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Fair Value of Assets and Liabilities

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019:



June 30, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for investment	$	—	$	—	$	785,228	$	785,228
Loans held for investment by the Company	—		—		65,557		65,557
Loans held for sale by the Company	—		—		587,093		587,093
Securities available for sale:
Asset-backed senior securities and subordinated securities	—		94,616		18,956		113,572
CLUB Certificate asset-backed securities	—		—		76,634		76,634
Corporate debt securities	—		8,532		—		8,532
Commercial paper	—		8,293		—		8,293
Other asset-backed securities	—		8,199				8,199
Certificates of deposit	—		6,700		—		6,700
Total securities available for sale	—		126,340		95,590		221,930
Servicing assets	—		—		65,515		65,515
Total assets	$	—	$	126,340	$	1,598,983	$	1,725,323

Liabilities:
Notes, certificates and secured borrowings	$	—	$	—	$	785,928	$	785,928
Payable to Structured Program note and certificate holders	—		—		193,034		193,034
Deferred revenue	—		—		4,538		4,538
Loan trailing fee liability	—		—		9,213		9,213
Total liabilities	$	—	$	—	$	992,713	$	992,713



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 Structured Program note and certificate holders	—		—		40,610		40,610
Loan trailing fee liability	—		—		11,099		11,099
Total liabilities	$	—	$	—	$	1,133,175	$	1,133,175

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 second quarter and first half of 2020, 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 half of 2020 or the year ended December 31, 2019.

Fair valuation adjustments are recorded through earnings related to Level 3 instruments for the second quarters and first halves of 2020 and 2019. 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 June 30, 2020 and December 31, 2019:



	Loans Held for Investment, Notes, Certificates and Secured Borrowings
	June 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	7.6	%	16.0	%	9.6	%	6.0	%	12.0	%	7.9	%
Net cumulative expected loss rates⁽¹⁾	5.1	%	29.0	%	13.3	%	3.6	%	34.9	%	11.9	%
Cumulative expected prepayment rates ⁽¹⁾	26.3	%	38.2	%	30.0	%	28.7	%	38.6	%	31.7	%


⁽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 June 30, 2020 and December 31, 2019, 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 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 second quarters and first halves of 2020 and 2019:



	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 March 31, 2020	$	990,662		$	(105,249	)	$	885,413		$	—		$	—		$	—		$	990,662		$	(103,822	)	$	886,840
Purchases	55,274			—			55,274			57,760			(1,044		)	56,716			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(101		)	—			(101		)	—			—			—			—			—			—
Issuances	—			—			—			—			—			—			55,274			—			55,274
Sales	—			—			—			(57,760		)	1,224			(56,536		)	—			—			—
Principal payments and retirements	(171,541		)	—			(171,541		)	—			—			—			(171,642		)	—			(171,642		)
Charge-offs, net of recoveries	(22,818		)	14,202			(8,616		)	—			—			—			(22,818		)	13,556			(9,262		)
Change in fair value recorded in earnings	—			24,799			24,799			—			(180		)	(180		)	—			24,718			24,718
Balance at June 30, 2020	$	851,476		$	(66,248	)	$	785,228		$	—		$	—		$	—		$	851,476		$	(65,548	)	$	785,928

	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 March 31, 2019	$	1,805,078		$	(106,880	)	$	1,698,198		$	—		$	—		$	—		$	1,805,078		$	(101,852	)	$	1,703,226
Purchases	166,754			—			166,754			552,115			(468		)	551,647			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(229		)	—			(229		)	—			—			—			—			—			—
Issuances	—			—			—			—			—			—			166,754			—			166,754
Sales	—			—			—			(552,115		)	385			(551,730		)	—			—			—
Principal payments and retirements	(317,919		)	—			(317,919		)	—			—			—			(318,148		)	—			(318,148		)
Charge-offs, net of recoveries	(48,427		)	34,800			(13,627		)	—			—			—			(48,427		)	34,789			(13,638		)
Change in fair value recorded in earnings	—			(20,193		)	(20,193		)	—			83			83			—			(20,243		)	(20,243		)
Balance at June 30, 2019	$	1,605,257		$	(92,273	)	$	1,512,984		$	—		$	—		$	—		$	1,605,257		$	(87,306	)	$	1,517,951



	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, 2019	$	1,148,888		$	(69,573	)	$	1,079,315		$	—		$	—		$	—		$	1,148,888		$	(67,422	)	$	1,081,466
Purchases	159,894			—			159,894			522,588			(2,923		)	519,665			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(17,579		)	—			(17,579		)	17,413			—			17,413			—			—			—
Issuances	—			—			—			—			—			—			159,894			—			159,894
Sales	—			—			—			(540,001		)	3,463			(536,538		)	—			—			—
Principal payments and retirements	(387,289		)	—			(387,289		)	—			—			—			(404,868		)	—			(404,868		)
Charge-offs, net of recoveries	(52,438		)	31,513			(20,925		)	—			—			—			(52,438		)	29,987			(22,451		)
Change in fair value recorded in earnings	—			(28,188		)	(28,188		)	—			(540		)	(540		)	—			(28,113		)	(28,113		)
Balance at June 30, 2020	$	851,476		$	(66,248	)	$	785,228		$	—		$	—		$	—		$	851,476		$	(65,548	)	$	785,928

	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	359,846			(21		)	359,825			1,115,151			(468		)	1,114,683			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(452		)	—			(452		)	—			—			—			—			—			—
Issuances	—			—			—			—			—			—			359,846			—			359,846
Sales	—			—			—			(1,115,151		)	(780		)	(1,115,931		)	—			—			—
Principal payments and retirements	(658,363		)	—			(658,363		)	—			—			—			(678,635		)	14			(678,621		)
Charge-offs, net of recoveries	(109,212		)	81,676			(27,536		)	—			—			—			(109,212		)	81,665			(27,547		)
Change in fair value recorded in earnings	—			(43,741		)	(43,741		)	—			1,248			1,248			—			(41,602		)	(41,602		)
Balance at June 30, 2019	$	1,605,257		$	(92,273	)	$	1,512,984		$	—		$	—		$	—		$	1,605,257		$	(87,306	)	$	1,517,951

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 June 30, 2020 and December 31, 2019:



	Loans Invested in by the Company
	June 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	4.8	%	16.1	%	9.6	%	6.0	%	11.5	%	7.8	%
Net cumulative expected loss rates⁽¹⁾	6.2	%	31.9	%	14.1	%	3.6	%	36.6	%	10.9	%
Cumulative expected prepayment rates ⁽¹⁾	26.2	%	37.8	%	30.7	%	27.3	%	41.0	%	31.6	%


⁽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 June 30, 2020 and December 31, 2019, are as follows:



	June 30, 2020			December 31, 2019
Fair value of loans invested in by the Company	$	652,650		$	766,048
Expected weighted-average life (in years)	1.3			1.5
Discount rates
100 basis point increase	$	(7,865	)	$	(9,806	)
200 basis point increase	$	(15,578	)	$	(19,410	)
Expected credit loss rates on underlying loans
10% adverse change	$	(10,718	)	$	(9,558	)
20% adverse change	$	(21,544	)	$	(19,136	)
Expected prepayment rates
10% adverse change	$	(2,093	)	$	(2,429	)
20% adverse change	$	(4,083	)	$	(4,740	)

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 second quarters and first halves of 2020 and 2019:



	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 March 31, 2020	$	83,650		$	(12,647	)	$	71,003		$	835,557		$	(93,853	)	$	741,704		$	919,207		$	(106,500	)	$	812,707
Purchases	386			(312		)	74			23,363			—			23,363			23,749			(312		)	23,437
Transfers (to) from loans held for investment and/or loans held for sale	137			—			137			(36		)	—			(36		)	101			—			101
Sales	—			—			—			(112,527		)	10,947			(101,580		)	(112,527		)	10,947			(101,580		)
Principal payments and retirements	(7,949		)	—			(7,949		)	(71,588		)	—			(71,588		)	(79,537		)	—			(79,537		)
Charge-offs, net of recoveries	(1,065		)	377			(688		)	(6,507		)	6,018			(489		)	(7,572		)	6,395			(1,177		)
Change in fair value recorded in earnings	—			2,980			2,980			—			(4,281		)	(4,281		)	—			(1,301		)	(1,301		)
Balance at June 30, 2020	$	75,159		$	(9,602	)	$	65,557		$	668,262		$	(81,169	)	$	587,093		$	743,421		$	(90,771	)	$	652,650


	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 March 31, 2019	$	11,233		$	(2,476	)	$	8,757		$	584,872		$	(32,706	)	$	552,166		$	596,105		$	(35,182	)	$	560,923
Purchases	789			(615		)	174			1,189,003			—			1,189,003			1,189,792			(615		)	1,189,177
Transfers (to) from loans held for investment and/or loans held for sale	(3,583		)	—			(3,583		)	3,812			—			3,812			229			—			229
Sales	—			—			—			(1,249,866		)	40,544			(1,209,322		)	(1,249,866		)	40,544			(1,209,322		)
Principal payments and retirements	(920		)	—			(920		)	(64,060		)	—			(64,060		)	(64,980		)	—			(64,980		)
Charge-offs, net of recoveries	(969		)	410			(559		)	(5,974		)	5,783			(191		)	(6,943		)	6,193			(750		)
Change in fair value recorded in earnings	—			1,158			1,158			—			(36,325		)	(36,325		)	—			(35,167		)	(35,167		)
Balance at June 30, 2019	$	6,550		$	(1,523	)	$	5,027		$	457,787		$	(22,704	)	$	435,083		$	464,337		$	(24,227	)	$	440,110



	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, 2019	$	47,042		$	(3,349	)	$	43,693		$	747,394		$	(25,039	)	$	722,355		$	794,436		$	(28,388	)	$	766,048
Purchases	1,113			(1,005		)	108			1,402,457			—			1,402,457			1,403,570			(1,005		)	1,402,565
Transfers (to) from loans held for investment and/or loans held for sale	43,325			—			43,325			(43,159		)	—			(43,159		)	166			—			166
Sales	—			—			—			(1,283,934		)	30,856			(1,253,078		)	(1,283,934		)	30,856			(1,253,078		)
Principal payments and retirements	(13,633		)	—			(13,633		)	(141,691		)	—			(141,691		)	(155,324		)	—			(155,324		)
Charge-offs, net of recoveries	(2,688		)	511			(2,177		)	(12,805		)	11,797			(1,008		)	(15,493		)	12,308			(3,185		)
Change in fair value recorded in earnings	—			(5,759		)	(5,759		)	—			(98,783		)	(98,783		)	—			(104,542		)	(104,542		)
Balance at June 30, 2020	$	75,159		$	(9,602	)	$	65,557		$	668,262		$	(81,169	)	$	587,093		$	743,421		$	(90,771	)	$	652,650


	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	1,170			(994		)	176			2,032,551			—			2,032,551			2,033,721			(994		)	2,032,727
Transfers (to) from loans held for investment and/or loans held for sale	4,950			(1,471		)	3,479			(4,498		)	1,471			(3,027		)	452			—			452
Sales	—			—			—			(2,295,746		)	62,294			(2,233,452		)	(2,295,746		)	62,294			(2,233,452		)
Principal payments and retirements	(1,455		)	—			(1,455		)	(131,878		)	—			(131,878		)	(133,333		)	—			(133,333		)
Charge-offs, net of recoveries	(1,633		)	847			(786		)	(12,357		)	11,963			(394		)	(13,990		)	12,810			(1,180		)
Change in fair value recorded in earnings	—			1,030			1,030			—			(68,738		)	(68,738		)	—			(67,708		)	(67,708		)
Balance at June 30, 2019	$	6,550		$	(1,523	)	$	5,027		$	457,787		$	(22,704	)	$	435,083		$	464,337		$	(24,227	)	$	440,110

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 June 30, 2020 and December 31, 2019:



	Asset-Backed Securities Related to Structured Program Transactions
	June 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	1.1	%	20.0	%	11.3	%	3.4	%	20.7	%	8.8	%
Net cumulative expected loss rates⁽¹⁾	5.7	%	35.8	%	20.9	%	4.5	%	37.9	%	19.2	%
Cumulative expected prepayment rates ⁽¹⁾	9.4	%	30.4	%	23.9	%	17.3	%	35.1	%	29.4	%


⁽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 June 30, 2020 and December 31, 2019:



	June 30, 2020
	Asset-Backed Securities Related to Structured Program Transactions
	Senior Securities			Subordinated Securities			CLUB Certificates
Fair value of interests held	$	94,616		$	18,956		$	76,634
Expected weighted-average life (in years)	1.3			1.8			1.3
Discount rates
100 basis point increase	$	(871	)	$	(262	)	$	(685	)
200 basis point increase	$	(1,716	)	$	(472	)	$	(1,354	)
Expected credit loss rates on underlying loans
10% adverse change	$	—		$	(2,519	)	$	(2,429	)
20% adverse change	$	—		$	(4,996	)	$	(4,858	)
Expected prepayment rates
10% adverse change	$	—		$	(907	)	$	(774	)
20% adverse change	$	—		$	(1,749	)	$	(1,549	)



	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	)

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 second quarters and first halves of 2020 and 2019:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	103,511		$	79,425		$	110,796		$	60,279
Additions	2,427			26,434			26,012			54,347
Redemptions	(376		)	—			(376		)	—
Cash received	(17,808		)	(10,968		)	(34,074		)	(18,406		)
Change in unrealized gain (loss)	2,131			1,074			(3,125		)	908
Accrued interest	2,194			—			3,826			—
Provision for credit loss expense	3,511			—			(7,469		)	—
Other-than-temporary impairment	—			(144		)	—			(1,307		)
Fair value at end of period	$	95,590		$	95,821		$	95,590		$	95,821

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 June 30, 2020 and December 31, 2019:



	Servicing Assets
	June 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	4.8	%	16.4	%	10.0	%	2.9	%	14.8	%	8.6	%
Net cumulative expected loss rates⁽¹⁾	5.5	%	31.8	%	14.7	%	3.7	%	36.1	%	12.4	%
Cumulative expected prepayment rates ⁽¹⁾	25.7	%	37.4	%	30.3	%	27.5	%	41.8	%	32.5	%
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 June 30, 2020 and December 31, 2019:



	Servicing Assets
	June 30, 2020			December 31, 2019
Weighted-average market servicing rate assumptions	0.66		%	0.66		%
Change in fair value from:
Servicing rate increase by 0.10%	$	(9,174	)	$	(13,978	)
Servicing rate decrease by 0.10%	$	9,175		$	13,979

The following table presents the fair value sensitivity of servicing assets to adverse changes in key assumptions as of June 30, 2020 and December 31, 2019:



	Servicing Assets
	June 30, 2020			December 31, 2019
Fair value of Servicing Assets	$	65,515		$	89,680
Discount rates
100 basis point increase	$	(529	)	$	(680	)
200 basis point increase	$	(1,059	)	$	(1,360	)
Expected loss rates
10% adverse change	$	(353	)	$	(582	)
20% adverse change	$	(706	)	$	(1,165	)
Expected prepayment rates
10% adverse change	$	(1,652	)	$	(2,962	)
20% adverse change	$	(3,303	)	$	(5,924	)

Fair Value Reconciliation

The following table presents additional information about Level 3 servicing assets measured at fair value on a recurring basis for the second quarters and first halves of 2020 and 2019:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	92,825		$	71,848		$	89,680		$	64,006
Issuances ⁽¹⁾	1,755			18,700			19,336			34,546
Change in fair value, included in investor fees	(25,062		)	(12,066		)	(34,670		)	(23,105		)
Other net changes included in deferred revenue	(4,003		)	232			(8,831		)	3,267
Fair value at end of period	$	65,515		$	78,714		$	65,515		$	78,714


⁽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 June 30, 2020 and December 31, 2019:



	Loan Trailing Fee Liability
	June 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	4.8	%	16.4	%	10.7	%	2.9	%	14.8	%	9.3	%
Net cumulative expected loss rates ⁽¹⁾	5.6	%	31.8	%	16.9	%	3.7	%	36.0	%	14.4	%
Cumulative expected prepayment rates ⁽¹⁾	25.8	%	37.5	%	30.6	%	28.5	%	41.7	%	33.0	%


⁽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 second quarters and first halves of 2020 and 2019:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	10,372		$	10,061		$	11,099		$	10,010
Issuances	181			1,910			1,966			3,400
Cash payment of Loan Trailing Fee	(1,829		)	(1,936		)	(3,897		)	(3,905		)
Change in fair value, included in Origination and Servicing	489			189			45			719
Fair value at end of period	$	9,213		$	10,224		$	9,213		$	10,224

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 June 30, 2020 and December 31, 2019:



June 30, 2020	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Cash and cash equivalents ⁽¹⁾	$	338,394	$	—	$	338,394	$	—	$	338,394
Restricted cash ⁽¹⁾	134,345		—		134,345		—		134,345
Servicer reserve receivable	41		—		41		—		41
Deposits	892		—		892		—		892
Total assets	$	473,672	$	—	$	473,672	$	—	$	473,672
Liabilities:
Accrued expenses and other liabilities	$	18,414	$	—	$	—	$	18,414	$	18,414
Accounts payable	2,951		—		2,951		—		2,951
Payables to investors	49,405		—		49,405		—		49,405
Credit facilities and securities sold under repurchase agreements	480,079		—		66,378		413,701		480,079
Total liabilities	$	550,849	$	—	$	118,734	$	432,115	$	550,849


⁽¹⁾	Carrying amount approximates fair value due to the short maturity of these financial instruments.



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
Payables 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.

- 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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