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Securities Available for Sale
 6 Months Ended
Jun. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Securities Available for Sale Securities Available for Sale

The Company’s Structured Program transactions include (i) asset-backed securitization transactions and (ii) Certificate Program transactions. Certificate Program transactions include CLUB Certificate and Levered Certificate transactions.

In connection with asset-backed securitizations, the Company is the sponsor and establishes trusts to ultimately purchase the unsecured personal loans from the Company and/or third-party whole loan investors. Securities issued from our asset-backed securitizations are senior or subordinated based on the waterfall criteria of loan payments to each security class. The subordinated residual interests issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria. The assets are transferred into a trust such that the assets are legally isolated from the creditors of the Company and are not available to satisfy obligations of the Company. These assets can only be used to settle obligations of the underlying trusts. The asset-backed securitization senior securities and subordinated residual interests retained by the Company are presented as “Asset-backed senior securities” and “Asset-backed subordinated securities,” respectively, in the securities available for sale tables below.

In addition, the Company sponsors the sale of unsecured personal loans through the issuance of certificate securities under our Certificate Program. The certificate securities are collateralized by loans transferred to a series of a master trust and trade in the over-the-counter market with a CUSIP. The assets are transferred into a trust such that the assets are legally isolated from the creditors of the Company and are not available to satisfy obligations of the Company. These assets can only be used to settle obligations of the underlying Certificate Program trusts. The CLUB Certificate issued securities are pass-through securities of which each owner has an undivided and equal interest in the underlying loans of each transaction. The Levered Certificate issued securities include senior and subordinated securities based on the waterfall criteria of loan payments to each security class. The subordinated securities issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria. The CLUB Certificate issued securities retained by the Company are presented as “CLUB Certificate asset-backed securities” in the securities available for sale tables below.

The Levered Certificate issued senior and subordinated securities retained by the Company are presented in aggregate with securities from asset-backed securitizations as “Asset-backed senior securities” and “Asset-backed
subordinated securities,” respectively, in the tables below. The “Other asset-backed securities” caption in the tables below primarily includes investment-grade rated bonds that are collateralized by automobile loan receivables.

The amortized cost, gross unrealized gains and losses, allowance for credit losses, and fair value of securities available for sale as of June 30, 2020 and December 31, 2019, were as follows:
June 30, 2020
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Allowance for Credit Losses
 
Fair
Value
Asset-backed senior securities (1)(2)
$
98,300

 
$
5

 
$
(3,689
)
 
$
—

 
$
94,616

CLUB Certificate asset-backed securities (1)
86,000

 
79

 
(2,858
)
 
(6,587
)
 
76,634

Asset-backed subordinated securities (1)
29,106

 
243

 
(1,409
)
 
(8,984
)
 
18,956

Corporate debt securities
8,502

 
30

 
—

 
—

 
8,532

Commercial paper
8,293

 
—

 
—

 
—

 
8,293

Other asset-backed securities
8,182

 
17

 
—

 
—

 
8,199

Certificates of deposit
6,700

 
—

 
—

 
—

 
6,700

Total securities available for sale
$
245,083

 
$
374

 
$
(7,956
)
 
$
(15,571
)
 
$
221,930


December 31, 2019
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Asset-backed senior securities (1)(2)
$
108,780

 
$
597

 
$
(38
)
 
$
109,339

CLUB Certificate asset-backed securities (1)
90,728

 
41

 
(1,063
)
 
89,706

Asset-backed subordinated securities (1)
20,888

 
423

 
(221
)
 
21,090

Corporate debt securities
14,333

 
11

 
(1
)
 
14,343

Certificates of deposit
13,100

 
—

 
—

 
13,100

Other asset-backed securities
12,075

 
6

 
(1
)
 
12,080

Commercial paper
9,274

 
—

 
—

 
9,274

U.S. agency securities
1,995

 
—

 
—

 
1,995

Total securities available for sale
$
271,173

 
$
1,078

 
$
(1,324
)
 
$
270,927

(1) 
As of June 30, 2020 and December 31, 2019, $173.8 million and $219.0 million, respectively, of the asset-backed securities related to Structured Program transactions at fair value are subject to restrictions on transfer pursuant to the Company's obligations as a “sponsor” under the U.S. Risk Retention Rules (as more fully described in “Part I – Item 1A. Risk Factors – Risk retention rules may increase our compliance costs, impair our liquidity and otherwise adversely affect our operating results” in the Annual Report.).
(2) 
As of June 30, 2020, and December 31, 2019, includes $148.8 million and $174.8 million, respectively, of securities pledged as collateral at fair value.

A summary of securities available for sale with unrealized losses for which an allowance for credit losses has not been recorded as of June 30, 2020 and December 31, 2019, aggregated by period of continuous unrealized loss, is as follows:
 
Less than
12 months
 
12 months
or longer
 
Total
June 30, 2020
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Asset-backed securities related to Structured Program transactions
$
116,173

 
$
(7,935
)
 
$
1,201

 
$
(21
)
 
$
117,374

 
$
(7,956
)
Corporate debt securities
1,451

 
—

 
—

 
—

 
1,451

 
—

Total securities with unrealized losses (1)
$
117,624

 
$
(7,935
)
 
$
1,201

 
$
(21
)
 
$
118,825

 
$
(7,956
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than
12 months
 
12 months
or longer
 
Total
December 31, 2019
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Asset-backed securities related to Structured Program transactions
$
91,350

 
$
(1,287
)
 
$
1,875

 
$
(35
)
 
$
93,225

 
$
(1,322
)
Corporate debt securities
4,613

 
(1
)
 
—

 
—

 
4,613

 
(1
)
Other asset-backed securities
3,062

 
(1
)
 
—

 
—

 
3,062

 
(1
)
Total securities with unrealized losses (1)
$
99,025

 
$
(1,289
)
 
$
1,875

 
$
(35
)
 
$
100,900

 
$
(1,324
)
(1) 
The number of investment positions with unrealized losses at June 30, 2020 and December 31, 2019 totaled 131 and 70, respectively.

The Company recorded an allowance for credit loss on those securities where there was a deterioration in future estimated cash flows. The Company also recorded unrealized losses on securities with fair value price reductions due to higher liquidity premiums observed due to the market dislocation related to COVID-19. The Company deemed it not necessary to record unrealized losses as an allowance for credit loss for certain securities due to the nature of those securities and their investment grade quality.

During the second quarter and first half of 2020, the Company recognized $(3.5) million and $7.5 million in credit recovery and loss expense, respectively. During the second quarter and first half of 2019, the Company recognized $0.1 million and $1.3 million in other-than-temporary impairment charges, respectively, on its asset-backed securities related to Structured Program transactions. There were no credit losses recognized into earnings for other-than-temporarily impaired securities held by the Company during the second quarter and first half of 2019 for which a portion of the impairment was previously recognized in other comprehensive income.

The following table presents the activity in the allowance for credit losses for securities available for sale, by major security type, for the second quarter and first half of 2020:
Allowance for Credit Losses
CLUB Certificate asset-backed securities
 
Asset-backed subordinated securities
Total
Beginning balance as of March 31, 2020
$
(8,638
)
 
$
(10,197
)
$
(18,835
)
Provision for credit loss expense
2,051

 
1,460

3,511

Allowance arising from PCD financial assets
—

 
(247
)
(247
)
Ending balance as of June 30, 2020
$
(6,587
)
 
$
(8,984
)
$
(15,571
)
 
 
 
 
 
Allowance for Credit Losses
CLUB Certificate asset-backed securities
 
Asset-backed subordinated securities
Total
Beginning balance as of January 1, 2020
$
—

 
$
—

$
—

Provision for credit loss expense
(2,633
)
 
(4,836
)
(7,469
)
Allowance arising from PCD financial assets
(3,954
)
 
(4,148
)
(8,102
)
Ending balance as of June 30, 2020
$
(6,587
)
 
$
(8,984
)
$
(15,571
)


Securities available for sale purchased with credit deterioration during the second quarter and first half of 2020 were as follows:
 
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
Purchase price of PCD securities at acquisition
$
2,426

 
$
25,469

Allowance for credit losses on PCD securities at acquisition
247

 
8,102

Par value of acquired PCD securities at acquisition
$
2,673

 
$
33,571



The contractual maturities of securities available for sale at June 30, 2020, were as follows:
 
Amortized Cost
 
Fair Value
Within 1 year:
 
 
 
Corporate debt securities
$
8,502

 
$
8,532

Certificates of deposit
6,700

 
6,700

Other asset-backed securities
4,410

 
4,414

Commercial paper
8,293

 
8,293

Total
27,905

 
27,939

After 1 year through 5 years:
 
 
 
Other asset-backed securities
3,772

 
3,785

Total
3,772

 
3,785

Asset-backed securities related to Structured Program transactions
213,406

 
190,206

Total securities available for sale
$
245,083

 
$
221,930



During the second quarter and first half of 2020, the Company, Consumer Loan Underlying Bond Depositor LLC (Depositor), a subsidiary of the Company, and a majority-owned affiliate (MOA) of the Company sold a combined $0.4 million and $1.0 billion, respectively, in asset-backed securities related to Structured Program transactions. During the second quarter and first half of 2019, the Company and Consumer Loan Underlying Bond Depositor
LLC (Depositor), a subsidiary of the Company, sold a combined $1.2 billion and $2.0 billion, respectively, in asset-backed securities related to Structured Program transactions. There were no realized gains or losses related to such sales. For further information, see “Note 7. Securitizations and Variable Interest Entities.” Proceeds and gross realized gains and losses from other sales of securities available for sale were as follows:
 
Three Months Ended  
 June 30,
 
Six Months Ended  
 June 30,
 
2020
 
2019
 
2020
 
2019
Proceeds
$
—


$
3,300

 
$
2,396

 
$
6,400

Gross realized gains
$
—


$
—

 
$
3

 
$
—

Gross realized losses
$
(2
)

$
—

 
$
(4
)
 
$
—