XML 23 R14.htm IDEA: XBRL DOCUMENT

Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2023

Fair Value of Assets and LiabilitiesFor 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 1. 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:


September 30, 2023	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	362,789	$	362,789
Loans held for investment at fair value	—		—		326,299		326,299
Retail and certificate loans held for investment at fair value	—		—		18,118		18,118
Securities available for sale:
Senior asset-backed securities related to Structured Program transactions	—		—		412,397		412,397
U.S. agency residential mortgage-backed securities	—		211,237		—		211,237
U.S. agency securities	—		75,079		—		75,079
Mortgage-backed securities	—		36,149		—		36,149
Other asset-backed securities related to Structured Program transactions	—		—		31,062		31,062
Other asset-backed securities	—		27,464		—		27,464

Municipal securities	—		2,281		—		2,281

Total securities available for sale	—		352,210		443,459		795,669
Servicing assets	—		—		81,760		81,760
Other assets	—		8,965		—		8,965
Total assets	$	—	$	361,175	$	1,232,425	$	1,593,600

Liabilities:
Borrowings	$	—	$	—	$	3,329	$	3,329
Retail notes, certificates and secured borrowings	—		—		18,118		18,118
Other liabilities	—		5,482		4,614		10,096
Total liabilities	$	—	$	5,482	$	26,061	$	31,543


December 31, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for sale at fair value	$	—	$	—	$	110,400	$	110,400
Loans held for investment at fair value	—		—		925,938		925,938
Retail and certificate loans held for investment at fair value	—		—		55,425		55,425
Securities available for sale:
U.S. agency residential mortgage-backed securities	—		214,427		—		214,427
U.S. agency securities	—		74,394		—		74,394
Mortgaged-backed securities	—		22,518		—		22,518
Other asset-backed securities	—		14,203		—		14,203
Asset-backed securities related to Structured Program transactions	—		5,248		12,469		17,717

Municipal securities	—		2,443		—		2,443

Total securities available for sale	—		333,233		12,469		345,702
Servicing assets	—		—		84,308		84,308
Other assets	—		—		5,099		5,099
Total assets	$	—	$	333,233	$	1,193,639	$	1,526,872

Liabilities:
Borrowings	$	—	$	—	$	8,085	$	8,085
Retail notes, certificates and secured borrowings	—		—		55,425		55,425
Other liabilities	—		—		8,583		8,583
Total liabilities	$	—	$	—	$	72,093	$	72,093

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 discounted cash flow (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. The Company did not transfer any assets or liabilities in or out of Level 3 during the third quarters and first nine months of 2023 or 2022.

Loans Held for Sale at Fair Value

In the third quarter of 2023, as part of its new extended seasoning program, the Company began accumulating loans into the HFS portfolio to meet investor demand for seasoned loans. Prior year comparative disclosures for the tables below are not presented as the comparability between periods would not be meaningful given that the current period relates primarily to the new extended seasoning program whereas in previous periods the majority of HFS loans were sold shortly after origination and at committed prices. As such, the Company was generally not exposed to fluctuations in the fair value of HFS loans in the prior period.

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 loans HFS at fair value:


	September 30, 2023
	Minimum		Maximum		Weighted- Average
Discount rates	8.8	%	11.2	%	9.6	%
Net cumulative expected loss rates (1)	3.5	%	23.4	%	10.9	%
Cumulative expected prepayment rates (1)	27.7	%	37.3	%	32.5	%

(1) Expressed as a percentage of the acquired principal balance of the loan.

Significant Recurring Level 3 Fair Value Input Sensitivity

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


	September 30, 2023
Loans held for sale at fair value	$	362,789
Expected weighted-average life (in years)	1.5
Discount rates:
100 basis point increase	$	(4,628)
200 basis point increase	$	(9,160)
Expected credit loss rates on underlying loans:
10% increase	$	(4,292)
20% increase	$	(8,530)
Expected prepayment rates:
10% increase	$	(660)
20% increase	$	(1,244)

Fair Value Reconciliation

The following table presents additional information about Level 3 loans HFS on a recurring basis:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023			2023
Fair value at beginning of period	$	250,361		$	110,400
Originations and purchases	1,107,771			3,584,918
Sales	(950,451)			(3,435,949)
Principal payments	(22,372)			(33,972)
Transfers	3,299			195,106
Fair value adjustments recorded in earnings	(25,819)			(57,714)
Fair value at end of period	$	362,789		$	362,789

Loans Held for Investment at Fair Value

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 loans HFI at fair value:


	September 30, 2023						December 31, 2022
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	8.5	%	16.5	%	12.8	%	8.8	%	17.1	%	12.7	%
Net cumulative expected loss rates (1)	2.5	%	11.0	%	7.1	%	2.1	%	9.8	%	5.7	%
Cumulative expected prepayment rates (1)	20.6	%	28.5	%	25.2	%	26.2	%	35.3	%	30.8	%

(1) Expressed as a percentage of the acquired principal balance of the loan.

Significant Recurring Level 3 Fair Value Input Sensitivity

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


	September 30, 2023		December 31, 2022
Loans held for investment at fair value	$	326,299	$	925,938
Expected weighted-average life (in years)	0.9		0.9
Discount rates:
100 basis point increase	$	(2,633)	$	(7,471)
200 basis point increase	$	(5,226)	$	(14,830)
Expected credit loss rates on underlying loans:
10% increase	$	(2,028)	$	(5,574)
20% increase	$	(3,985)	$	(11,307)
Expected prepayment rates:
10% increase	$	(1,519)	$	(4,311)
20% increase	$	(2,636)	$	(7,480)

Fair Value Reconciliation

The following table presents additional information about Level 3 loans HFI at fair value on a recurring basis:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Fair value at beginning of period	$	404,119	$	20,583	$	925,938	$	21,240
Purchases	112		136		4,149		150

Principal payments	(76,495)		(5,913)		(419,233)		(17,660)
Transfers	(3,472)		—		(195,106)		11,966
Interest income accretion and fair value adjustments recorded in earnings	2,035		251		10,551		(639)
Fair value at end of period	$	326,299	$	15,057	$	326,299	$	15,057

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 September 30, 2023 and December 31, 2022, 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.

Asset-Backed Securities Related to Structured Program Transactions

Prior year comparative disclosures related to significant unobservable inputs, fair value sensitivities and fair value rollforwards for asset-backed securities related to Structured Program transactions are not presented below as the comparability between periods would not be meaningful given that the current period consists primarily of a new type of Structured Program transaction that the Company began entering into in the second quarter of 2023. See “Note 6. Securitizations and Variable Interest Entities” for more information.

Senior Asset-Backed Securities Related to Structured Program Transactions

As of September 30, 2023, the fair value of the senior asset-backed securities related to Structured Program transactions was $412.4 million with an expected weighted-average life of 1.5 years. Discount rates were the significant unobservable input used to measure the fair value of this Level 3 asset. The minimum, maximum and weighted-average discount rates assumptions were 7.7% as of September 30, 2023. A hypothetical 100 and 200 basis point increase in discount rates would decrease the fair value by $6.2 million and $12.3 million, respectively.

The following table presents additional information about Level 3 senior asset-backed securities related to Structured Program transactions measured at fair value on a recurring basis:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023		2023
Fair value at beginning of period	$	142,785	$	—
Additions	284,704		429,384

Cash received	(14,244)		(15,534)
Change in unrealized loss	(848)		(1,453)

Fair value at end of period	$	412,397	$	412,397

Other 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 other asset-backed securities related to Structured Program transactions:


	September 30, 2023
	Minimum		Maximum		Weighted- Average
Discount rates	8.8	%	11.2	%	9.5	%
Net cumulative expected loss rates (1)	3.6	%	23.0	%	9.3	%
Cumulative expected prepayment rates (1)	27.7	%	37.3	%	32.7	%

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

Significant Recurring Fair Value Input Sensitivity

The following table presents adverse changes to the fair value sensitivity of Level 3 other asset-backed securities related to Structured Program transactions to changes in key assumptions:


	September 30, 2023

Fair value of interests held	$	31,062
Expected weighted-average life (in years)	1.5
Discount rates
100 basis point increase	$	(369)
200 basis point increase	$	(735)
Expected loss rates
10% increase	$	(523)
20% increase	$	(1,058)
Expected prepayment rates
10% increase	$	(190)
20% increase	$	(425)

Fair Value Reconciliation

The following table presents additional information about Level 3 other asset-backed securities related to Structured Program transactions measured at fair value on a recurring basis:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023		2023
Fair value at beginning of period	$	16,980	$	12,469
Additions	17,190		25,970

Cash received	(2,812)		(7,081)
Change in unrealized loss	(296)		(296)

Fair value at end of period	$	31,062	$	31,062

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:


	September 30, 2023						December 31, 2022
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	8.7	%	17.3	%	11.6	%	7.5	%	16.4	%	10.1	%
Net cumulative expected loss rates (1)	3.5	%	37.7	%	15.6	%	2.1	%	36.7	%	15.6	%
Cumulative expected prepayment rates (1)	18.5	%	44.6	%	32.7	%	15.8	%	47.2	%	35.9	%
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:


	September 30, 2023			December 31, 2022
Weighted-average market servicing rate assumptions	0.62		%	0.62		%
Change in fair value from:
Servicing rate increase by 0.10%	$	(8,759)		$	(10,505)
Servicing rate decrease by 0.10%	$	8,759		$	10,505

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


	September 30, 2023		December 31, 2022
Fair value of servicing assets	$	81,760	$	84,308
Discount rates
100 basis point increase	$	(695)	$	(726)
200 basis point increase	$	(1,391)	$	(1,451)
Expected loss rates
10% increase	$	(1,026)	$	(1,037)
20% increase	$	(2,051)	$	(2,074)
Expected prepayment rates
10% increase	$	(1,720)	$	(1,994)
20% increase	$	(3,440)	$	(3,989)

Fair Value Reconciliation

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Fair value at beginning of period	$	85,387	$	79,427	$	84,308	$	67,726
Issuances (1)	11,568		22,319		39,269		73,774
Change in fair value, included in Marketplace revenue	(12,100)		(14,689)		(41,750)		(52,702)
Other net changes	(3,095)		(539)		(67)		(2,280)
Fair value at end of period	$	81,760	$	86,518	$	81,760	$	86,518

(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:


September 30, 2023	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans and leases held for investment, net	$	4,886,782	$	—	$	—	$	5,060,962	$	5,060,962


Other assets	39,727		—		38,885		1,118		40,003
Total assets	$	4,926,509	$	—	$	38,885	$	5,062,080	$	5,100,965
Liabilities:
Deposits (1)	$	1,169,593	$	—	$	—	$	1,164,915	$	1,164,915




Borrowings	7,388		—		27		7,361		7,388



Other liabilities	62,572		—		37,270		25,302		62,572
Total liabilities	$	1,239,553	$	—	$	37,297	$	1,197,578	$	1,234,875


December 31, 2022	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:

Loans and leases held for investment, net	$	4,705,302	$	—	$	—	$	4,941,825	$	4,941,825
Other assets	36,646		—		35,300		1,397		36,697

Total assets	$	4,741,948	$	—	$	35,300	$	4,943,222	$	4,978,522
Liabilities:
Deposits (1)	$	860,808	$	—	$	—	$	860,808	$	860,808
Borrowings	66,773		—		2,619		64,154		66,773

Other liabilities	62,247		—		30,311		31,936		62,247
Total liabilities	$	989,828	$	—	$	32,930	$	956,898	$	989,828

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

- 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.

+ References + Details