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(12) Fair Value Measurements
 12 Months Ended
Dec. 31, 2022
Fair Value Disclosures [Abstract]  
(12) Fair Value Measurements

(12) 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 are 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: 

    
   Twelve Months Ended 
   December 31, 
   2022   2021 
   (In thousands) 
Balance at beginning of period  $1,749,098   $1,523,726 
Finance receivables at fair value acquired during period   1,673,166    1,107,537 
Payments received on finance receivables at fair value   (825,783)   (743,728)
Net interest income accretion on fair value receivables   (135,147)   (134,020)
Mark to fair value   15,283    (4,417)
Balance at end of period  $2,476,617   $1,749,098 

 

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

    
   December 31, 2022   December 31, 2021 
   Contractual   Fair   Contractual   Fair 
   Balance   Value   Balance   Value 
   (In thousands) 
                     
Finance receivables measured at fair value  $2,701,184   $2,476,617   $1,972,699   $1,749,098 

 

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

                 
Financial Instrument  Fair Values as of     Inputs as of 
   December 31,     December 31, 
   2022   2021  Unobservable Inputs  2022  2021 
   (In thousands)          
Assets:                 
                  
Finance receivables measured at fair value  $2,476,617   $1,749,098  Discount rate  11.0%-11.3%  10.6% - 11.3% 
            Cumulative net losses  13.4%-19.4%  10.0% - 18.4% 

 

The following table summarizes the delinquency status using the contractual balance of these finance receivables measured at fair value as of December 31, 2022 and December 31, 2021: 

          
   December 31,   December 31, 
   2022   2021 
   (In thousands) 
Delinquency Status          
Current  $2,375,271   $1,787,641 
31 - 60 days   184,968    115,924 
61 - 90 days   72,390    38,999 
91 + days   29,048    11,564 
Repo   39,507    18,571 
   $2,701,184   $1,972,699 

 

Repossessed vehicle inventory, which is included in Other assets on our consolidated balance sheet, is measured at fair value using level 2 assumptions based on our actual loss experience on sale of repossessed vehicles. At December 31, 2022, the finance receivables related to the repossessed vehicles in inventory totaled $1.9 million. We have applied a valuation adjustment, or loss allowance, of $1.3 million, which is based on a recovery rate of approximately 30%, resulting in an estimated fair value and carrying amount of $571,000. The fair value and carrying amount of the repossessed inventory at December 31, 2021 was $2.5 million after applying a valuation adjustment of $1.9 million.

 

There were no transfers in or out of level 1 or level 2 assets and liabilities for 2022 and 2021. We have no level 3 assets or liabilities that are measured at fair value on a non-recurring basis.

 

The estimated fair values of financial assets and liabilities at December 31, 2022 and 2021, were as follows:

 

Schedule of fair values of financial assets and liabilities                         
   As of December 31, 2022 
Financial Instrument  (In thousands) 
   Carrying   Fair Value Measurements Using:     
   Value   Level 1   Level 2   Level 3   Total 
Assets:                    
Cash and cash equivalents  $13,490   $13,490   $–   $–   $13,490 
Restricted cash and equivalents   149,299    149,299    –    –    149,299 
Finance receivables, net   70,551    –    –    60,063    60,063 
Accrued interest receivable   649    –    –    649    649 
Liabilities:                         
Warehouse lines of credit  $285,328   $–   $–   $285,328   $285,328 
Accrued interest payable   6,190    –    –    6,190    6,190 
Securitization trust debt   2,108,744    –    –    1,957,995    1,957,995 
Subordinated renewable notes   25,263    –    –    25,263    25,263 

 

                     
   As of December 31, 2021 
Financial Instrument  (In thousands) 
   Carrying   Fair Value Measurements Using:     
   Value   Level 1   Level 2   Level 3   Total 
Assets:                    
Cash and cash equivalents  $29,928   $29,928   $–   $–   $29,928 
Restricted cash and equivalents   146,620    146,620    –    –    146,620 
Finance receivables, net   176,184    –    –    178,795    178,795 
Accrued interest receivable   2,269    –    –    2,269    2,269 
Liabilities:                         
Warehouse lines of credit  $105,610   $–   $–   $105,610   $105,610 
Accrued interest payable   3,568    –    –    3,568    3,568 
Securitization trust debt   1,759,972    –    –    1,740,901    1,740,901 
Subordinated renewable notes   26,459    –    –    26,459    26,459