Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2021

For a description of the fair value hierarchy and the Company’s fair value methodologies, see “Note 1. Summary of Significant Accounting Policies.” The Company records certain assets and liabilities at fair value as listed in the tables below.

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:


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	142,370	$	142,370
Retail and certificate loans held for investment at fair value	—		—		229,719		229,719
Other loans held for investment at fair value	—		—		21,240		21,240
Securities available for sale:
U.S. agency residential mortgage-backed securities	—		123,699		—		123,699
Asset-backed senior securities and subordinated securities	—		28,129		11,762		39,891
U.S. agency securities	—		26,172		—		26,172
Other asset-backed securities	—		26,133		—		26,133
Commercial mortgage-backed securities	—		26,098		—		26,098
CLUB Certificate asset-backed securities	—		—		18,285		18,285
Municipal securities	—		3,252		—		3,252

Total securities available for sale	—		233,483		30,047		263,530
Servicing assets	—		—		67,726		67,726
Other assets	—		2,812		3,312		6,124
Total assets	$	—	$	236,295	$	494,414	$	730,709

Liabilities:
Retail notes, certificates and secured borrowings	$	—	$	—	$	229,719	$	229,719
Payable on Structured Program borrowings	—		—		65,451		65,451
Other liabilities	—		—		12,911		12,911
Total liabilities	$	—	$	—	$	308,081	$	308,081


December 31, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	121,902	$	121,902
Retail and certificate loans held for investment at fair value	—		—		636,686		636,686
Other loans held for investment at fair value	—		—		49,954		49,954
Securities available for sale:
Asset-backed senior securities and subordinated securities	—		75,372		16,515		91,887
CLUB Certificate asset-backed securities	—		—		50,139		50,139





Other securities	—		200		—		200
Total securities available for sale	—		75,572		66,654		142,226
Servicing assets	—		—		56,347		56,347
Total assets	$	—	$	75,572	$	931,543	$	1,007,115

Liabilities:
Retail notes, certificates and secured borrowings	$	—	$	—	$	636,774	$	636,774
Payable on Structured Program borrowings	—		—		152,808		152,808
Other liabilities	—		—		12,270		12,270
Total liabilities	$	—	$	—	$	801,852	$	801,852

Financial instruments are categorized in the valuation hierarchy based on the significance of observable or unobservable factors in the overall fair value measurement. For the financial instruments listed in the tables above that 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 DCF 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 the Company’s best estimates of the assumptions a market participant would use to calculate fair value. Due to changes in the availability of market observable inputs, the Company transferred $517 thousand of asset-backed securities related to Structured Program transactions out of Level 3 during the year ended December 31, 2020. The Company did not transfer any other assets or liabilities in or out of Level 3 during the year ended December 31, 2021.

Loans Held for Sale at Fair Value

As of December 31, 2021, the majority of loans HFS were sold shortly after origination and at committed prices. Therefore, the Company is generally not exposed to fair value fluctuations as a result of adverse changes in key assumptions.

Significant Recurring Level 3 Fair Value Input Sensitivity

The sensitivity of loans held for sale at fair value to adverse changes in key assumptions are as follows:


	December 31, 2021		December 31, 2020
Loans held for sale at fair value	$	142,370	$	121,902
Expected weighted-average life (in years)	1.3		1.1
Discount rates
100 basis point increase	$	(1,540)	$	(1,151)
200 basis point increase	$	(3,055)	$	(2,282)
Expected credit loss rates on underlying loans
10% adverse change	$	(608)	$	(1,099)
20% adverse change	$	(1,236)	$	(2,220)
Expected prepayment rates
10% adverse change	$	(1,450)	$	(273)
20% adverse change	$	(2,997)	$	(556)

Fair Value Reconciliation

The following tables present additional information about Level 3 loans held for sale at fair value on a recurring basis:



	Outstanding Principal Balance		Valuation Adjustment		Fair Value
Balance at December 31, 2019	$	747,394	$	(25,039)	$	722,355
Purchases	1,568,844		(6)		1,568,838
Transfers to loans held for investment	(41,431)		—		(41,431)
Sales	(1,907,446)		87,723		(1,819,723)
Principal payments and retirements	(207,483)		—		(207,483)
Charge-offs, net of recoveries	(27,278)		25,627		(1,651)
Change in fair value recorded in earnings	—		(99,003)		(99,003)
Balance at December 31, 2020	$	132,600	$	(10,698)	$	121,902
Originations and purchases	7,507,695		(1,629)		7,506,066

Sales	(7,386,633)		5,124		(7,381,509)
Principal payments and retirements	(98,530)		—		(98,530)
Charge-offs, net of recoveries	(7,939)		3,441		(4,498)
Change in fair value recorded in earnings	—		(1,061)		(1,061)
Balance at December 31, 2021	$	147,193	$	(4,823)	$	142,370

Retail and Certificate Loans and Related Notes, Certificates and Secured Borrowings

The Company does not assume principal or interest rate risk on loans that were funded by its member payment dependent self-directed retail program (Retail Program) because loan balances, interest rates and maturities are matched and offset by an equal balance of notes with the exact same interest rates and maturities. At December 31, 2021 and 2020, the DCF methodology used to estimate the retail note, certificate and secured borrowings’ fair values used the same projected net cash flows as their related loans. Therefore, the fair value adjustments for retail loans held for investment were largely offset by the corresponding fair value adjustments due to the payment dependent design of the retail notes, certificates and secured borrowings.

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 relating to loans sold to investors:



	December 31, 2021						December 31, 2020
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted-Average
Discount rates	7.5	%	16.4	%	10.0	%	4.8	%	16.4	%	9.9	%
Net cumulative expected loss rates (1)	2.4	%	26.4	%	10.2	%	4.5	%	26.3	%	12.5	%
Cumulative expected prepayment rates (1)	32.1	%	45.9	%	38.4	%	27.0	%	38.9	%	31.2	%
Total market servicing rates (% per annum on outstanding principal balance) (2)	0.62	%	0.62	%	0.62	%	0.62	%	0.62	%	0.62	%

(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:



	December 31, 2021			December 31, 2020
Weighted-average market servicing rate assumptions	0.62		%		0.62		%
Change in fair value from:
Servicing rate increase by 0.10%	$	(9,495)			$	(7,379)
Servicing rate decrease by 0.10%	$	9,495			$	7,379

The following table presents the fair value of servicing assets to adverse changes in key assumptions:



	December 31, 2021		December 31, 2020
Fair value of Servicing Assets	$	67,726		$	56,347
Discount rates
100 basis point increase	$	(558)		$	(455)
200 basis point increase	$	(1,115)		$	(911)
Expected loss rates
10% adverse change	$	(693)		$	(346)
20% adverse change	$	(1,386)		$	(691)
Expected prepayment rates
10% adverse change	$	(2,401)		$	(1,596)
20% adverse change	$	(4,802)		$	(3,192)

Fair Value Reconciliation

The following table presents additional information about Level 3 servicing assets measured at fair value on a recurring basis:



Fair value at December 31, 2019	$	89,680
Issuances (1)	33,990
Change in fair value, included in Marketplace Revenue	(58,730)
Other net changes included in Deferred Revenue	(8,593)
Fair value at December 31, 2020	$	56,347
Issuances (1)	69,075
Change in fair value, included in Marketplace Revenue	(56,561)
Other net changes included in Deferred Revenue	(1,135)
Fair value at December 31, 2021	$	67,726

(1) Represents the gains or losses on sales of the related loans.

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, 2021	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for sale	$	248,878	$	—	$	—	$	251,101	$	251,101
Loans and leases held for investment, net	2,754,737		—		—		2,964,691		2,964,691
Other assets	18,274		—		15,630		2,644		18,274
Total assets	$	3,021,889	$	—	$	15,630	$	3,218,436	$	3,234,066

Liabilities:
Deposits (1)	$	68,405	$	—	$	—	$	68,405	$	68,405
Short-term borrowings	27,780		—		17,595		10,185		27,780
Advances from PPPLF	271,933		—		—		271,933		271,933
Other long-term debt	15,455		—		—		15,455		15,455
Other liabilities	51,655		—		22,187		29,468		51,655
Total liabilities	$	435,228	$	—	$	39,782	$	395,446	$	435,228

(1) Excludes deposit liabilities with no defined or contractual maturities.


December 31, 2020	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Total cash and cash equivalents (1)	$	524,963	$	—	$	524,963	$	—	$	524,963
Restricted cash (1)	103,522		—		103,522		—		103,522
Other assets	914		—		914		—		914
Total assets	$	629,399	$	—	$	629,399	$	—	$	629,399
Liabilities:
Short-term borrowings	$	104,989	$	—	$	65,121	$	39,868	$	104,989
Other liabilities	57,536		—		43,984		13,552		57,536

Total liabilities	$	162,525	$	—	$	109,105	$	53,420	$	162,525

(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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