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Fair Value of Assets and Liabilities
9 Months Ended
Sep. 30, 2015
Fair Value Disclosures [Abstract]  
Fair Value of Assets and Liabilities
Fair Value of Assets and Liabilities

For a description of the fair value hierarchy and the Company’s fair value methodologies, see "Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies" in the Annual Report. The Company did not transfer any assets or liabilities in or out of level 3 during the third quarter and first nine months of 2015 or the year ended December 31, 2014.

Financial Instruments Recorded at Fair Value

See "Part II - Item 8 - Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies" in the Company's Annual Report for a description of the fair value methodology for loans, notes and certificates. In the third quarter of 2015, the Company incorporated cumulative prepayments into the valuation of loans, notes and certificates to better reflect a market participant's view of valuation assumptions underlying unsecured consumer credit obligations. Prior to the third quarter, the effect of prepayments was reflected through an effective adjustment to the discount rates used in the fair value methodology. Cumulative prepayments are estimates of the cumulative amount of principal prepayments that will occur over the entire life of a loan expressed as a percentage of the original principal amount of the loan. The assumption regarding cumulative prepayments reduces the projected balances and expected terms of the loans, notes and certificates.

When available, the Company uses quoted prices in active markets to measure the fair value of securities available for sale. When utilizing market data and bid-ask spreads, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of securities available for sale. The Company's primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information, such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar "to-be-issued" securities. The Company compares the prices obtained from its primary independent pricing service to the prices obtained from the additional independent pricing services to determine if the price obtained from the primary independent pricing service is reasonable. The Company does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material difference in the recorded amounts.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value:
September 30, 2015
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
 
Loans
 
$

 
$

 
$
4,068,974

 
$
4,068,974

Securities available for sale:
 
 
 
 
 
 
 
 
Corporate debt securities
 

 
250,113

 

 
250,113

Asset-backed securities
 

 
54,959

 

 
54,959

U.S. agency securities
 

 
20,603

 

 
20,603

Municipal securities
 

 
5,843

 

 
5,843

Other securities
 

 
7,001

 

 
7,001

Total securities available for sale
 

 
338,519

 

 
338,519

Servicing assets
 

 

 
7,249

 
7,249

Total assets
 
$

 
$
338,519

 
$
4,076,223

 
$
4,414,742

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Notes and certificates
 
$

 
$

 
$
4,095,481

 
$
4,095,481

Servicing liabilities
 

 

 
4,394

 
4,394

Total liabilities
 
$

 
$

 
$
4,099,875

 
$
4,099,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
 
Loans
 
$

 
$

 
$
2,798,505

 
$
2,798,505

Servicing assets
 

 

 
2,181

 
2,181

Total assets
 
$

 
$

 
$
2,800,686

 
$
2,800,686

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Notes and certificates
 
$

 
$

 
$
2,813,618

 
$
2,813,618

Servicing liabilities
 

 

 
3,973

 
3,973

Total liabilities
 
$

 
$

 
$
2,817,591

 
$
2,817,591


As our loans and related notes and certificates, and loan servicing rights do not trade in an active market with readily observable prices, we use 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.
 
Significant Unobservable Inputs

The following tables present quantitative information about the significant unobservable inputs used for our level 3 fair value measurements at September 30, 2015 and December 31, 2014:
 
 
 
 
September 30, 2015
 
 
 
 
Range of Inputs
Financial Instrument
 
Unobservable Input
 
Minimum
 
Maximum
 
Weighted- Average
Loans, notes and certificates
 
Discount rates
 
3.5
%
 
17.5
%
 
8.9
%
 
 
Net cumulative expected loss rates
 
0.3
%
 
22.0
%
 
9.7
%
 
 
Cumulative prepayment rates
 
21.9
%
 
38.5
%
 
27.7
%
 
 
 
 
 
 
 
 
 
Servicing asset/liability
 
Discount rates
 
3.5
%
 
20.5
%
 
9.6
%
 
 
Net cumulative expected loss rates
 
0.3
%
 
21.5
%
 
8.7
%
 
 
Cumulative prepayment rates
 
8.4
%
 
48.7
%
 
29.0
%
 
 
Base market servicing rates (% per annum on unpaid principal balance)(1)
 
0.50
%
 
0.75
%
 
0.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
Range of Inputs
Financial Instrument
 
Unobservable Input
 
Minimum
 
Maximum
 
Weighted- Average
Loans, notes and certificates
 
Discount rates
 
5.2
%
 
17.4
%
 
10.1
%
 
 
Net cumulative expected loss rates
 
0.3
%
 
22.0
%
 
10.0
%
 
 
 
 
 
 
 
 
 
Servicing asset/liability
 
Discount rates
 
5.3
%
 
23.7
%
 
10.7
%
 
 
Net cumulative expected loss rates
 
0.3
%
 
22.0
%
 
10.2
%
 
 
Cumulative prepayment rates
 
16.5
%
 
26.7
%
 
20.0
%
 
 
Base market servicing rates (% per annum on unpaid principal balance)(1)
 
0.50
%
 
0.70
%
 
0.50
%
(1) Excludes ancillary fees charged to investors that would be passed on to a third-party servicer.

At September 30, 2015, the discounted cash flow methodology used to estimate the notes and certificates fair values used the same projected cash flows as the related loans. As demonstrated in the following table, the fair value adjustments for loans were largely offset by the fair value adjustments of the notes and certificates due to the member payment dependent design of the notes and certificates and because the principal balances of the loans were very close to the combined principal balances of the notes and certificates.
The following tables present additional information about level 3 loans, notes and certificates, each measured at fair value on a recurring basis, for the third quarters and first nine months of 2015 and 2014:
 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at June 30, 2015
 
$
3,694,823

 
$
(57,440
)
 
$
3,637,383

 
$
3,717,556

 
$
(57,432
)
 
$
3,660,124

Purchases of loans
 
1,946,455

 

 
1,946,455

 

 

 

Issuances of notes and certificates
 

 

 

 
991,926

 

 
991,926

Whole loan sales
 
(954,770
)
 

 
(954,770
)
 

 

 

Principal payments
 
(481,701
)
 

 
(481,701
)
 
(478,189
)
 

 
(478,189
)
Charge-offs
 
(55,365
)
 
55,365

 

 
(55,346
)
 
55,346

 

Recoveries
 

 
(5,919
)
 
(5,919
)
 

 
(5,867
)
 
(5,867
)
Change in fair value recorded in earnings
 

 
(72,474
)
 
(72,474
)
 

 
(72,513
)
 
(72,513
)
Ending balance at September 30, 2015
 
$
4,149,442

 
$
(80,468
)
 
$
4,068,974

 
$
4,175,947

 
$
(80,466
)
 
$
4,095,481


 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at June 30, 2014
 
$
2,351,515

 
$
(25,313
)
 
$
2,326,202

 
$
2,361,902

 
$
(25,307
)
 
$
2,336,595

Purchases of loans
 
994,497

 

 
994,497

 

 

 

Issuances of notes and certificates
 

 

 

 
532,034

 

 
532,034

Whole loan sales
 
(462,523
)
 

 
(462,523
)
 

 

 

Principal payments
 
(288,102
)
 

 
(288,102
)
 
(280,643
)
 

 
(280,643
)
Charge-offs
 
(28,910
)
 
28,910

 

 
(28,852
)
 
28,852

 

Recoveries
 

 
(2,594
)
 
(2,594
)
 

 
(2,589
)
 
(2,589
)
Change in fair value recorded in earnings
 

 
(33,809
)
 
(33,809
)
 

 
(33,757
)
 
(33,757
)
Ending balance at September 30, 2014
 
$
2,566,477

 
$
(32,806
)
 
$
2,533,671

 
$
2,584,441

 
$
(32,801
)
 
$
2,551,640


 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at December 31, 2014
 
$
2,836,729

 
$
(38,224
)
 
$
2,798,505

 
$
2,851,837

 
$
(38,219
)
 
$
2,813,618

Purchases of loans
 
5,075,044

 

 
5,075,044

 

 

 

Issuances of notes and certificates
 

 

 

 
2,736,667

 

 
2,736,667

Whole loan sales
 
(2,338,346
)
 

 
(2,338,346
)
 

 

 

Principal payments
 
(1,280,005
)
 

 
(1,280,005
)
 
(1,268,622
)
 

 
(1,268,622
)
Charge-offs
 
(143,980
)
 
143,980

 

 
(143,935
)
 
143,935

 

Recoveries
 

 
(13,729
)
 
(13,729
)
 

 
(13,653
)
 
(13,653
)
Change in fair value recorded in earnings
 

 
(172,495
)
 
(172,495
)
 

 
(172,529
)
 
(172,529
)
Ending balance at September 30, 2015
 
$
4,149,442

 
$
(80,468
)
 
$
4,068,974

 
$
4,175,947

 
$
(80,466
)
 
$
4,095,481


 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at December 31, 2013
 
$
1,849,042

 
$
(20,000
)
 
$
1,829,042

 
$
1,859,982

 
$
(19,992
)
 
$
1,839,990

Purchases of loans
 
2,628,758

 

 
2,628,758

 

 

 

Issuances of notes and certificates
 

 

 

 
1,534,011

 

 
1,534,011

Whole loan sales
 
(1,094,482
)
 

 
(1,094,482
)
 

 

 

Principal payments
 
(739,506
)
 

 
(739,506
)
 
(732,343
)
 

 
(732,343
)
Charge-offs
 
(77,335
)
 
77,335

 

 
(77,209
)
 
77,209

 

Recoveries
 

 
(5,178
)
 
(5,178
)
 

 
(5,153
)
 
(5,153
)
Change in fair value recorded in earnings
 

 
(84,963
)
 
(84,963
)
 

 
(84,865
)
 
(84,865
)
Ending balance at September 30, 2014
 
$
2,566,477

 
$
(32,806
)
 
$
2,533,671

 
$
2,584,441

 
$
(32,801
)
 
$
2,551,640


The following table presents additional information about level 3 servicing assets and liabilities measured at fair value on a recurring basis for the third quarters and first nine months of 2015 and 2014:
 
 
Three Months Ended September 30, 2015
 
Three Months Ended September 30, 2014
 
 
Servicing Assets
 
Servicing Liabilities
 
Servicing Assets
 
Servicing Liabilities
Fair value at beginning of period
 
$
5,225

 
$
4,831

 
$
1,034

 
$
2,736

Issuances (1)
 
3,092

 
1,402

 
481

 
1,809

Changes in fair value, included in servicing fees
 
(1,436
)
 
(1,839
)
 
(182
)
 
(833
)
Additions, included in deferred revenue
 
368

 

 
187

 

Fair value at end of period
 
$
7,249

 
$
4,394

 
$
1,520

 
$
3,712

 
 
Nine Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2014
 
 
Servicing Assets
 
Servicing Liabilities
 
Servicing Assets
 
Servicing Liabilities
Fair value at beginning of period
 
$
2,181

 
$
3,973

 
$
534

 
$
936

Issuances (1)
 
6,476

 
4,340

 
1,355

 
3,464

Changes in fair value, included in servicing fees
 
(2,467
)
 
(3,919
)
 
(841
)
 
(688
)
Additions, included in deferred revenue
 
1,059

 

 
472

 

Fair value at end of period
 
$
7,249

 
$
4,394

 
$
1,520

 
$
3,712

(1)  
Represents the offsets to the gains or losses on sales of the related loans, recorded in other revenue (expense).

Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity
 
Certain fair valuation adjustments recorded through earnings were related to level 3 instruments for the third quarters and first nine months of 2015 and 2014. Generally, changes in the net cumulative expected loss rates, cumulative prepayment rates, and discount rates will have an immaterial net impact on the fair value of loans, notes and certificates, and servicing assets and liabilities.
 
Certain of these unobservable inputs may (in isolation) have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. When multiple inputs are used within the valuation techniques for loans, notes and certificates, or servicing assets and liabilities, a change in one input in a certain direction may be offset by an opposite change from another input.

A specific loan that is projected to have larger future default losses than previously estimated has lower expected future cash flows over its remaining life, which reduces its estimated fair value. Conversely, a specific loan that is projected to have smaller future default losses than previously estimated has increased expected future cash flows over its remaining life, which increases its fair value. Separately, an increase in expected prepayments will reduce the estimated fair value of a loan, whereas a decrease in expected prepayments will increase the estimated fair value of a loan.

Our selection of the most representative base market servicing rates for servicing assets and servicing liabilities is inherently judgmental. We reviewed third-party servicing rates for our loans and loans in similar credit sectors, as well as a market servicing benchmarking analysis provided by a third-party valuation firm, and determined that base market servicing rates on our products ranging from 0.40% to 0.75% per anum of outstanding principal are reasonable estimates as of September 30, 2015. The table below shows the estimated impact on the estimated fair value of servicing assets and liabilities, calculated using different base market servicing rate assumptions as of September 30, 2015 and December 31, 2014:
 
September 30, 2015
 
December 31, 2014
 
Servicing Assets
 
Servicing Liabilities
 
Servicing Assets
 
Servicing Liabilities
Weighted-average base market servicing rate assumptions
0.50
%
 
0.50
%
 
0.50
%
 
0.50
%
Change in fair value from:
 
 
 
 
 
 
 
Servicing rate increase to 0.60%
$
(2,566
)
 
$
1,764

 
$
(915
)
 
$
1,416

Servicing rate decrease to 0.40%
$
2,682

 
$
(1,649
)
 
$
965

 
$
(1,366
)


Financial Instruments Not Recorded at Fair Value

The following tables present the fair value hierarchy for financial instruments not recorded at fair value:
September 30, 2015
Carrying Amount
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
579,206

 
$

 
$
579,206

 
$

 
$
579,206

Restricted cash
159,216

 

 
159,216

 

 
159,216

Deposits
763

 

 
763

 

 
763

Total assets
$
739,185

 
$

 
$
739,185

 
$

 
$
739,185

Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
3,756

 
$

 
$
3,756

 
$

 
$
3,756

Payables to investors
150,880

 

 
150,880

 

 
150,880

Total liabilities
$
154,636

 
$

 
$
154,636

 
$

 
$
154,636

December 31, 2014
Carrying Amount
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
869,780

 
$

 
$
869,780

 
$

 
$
869,780

Restricted cash
46,763

 

 
46,763

 

 
46,763

Deposits
657

 

 
657

 

 
657

Total assets
$
917,200

 
$

 
$
917,200

 
$

 
$
917,200

Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
5,892

 
$

 
$
5,892

 
$

 
$
5,892

Payables to investors
38,741

 

 
38,741

 

 
38,741

Total liabilities
$
44,633

 
$

 
$
44,633

 
$

 
$
44,633