponding period in 2025, was primarily due to a $0.6 million increase in depreciation due to growth in internal-use software during this time.
84
LIQUIDITY AND CAPITAL RESOURCES
We anticipate that our available funds and cash flows from operations, including reimbursements from PMI under the Administration Agreement, will be sufficient to meet our operational cash needs for at least the next 12 months.
The following table summarizes our cash flow activities for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025
Net Loss $ (3,968) $ (3,649)
Net Cash Provided by Operating Activities 48,371 23,768
Net Cash (Used in) Provided by Investing Activities (5,664) 2,383
Net Cash Used in Financing Activities (7,597) (5,725)
Net Increase in Cash, Cash Equivalents and Restricted Cash 35,110 20,426
Cash, Cash Equivalents and Restricted Cash at the beginning of the period 81,897 96,740
Cash, Cash Equivalents and Restricted Cash at the end of the period $ 117,007 $ 117,166
Cash, Cash Equivalents and Restricted Cash increased $35.1 million for the three months ended March 31, 2026, based on the following components:
Operating Activities: $48.4 million was provided by operating activities, driven by cash provided by working capital of $50.0 million, primarily due to the timing of payments to PMI and investors, partially offset by net loss, net of non-cash adjustments of $1.6 million.
Investing Activities: $5.7 million was provided by investing activities, due to $41.7 million from principal payments and sales of Borrower Loans, at Fair Value, partially offset by $35.7 million in purchases of Borrower Loans, at Fair Value, and $11.6 million in purchases of property and equipment.
Financing Activities: $7.6 million was used in financing activities, due to $41.9 million in payments for Notes, at Fair Value, partially offset by $34.3 million in proceeds from the issuance of Notes, at Fair Value.
Cash, Cash Equivalents and Restricted Cash increased $20.4 million for the three months ended March 31, 2025, based on the following components:
Operating Activities: $23.8 million was provided by operating activities, driven by cash provided by working capital of $24.4 million, primarily due to the timing of payments to PMI and investors, partially offset by net loss, net of non-cash adjustments of $0.7 million.
Investing Activities: $2.4 million was provided by investing activities, due to $47.8 million from principal payments and sales of Borrower Loans, at Fair Value, partially offset by $42.9 million in purchases of Borrower Loans, at Fair Value, and $2.5 million in purchases of property and equipment.
Financing Activities: $5.7 million was used in financing activities, due to $47.9 million in payments for Notes, at Fair Value, partially offset by $42.1 million in proceeds from the issuance of Notes, at Fair Value.
Income Taxes
We incurred no income tax expense for the three months ended March 31, 2026 and 2025. We are a US disregarded entity for income tax purposes and our income and loss is included in the return of our parent, PMI. Given PMI's history of taxable losses, it is difficult to accurately forecast how PMI's and our results will be affected by the realization and use of net operating loss carry forwards.
Off-Balance Sheet Arrangements
As a result of retaining servicing rights on the sale of Borrower Loans, we are a variable interest holder in certain special purposes entities that purchase these Borrower Loans. None of these special interest entities are consolidated as we are not the primary beneficiary. Otherwise, we have not engaged in any off-balance sheet financing activities for the three months ended March 31, 2026.
85
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND INTEREST RATE RISK
PROSPER MARKETPLACE, INC.
Market Risk
Market risk is the risk of loss to future earnings, values, or future cash flows that may result from changes in financial market prices and interest rates.
Through our securitization trusts (formed in September 2023 and March 2024) we hold Borrower Loans. Changes in U.S. interest rates affect the market value of these Borrower Loans on our balance sheet. Our future investment income may fall short of expectations, or we may suffer a loss in principal if we are forced to sell Borrower Loans that have declined in market value due to changes in interest rates, loss assumptions or overall market conditions. Interest rate increases may increase the risks of our investments in Borrower Loans through our securitization trusts, and additional fluctuations in interest rates may exacerbate such risks. Changes in the market value of Borrower Loans are recorded on the consolidated statements of operations. The fair value of Borrower Loans held in consolidated securitization trusts was $48.3 million as of March 31, 2026.
The fair values of Borrower Loans and Notes are determined using discounted cash flow methodologies based upon a set of valuation assumptions such as default rate, prepayment rate and discount rate. Default rate, prepayment rate and discount rate may change due to expected loan performance or changes in the expected returns of similar financial instruments available in the market. We are exposed to the risk of a decrease in the fair value of loans held in securitization trusts. For Borrower Loans and Notes presented on our Balance Sheet on behalf of our Note Channel investors, the fair value adjustments for Borrower Loans are largely offset by the fair value adjustments of the Notes due to the borrower payment dependent design of the Notes and due to the total principal balances of the Borrower Loans being very close to the total principal balances of the Notes.
We had cash and cash equivalents of $46.2 million and $46.8 million as of March 31, 2026, and December 31, 2025, respectively. These amounts were held in various unrestricted deposits with highly rated financial institutions and short-term, highly liquid marketable securities which may include money market funds, U.S. Treasury securities, and U.S. agency securities. Cash and Cash Equivalents are held for working capital purposes. Due to their short-term nature, we believe that we do not have any material exposure to changes in the fair value of these liquid investments as a result of changes in interest rates. Decreases in short-term interest rates will moderately reduce interest income on these Cash and Cash Equivalents. Increases in short-term interest rates will moderately increase the interest income earned on the Cash and Cash Equivalents.
Interest Rate Sensitivity
As more fully described in Note 8, Fair Value of Assets and Liabilities, of Prosper's condensed consolidated financial statements attached to this Quarterly Report on Form 10-Q, the fair value of Borrower Loans is $281.1 million as of March 31, 2026, determined using a weighted-average discount rate of 8.95%. The fair value of Borrower Loans was $309.7 million as of December 31, 2025, determined using a weighted-average discount rate of 8.53%. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately $2.5 million and $2.7 million in the fair value of PMI's investment in Borrower Loans as of March 31, 2026, and December 31, 2025, respectively. A hypothetical 100 basis point decrease in interest rates would result in an increase of $2.5 million and $2.8 million in the fair value of our investment in Borrower Loans as of March 31, 2026, and December 31, 2025, respectively. Any realized or unrealized gains or losses resulting from such interest rate change would be recorded in our statement of operations so long as we hold these Borrower Loans on our balance sheet.
PROSPER FUNDING LLC
Market Risk
Market risk is the risk of loss to future earnings, values, or future cash flows that may result from changes in financial market prices and interest rates.
Because balances, interest rates, and maturities of Borrower Loans are matched and offset by an equal balance of Notes with the exact same interest rates (net of our servicing fee) and initial maturities, we believe that we do not have any material exposure to changes in the net fair value of the combined Borrower Loan and Note portfolios as a result of changes in interest rates. We do not hold or issue financial instruments for trading purposes.
The fair values of Borrower Loans and the related Notes are determined using discounted cash flow methodologies based upon a set of valuation assumptions. The fair value adjustments for Borrower Loans are largely offset by the fair value
86
adjustments of the Notes due to the borrower payment dependent design of the Notes and due to the total principal balances of the Borrower Loans being very close to the total principal balances of the Notes.
Prosper Funding had Cash and Cash Equivalents of $5.5 million and $2.9 million as of March 31, 2026 and December 31, 2025, respectively. These amounts were held in various unrestricted deposits with highly rated financial institutions and short term, highly liquid marketable securities which may include money market funds, U.S. treasury securities and U.S. agency securities. Cash and cash equivalents are held for working capital purposes. Due to their short-term nature, Prosper Funding believes that it does not have any material exposure to changes in the fair value of these liquid investments as a result of changes in interest rates. Decreases in short-term interest rates will moderately reduce interest income on these cash and cash equivalents, while increases in short-term interest rates will moderately increase the interest income earned on these cash and cash equivalent balances.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Registrants' disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including to each Registrant's Principal Executive Officer (PEO) and Principal Financial Officer (PFO), to allow timely decisions regarding required disclosures. The management of each Registrant, with the participation of such Registrant's PEO and PFO, has evaluated the effectiveness of such Registrant's disclosure controls and procedures as of March 31, 2026. Based on this evaluation, each Registrant's PEO and PFO have concluded that these disclosure controls and procedures were effective as of March 31, 2026.
Changes in Internal Control Over Financial Reporting
There were no changes in either Registrant's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, either Registrant's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
This Item should be read in conjunction with the disclosures contained in Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended December 31, 2025.
Item 1A. Risk Factors
You should carefully consider all information in this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements and related notes, and the risks described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2025.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
PMI - On March 19, 2026, one warrant holder exercised 41,833,904 shares of Series F warrants for total proceeds of $0.4 million. The estimated fair value of these warrants as of the date of exercise, totaling $42.3 million, was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock. On March 31, 2026, another warrant holder exercised all of the outstanding 35,544,141 shares of Series E-1 warrants at the exercise price of $0.01 per share for total proceeds of $0.4 million. The estimated fair value of these warrants as of the date of the exercise was approximately $38.7 million, which was reclassified from Convertible Preferred Stock Warrant Liability to Convertible Preferred Stock.
PMI previously issued the Series E-1 Preferred Stock and Series F Convertible Preferred Stock in reliance on the exemption from the registration requirements set forth in Section 4(a)(2) of the Securities Act relative to sales by an issuer not involving any public offering.
PFL - Information for this Item is not required for PFL because it meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q; PFL is therefore filing this Form with the reduced disclosure format.
Item 3. Defaults upon Senior Securities
Not applicable.
87
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed on the Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to PMI's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to PMI's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
31.3
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to PFL's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
31.4
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to PFL's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
32.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to PMI's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
32.2
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to PFL's Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (1)
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
Taxonomy Extension Calculation Linkbase Document
101.LAB
Taxonomy Extension Label Linkbase Document
101.PRE
Taxonomy Extension Presentation Linkbase Document
101.DEF
Taxonomy Extension Definition Linkbase Document
(1) Filed herewith.
88
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PROSPER MARKETPLACE, INC.
PROSPER FUNDING LLC
May 14, 2026
/s/ David Kimball
David Kimball
Chief Executive Officer of Prosper Marketplace, Inc.
Chief Executive Officer of Prosper Funding LLC
(Principal Executive Officer)
May 14, 2026
/s/ Usama Ashraf
Usama Ashraf
President and Chief Financial Officer of Prosper Marketplace, Inc.
President, Chief Financial Officer and Treasurer of
Prosper Funding LLC
(Principal Financial Officer)
89
Prosper Marketplace Inc. published this content on May 14, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 14, 2026 at 19:43 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]