| 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 records certain assets and liabilities at fair value as listed in the following tables.
Financial Instruments, Assets and Liabilities Recorded at Fair Value
The following tables present the fair value hierarchy for assets and liabilities measured at fair value at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | September 30, 2019 | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Balance at Fair Value | Assets: | | | | | | | | Loans held for investment | $ | — |
| | $ | — |
| | $ | 1,237,479 |
| | $ | 1,237,479 |
| Loans held for investment by the Company | — |
| | — |
| | 4,211 |
| | 4,211 |
| Loans held for sale by the Company | — |
| | — |
| | 710,170 |
| | 710,170 |
| Securities available for sale: | | | | | | | | Asset-backed senior securities and subordinated securities | — |
| | 83,463 |
| | 14,699 |
| | 98,162 |
| CLUB Certificate asset-backed securities | — |
| | — |
| | 88,530 |
| | 88,530 |
| Other asset-backed securities | — |
| | 18,307 |
| | — |
| | 18,307 |
| Certificates of deposit | — |
| | 17,052 |
| | — |
| | 17,052 |
| Corporate debt securities | — |
| | 14,841 |
| | — |
| | 14,841 |
| Commercial paper | — |
| | 9,667 |
| | — |
| | 9,667 |
| Total securities available for sale | — |
| | 143,330 |
| | 103,229 |
| | 246,559 |
| Servicing assets | — |
| | — |
| | 83,250 |
| | 83,250 |
| Total assets | $ | — |
| | $ | 143,330 |
| | $ | 2,138,339 |
| | $ | 2,281,669 |
| | | | | | | | | Liabilities: | | | | | | | | Notes, certificates and secured borrowings | $ | — |
| | $ | — |
| | $ | 1,240,958 |
| | $ | 1,240,958 |
| Loan trailing fee liability | — |
| | — |
| | 10,583 |
| | 10,583 |
| Total liabilities | $ | — |
| | $ | — |
| | $ | 1,251,541 |
| | $ | 1,251,541 |
|
| | | | | | | | | | | | | | | | | December 31, 2018 | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Balance at
Fair Value | Assets: | | | | | | | | Loans held for investment | $ | — |
| | $ | — |
| | $ | 1,883,251 |
| | $ | 1,883,251 |
| Loans held for investment by the Company | — |
| | — |
| | 2,583 |
| | 2,583 |
| Loans held for sale by the Company | — |
| | — |
| | 840,021 |
| | 840,021 |
| Securities available for sale: | | | | | | | | Asset-backed senior securities and subordinated securities | — |
| | 56,489 |
| | 11,849 |
| | 68,338 |
| CLUB Certificate asset-backed securities | — |
| | — |
| | 48,430 |
| | 48,430 |
| Corporate debt securities | — |
| | 17,328 |
| | — |
| | 17,328 |
| Certificates of deposit | — |
| | 14,929 |
| | — |
| | 14,929 |
| Other asset-backed securities | — |
| | 11,225 |
| | — |
| | 11,225 |
| Commercial paper | — |
| | 9,720 |
| | — |
| | 9,720 |
| Other securities | — |
| | 499 |
| | — |
| | 499 |
| Total securities available for sale | — |
| | 110,190 |
| | 60,279 |
| | 170,469 |
| Servicing assets | — |
| | — |
| | 64,006 |
| | 64,006 |
| Total assets | $ | — |
| | $ | 110,190 |
| | $ | 2,850,140 |
| | $ | 2,960,330 |
| | | | | | | | | Liabilities: | | | | | | | | Notes, certificates and secured borrowings | $ | — |
| | $ | — |
| | $ | 1,905,875 |
| | $ | 1,905,875 |
| Loan trailing fee liability | — |
| | — |
| | 10,010 |
| | 10,010 |
| Total liabilities | $ | — |
| | $ | — |
| | $ | 1,915,885 |
| | $ | 1,915,885 |
|
The Company has elected the fair value option for notes, certificates, secured borrowings, and the loan trailing fee liability. Changes in the fair value of these financial liabilities caused by a change in the Company’s risk are reported in other comprehensive income (OCI). For the third quarter and first nine months of 2019, the amount reported in OCI is zero because these financial liabilities are either payable only upon receipt of cash flows from underlying loans or secured by cash collateral.
Financial instruments are categorized in the valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. Since the Company’s loans held for investment and related notes, certificates, and secured borrowings, loans held for sale, loan servicing rights, asset-backed securities related to structured program transactions, and loan trailing fee liability do not trade in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of these assets and liabilities. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, changes in fair value for assets and liabilities within the Level 2 or Level 3 categories may include changes in fair value that were attributable to observable and unobservable inputs, respectively. The Company primarily uses a discounted cash flow model to estimate the fair value of Level 3 instruments based on the present value of estimated future cash flows. This model uses inputs that are inherently judgmental and reflect our best estimates of the assumptions a market participant would use to calculate fair value. The Company did not transfer any assets or liabilities in or out of Level 3 during the first nine months of 2019 or the year ended December 31, 2018.
Fair valuation adjustments were recorded through earnings related to Level 3 instruments for the third quarters and first nine months of 2019 and 2018. Certain 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, a change in one input in a certain direction may be offset by an opposite change from another input.
Loans Held for Investment, Notes, Certificates and Secured Borrowings
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loans held for investment, notes, certificates and secured borrowings at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Held for Investment, Notes, Certificates and Secured Borrowings | | | | | | | | September 30, 2019 | | December 31, 2018 | | | | | | | | Minimum | | Maximum | | Weighted- Average | | Minimum | | Maximum | | Weighted- Average | Discount rates | | 6.4 | % | | 13.9 | % | | 8.3 | % | | 6.3 | % | | 16.4 | % | | 9.1 | % | Net cumulative expected loss rates (1) | | 3.5 | % | | 35.0 | % | | 11.8 | % | | 2.8 | % | | 36.9 | % | | 12.8 | % | Cumulative expected prepayment rates (1) | | 28.2 | % | | 38.7 | % | | 31.2 | % | | 27.8 | % | | 40.3 | % | | 31.2 | % |
| | (1) | Expressed as a percentage of the original principal balance of the loan, note, certificate or secured borrowing. |
Significant Recurring Level 3 Fair Value Input Sensitivity
At September 30, 2019 and December 31, 2018, the discounted cash flow methodology used to estimate the note, certificate and secured borrowings’ fair values used the same projected net cash flows as their related loans. As demonstrated by the following tables, the fair value adjustments for loans held for investment and loans held for sale were largely offset by the fair value adjustments of the notes, certificates and secured borrowings due to the payment dependent design of the notes, certificates and secured borrowings and because the principal balances of the loans were close to the combined principal balances of the notes, certificates and secured borrowings.
Fair Value Reconciliation
The following tables present additional information about Level 3 loans held for investment, loans held for sale, and notes, certificates and secured borrowings measured at fair value on a recurring basis for the third quarters and first nine months of 2019 and 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Held for Investment | | Loans Held for Sale | | Notes, Certificates and Secured Borrowings | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | Balance at June 30, 2019 | $ | 1,605,257 |
| | $ | (92,273 | ) | | $ | 1,512,984 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,605,257 |
| | $ | (87,306 | ) | | $ | 1,517,951 |
| Purchases | 162,402 |
| | — |
| | 162,402 |
| | 697,833 |
| | (9,080 | ) | | 688,753 |
| | — |
| | — |
| | — |
| Transfers (to) from loans held for investment and/or loans held for sale | (122,515 | ) | | — |
| | (122,515 | ) | | 122,330 |
| | — |
| | 122,330 |
| | — |
| | — |
| | — |
| Issuances | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 162,402 |
| | — |
| | 162,402 |
| Sales | — |
| | — |
| | — |
| | (820,163 | ) | | 8,814 |
| | (811,349 | ) | | — |
| | — |
| | — |
| Principal payments and retirements | (286,106 | ) | | — |
| | (286,106 | ) | | — |
| | — |
| | — |
| | (408,621 | ) | | — |
| | (408,621 | ) | Charge-offs, net of recoveries | (42,433 | ) | | 29,029 |
| | (13,404 | ) | | — |
| | — |
| | — |
| | (42,433 | ) | | 27,347 |
| | (15,086 | ) | Change in fair value recorded in earnings | — |
| | (15,882 | ) | | (15,882 | ) | | — |
| | 266 |
| | 266 |
| | — |
| | (15,688 | ) | | (15,688 | ) | Balance at September 30, 2019 | $ | 1,316,605 |
| | $ | (79,126 | ) | | $ | 1,237,479 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,316,605 |
| | $ | (75,647 | ) | | $ | 1,240,958 |
| | | Loans Held for Investment | | Loans Held for Sale | | Notes, Certificates and Secured Borrowings | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | Balance at June 30, 2018 | $ | 2,538,256 |
| | $ | (179,627 | ) | | $ | 2,358,629 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,553,926 |
| | $ | (176,846 | ) | | $ | 2,377,080 |
| Purchases | 236,354 |
| | 8 |
| | 236,362 |
| | 680,191 |
| | — |
| | 680,191 |
| | — |
| | — |
| | — |
| Issuances | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 236,463 |
| | — |
| | 236,463 |
| Sales | — |
| | — |
| | — |
| | (680,191 | ) | | (981 | ) | | (681,172 | ) | | — |
| | — |
| | — |
| Principal payments and retirements | (419,933 | ) | | — |
| | (419,933 | ) | | — |
| | — |
| | — |
| | (419,898 | ) | | 7 |
| | (419,891 | ) | Charge-offs, net of recoveries | (69,833 | ) | | 53,054 |
| | (16,779 | ) | | — |
| | — |
| | — |
| | (69,832 | ) | | 53,054 |
| | (16,778 | ) | Change in fair value recorded in earnings | — |
| | (24,450 | ) | | (24,450 | ) | | — |
| | 981 |
| | 981 |
| | — |
| | (24,558 | ) | | (24,558 | ) | Balance at September 30, 2018 | $ | 2,284,844 |
| | $ | (151,015 | ) | | $ | 2,133,829 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,300,659 |
| | $ | (148,343 | ) | | $ | 2,152,316 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Held for Investment | | Loans Held for Sale | | Notes, Certificates and Secured Borrowings | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | Balance at December 31, 2018 | $ | 2,013,438 |
| | $ | (130,187 | ) | | $ | 1,883,251 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,033,258 |
| | $ | (127,383 | ) | | $ | 1,905,875 |
| Purchases | 522,248 |
| | (21 | ) | | 522,227 |
| | 1,812,984 |
| | (9,548 | ) | | 1,803,436 |
| | — |
| | — |
| | — |
| Transfers (to) from loans held for investment and/or loans held for sale | (122,967 | ) | | — |
| | (122,967 | ) | | 122,330 |
| | — |
| | 122,330 |
| | — |
| | — |
| | — |
| Issuances | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 522,248 |
| | — |
| | 522,248 |
| Sales | — |
| | — |
| | — |
| | (1,935,314 | ) | | 8,034 |
| | (1,927,280 | ) | | — |
| | — |
| | — |
| Principal payments and retirements | (944,469 | ) | | — |
| | (944,469 | ) | | — |
| | — |
| | — |
| | (1,087,256 | ) | | 14 |
| | (1,087,242 | ) | Charge-offs, net of recoveries | (151,645 | ) | | 110,705 |
| | (40,940 | ) | | — |
| | — |
| | — |
| | (151,645 | ) | | 109,012 |
| | (42,633 | ) | Change in fair value recorded in earnings | — |
| | (59,623 | ) | | (59,623 | ) | | — |
| | 1,514 |
| | 1,514 |
| | — |
| | (57,290 | ) | | (57,290 | ) | Balance at September 30, 2019 | $ | 1,316,605 |
| | $ | (79,126 | ) | | $ | 1,237,479 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,316,605 |
| | $ | (75,647 | ) | | $ | 1,240,958 |
| | | Loans Held for Investment | | Loans Held for Sale | | Notes, Certificates and Secured Borrowings | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | Balance at December 31, 2017 | $ | 3,141,391 |
| | $ | (209,066 | ) | | $ | 2,932,325 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,161,080 |
| | $ | (206,312 | ) | | $ | 2,954,768 |
| Purchases | 774,918 |
| | 17 |
| | 774,935 |
| | 2,624,026 |
| | (3,318 | ) | | 2,620,708 |
| | — |
| | — |
| | — |
| Transfers (to) from loans held for investment and/or loans held for sale | (1,181 | ) | | (22,152 | ) | | (23,333 | ) | | 1,181 |
| | 22,152 |
| | 23,333 |
| | — |
| | — |
| | — |
| Issuances | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 775,441 |
| | — |
| | 775,441 |
| Sales | — |
| | — |
| | — |
| | (2,625,207 | ) | | 627 |
| | (2,624,580 | ) | | — |
| | — |
| | — |
| Principal payments and retirements | (1,373,600 | ) | | — |
| | (1,373,600 | ) | | — |
| | — |
| | — |
| | (1,379,179 | ) | | 101 |
| | (1,379,078 | ) | Charge-offs, net of recoveries | (256,684 | ) | | 207,825 |
| | (48,859 | ) | | — |
| | — |
| | — |
| | (256,683 | ) | | 207,825 |
| | (48,858 | ) | Change in fair value recorded in earnings | — |
| | (127,639 | ) | | (127,639 | ) | | — |
| | (19,461 | ) | | (19,461 | ) | | — |
| | (149,957 | ) | | (149,957 | ) | Balance at September 30, 2018 | $ | 2,284,844 |
| | $ | (151,015 | ) | | $ | 2,133,829 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,300,659 |
| | $ | (148,343 | ) | | $ | 2,152,316 |
|
Loans Invested in by the Company
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loans invested in by the Company at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Invested in by the Company | | | | | | | | September 30, 2019 | | December 31, 2018 | | | | | | | | Minimum | | Maximum | | Weighted-
Average | | Minimum | | Maximum | | Weighted-
Average | Discount rates | | 6.1 | % | | 13.8 | % | | 8.0 | % | | 5.9 | % | | 16.7 | % | | 9.4 | % | Net cumulative expected loss rates (1) | | 3.4 | % | | 37.1 | % | | 10.6 | % | | 2.6 | % | | 36.8 | % | | 13.2 | % | Cumulative expected prepayment rates (1) | | 26.9 | % | | 40.8 | % | | 31.2 | % | | 27.0 | % | | 45.5 | % | | 32.5 | % |
| | (1) | Expressed as a percentage of the original principal balance of the loan. |
Significant Recurring Level 3 Fair Value Input Sensitivity
The fair value sensitivity of loans invested in by the Company to adverse changes in key assumptions as of September 30, 2019 and December 31, 2018, are as follows: | | | | | | | | | | September 30,
2019 | | December 31,
2018 | Fair value of loans invested in by the Company | $ | 714,381 |
| | $ | 842,604 |
| Expected weighted-average life (in years) | 1.5 |
| | 1.4 |
| Discount rates | | | | 100 basis point increase | $ | (9,424 | ) | | $ | (10,487 | ) | 200 basis point increase | $ | (18,650 | ) | | $ | (20,720 | ) | Expected credit loss rates on underlying loans | | | | 10% adverse change | $ | (8,631 | ) | | $ | (11,304 | ) | 20% adverse change | $ | (17,254 | ) | | $ | (22,504 | ) | Expected prepayment rates | | | | 10% adverse change | $ | (2,143 | ) | | $ | (2,422 | ) | 20% adverse change | $ | (4,201 | ) | | $ | (4,785 | ) |
Fair Value Reconciliation
The following tables present additional information about Level 3 loans invested in by the Company measured at fair value on a recurring basis for the third quarters and first nine months of 2019 and 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Held for Investment by the Company | | Loans Held for Sale by the Company | | Total Loans Invested in by the Company | | | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | | Balance at June 30, 2019 | $ | 6,550 |
| | $ | (1,523 | ) | | $ | 5,027 |
| | $ | 457,787 |
| | $ | (22,704 | ) | | $ | 435,083 |
| | $ | 464,337 |
| | $ | (24,227 | ) | | $ | 440,110 |
| | | Purchases | 791 |
| | (632 | ) | | 159 |
| | 1,531,916 |
| | — |
| | 1,531,916 |
| | 1,532,707 |
| | (632 | ) | | 1,532,075 |
| | | Transfers (to) from loans held for investment and/or loans held for sale | 304 |
| | — |
| | 304 |
| | (119 | ) | | — |
| | (119 | ) | | 185 |
| | — |
| | 185 |
| | | Sales | — |
| | — |
| | — |
| | (1,181,739 | ) | | 24,093 |
| | (1,157,646 | ) | | (1,181,739 | ) | | 24,093 |
| | (1,157,646 | ) | | | Principal payments and retirements | (840 | ) | | — |
| | (840 | ) | | (65,814 | ) | | — |
| | (65,814 | ) | | (66,654 | ) | | — |
| | (66,654 | ) | | | Charge-offs, net of recoveries | (1,209 | ) | | 697 |
| | (512 | ) | | (6,680 | ) | | 5,922 |
| | (758 | ) | | (7,889 | ) | | 6,619 |
| | (1,270 | ) | | | Change in fair value recorded in earnings | — |
| | 73 |
| | 73 |
| | — |
| | (32,492 | ) | | (32,492 | ) | | — |
| | (32,419 | ) | | (32,419 | ) | | | Balance at September 30, 2019 | $ | 5,596 |
| | $ | (1,385 | ) | | $ | 4,211 |
| | $ | 735,351 |
| | $ | (25,181 | ) | | $ | 710,170 |
| | $ | 740,947 |
| | $ | (26,566 | ) | | $ | 714,381 |
| | | | | | | | | Loans Held for Investment by the Company | | Loans Held for Sale by the Company | | Total Loans Invested in by the Company | | | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | | Balance at June 30, 2018 | $ | 10,761 |
| | $ | (1,140 | ) | | $ | 9,621 |
| | $ | 535,910 |
| | $ | (20,603 | ) | | $ | 515,307 |
| | $ | 546,671 |
| | $ | (21,743 | ) | | $ | 524,928 |
| | | Purchases | 1,521 |
| | (256 | ) | | 1,265 |
| | 1,189,737 |
| | (602 | ) | | 1,189,135 |
| | 1,191,258 |
| | (858 | ) | | 1,190,400 |
| | | Transfers (to) from loans held for investment and/or loans held for sale | 3,011 |
| | — |
| | 3,011 |
| | (3,011 | ) | | — |
| | (3,011 | ) | | — |
| | — |
| | — |
| | | Sales | — |
| | — |
| | — |
| | (1,193,980 | ) | | 17,598 |
| | (1,176,382 | ) | | (1,193,980 | ) | | 17,598 |
| | (1,176,382 | ) | | | Principal payments and retirements | (1,456 | ) | | — |
| | (1,456 | ) | | (45,265 | ) | | — |
| | (45,265 | ) | | (46,721 | ) | | — |
| | (46,721 | ) | | | Charge-offs, net of recoveries | (541 | ) | | 303 |
| | (238 | ) | | (4,075 | ) | | 4,048 |
| | (27 | ) | | (4,616 | ) | | 4,351 |
| | (265 | ) | | | Change in fair value recorded in earnings | — |
| | (5 | ) | | (5 | ) | | — |
| | (20,474 | ) | | (20,474 | ) | | — |
| | (20,479 | ) | | (20,479 | ) | | | Balance at September 30, 2018 | $ | 13,296 |
| | $ | (1,098 | ) | | $ | 12,198 |
| | $ | 479,316 |
| | $ | (20,033 | ) | | $ | 459,283 |
| | $ | 492,612 |
| | $ | (21,131 | ) | | $ | 471,481 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans Held for Investment by the Company | | Loans Held for Sale by the Company | | Total Loans Invested in by the Company | | | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | | Balance at December 31, 2018 | $ | 3,518 |
| | $ | (935 | ) | | $ | 2,583 |
| | $ | 869,715 |
| | $ | (29,694 | ) | | $ | 840,021 |
| | $ | 873,233 |
| | $ | (30,629 | ) | | $ | 842,604 |
| | | Purchases | 1,961 |
| | (1,626 | ) | | 335 |
| | 3,564,467 |
| | — |
| | 3,564,467 |
| | 3,566,428 |
| | (1,626 | ) | | 3,564,802 |
| | | Transfers (to) from loans held for investment and/or loans held for sale | 5,254 |
| | (1,471 | ) | | 3,783 |
| | (4,617 | ) | | 1,471 |
| | (3,146 | ) | | 637 |
| | — |
| | 637 |
| | | Sales | — |
| | — |
| | — |
| | (3,477,485 | ) | | 86,387 |
| | (3,391,098 | ) | | (3,477,485 | ) | | 86,387 |
| | (3,391,098 | ) | | | Principal payments and retirements | (2,295 | ) | | — |
| | (2,295 | ) | | (197,692 | ) | | — |
| | (197,692 | ) | | (199,987 | ) | | — |
| | (199,987 | ) | | | Charge-offs, net of recoveries | (2,842 | ) | | 1,544 |
| | (1,298 | ) | | (19,037 | ) | | 17,885 |
| | (1,152 | ) | | (21,879 | ) | | 19,429 |
| | (2,450 | ) | | | Change in fair value recorded in earnings | — |
| | 1,103 |
| | 1,103 |
| | — |
| | (101,230 | ) | | (101,230 | ) | | — |
| | (100,127 | ) | | (100,127 | ) | | | Balance at September 30, 2019 | $ | 5,596 |
| | $ | (1,385 | ) | | $ | 4,211 |
| | $ | 735,351 |
| | $ | (25,181 | ) | | $ | 710,170 |
| | $ | 740,947 |
| | $ | (26,566 | ) | | $ | 714,381 |
| | | | | | | | | Loans Held for Investment by the Company | | Loans Held for Sale by the Company | | Total Loans Invested in by the Company | | | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | Outstanding Principal Balance | | Valuation Adjustment | | Fair Value | | | Balance at December 31, 2017 | $ | 371,379 |
| | $ | (10,149 | ) | | $ | 361,230 |
| | $ | 242,273 |
| | $ | (6,448 | ) | | $ | 235,825 |
| | $ | 613,652 |
| | $ | (16,597 | ) | | $ | 597,055 |
| | | Purchases | 4,682 |
| | (685 | ) | | 3,997 |
| | 3,172,818 |
| | (2,734 | ) | | 3,170,084 |
| | 3,177,500 |
| | (3,419 | ) | | 3,174,081 |
| | | Transfers (to) from loans held for investment and/or loans held for sale | (313,328 | ) | | 22,152 |
| | (291,176 | ) | | 313,328 |
| | (22,152 | ) | | 291,176 |
| | — |
| | — |
| | — |
| | | Sales | — |
| | — |
| | — |
| | (3,119,245 | ) | | 62,477 |
| | (3,056,768 | ) | | (3,119,245 | ) | | 62,477 |
| | (3,056,768 | ) | | | Principal payments and retirements | (45,770 | ) | | — |
| | (45,770 | ) | | (120,964 | ) | | — |
| | (120,964 | ) | | (166,734 | ) | | — |
| | (166,734 | ) | | | Charge-offs, net of recoveries | (3,667 | ) | | 3,062 |
| | (605 | ) | | (8,894 | ) | | 8,843 |
| | (51 | ) | | (12,561 | ) | | 11,905 |
| | (656 | ) | | | Change in fair value recorded in earnings | — |
| | (15,478 | ) | | (15,478 | ) | | — |
| | (60,019 | ) | | (60,019 | ) | | — |
| | (75,497 | ) | | (75,497 | ) | | | Balance at September 30, 2018 | $ | 13,296 |
| | $ | (1,098 | ) | | $ | 12,198 |
| | $ | 479,316 |
| | $ | (20,033 | ) | | $ | 459,283 |
| | $ | 492,612 |
| | $ | (21,131 | ) | | $ | 471,481 |
|
Asset-Backed Securities Related to Structured Program Transactions
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for asset-backed securities related to structured program transactions at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asset-Backed Securities Related to Structured Program Transactions | | | | | | | | September 30, 2019 | | December 31, 2018 | | | | | | | | Minimum | | Maximum | | Weighted-
Average | | Minimum | | Maximum | | Weighted-
Average | Discount rates | | 4.4 | % | | 40.0 | % | | 10.3 | % | | 3.2 | % | | 19.6 | % | | 8.8 | % | Net cumulative expected loss rates (1) | | 6.9 | % | | 39.9 | % | | 19.7 | % | | 6.3 | % | | 43.9 | % | | 18.4 | % | Cumulative expected prepayment rates (1) | | 19.3 | % | | 34.1 | % | | 29.1 | % | | 21.0 | % | | 33.0 | % | | 30.1 | % |
| | (1) | Expressed as a percentage of the outstanding collateral balance. |
Significant Recurring Level 3 Fair Value Input Sensitivity
The following tables present adverse changes to the fair value sensitivity of asset-backed securities related to structured program transactions to changes in key assumptions at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | September 30, 2019 | | Asset-Backed Securities Related to Structured Program Transactions | | Senior Securities | | Subordinated Securities | | CLUB Certificates | Fair value of interests held | $ | 83,463 |
| | $ | 14,699 |
| | $ | 88,530 |
| Expected weighted-average life (in years) | 1.1 |
| | 1.3 |
| | 1.1 |
| Discount rates | | | | | | 100 basis point increase | $ | (786 | ) | | $ | (204 | ) | | $ | (851 | ) | 200 basis point increase | $ | (1,559 | ) | | $ | (373 | ) | | $ | (1,681 | ) | Expected credit loss rates on underlying loans | | | | | | 10% adverse change | $ | — |
| | $ | (1,394 | ) | | $ | (2,144 | ) | 20% adverse change | $ | — |
| | $ | (2,826 | ) | | $ | (4,329 | ) | Expected prepayment rates | | | | | | 10% adverse change | $ | — |
| | $ | (635 | ) | | $ | (657 | ) | 20% adverse change | $ | — |
| | $ | (1,259 | ) | | $ | (1,301 | ) |
| | | | | | | | | | | | | | December 31, 2018 | | Asset-Backed Securities Related to Structured Program Transactions | | Senior Securities | | Subordinated Securities | | CLUB Certificates | Fair value of interests held | $ | 56,489 |
| | $ | 11,849 |
| | $ | 48,430 |
| Expected weighted-average life (in years) | 1.0 |
| | 1.3 |
| | 1.2 |
| Discount rates | | | | | | 100 basis point increase | $ | (526 | ) | | $ | (149 | ) | | $ | (472 | ) | 200 basis point increase | $ | (1,032 | ) | | $ | (293 | ) | | $ | (932 | ) | Expected credit loss rates on underlying loans | | | | | | 10% adverse change | $ | — |
| | $ | (1,573 | ) | | $ | (1,070 | ) | 20% adverse change | $ | — |
| | $ | (3,159 | ) | | $ | (2,112 | ) | Expected prepayment rates | | | | | | 10% adverse change | $ | — |
| | $ | (786 | ) | | $ | (291 | ) | 20% adverse change | $ | — |
| | $ | (1,599 | ) | | $ | (562 | ) |
Fair Value Reconciliation
The following table presents additional information about Level 3 asset-backed subordinated securities related to Company-sponsored Structured Program transactions measured at fair value on a recurring basis for the third quarters and first nine months of 2019 and 2018: | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | 2019 | | 2018 | | 2019 | | 2018 | Fair value at beginning of period | $ | 95,821 |
| | $ | 28,727 |
| | $ | 60,279 |
| | $ | 10,029 |
| Additions | 31,597 |
| | 16,836 |
| | 85,944 |
| | 41,641 |
| Redemptions | (8,861 | ) | | (417 | ) | | (8,861 | ) | | (2,742 | ) | Cash received | (13,385 | ) | | (3,075 | ) | | (31,791 | ) | | (4,362 | ) | Change in unrealized gain (loss) | (768 | ) | | 718 |
| | 140 |
| | 347 |
| Other-than-temporary impairment | (1,175 | ) | | (165 | ) | | (2,482 | ) | | (2,289 | ) | Fair value at end of period | $ | 103,229 |
| | $ | 42,624 |
| | $ | 103,229 |
| | $ | 42,624 |
|
Servicing Assets
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for servicing assets at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Servicing Assets | | | | | | | | September 30, 2019 | | December 31, 2018 | | | | | | | | Minimum | | Maximum | | Weighted-
Average | | Minimum | | Maximum | | Weighted-
Average | Discount rates | | 3.9 | % | | 15.7 | % | | 8.7 | % | | 4.8 | % | | 16.7 | % | | 9.0 | % | Net cumulative expected loss rates (1) | | 3.6 | % | | 36.5 | % | | 12.2 | % | | 2.8 | % | | 38.7 | % | | 12.5 | % | Cumulative expected prepayment rates (1) | | 27.2 | % | | 40.8 | % | | 31.9 | % | | 13.9 | % | | 42.9 | % | | 31.9 | % | Total market servicing rates (% per annum on outstanding principal balance) (2) | | 0.66 | % | | 0.66 | % | | 0.66 | % | | 0.66 | % | | 0.66 | % | | 0.66 | % |
| | (1) | Expressed as a percentage of the original principal balance of the loan. |
| | (2) | Includes collection fees estimated to be paid to a hypothetical third-party servicer. |
Significant Recurring Level 3 Fair Value Input Sensitivity
The Company’s selection of the most representative market servicing rates for servicing assets is inherently judgmental. The Company reviews third-party servicing rates for its loans, loans in similar credit sectors, and market servicing benchmarking analyses provided by third-party valuation firms, when available. The table below shows the impact on the estimated fair value of servicing assets, calculated using different market servicing rate assumptions as of September 30, 2019 and December 31, 2018: | | | | | | | | | Servicing Assets | September 30,
2019 | | December 31, 2018 | Weighted-average market servicing rate assumptions | 0.66 | % | | 0.66 | % | Change in fair value from: | | | | Servicing rate increase by 0.10% | $ | (13,577 | ) | | $ | (10,878 | ) | Servicing rate decrease by 0.10% | $ | 13,579 |
| | $ | 10,886 |
|
Fair Value Reconciliation
The following table presents additional information about Level 3 servicing assets measured at fair value on a recurring basis for the third quarters and first nine months of 2019 and 2018: | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | 2019 | | 2018 | | 2019 | | 2018 | Fair value at beginning of period | $ | 78,714 |
| | $ | 50,984 |
| | $ | 64,006 |
| | $ | 33,676 |
| Issuances (1) | 21,042 |
| | 16,308 |
| | 55,588 |
| | 44,476 |
| Change in fair value, included in investor fees | (16,849 | ) | | (9,194 | ) | | (39,954 | ) | | (22,253 | ) | Other net changes included in deferred revenue | 343 |
| | 2,062 |
| | 3,610 |
| | 4,261 |
| Fair value at end of period | $ | 83,250 |
| | $ | 60,160 |
| | $ | 83,250 |
| | $ | 60,160 |
|
| | (1) | Represents the gains or losses on sales of the related loans. |
Loan Trailing Fee Liability
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loan trailing fee liability at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loan Trailing Fee Liability | | | | | | | | September 30, 2019 | | December 31, 2018 | | | | | | | | Minimum | | Maximum | | Weighted-
Average | | Minimum | | Maximum | | Weighted-
Average | Discount rates | | 3.9 | % | | 15.7 | % | | 9.5 | % | | 4.8 | % | | 16.7 | % | | 9.5 | % | Net cumulative expected loss rates (1) | | 3.5 | % | | 36.4 | % | | 14.3 | % | | 2.8 | % | | 38.7 | % | | 14.0 | % | Cumulative expected prepayment rates (1) | | 27.8 | % | | 40.8 | % | | 32.5 | % | | 16.5 | % | | 43.1 | % | | 32.2 | % |
| | (1) | Expressed as a percentage of the original principal balance of the loan. |
Significant Recurring Level 3 Fair Value Input Sensitivity
The fair value sensitivity of the loan trailing fee liability to adverse changes in key assumptions would not result in a material impact on the Company’s financial position.
Fair Value Reconciliation
The following table presents additional information about Level 3 loan trailing fee liability measured at fair value on a recurring basis for the third quarters and first nine months of 2019 and 2018: | | | | | | | | | | | | | | | | | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | 2019 | | 2018 | | 2019 | | 2018 | Fair value at beginning of period | $ | 10,224 |
| | $ | 9,388 |
| | $ | 10,010 |
| | $ | 8,432 |
| Issuances | 2,152 |
| | 1,994 |
| | 5,552 |
| | 5,838 |
| Cash payment of Loan Trailing Fee | (2,015 | ) | | (1,769 | ) | | (5,920 | ) | | (4,974 | ) | Change in fair value, included in Origination and Servicing | 222 |
| | 243 |
| | 941 |
| | 560 |
| Fair value at end of period | $ | 10,583 |
| | $ | 9,856 |
| | $ | 10,583 |
| | $ | 9,856 |
|
Financial Instruments, Assets, and Liabilities Not Recorded at Fair Value
The following tables present the fair value hierarchy for financial instruments, assets, and liabilities not recorded at fair value at September 30, 2019 and December 31, 2018: | | | | | | | | | | | | | | | | | | | | | September 30, 2019 | Carrying Amount | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Balance at Fair Value | Assets: | | | | | | | | | | Cash and cash equivalents (1) | $ | 199,950 |
| | $ | — |
| | $ | 199,950 |
| | $ | — |
| | $ | 199,950 |
| Restricted cash (1) | 275,136 |
| | — |
| | 275,136 |
| | — |
| | 275,136 |
| Servicer reserve receivable | 120 |
| | — |
| | 120 |
| | — |
| | 120 |
| Deposits | 859 |
| | — |
| | 859 |
| | — |
| | 859 |
| Total assets | $ | 476,065 |
| | $ | — |
| | $ | 476,065 |
| | $ | — |
| | $ | 476,065 |
| Liabilities: | | | | | | | | | | Accrued expenses and other liabilities | $ | 22,566 |
| | $ | — |
| | $ | — |
| | $ | 22,566 |
| | $ | 22,566 |
| Accounts payable | 15,490 |
| | — |
| | 15,490 |
| | — |
| | 15,490 |
| Payables to investors | 117,698 |
| | — |
| | 117,698 |
| | — |
| | 117,698 |
| Credit facilities and securities sold under repurchase agreements | 509,107 |
| | — |
| | 43,844 |
| | 465,263 |
| | 509,107 |
| Total liabilities | $ | 664,861 |
| | $ | — |
| | $ | 177,032 |
| | $ | 487,829 |
| | $ | 664,861 |
|
| | (1) | Carrying amount approximates fair value due to the short maturity of these financial instruments. |
| | | | | | | | | | | | | | | | | | | | | December 31, 2018 | Carrying Amount | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Balance at Fair Value | Assets: | | | | | | | | | | Cash and cash equivalents (1) | $ | 372,974 |
| | $ | — |
| | $ | 372,974 |
| | $ | — |
| | $ | 372,974 |
| Restricted cash (1) | 271,084 |
| | — |
| | 271,084 |
| | — |
| | 271,084 |
| Servicer reserve receivable | 669 |
| | — |
| | 669 |
| | — |
| | 669 |
| Deposits | 1,093 |
| | — |
| | 1,093 |
| | — |
| | 1,093 |
| Total assets | $ | 645,820 |
| | $ | — |
| | $ | 645,820 |
| | $ | — |
| | $ | 645,820 |
| Liabilities: | | | | | | | | | | Accrued expenses and other liabilities | $ | 18,483 |
| | $ | — |
| | $ | — |
| | $ | 18,483 |
| | $ | 18,483 |
| Accounts payable | 7,104 |
| | — |
| | 7,104 |
| | — |
| | 7,104 |
| Payables to investors | 149,052 |
| | — |
| | 149,052 |
| | — |
| | 149,052 |
| Payable to securitization note holders | 256,354 |
| | — |
| | 256,354 |
| | — |
| | 256,354 |
| Credit facilities and securities sold under repurchase agreements | 458,802 |
| | — |
| | 57,012 |
| | 401,790 |
| | 458,802 |
| Total liabilities | $ | 889,795 |
| | $ | — |
| | $ | 469,522 |
| | $ | 420,273 |
| | $ | 889,795 |
|
(1) Carrying amount approximates fair value due to the short maturity of these financial instruments.
|