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Fair Value of Assets and Liabilities
 9 Months Ended
Sep. 30, 2019
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 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.