7. Fair Value Measurements

Recurring Fair Value Measurements

In accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), certain of the Company’s assets and liabilities, which are carried at fair value, are classified in one of the following three categories:


•	Level 1: Quoted market prices in active markets for identical assets or liabilities.


•	Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs that are corroborated by market data.


•	Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.

The Company’s financial assets that are measured at fair value on a recurring basis as of June 30, 2016 and 2015 and December 31, 2015 are as follows (dollars in thousands):



	June 30,		Fair Value Measurements Using
	2016		Level 1		Level 2		Level 3
Financial assets:
Nonqualified Savings Plan-related assets and Director Deferred Shares ^(a)	$	11,679	$	11,679	$	—	$	—
Investment in equity securities	47,069		47,069		—		—
Total	$	58,748	$	58,748	$	—	$	—
	June 30,		Fair Value Measurements Using
	2015		Level 1		Level 2		Level 3
Financial assets:
Nonqualified Savings Plan-related assets and Director Deferred Shares ^(a)	$	11,576	$	11,090	$	486	$	—
Investment in equity securities	109,140		—		109,140		—
Total	$	120,716	$	11,090	$	109,626	$	—
	December 31,		Fair Value Measurements Using
	2015		Level 1		Level 2		Level 3
Financial assets:
Nonqualified Savings Plan-related assets and Director Deferred Shares ^(a)	$	10,767	$	10,767	$	—	$	—
Investment in equity securities	42,613		42,613		—		—
Total	$	53,380	$	53,380	$	—	$	—


^(a)	Only includes the portion of the Director Deferred Shares that are payable in Enova common stock.

Nonqualified Savings Plan-related assets and Director Deferred Shares have an offsetting liability of equal amount, which is included in “Accounts payable and accrued expenses” in the consolidated balance sheets. The Nonqualified Savings Plan-related assets include marketable equity securities, which are classified as Level 1 and based on net asset values. As a result of the Enova Spin-off, the portion of the Director Deferred Shares measured at fair value represented shares of Enova common stock. The Company’s investment in equity securities represented the Company’s available-for-sale shares of Enova common stock that it retained in connection with the Enova Spin-off. See Note 4. As of June 30, 2016 and December 31, 2015, the equity securities representing Enova common stock, both those included in Director Deferred Shares and investment in equity securities in the table above, were classified as Level 1 and based on the market-determined stock price of Enova.

In September 2015, the equity securities representing Enova common stock, both those included in Deferred Director Shares and investment in equity securities in the table above, were transferred to Level 1 from Level 2 as a result of the registration of these shares with the SEC. As of June 30, 2015, the Enova common shares were classified as Level 2, as they were not-yet-registered securities with the SEC as of that date, and accordingly, were not carried at the fair value of the quoted Enova stock prices, but rather the Company valued these shares using the market determined stock price of Enova, less an adjustment factor due to the unregistered nature of the shares. During the six months ended June 30, 2016 and 2015, there were no transfers of assets in or out of Level 1 or Level 2 fair value measurements.

Fair Value Measurements on a Non-Recurring Basis

The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired.

Financial Assets and Liabilities Not Measured at Fair Value

The Company’s financial assets and liabilities as of June 30, 2016 and 2015 and December 31, 2015 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):



	Carrying Value		Estimated Fair Value
	June 30,		June 30,		Fair Value Measurement Using
	2016		2016		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	20,029	$	20,029	$	20,029	$	—	$	—
Pawn loans	237,220		237,220		—		—		237,220
Consumer loans, net — Short-term	24,915		24,915		—		—		24,915
Consumer loans, net — Installment	2,311		2,311		—		—		2,311
Pawn loan fees and service charges receivable	49,800		49,800		—		—		49,800
Total	$	334,275	$	334,275	$	20,029	$	—	$	314,246
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	340	$	340	$	—	$	—	$	340
Line of credit	3,839		3,943		—		3,943		—
Senior unsecured notes, outstanding principal	181,450		184,172		—		184,172		—
Total	$	185,629	$	188,455	$	—	$	188,115	$	340



	Carrying Value		Estimated Fair Value
	June 30,		June 30,		Fair Value Measurement Using
	2015		2015		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	43,986	$	43,986	$	43,986	$	—	$	—
Pawn loans	247,381		247,381		—		—		247,381
Consumer loans, net — Short-term	26,986		26,986		—		—		26,986
Consumer loans, net — Installment	3,407		3,407		—		—		3,407
Pawn loan fees and service charges receivable	50,317		50,317		—		—		50,317
Total	$	372,077	$	372,077	$	43,986	$	—	$	328,091
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,922	$	1,922	$	—	$	—	$	1,922
Senior unsecured notes, outstanding principal	184,450		186,756		—		186,756		—
Total	$	186,372	$	188,678	$	—	$	186,756	$	1,922



	Carrying Value		Estimated Fair Value
	December 31,		December 31,		Fair Value Measurement Using
	2015		2015		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	23,153	$	23,153	$	23,153	$	—	$	—
Pawn loans	248,713		248,713		—		—		248,713
Consumer loans, net — Short-term	27,376		27,376		—		—		27,376
Consumer loans, net — Installment	3,915		3,915		—		—		3,915
Pawn loan fees and service charges receivable	52,798		52,798		—		—		52,798
Total	$	355,955	$	355,955	$	23,153	$	—	$	332,802
Financial liabilities:
Liability for estimated losses on consumer loans guaranteed by the Company	$	1,986	$	1,986	$	—	$	—	$	1,986
Line of credit	27,108		28,154		—		28,154		—
Senior unsecured notes, outstanding principal	184,450		185,603		—		185,603		—
Total	$	213,544	$	215,743	$	—	$	213,757	$	1,986

Pawn loans generally have maturity periods of less than 90 days. Because of this short maturity period, the carrying value of pawn loans approximates the fair value of these loans.

Short-term loans and installment loans, collectively, represent “Consumer loans, net” on the consolidated balance sheet and are carried net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximates the fair value.

Pawn loan fees and service charges revenue includes interest, service charges and extension fees and are typically calculated as a percentage of the pawn loan amount based on the size and duration of the transaction, as permitted by applicable laws. Other fees, such as origination fees, storage fees and lost ticket fees are generally a fixed amount per pawn loan. Pawn loan fees and service charges revenue and the related pawn loan fees and service charges receivable are accrued ratably over the term of the loan for the portion of those pawn loans estimated to be collectible. The Company uses historical performance data to determine collectability of pawn loan fees and service charges receivable. Additionally, pawn loan fee and service charge rates are determined by regulations and bear no valuation relationship to the capital markets’ interest rate movements. Therefore, the carrying value approximates the fair value.

In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans, unsecured installment loans and installment loans secured by the customer’s vehicle (which the Company has ceased offering) and is required to purchase any defaulted loans it has guaranteed. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximate the fair value.

The Company measures the fair value of long-term debt instruments using Level 2 inputs. The fair values of the Company’s long-term debt instruments are estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms. As of June 30, 2016, the 2018 Senior Notes had a higher fair market value than the carrying value due to the difference in yield when compared to similar senior unsecured notes.

The Company’s cost-method investment in a non-publicly traded entity amounted to $3.8 million, $3.1 million and $3.5 million as of June 30, 2016 and 2015 and December 31, 2015, respectively, and is included in “Other assets” on the Company’s consolidated balance sheets. The Company has not estimated the fair value of this investment because its fair value is not readily determinable. Under the cost method, the investment is carried at initial value, is adjusted for cash contributions and distributions, and is subject to evaluation for impairment. When circumstances indicate there may have been a reduction in the value of an investment in an unconsolidated entity, the Company evaluates whether the loss in value is other than temporary. If the loss is other than temporary, the Company recognizes an impairment charge to reflect the cost-method investment at fair value. No impairment indicators for this investment were noted as of June 30, 2016.