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Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2019

For a description of the fair value hierarchy and the Company’s fair value methodologies, see “Note 2. Summary of Significant Accounting Policies.” 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 December 31, 2019 and 2018:



December 31, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for investment	$	—	$	—	$	1,079,315	$	1,079,315
Loans held for investment by the Company	—		—		43,693		43,693
Loans held for sale by the Company	—		—		722,355		722,355
Securities available for sale:
Asset-backed senior securities and subordinated securities	—		109,339		21,090		130,429
CLUB Certificate asset-backed securities	—		—		89,706		89,706
Corporate debt securities	—		14,343		—		14,343
Certificates of deposit			13,100		—		13,100
Other asset-backed securities	—		12,080		—		12,080
Commercial paper	—		9,274		—		9,274
U.S. agency securities	—		1,995		—		1,995
Total securities available for sale	—		160,131		110,796		270,927
Servicing assets	—		—		89,680		89,680
Total assets	$	—	$	160,131	$	2,045,839	$	2,205,970

Liabilities:
Notes, certificates and secured borrowings	$	—	$	—	$	1,081,466	$	1,081,466
Payable to securitization note and certificate holders	—		—		40,610		40,610
Loan trailing fee liability	—		—		11,099		11,099
Total liabilities	$	—	$	—	$	1,133,175	$	1,133,175



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
Certificates of deposit	—		14,929		—		14,929
Corporate debt securities	—		17,328		—		17,328
Other asset-backed securities	—		11,225		—		11,225
Commercial paper	—		9,720		—		9,720
CLUB Certificate asset-backed securities	—		—		48,430		48,430
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:
Note, 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

As presented in the tables above, the Company has elected the fair value option for certain liabilities. 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 year ended December 31, 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 years ended December 31, 2019 or 2018.

Fair valuation adjustments are recorded through earnings related to Level 3 instruments for the years ended December 31, 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 December 31, 2019 and 2018:



	Loans Held for Investment, Notes, Certificates and Secured Borrowings
	December 31, 2019						December 31, 2018
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	6.0	%	12.0	%	7.9	%	6.3	%	16.4	%	9.1	%
Net cumulative expected loss rates⁽¹⁾	3.6	%	34.9	%	11.9	%	2.8	%	36.9	%	12.8	%
Cumulative expected prepayment rates ⁽¹⁾	28.7	%	38.6	%	31.7	%	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 December 31, 2019 and 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 corresponding fair value adjustments due to the payment dependent design of the notes, certificates and secured borrowings.

Fair Value Reconciliation

The following table presents 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 years ended December 31, 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 December 31, 2017	$	3,141,391		$	(209,066	)	$	2,932,325		$	—		$	—		$	—		$	3,161,080		$	(206,312	)	$	2,954,768
Purchases	953,034			26			953,060			3,141,891			(5,714		)	3,136,177			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(1,180		)	(22,152		)	(23,332		)	1,180			22,152			23,332			—			—			—
Issuances	—			—			—			—			—			—			953,904			—			953,904
Sales	—			—			—			(3,143,071		)	1,548			(3,141,523		)	—			—			—
Principal payments and retirements	(1,754,293		)	—			(1,754,293		)	—			—			—			(1,756,212		)	111			(1,756,101		)
Charge-offs, net of recoveries	(325,514		)	263,022			(62,492		)	—			—			—			(325,514		)	263,020			(62,494		)
Change in fair value recorded in earnings	—			(162,017		)	(162,017		)	—			(17,986		)	(17,986		)	—			(184,202		)	(184,202		)
Balance at December 31, 2018	$	2,013,438		$	(130,187	)	$	1,883,251		$	—		$	—		$	—		$	2,033,258		$	(127,383	)	$	1,905,875
Purchases	632,962			(21		)	632,941			2,490,734			(26,560		)	2,464,174			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(123,036		)	—			(123,036		)	122,330			—			122,330			—			—			—
Issuances	—			—			—			—			—			—			632,962			—			632,962
Sales	—			—			—			(2,613,064		)	24,789			(2,588,275		)	—			—			—
Principal payments and retirements	(1,183,670		)	—			(1,183,670		)	—			—			—			(1,326,526		)	14			(1,326,512		)
Charge-offs, net of recoveries	(190,806		)	138,857			(51,949		)	—			—			—			(190,806		)	135,785			(55,021		)
Change in fair value recorded in earnings	—			(78,222		)	(78,222		)	—			1,771			1,771			—			(75,838		)	(75,838		)
Balance at December 31, 2019	$	1,148,888		$	(69,573	)	$	1,079,315		$	—		$	—		$	—		$	1,148,888		$	(67,422	)	$	1,081,466

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 December 31, 2019 and 2018:



	Loans Invested in by the Company
	December 31, 2019						December 31, 2018
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	6.0	%	11.5	%	7.8	%	5.9	%	16.7	%	9.4	%
Net cumulative expected loss rates⁽¹⁾	3.6	%	36.6	%	10.9	%	2.6	%	36.8	%	13.2	%
Cumulative expected prepayment rates ⁽¹⁾	27.3	%	41.0	%	31.6	%	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 December 31, 2019 and 2018, are as follows:



	December 31, 2019			December 31, 2018
Fair value of loans invested in by the Company	$	766,048		$	842,604
Expected weighted-average life (in years)	1.5			1.4
Discount rates
100 basis point increase	$	(9,806	)	$	(10,487	)
200 basis point increase	$	(19,410	)	$	(20,720	)
Expected credit loss rates on underlying loans
10% adverse change	$	(9,558	)	$	(11,304	)
20% adverse change	$	(19,136	)	$	(22,504	)
Expected prepayment rates
10% adverse change	$	(2,429	)	$	(2,422	)
20% adverse change	$	(4,740	)	$	(4,785	)

Fair Value Reconciliation

The following table presents additional information about Level 3 loans invested in by the Company measured at fair value on a recurring basis for the years ended December 31, 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 December 31, 2017	$	371,379		$	(10,149	)	$	361,230		$	242,273		$	(6,448	)	$	235,825		$	613,652		$	(16,597	)	$	597,055
Purchases	8,697			(876		)	7,821			4,353,458			(2,739		)	4,350,719			4,362,155			(3,615		)	4,358,540
Transfers (to) from loans held for investment and/or loans held for sale	(324,626		)	22,152			(302,474		)	324,626			(22,152		)	302,474			—			—			—
Sales	—			—			—			(3,862,910		)	72,742			(3,790,168		)	(3,862,910		)	72,742			(3,790,168		)
Principal payments and retirements	(47,552		)	—			(47,552		)	(172,334		)	—			(172,334		)	(219,886		)	—			(219,886		)
Charge-offs, net of recoveries	(4,380		)	3,633			(747		)	(15,398		)	15,223			(175		)	(19,778		)	18,856			(922		)
Change in fair value recorded in earnings	—			(15,695		)	(15,695		)	—			(86,320		)	(86,320		)	—			(102,015		)	(102,015		)
Balance at December 31, 2018	$	3,518		$	(935	)	$	2,583		$	869,715		$	(29,694	)	$	840,021		$	873,233		$	(30,629	)	$	842,604
Purchases	2,993			(2,303		)	690			5,343,146			1			5,343,147			5,346,139			(2,302		)	5,343,837
Transfers (to) from loans held for investment and/or loans held for sale	49,996			(1,471		)	48,525			(49,290		)	1,471			(47,819		)	706			—			706
Sales	—			—			—			(5,122,450		)	119,369			(5,003,081		)	(5,122,450		)	119,369			(5,003,081		)
Principal payments and retirements	(5,214		)	—			(5,214		)	(268,366		)	—			(268,366		)	(273,580		)	—			(273,580		)
Charge-offs, net of recoveries	(4,251		)	2,169			(2,082		)	(25,361		)	23,973			(1,388		)	(29,612		)	26,142			(3,470		)
Change in fair value recorded in earnings	—			(809		)	(809		)	—			(140,159		)	(140,159		)	—			(140,968		)	(140,968		)
Balance at December 31, 2019	$	47,042		$	(3,349	)	$	43,693		$	747,394		$	(25,039	)	$	722,355		$	794,436		$	(28,388	)	$	766,048

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 December 31, 2019 and 2018:



	Asset-Backed Securities Related to Structured Program Transactions
	December 31, 2019						December 31, 2018
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	3.4	%	20.7	%	8.8	%	3.2	%	19.6	%	8.8	%
Net cumulative expected loss rates⁽¹⁾	4.5	%	37.9	%	19.2	%	6.3	%	43.9	%	18.4	%
Cumulative expected prepayment rate ⁽¹⁾	17.3	%	35.1	%	29.4	%	21.0	%	33.0	%	30.1	%


⁽¹⁾	Expressed as a percentage of the outstanding collateral balance.

Significant Recurring Fair Value Input Sensitivity

The following tables present adverse changes to the fair value sensitivity of Level 2 and Level 3 asset-backed securities related to Structured Program transactions to changes in key assumptions at December 31, 2019 and 2018:



	December 31, 2019
	Asset-Backed Securities Related to Structured Program Transactions
	Senior Securities			Subordinated Securities			CLUB Certificates
Fair value of interests held	$	109,339		$	21,090		$	89,706
Expected weighted-average life (in years)	1.1			1.4			1.1
Discount rates
100 basis point increase	$	(1,050	)	$	(300	)	$	(823	)
200 basis point increase	$	(2,076	)	$	(513	)	$	(1,627	)
Expected credit loss rates on underlying loans
10% adverse change	$	—		$	(2,162	)	$	(2,163	)
20% adverse change	$	—		$	(4,273	)	$	(4,311	)
Expected prepayment rates
10% adverse change	$	—		$	(814	)	$	(654	)
20% adverse change	$	—		$	(1,495	)	$	(1,279	)



	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 securities related to Structured Program transactions measured at fair value on a recurring basis for the years ended December 31, 2019 and 2018:



	December 31, 2019			December 31, 2018
Fair value at beginning of period	$	60,279		$	10,029
Additions	118,721			65,098
Redemptions	(17,900		)	(2,742		)
Cash received	(45,701		)	(9,329		)
Change in unrealized gain (loss)	(992		)	201
Other-than-temporary impairment	(3,611		)	(2,978		)
Fair value at end of period	$	110,796		$	60,279

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 December 31, 2019 and 2018:



	Servicing Assets
	December 31, 2019						December 31, 2018
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted-Average
Discount rates	2.9	%	14.8	%	8.6	%	4.8	%	16.7	%	9.0	%
Net cumulative expected loss rates⁽¹⁾	3.7	%	36.1	%	12.4	%	2.8	%	38.7	%	12.5	%
Cumulative expected prepayment rates ⁽¹⁾	27.5	%	41.8	%	32.5	%	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 December 31, 2019 and 2018:



	Servicing Assets
	December 31, 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%	$	(13,978	)	$	(10,878	)
Servicing rate decrease by 0.10%	$	13,979		$	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 years ended December 31, 2019 and 2018:



	Servicing Assets
Fair value at December 31, 2017	$	33,676
Issuances ⁽¹⁾	55,403
Change in fair value, included in investor fees	(31,233		)
Other net changes included in deferred revenue	6,160
Fair value at December 31, 2018	$	64,006
Issuances ⁽¹⁾	79,692
Change in fair value, included in investor fees	(58,172		)
Other net changes included in deferred revenue	4,154
Fair value at December 31, 2019	$	89,680


⁽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 December 31, 2019 and 2018:



	Loan Trailing Fee Liability
	December 31, 2019						December 31, 2018
	Minimum		Maximum		Weighted Average-		Minimum		Maximum		Weighted Average-
Discount rates	2.9	%	14.8	%	9.3	%	4.8	%	16.7	%	9.5	%
Net cumulative expected loss rates ⁽¹⁾	3.7	%	36.0	%	14.4	%	2.8	%	38.7	%	14.0	%
Cumulative expected prepayment rates ⁽¹⁾	28.5	%	41.7	%	33.0	%	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 the Level 3 loan trailing fee liability measured at fair value on a recurring basis for the years ended December 31, 2019 and 2018:



Year Ended December 31,	2019			2018
Fair value at beginning of period	$	10,010		$	8,432
Issuances	7,815			7,614
Cash payment of Loan Trailing Fee	(7,908		)	(6,803		)
Change in fair value, included in Origination and Servicing	1,182			767
Fair value at end of period	$	11,099		$	10,010

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:



December 31, 2019	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Cash and cash equivalents ⁽¹⁾	$	243,779	$	—	$	243,779	$	—	$	243,779
Restricted cash ⁽¹⁾	243,343		—		243,343		—		243,343
Servicer reserve receivable	73		—		73		—		73
Deposits	953		—		953		—		953
Total assets	$	488,148	$	—	$	488,148	$	—	$	488,148
Liabilities:
Accrued expenses and other liabilities	$	24,899	$	—	$	—	$	24,899	$	24,899
Accounts payable	10,855		—		10,855		—		10,855
Payable to investors	97,530		—		97,530		—		97,530
Credit facilities and securities sold under repurchase agreements	587,453		—		77,143		510,310		587,453
Total liabilities	$	720,737	$	—	$	185,528	$	535,209	$	720,737


⁽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
Payable to investors	149,052		—		149,052		—		149,052
Payable to securitization note and certificate 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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