Atlanticus Holdings Corp Fair Value Disclosure
| 7. | Fair Values of Assets and Liabilities |
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
We update our fair value analysis each quarter, with changes since the prior reporting period reflected as a component of "Changes in fair value of loans" in the consolidated statements of income. Changes in yields, purchase and payment rates, servicing rates, realized and projected credit loss rates and discount rates will lead to changes in the fair value of loans and therefore impact earnings. Further, our retail asset typically has seasonal growth during the summer months, impacting the fair value of assets.
Fair value differs from amortized cost accounting in the following ways:
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| • | Receivables are recorded at their fair value, not their principal and fee balance or cost basis; |
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| • | The fair value of the loans takes into consideration net charge-offs for the remaining life of the loans with no separate allowance for credit loss calculation; |
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| • | Certain fee billings (such as non-refundable annual fees) and expenses of loans are no longer deferred but recognized (when billed or incurred) in income or expense, respectively; |
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| • | The net present value of cash flows associated with future fee billings on existing receivables are included in fair value; |
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| • | Changes in the fair value of loans impact net margins; and |
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| • | Net charge-offs are recognized as they occur rather than through the establishment of an allowance and provision for credit losses for those loans, interest and fees receivable carried at amortized cost. |
For receivables that are carried at net amortized cost, we include disclosures of the fair value of such receivables to the extent practicable within the disclosures below.
Where applicable, we account for our financial assets and liabilities at fair value based upon a three-tiered valuation system. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Fair values determined by Level 2 inputs use inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Where inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest level input that is significant to the fair value measurement in its entirety.
Valuations and Techniques for Assets
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the December 31, 2025 and December 31, 2024 fair values and carrying amounts of (1) our assets that are carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:
| Assets – As of December 31, 2025 (1) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Assets | ||||||||||||
| Loans at amortized cost, net for which it is practicable to estimate fair value and which are carried at net amortized cost | $ | — | $ | — | $ | 97,539 | $ | 82,884 | ||||||||
| Loans at fair value | $ | — | $ | — | $ | 6,647,882 | $ | 6,647,882 | ||||||||
| (1) | For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value. |
| Assets – As of December 31, 2024 (1) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Assets | ||||||||||||
| Loans at amortized cost, net for which it is practicable to estimate fair value and which are carried at net amortized cost | $ | — | $ | — | $ | 95,871 | $ | 84,332 | ||||||||
| Loans at fair value | $ | — | $ | — | $ | 2,630,274 | $ | 2,630,274 | ||||||||
| (1) | For cash, deposits and investments in equity securities, the carrying amount is a reasonable estimate of fair value. |
For those asset classes above that are carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our consolidated statements of income as a component of Changes in fair value of loans. Variations in the three month U.S. Treasury bill rate over the measurement period are used to determine the portion of change in fair value considered to be attributable to changes in instrument-specific credit risk. These variations are applied to the period end discount rate we use to determine fair value. For our loans included in the above table, we assess the fair value of these assets based on our estimate of future cash flows net of servicing costs. For the years ended December 31, 2025 and 2024, we estimate the portion of fair value changes considered to be attributable to changes in instrument-specific credit risk to be $8.6 million and $14.3 million, respectively.
For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the years ended December 31, 2025 and 2024:
| Loans at Fair Value | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| Balance at January 1, | $ | 2,630,274 | $ | 2,173,759 | ||||||||||||
| Acquisition of Mercury receivables at fair value | 3,018,211 | - | ||||||||||||||
| Changes in fair value of loans at fair value, included in earnings | (48,041 | ) | 129,832 | |||||||||||||
| Changes in fair value due to current period principal charge-offs, net of recoveries (1) | (723,875 | ) | (611,319 | ) | ||||||||||||
| Changes in fair value due to current period finance and fee charge-offs (1) | (331,139 | ) | (251,984 | ) | ||||||||||||
| (2) | (1,103,055 | ) | (733,471 | ) | ||||||||||||
| Purchases | 4,463,665 | 2,580,684 | ||||||||||||||
| Finance and fees, added to the account balance | 1,657,215 | 1,080,950 | ||||||||||||||
| Settlements | (4,018,428 | ) | (2,471,648 | ) | ||||||||||||
| Balance at December 31,(3) | $ | 6,647,882 | $ | 2,630,274 | ||||||||||||
| Aggregate unpaid gross balance of loans carried at fair value | $ | 6,940,489 | $ | 2,724,782 | ||||||||||||
| Change in unrealized losses for the period included in earnings (or ) for assets held at the end of the period | $ | (48,041 | ) | $ | 129,832 | |||||||||||
| (1) | Reflects the current period charge-offs (net of recoveries) of loans at fair value. |
| (2) | Total Changes in fair value of loans is included in our consolidated statements of income. |
| (3) | As of December 31, 2025 and December 31, 2024, the aggregate unpaid principal balance included within loans at fair value was $6,473 million and $2,473 million, respectively. |
The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs.
Loans at Fair Value. The fair value of Loans at fair value is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using internally-developed estimates of assumptions third-party market participants would use in determining fair value, including estimates of credit losses, payment rates, servicing costs, discount rates and yields earned on private label credit and general purpose credit card receivables. We forecast the cash flows underlying our fair value assessment based on the individual offer type (in the case of general purpose credit cards) or by specific offers at our retail partners (for private label credit). While overall product return requirements among the offer types may be similar, the individual product offerings necessary to achieve those returns is often unique to each offer and retailer based on several factors, including acceptance rates of the offers by consumers and underlying consumer performance data which varies by offer type.
Our fair value models include market degradation to reflect the possibility of delinquency rates increasing in the near term (and the corresponding increase in charge-offs and decrease in payments) above the level that current trends would suggest.
The fair value of loans we acquire associated with our retail partners are typically lower than the aggregate unpaid gross balance of the underlying loans due to loan originations by our bank partners that contain below market interest rates or fees charged to consumers. Under agreements with our bank partners, we are required to purchase these receivables for amounts that may be in excess of fair value. In these instances, a fair value assessment that is less than the purchase price of the receivable can occur on the date we initially acquire the receivable, resulting in a loss on acquisition of the receivable. This negative fair value assessment is included in Changes in fair value of loans on our consolidated statements of income.
In cases where we acquire receivables below market rates, we charge merchant fees to our retail partners to facilitate the transaction and ensure we earn adequate returns. These merchant fees are based on the value of the goods purchased from our retail partners, the consumer’s credit risk and the terms of our bank partners' related product offering. These fees are recognized upon completion of our services, which coincides with the funding of the loan by our bank partners, in Consumer loans, including past due fees on our consolidated statements of income. These merchant fees often offset the negative impact of the initial acquisition of the underlying receivable. As such, it is not always necessary for us to collect the aggregate unpaid gross balance of the underlying receivable to achieve desired returns.
Valuations and Techniques for Liabilities
Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the December 31, 2025 and 2024 fair values and carrying amounts of our liabilities not carried at fair value, but for which fair value disclosures are required:
| Liabilities – As of December 31, 2025 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Liabilities | ||||||||||||
| Bank partner fees | $ | — | $ | — | $ | 28,668 | $ | 28,668 | ||||||||
| Contingent consideration | $ | — | $ | — | $ | 40,000 | $ | 40,000 | ||||||||
| Liabilities not carried at fair value | ||||||||||||||||
| Revolving credit facilities | $ | — | $ | — | $ | 5,972,582 | $ | 5,813,474 | ||||||||
| Amortizing debt facilities | $ | — | $ | — | $ | 5,287 | $ | 5,287 | ||||||||
| Senior notes, net | $ | 317,364 | $ | — | $ | 392,000 | $ | 698,562 | ||||||||
| Liabilities – As of December 31, 2024 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Carrying Amount of Liabilities | ||||||||||||
| Bank partner fees | $ | — | $ | — | $ | 13,644 | $ | 13,644 | ||||||||
| Loan purchase commitment | $ | — | $ | — | $ | 285 | $ | 285 | ||||||||
| Liabilities not carried at fair value | ||||||||||||||||
| Revolving credit facilities | $ | — | $ | — | $ | 2,149,933 | $ | 2,193,993 | ||||||||
| Amortizing debt facilities | $ | — | $ | — | $ | 5,455 | $ | 5,455 | ||||||||
| Senior notes, net | $ | 281,703 | $ | — | $ | — | $ | 281,552 | ||||||||
Bank partner fees. Bank partner fees carried at fair value in accordance with ASC 815, reflect the estimated fair value of future compensation we owe our bank partners associated with the regulatory oversight and other services they provide on our acquired receivables, the underlying accounts of which they continue to own and service. This compensation is based on both a fixed and variable component, dependent on the underlying performance of the acquired receivables. We estimate the present value of this compensation using internally-developed estimates of payment rates and discount rates. We recognize the fair value of these Bank partner fees within Card and loan servicing on the accompanying consolidated statements of income on the date we acquire the underlying receivable with the corresponding liability recorded within Accounts payable and accrued expenses on the accompanying consolidated balance sheets.
Contingent consideration. As part of our acquisition of Mercury, the seller has the opportunity under the purchase agreement to receive earn out payments for up to years following the closing of the acquisition in an amount equal to 75% of the amount by which the charge-offs of Mercury’s acquired receivables are less than agreed-upon charge-off levels over a limited period of time. We have determined the contingent consideration meets the definition of a derivative instrument not designated as a hedge under ASC 815. We have recorded the derivative at fair value within Accounts payable and accrued expenses on the accompanying consolidated balance sheets, calculated using internally-developed estimates in a Monte Carlo simulation. For each simulation path, the contingent consideration payments are calculated based on the contractual terms, and then discounted at the term-matched risk free rate plus a credit spread. The value of the contingent consideration is calculated as the average present value over all simulated paths. Key assumptions used in the projection included the expected charge off rates and estimated volatility of these charge off rates. We recognize changes in the fair value of this contingent consideration within Other operating expense on the accompanying consolidated statements of income with the corresponding liability recorded within Accounts payable and accrued expenses on the accompanying consolidated balance sheets.
For our credit and debt facilities where market prices are not available, we assess the fair value of these liabilities based on our estimate of future cash flows generated from their underlying credit card receivables collateral, net of servicing compensation required under the note facilities. We have evaluated the fair value of our third party debt by analyzing repayment terms and credit spreads included in our recent financing arrangements to those of our existing facilities. See Note 11, "Notes Payable," for further discussion on our other notes payable.
For Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the years ended December 31, 2025:
| Fair Value at | Fair Value at | |||||||||||||||
| January 1, 2025 | Acquisition of Mercury | Changes in fair value of liabilities, included in earnings | December 31, 2025 | |||||||||||||
| Bank partner fees | $ | 13,644 | $ | 9,194 | $ | 5,830 | $ | 28,668 | ||||||||
| Contingent consideration | $ | - | $ | 40,000 | $ | - | $ | 40,000 | ||||||||
The following key unobservable assumptions were used in the fair value measurement of our liabilities carried at fair value:
| December 31, 2025 | ||||||||
| Range | Weighted Average | |||||||
| Bank partner fees | ||||||||
| Customer Payment Rate | 5.7% - 10.1% | 8.4 | % | |||||
| Discount Rate | 8.5% - 12.5% | 9.7 | % | |||||
| Contingent consideration | ||||||||
| Charge-off rate | 16.2%-24.0% | 19.8 | % | |||||
| Charge-off volatility | 15 | % | 15.0 | % | ||||
Other Relevant Data
Other relevant data (in thousands) as of December 31, 2025 and December 31, 2024 concerning certain assets and liabilities we carry at fair value are as follows:
| Loans at Fair Value Pledged as Collateral under Structured Financings | ||||||||
| As of December 31, 2025 | As of December 31, 2024 | |||||||
| Aggregate unpaid gross balance of loans carried at fair value | $ | 6,940,489 | $ | 2,724,782 | ||||
| Aggregate unpaid principal balance included within loans at fair value | $ | 6,472,891 | $ | 2,472,999 | ||||
| Aggregate fair value of loans at fair value | $ | 6,647,882 | $ | 2,630,274 | ||||
| Aggregate fair value of loans at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) | $ | 57,624 | $ | 32,781 | ||||
| Unpaid principal balance of loans at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable | $ | 330,032 | $ | 145,099 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 13, 2025 | |
| 2023 | Mar 4, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 15, 2022 | |
| 2020 | Mar 31, 2021 | |
| 2019 | Mar 30, 2020 | |
| 2018 | Mar 27, 2019 | |
| 2017 | Apr 2, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 30, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.