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Notes Receivable and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2024
Receivables [Abstract]  
Notes Receivable and Allowance for Credit Losses Notes Receivable and Allowance for Credit Losses
We offer consumer installment payment plans on our platform. Consumer installment payment plans are generally interest-free and consist of four installments, with the first payment made at the time of purchase and subsequent payments due every two weeks thereafter. We purchase certain receivables related to installment payment plans extended to consumers in the United States by an independent chartered financial institution (“originating partner”) and are responsible for servicing such receivables. All other consumer installment payment plans are originated by us. Our notes receivable represents amounts due from consumers primarily for outstanding principal on installment payment plans made on our platform that we have either originated or purchased from our originating partner. Our notes receivable are generally due within 42 days.

We classify all of our notes receivable as held for investment, as we have the intent and ability to hold these investments for the foreseeable future or until maturity or payoff. Since our portfolio is comprised of one product segment, point-of-sale unsecured installment loans, we evaluate our notes receivable as a single, homogenous portfolio and make merchant-specific or other adjustments as necessary. Our notes receivable are reported at amortized cost, which primarily includes unpaid principal, adjusted for unearned transaction income, direct loan origination costs, and charge-offs. The amortized cost basis is adjusted for the allowance for credit losses within notes receivable, net.

As of September 30, 2024 and December 31, 2023, our notes receivable at amortized cost was comprised of the following:

September 30, 2024December 31, 2023
Notes receivable, gross$155,072,914 $146,225,832 
Deferred transaction income(3,659,424)(3,340,150)
Notes receivable, amortized cost$151,413,490 $142,885,682 

Deferred transaction income is primarily comprised of unrecognized merchant fees, which are recognized over the duration of the note with the consumer and are recorded as an offset to transaction income on the consolidated statements of operations and comprehensive income. Our notes receivable had a weighted average days outstanding of 34 days.

We closely monitor credit quality for our notes receivable to manage and evaluate our related exposure to credit risk. When assessing the credit quality and risk of our portfolio, we monitor a variety of internal risk indicators and consumer attributes that are shown to be predictive of ability and willingness to repay, and combine these factors to establish an internal, proprietary score as a credit quality indicator (the “Prophet Score”). We evaluate the credit risk of our portfolio by grouping Prophet Scores into three buckets that range from A to C, with receivables having an “A” rating representing the highest credit quality and lowest likelihood of loss. Our risk and fraud team closely monitors the distribution of Prophet Scores for signs of changes in credit risk exposure and portfolio performance. The risk and fraud team also regularly evaluates the integrity of the Prophet Score machine learning model and updates it as necessary, but at least annually. We last updated the Prophet Score model in October 2023.

The amortized cost basis of our notes receivable by Prophet Score and year of origination as of September 30, 2024 and December 31, 2023 was as follows:

September 30, 2024December 31, 2023
Amortized cost basis by year of origination
20242023Total20232022Total
A$50,070,705 $— $50,070,705 $47,752,196 $— $47,752,196 
B57,354,419 1,000 57,355,419 58,815,920 257 58,816,177 
C43,858,876 8,714 43,867,590 35,832,476 2,708 35,835,184 
No score119,776 — 119,776 482,125 — 482,125 
Total amortized cost$151,403,776 $9,714 $151,413,490 $142,882,717 $2,965 $142,885,682 
Our notes receivable are considered past due when the principal has not been received within one calendar day of when they are due in accordance with the agreed upon contractual terms. Any amounts delinquent after 90 days are charged off with an offsetting reversal to the allowance for credit losses through the provision for credit losses on our consolidated statements of operations and comprehensive income. Charged-off principal payments recovered after 90 days are recognized as a reduction to the allowance for credit losses in the period the receivable is recovered. The amortized cost basis of our notes receivable by delinquency status as of September 30, 2024 and December 31, 2023 was as follows:

September 30, 2024December 31, 2023
Current$126,225,572 $129,681,699 
1–28 days past due13,817,258 6,808,467 
29–56 days past due6,204,170 3,015,612 
57–90 days past due5,166,490 3,379,904 
Total amortized cost$151,413,490 $142,885,682 

We maintain an allowance for credit losses at a level necessary to primarily absorb expected credit losses on principal receivables from consumers. The allowance for credit losses is determined based on our current estimate of expected credit losses over the remaining contractual term and incorporates evaluations of known and inherent risks in our portfolio, historical credit losses, consumer payment trends, estimates of recoveries, current economic conditions, and reasonable and supportable forecasts. We regularly assess the adequacy of our allowance for credit losses and adjust the allowance as necessary to reflect changes in the credit risk of our notes receivable. Any adjustment to the allowance for credit losses is recognized in net income through the provision for credit losses on our consolidated statements of operations and comprehensive income. While we believe our allowance for credit losses is appropriate based on the information available, actual losses could differ from the estimate.

In estimating the allowance for credit losses, we utilize a roll rate analysis of delinquent and current notes receivable. Roll rate analysis is a technique used to estimate the likelihood that a loan progresses through various stages of delinquency and eventually charges off. We segment our notes receivable into delinquency statuses and semi-monthly vintages for the purpose of evaluating historical performance and determining the future likelihood of default.

The activity in the allowance for credit losses, including the provision for credit losses, charge-offs, and recoveries for the three and nine months ended September 30, 2024 and 2023 was as follows:

For the three months ended September 30, For the nine months ended September 30,
2024202320242023
Balance at beginning of period$11,786,141 $6,494,092 $12,253,041 $10,223,451 
Adoption of Accounting Standards Update No. 2016-13— — — (878,577)
Provision for credit losses15,402,303 6,676,548 30,636,149 12,667,346 
Charge-offs(9,167,620)(5,239,171)(26,394,129)(16,416,612)
Recoveries of charged-off receivables605,398 666,473 2,131,161 3,002,334 
Balance at end of period$18,626,222 $8,597,942 $18,626,222 $8,597,942 

Net charge-offs by year of origination for the nine months ended September 30, 2024 was as follows:

20242023202220212020Total
Current period gross charge-offs$(13,524,757)$(12,861,272)$(6,753)$(1,347)$— $(26,394,129)
Current period recoveries197,490 1,195,333 350,355 295,203 92,780 2,131,161 
Current period net charge-offs$(13,327,267)$(11,665,939)$343,602 $293,856 $92,780 $(24,262,968)