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Affirm Holdings Inc

For the period ended Mar 31, 2025. Filed May 9, 2025.

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About this filing

A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.

Mar 31, 2025 · Filed May 9, 2025

AFRM$65.95-3.1%Stored close · as of Nov 10, 2026

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12. Fair Value of Financial Assets and Liabilities

  1. Fair Value of Financial Assets and Liabilities

Financial Assets and Liabilities Recorded at Fair Value

The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2025 and June 30, 2024 (in thousands):

Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents:
Money market funds$69,419$—$—$69,419
Commercial paper—61,883—61,883
Government bonds- US—19,889—19,889
Securities, available for sale:
Certificates of deposit—8,746—8,746
Corporate bonds—242,800—242,800
Commercial paper—86,088—86,088
Agency bonds—13,444—13,444
Municipal bonds—5,180—5,180
Government bonds:
Non-US—5,286—5,286
US—367,769—367,769
Securitization notes receivable and residual trust certificates——50,85750,857
Servicing assets——595595
Derivative instruments—3,808—3,808
Risk sharing asset——43,73943,739
Total assets$69,419$814,893$95,191$979,503
Liabilities:
Servicing liabilities$—$—$103$103
Performance fee liability——1,7701,770
Profit share liability——5,4255,425
Risk sharing liability——413413
Derivative instruments—86—86
Total liabilities$—$86$7,711$7,797
Level 1Level 2Level 3Total
Assets:
Cash and cash equivalents:
Money market funds$63,389$—$—$63,389
Commercial paper—57,964—57,964
Government bonds- US—3,492—3,492
Securities, available for sale:
Certificates of deposit—34,473—34,473
Corporate bonds—242,660—242,660
Commercial paper—239,882—239,882
Agency bonds—15,159—15,159
Municipal bonds—3,953—3,953
Government bonds:
Non-US—5,275—5,275
US—538,556—538,556
Securitization notes receivable and residual trust certificates——51,67051,670
Servicing assets——574574
Derivative instruments—17,207—17,207
Risk sharing asset——33,88433,884
Total assets$63,389$1,158,621$86,128$1,308,138
Liabilities:
Servicing liabilities$—$—$743$743
Performance fee liability——1,5031,503
Profit share liability——1,9741,974
Risk sharing liability——918918
Derivative Instruments—38—38
Total liabilities$—$38$5,138$5,176

As of March 31, 2025 and June 30, 2024, there were no transfers between levels.

Assets and Liabilities Measured at Fair Value on a Recurring Basis (Level 2)

Marketable Securities

As of March 31, 2025, we held marketable securities classified as cash and cash equivalents and securities available for sale. Management obtains pricing from one or more third-party pricing services for the purpose of determining fair value. Whenever available, the fair value is based on quoted bid prices as of the end of the trading day. When quoted prices are not available, other methods may be utilized including evaluated prices provided by third-party pricing services.

Derivative Instruments

As of March 31, 2025 and June 30, 2024, we used a combination of interest rate cap agreements and interest rate swaps to manage interest costs and the risks associated with variable interest rates. These derivative instruments are classified as Level 2 within the fair value hierarchy, and the fair value is estimated by using third-party pricing models, which contain certain assumptions based on readily observable market-based inputs. We validate the valuation output on a monthly basis. Refer to Note 11. Derivative Financial Instruments in the notes to the interim condensed consolidated financial statements for further details on our derivative instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis using Significant Unobservable Inputs (Level 3)

We evaluate our assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. Since our servicing assets and liabilities, performance fee liability, securitization notes and residual trust certificates, profit share liability, and risk sharing arrangements do not trade in an active market with readily observable prices, we use significant unobservable inputs to measure fair value and have classified as level 3 within the fair value hierarchy. This determination requires significant judgments to be made.

Servicing Assets and Liabilities

We sold loans with an unpaid principal balance of $3.6 billion and $11.0 billion for the three and nine months ended March 31, 2025, respectively, $2.1 billion and $7.3 billion for the three and nine months ended March 31, 2024, respectively, for which we retained servicing rights.

As of March 31, 2025 and June 30, 2024, we serviced loans which we sold with a remaining unpaid principal balance of $6.8 billion and $5.1 billion, respectively.

We use discounted cash flow models to arrive at an estimate of fair value. Significant assumptions used in the valuation of our servicing rights are as follows:

Adequate Compensation

We estimate adequate compensation as the rate a willing market participant would require for servicing loans with similar characteristics as those in the serviced portfolio.

Discount Rate

Estimated future payments to be received under servicing agreements are discounted as a part of determining the fair value of the servicing rights. For servicing rights on loans, the discount rate reflects the time value of money and a risk premium intended to reflect the amount of compensation market participants would require.

Gross Default Rate

We estimate the timing and probability of early loan payoffs, loan defaults and write-offs, thus affecting the projected unpaid principal balance and expected term of the loan, which are used to project future servicing revenue and expenses.

We earned $32.1 million and $86.7 million of servicing income for the three and nine months ended March 31, 2025, respectively, and $25.3 million and $67.9 million for the three and nine months ended March 31, 2024, respectively.

As of both March 31, 2025 and June 30, 2024, the aggregate fair value of the servicing assets was measured at $0.6 million and presented within other assets in the interim condensed consolidated balance sheets. As of March 31, 2025 and June 30, 2024, the aggregate fair value of the servicing liabilities was measured at $0.1 million and $0.7 million, respectively, and presented within accrued expenses and other liabilities in the interim condensed consolidated balance sheets.

The following table summarizes the activity related to the aggregate fair value of our servicing assets (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$806$365$574$880
Initial transfers of financial assets——230—
Subsequent changes in fair value(211)(145)(209)(660)
Fair value at end of period$595$220$595$220

The following table summarizes the activity related to the aggregate fair value of our servicing liabilities (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$237$2,531$743$1,392
Initial transfers of financial liabilities—1,085—4,176
Subsequent changes in fair value(134)(1,124)(640)(3,076)
Fair value at end of period$103$2,492$103$2,492

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of servicing assets and liabilities as of March 31, 2025 and June 30, 2024:

Unobservable InputMinimumMaximumWeighted Average (3)
Servicing assetsDiscount rate30.00%30.00%30.00%
Adequate compensation (1)2.00%2.00%2.00%
Gross default rate (2)11.83%14.84%12.86%
Servicing liabilitiesDiscount rate30.00%30.00%30.00%
Adequate compensation (1)2.00%2.00%2.00%
Gross default rate (2)3.34%5.34%4.28%
Unobservable InputMinimumMaximumWeighted Average (3)
Servicing assetsDiscount rate30.00%30.00%30.00%
Adequate compensation (1)2.00%2.00%2.00%
Gross default rate (2)9.89%22.72%10.84%
Servicing liabilitiesDiscount rate30.00%30.00%30.00%
Adequate compensation (1)2.00%2.00%2.00%
Gross default rate (2)2.58%4.12%3.00%

(1)Estimated annual cost of servicing a loan as a percentage of unpaid principal balance

(2)Annualized estimated gross charge-offs as a percentage of unpaid principal balance

(3)Unobservable inputs were weighted by relative fair value

The following table summarizes the effect that adverse changes in estimates would have on the fair value of the servicing assets and liabilities given hypothetical changes in significant unobservable inputs (in thousands):

March 31, 2025June 30, 2024
Servicing assets
Gross default rate assumption:
Gross default rate increase of 25%$1$1
Gross default rate increase of 50%$1$1
Adequate compensation assumption:
Adequate compensation increase of 10%$(923)$(980)
Adequate compensation increase of 20%$(1,846)$(1,961)
Discount rate assumption:
Discount rate increase of 25%$(22)$(23)
Discount rate increase of 50%$(43)$(44)
Servicing liabilities
Gross default rate assumption:
Gross default rate increase of 25%$—$(1)
Gross default rate increase of 50%$—$(1)
Adequate compensation assumption:
Adequate compensation increase of 10%$4,358$3,153
Adequate compensation increase of 20%$8,715$6,305
Discount rate assumption:
Discount rate increase of 25%$(2)$(19)
Discount rate increase of 50%$(3)$(37)

Performance Fee Liability

In accordance with our agreements with our originating bank partners, we pay a fee for each loan that is fully repaid by the consumer, due at the end of the period in which the loan is fully repaid. We recognize a liability upon the purchase of a loan for the expected future payment of the performance fee. This liability is measured using a discounted cash flow model and recorded at fair value and presented within accrued expenses and other liabilities in the interim condensed consolidated balance sheets. Any changes in the fair value of the liability are reflected inother income, net, in the interim condensed consolidated statements of operations and comprehensive income (loss).

The following table summarizes the activity related to the fair value of the performance fee liability (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$1,773$1,594$1,503$1,581
Purchases of loans5204241,6091,293
Settlements paid(510)(493)(1,488)(1,485)
Subsequent changes in fair value(13)(9)146127
Fair value at end of period$1,770$1,516$1,770$1,516

Significant unobservable inputs used for our Level 3 fair value measurement of the performance fee liability are the discount rate, refund rate, and default rate. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the performance fee liability as of March 31, 2025 and June 30, 2024:

Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate7.75%10.00%9.39%
Refund rate1.50%1.50%1.50%
Default rate0.92%4.65%3.04%
Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate8.50%10.00%9.81%
Refund rate1.50%1.50%1.50%
Default rate1.38%4.65%2.94%

(1)Unobservable inputs were weighted by remaining principal balances

Retained Beneficial Interests in Unconsolidated VIEs

As of March 31, 2025, we held notes receivable and residual trust certificates with an aggregate fair value of$50.9 million in connection with unconsolidated securitizations. The balances correspond to the 5% economic risk retention we are required to maintain as the securitization sponsor.

These assets are measured at fair value using a discounted cash flow model, and presented within securities available for sale at fair value in the interim condensed consolidated balance sheets. Changes in the fair value, other than declines in fair value due to credit recognized as an allowance, are reflected inother comprehensive income in the interim condensed consolidated statements of operations and comprehensive income (loss). Declines in fair value due to credit are reflected inother income, net in the interim condensed consolidated statements of operations and comprehensive income (loss).

The following table summarizes the activity related to the fair value of the notes and residual trust certificates (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$69,051$32,411$51,670$18,913
Additions——41,94022,187
Cash received (due to payments)(19,982)(9,697)(46,401)(19,052)
Change in unrealized gain (loss)454360(84)625
Accrued interest1,0726224,0481,233
Reversal of (impairment on) securities available for sale262120(316)(90)
Fair value at end of period$50,857$23,816$50,857$23,816

Significant unobservable inputs used for our Level 3 fair value measurement of the notes and residual trust certificates are the discount rate, loss rate, and prepayment rate. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the notes receivable and residual trust certificates as of March 31, 2025 and June 30, 2024:

Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate2.26%30.29%6.89%
Loss rate0.90%8.60%7.20%
Prepayment rate18.25%23.00%22.52%
Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate5.73%41.41%8.93%
Loss rate0.95%6.98%6.17%
Prepayment rate12.40%27.70%23.33%

(1)Unobservable inputs were weighted by relative fair value

The following table summarizes the effect that adverse changes in estimates would have on the fair value of the notes receivable and residual trust certificates given hypothetical changes in significant unobservable inputs (in thousands):

March 31, 2025June 30, 2024
Discount rate assumption:
Discount rate increase of 25%$(482)$(623)
Discount rate increase of 50%$(948)$(1,223)
Loss rate assumption:
Loss rate increase of 25%$(2,238)$(705)
Loss rate increase of 50%$(2,846)$(1,321)
Prepayment rate assumption:
Prepayment rate decrease of 25%$75$58
Prepayment rate decrease of 50%$150$116

Profit Share Liability

On January 1, 2021, we entered into a commercial agreement with an enterprise partner, in which we are obligated to share in the profitability of transactions facilitated by our platform. Upon capture of a loan under this program, we record a liability associated with the estimated future profit to be shared over the life of the loan based on estimated program profitability levels. This liability is measured using a discounted cash flow model and recorded at fair value and presented within accrued expenses and other liabilities in the interim condensed consolidated balance sheets.

The following table summarizes the activity related to the fair value of the profit share liability (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$6,111$1,544$1,974$1,832
Facilitation of loans2,4875217,9522,609
Actual performance(4,270)(2,634)(10,569)(2,128)
Subsequent changes in fair value1,0971,7056,068(1,177)
Fair value at end of period$5,425$1,136$5,425$1,136

Significant unobservable inputs used for our Level 3 fair value measurement of the profit share liability are the discount rate and estimated program profitability. Significant increases or decreases in any of the inputs in isolation could result in a significantly lower or higher fair value measurement.

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the profit sharing liability as of March 31, 2025 and June 30, 2024:

Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate30.00%30.00%30.00%
Program profitability1.09%2.19%1.94%
Unobservable InputMinimumMaximumWeighted Average (1)
Discount rate30.00%30.00%30.00%
Program profitability0.32%1.01%0.96%

(1)Unobservable inputs were weighted by relative fair value

Risk Sharing Arrangements

In connection with certain capital funding arrangements with third party loan buyers, we have entered into risk sharing agreements where we may be required to make a payment to the loan buyer or are entitled to receive a payment from the loan buyer, depending on the actual versus expected loan performance as contractually agreed to with the counterparty, and subject to a cap based on a percentage of the principal balance of loans sold. Loan performance is evaluated at a cohort level based on the month loans were sold. As of March 31, 2025 and June 30, 2024, we have sold $7.8 billion and $4.2 billion, respectively, unpaid principal balance of loans under these risk sharing arrangements, of which our maximum exposure to losses is $94.3 million and $81.2 million, respectively. This amount includes our maximum potential loss with respect to risk sharing liabilities of $33.1 million and risk sharing assets of $61.2 million, as of March 31, 2025.

We account for these arrangements as derivatives measured at fair value with gains and losses recognized in gain on sales of loans in our interim condensed consolidated statements of operations and comprehensive income (loss). For each counterparty, we have recognized a net asset or net liability based on the estimated fair value of future payments we expect to receive from or make to the counterparty. As of March 31, 2025 and June 30, 2024, we held assets related to these arrangements of $43.7 million and $33.9 million, respectively, and liabilities of $0.4 million and $0.9 million, respectively.

As of March 31, 2025, we estimated the fair value of future settlements using a discounted cash flow model. Significant assumptions used in the valuation of our risk sharing assets and liabilities are as follows:

Discount Rate

We estimate future cash flows to be received or paid under the agreements are discounted as a part of determining the fair value of the risk sharing arrangements. The discount rate reflects the time value of money and a risk premium intended to reflect the amount of compensation market participants would require.

Loss Rate

We estimate the loss rate as the probability of loan defaults and write-offs, which are used to project future risk-sharing cash flows.

Prepayment Rate

We estimate the annualized prepayment rate as the expected excess loan payment received in a given month as a percentage of the outstanding principal balance at the beginning of the month minus the scheduled principal payment.

The following table summarizes the activity related to the fair value of the risk sharing assets (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$44,969$16,690$33,884$—
Initial transfers of financial assets3,6056,31719,17320,880
Cash settlements(7,665)—(13,489)—
Subsequent changes in fair value2,8302,0194,1714,146
Fair value at end of period$43,739$25,026$43,739$25,026

The following table summarizes the activity related to the fair value of the risk sharing liabilities (in thousands):

Three Months Ended March 31,Nine Months Ended March 31,
2025202420252024
Fair value at beginning of period$1,498$512$918$—
Cash settlements(909)—(1,354)—
Subsequent changes in fair value(176)95849607
Fair value at end of period$413$607$413$607

The following tables present quantitative information about the significant unobservable inputs used for our Level 3 fair value measurement of the risk sharing arrangements as of March 31, 2025:

Unobservable InputMinimumMaximumWeighted Average (1)
Risk sharing assetsDiscount rate20.00%20.00%20.00%
Loss rate3.31%4.81%4.06%
Prepayment rate20.38%24.98%22.85%
Risk sharing liabilitiesDiscount rate20.00%20.00%20.00%
Loss rate3.46%5.14%4.37%
Unobservable InputMinimumMaximumWeighted Average (1)
Risk sharing assetsDiscount rate20.00%20.00%20.00%
Loss rate3.00%4.69%3.66%
Prepayment rate23.36%33.29%28.48%
Risk sharing liabilitiesDiscount rate20.00%20.00%20.00%
Loss rate3.25%5.29%4.28%

(1)Unobservable inputs were weighted by principal balance of loans sold under each cohort

The following table summarizes the effect that adverse changes in estimates would have on the fair value of the risk sharing assets and liabilities given hypothetical changes in significant unobservable inputs (in thousands):

March 31, 2025June 30, 2024
Risk sharing assets (1)
Prepayment rate assumption:
Prepayment rate increase of 25%$1,463$572
Prepayment rate increase of 50%$2,837$1,131
Loss rate assumption:
Loss rate increase of 25%$(12,917)$(7,315)
Loss rate increase of 50%$(25,791)$(14,528)
Discount rate assumption:
Discount rate increase of 25%$(1,038)$(1,211)
Discount rate increase of 50%$(2,001)$(2,323)
Risk sharing liabilities (1)
Loss rate assumption:
Loss rate increase of 25%$21,671$22,333
Loss rate increase of 50%$30,243$41,677
Discount rate assumption:
Discount rate increase of 25%$(2)$(19)
Discount rate increase of 50%$(3)$(37)

Financial Assets and Liabilities Not Recorded at Fair Value

The following table presents the fair value and our assessment of the classification of this measurement within the fair value hierarchy for financial assets and liabilities held at amortized cost as of March 31, 2025 and June 30, 2024 (in thousands):

Carrying AmountLevel 1Level 2Level 3Balance at Fair Value
Assets:
Loans held for sale (1)$1$—$1$—$1
Loans held for investment, net6,255,459——6,682,1316,682,131
Other assets (1)7,269—7,269—7,269
Total assets$6,262,729$—$7,270$6,682,131$6,689,401
Liabilities:
Convertible senior notes, net (2)$1,152,019$—$1,044,657$—$1,044,657
Notes issued by securitization trusts4,084,934——4,113,6894,113,689
Funding debt (3)1,926,795——1,926,9791,926,979
Total liabilities$7,163,748$—$1,044,657$6,040,669$7,085,326
Carrying AmountLevel 1Level 2Level 3Balance at Fair Value
Assets:
Loans held for sale (1)$36$—$36$—$36
Loans held for investment, net5,360,959——5,616,9735,616,973
Other assets (1)43,212—43,212—43,212
Total assets$5,404,207$—$43,248$5,616,973$5,660,221
Liabilities:
Convertible senior notes, net (2)$1,341,430$—$1,124,773$—$1,124,773
Notes issued by securitization trusts3,236,873——2,506,9292,506,929
Funding debt (3)1,851,699——1,851,6851,851,685
Total liabilities$6,430,002$—$1,124,773$4,358,614$5,483,387

(1)Amortized cost approximates fair value for loans held for sale and other assets.

(2)As of March 31, 2025, includes convertible senior notes due 2026 with a carrying amount and fair value of $247.7 million and $230.5 million, respectively, and convertible senior notes due 2029 with a carrying amount and fair value of $904.3 million and $814.1 million, respectively. As of June 30, 2024, includes convertible senior notes due 2026 with a carrying amount and fair value of $1.3 billion and $1.1 billion, respectively. The estimated fair value of the convertible senior notes is determined based on a market approach, using the estimated or actual bids and offers of the notes in an over-the-counter market on the last business day of the period.

(3)As of March 31, 2025 and June 30, 2024, debt issuance costs in the amount of $18.1 million and $14.8 million, respectively, was included within funding debt.

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The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.