XML 27 R17.htm IDEA: XBRL DOCUMENT v3.19.1
10. Fair Value Measurements
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

(10) Fair Value Measurements

 

ASC 820, "Fair Value Measurements" clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

 

ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The three levels are defined as follows: level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

Effective January 2018 we have elected to use the fair value method to value our portfolio of finance receivables acquired in January 2018 and thereafter.

 

Our valuation policies and procedures have been developed by our Accounting department in conjunction with our Risk department and with consultation with outside valuation experts. Our policies and procedures have been approved by our Chief Executive and our Board of Directors and include methodologies for valuation, internal reporting, calibration and back testing. Our periodic review of valuations includes an analysis of changes in fair value measurements and documentation of the reasons for such changes. There is little available third-party information such as broker quotes or pricing services available to assist us in our valuation process.

 

Our level 3, unobservable inputs reflect our own assumptions about the factors that market participants use in pricing similar receivables and are based on the best information available in the circumstances. They include such inputs as estimates for the magnitude and timing of net charge-offs and the rate of amortization of the portfolio of finance receivable. Significant changes in any of those inputs in isolation would have a significant impact on our fair value measurement.

 

The table below presents a reconciliation of the finance receivables measured at fair value on a recurring basis using significant unobservable inputs:

 

    Three Months Ended  
    March 31,  
    2019     2018  
    (In thousands)  
Balance at beginning of period   $ 821,066     $ –  
Finance receivables at fair value acquired during period     244,753       212,610  
Payments received on finance receivables at fair value     (49,500 )     (2,642 )
Net interest income accretion on fair value receivables     (18,767 )     (121 )
Mark to fair value     –       –  
Balance at end of period   $ 997,552     $ 209,847  

 

The table below compares the fair values of these finance receivables to their contractual balances for the periods shown:

 

    March 31, 2019     December 31, 2018  
    Contractual     Fair     Contractual     Fair  
    Balance     Value     Balance     Value  
    (In thousands)  
                                 
Finance receivables measured at fair value   $ 1,016,328     $ 997,552     $ 829,039     $ 821,066  

  

The following table provides certain qualitative information about our level 3 fair value measurements:

 

Financial Instrument   Fair Values as of         Inputs as of
    March 31,     December 31,         March 31,   December 31,
    2019     2018     Unobservable Inputs   2019   2018
    (In thousands)              
Assets:                        
Finance receivables measured at fair value   $ 997,552     $ 821,066     Discount rate   8.9% - 10.75%   8.9% - 9.9%
                    Cumulative net losses   15% - 16%   15% - 16%

 

The following table summarizes the delinquency status of these finance receivables measured at fair value as of March 31, 2019 and December 31, 2018:

 

    March 31,     December 31,  
    2019     2018  
    (In thousands)  
Delinquency Status                
Current   $ 971,950     $ 790,727  
31 - 60 days     28,708       26,285  
61 - 90 days     10,126       8,350  
91 + days     5,544       3,677  
    $ 1,016,328     $ 829,039  

 

Repossessed vehicle inventory, which is included in Other assets on our unaudited condensed consolidated balance sheet, is measured at fair value using level 2 assumptions based on our actual loss experience on sale of repossessed vehicles. At March 31, 2019 the finance receivables related to the repossessed vehicles in inventory totaled $36.2 million. We have applied a valuation adjustment, or loss allowance, of $26.4 million, which is based on a recovery rate of approximately 27%, resulting in an estimated fair value and carrying amount of $9.8 million. The fair value and carrying amount of the repossessed inventory at December 31, 2018 was $8.9 million after applying a valuation adjustment of $24.6 million.

 

There were no transfers in or out of level 1, level 2 or level 3 assets and liabilities for the three months ended March 31, 2019 and 2018.

 

The estimated fair values of financial assets and liabilities at March 31, 2019 and December 31, 2018, were as follows:

 

    As of March 31, 2019  
Financial Instrument   (In thousands)  
    Carrying     Fair Value Measurements Using:        
    Value     Level 1     Level 2     Level 3     Total  
Assets:                              
Cash and cash equivalents   $ 8,914     $ 8,914     $ –     $ –     $ 8,914  
Restricted cash and equivalents     135,508       135,508       –       –       135,508  
Finance receivables, net     1,296,164       –       –       1,264,423       1,264,423  
Accrued interest receivable     21,045       –       –       21,045       21,045  
Liabilities:                                        
Warehouse lines of credit   $ 117,104     $ –     $ –     $ 117,104     $ 117,104  
Accrued interest payable     5,144       –       –       5,144       5,144  
Residual interest financing     39,199       –       –       39,199       39,199  
Securitization trust debt     2,109,024       –       –       2,110,165       2,110,165  
Subordinated renewable notes     12,986       –       –       12,986       12,986  

 

 

    As of December 31, 2018  
Financial Instrument   (In thousands)  
    Carrying     Fair Value Measurements Using:        
    Value     Level 1     Level 2     Level 3     Total  
Assets:                              
Cash and cash equivalents   $ 12,787     $ 12,787     $ –     $ –     $ 12,787  
Restricted cash and equivalents     117,323       117,323       –       –       117,323  
Finance receivables, net     1,454,709       –       –       1,434,631       1,434,631  
Accrued interest receivable     31,969       –       –       31,969       31,969  
Liabilities:                                        
Warehouse lines of credit   $ 136,847     $ –     $ –     $ 136,847     $ 136,847  
Accrued interest payable     4,819       –       –       4,819       4,819  
Residual interest financing     39,106       –       –       39,106       39,106  
Securitization trust debt     2,063,627       –       –       2,051,920       2,051,920  
Subordinated renewable notes     17,290       –       –       17,290       17,290