Company: AFRM
Filing Date: 2025-02-06
Form Type: 10-Q
Source: 0001820953-25-000012
Chunk: 62

Company: Affirm Holdings, Inc.
Filing Date: 2025-02-06
Form: 10-Q
Item: Part I, Item 1
Chunk 62
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 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 December 31, 2024 and June 30, 2024, we have sold $6.8 billion and $4.2 billion, respectively, unpaid principal balance of loans under these risk sharing arrangements, of which our maximum exposure to losses is $85.1 million and $81.2 million, respectively. This amount includes our maximum potential loss with respect to risk sharing liabilities of $40.1 million and the fair value of risk sharing assets of $45.0 million, as of December 31, 2024.  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 December 31, 2024 and June 30, 2024, we held assets related to these arrangements of $45.0 million and $33.9 million, respectively, and liabilities of $1.5 million and $0.9 million, respectively.As of December 31, 2024, 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 RateWe 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 RateWe estimate the loss rate as the probability of loan defaults and write-offs, which are used to project future risk-sharing cash flows.

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Prepayment RateWe 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 December 31,Six Months Ended December 31,2024202320242023Fair value at beginning of period$45,330 $3,814