Note

18—Fair

Value of Financial Measurements and Disclosures

Disclosures about Fair Value of Financial Instruments

FASB ASC

825,

Financial Instruments, (“ASC

825”),

requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. Because there are a limited number of market participants for certain of the Company’s assets and liabilities, fair value estimates are based upon judgments regarding credit risk, investor expectation of economic conditions, normal cost of administration and other risk characteristics, including interest rate and prepayment risk. These estimates are subjective in nature and involve uncertainties and matters of judgment, which significantly affect the estimates.

The estimated fair value of the Company’s financial instruments is summarized as follows:

	December 31, 2016				September 30, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents (Level 2)	$	16,041,000	$	16,041,000	$	18,526,000	$	18,526,000
Available-for-sale investments (Level 1)		55,045,000		55,045,000		56,764,000		56,764,000
Consumer receivables acquired for liquidation (Level 3)		11,884,000		45,061,000		14,320,000		47,233,000
Structured settlements (Level 3)		91,505,000		91,505,000		85,708,000		85,708,000
Other investments, net (1)		3,354,000		3,354,000		3,590,000		3,590,000
Financial liabilities
Other debt – CBC, revolving line of credit (Level 3)		15,264,000		15,264,000		10,154,000		10,154,000
Other debt – CBC, non-recourse notes payable with varying installments (Level 3)		56,302,000		56,302,000		57,281,000		57,281,000

(1)

The Company has adopted ASU

2015

and in accordance with ASU

2015

07,

certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

Cash and cash equivalents – The carrying amount of cash and cash equivalents approximates fair value.

Available-for-sale investments – The available-for-sale securities consist of mutual funds that are valued based on quoted prices in active markets.

Consumer receivables acquired for liquidation – The Company computed the fair value of the consumer receivables acquired for liquidation using its proprietary forecasting model. The Company’s forecasting model utilizes a discounted cash flow analysis. The Company’s cash flows are an estimate of collections for consumer receivables based on variables fully described in Note

- Consumer Receivables Acquired for Liquidation. These cash flows are discounted to determine the fair value.

Structured settlements – The Company determined the fair value based on the discounted forecasted future collections of the structured settlements. Unrealized gains on structured settlements is comprised of both unrealized gains resulting from fair market valuation at the date of acquisition of the structured settlements and the subsequent fair value adjustments resulting from the change in the discount rate. Of the

$1.6

million of unrealized gains recognized in the

three

month period ended

December

31,

2016,

approximately

$2.1

million is due to day

one

gains on new structured settlements financed during the period, offset by a decrease of

$0.5

million in realized gains recognized as realized interest income on structured settlements during the period. There were no other changes in assumptions during the period.

Other investments – The Company estimated the fair value using the net asset value per share of the investment. There are no unfunded commitments and the investment cannot be redeemed for

years from the date of the initial investment

(October

2014).

Other debt CBC, revolving line of credit – The Company determined the fair value based on similar instruments in the market.

Other debt CBC, notes payable with varying installments – The fair value at

December

31,

2016

was based on the discounted forecasted future collections of the structured settlements.

Fair Value Hierarchy

The Company recorded its available-for-sale investments at estimated fair value on a recurring basis. The accompanying consolidated financial statements include estimated fair value information regarding its available-for-sale investments as of

December

31,

2016,

as required by FASB ASC

820,

Fair Value Measurements and Disclosures

(“ASC

820”).

ASC

820

defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. ASC

820

also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement.

Level

– Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to assess at the measurement date.

Level

– Observable inputs other than Level

prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active for identical or similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level

– Unobservable inputs that are supported by little or no market activity and significant to the fair value of the liabilities that are developed using the reporting entities’ estimates and assumptions, which reflect those that market participants would use.

A significant unobservable input used in the fair value measurement of structured settlements is the discount rate. Significant increases and decreases in the discount rate used to estimate the fair value of structured settlements could decrease or increase the fair value measurement of the structured settlements. The discount rate could be affected by factors, which include, but are not limited to, creditworthiness of insurance companies, market conditions, specifically competitive factors, credit quality of receivables purchased, the diversity of the payers of the receivables purchased, the weighted average life of receivables, current benchmark rates (i.e.

year treasury or swap rate) and the historical portfolio performance of the originator and/or servicer.

The Company’s available-for-sale investments are classified as Level

financial instruments based on the classifications described above. The Company did not have transfers into or (out of) Level

investments during the

three

month period ended

December

31,

2016.

The Company had

Level

or Level

available-for-sale investments during the

first

three

months of fiscal year

2017.

The following table sets forth the Company’s quantitative information about its Level

fair value measurements as of

December

31,

2016:

		Fair Value			Valuation Technique	Unobservable Input		Rate
Structured settlements at fair value		$	91,505,000		Discounted cash flow	Discount rate			4.85	%

The changes in structured settlements at fair value using significant unobservable inputs (Level

during the

three

months ended

December

31,

2016

were as follows:

Balance at September 30, 2016	$	85,708,000
Total gains included in earnings		1,598,000
Purchases		4,595,000
Interest accreted		1,567,000
Payments received		(1,963,000	)
Total	$	91,505,000
The amount of total gains for the three month period included in earnings attributable to the change in unrealized gains relating to assets held at December 31, 2016	$	1,598,000

Realized and unrealized gains and losses included in earnings in the accompanying consolidated statements of operations for the

three

months ended

December

31,

2016

are reported in the following revenue categories:

Total gains included in the three months ended December 31, 2016		$	1,598,000
Change in unrealized gains relating to assets still held at December 31, 2016		$	1,598,000