Note 6 - Fair Values of Assets and Liabilities

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

6. Fair Values of Assets and Liabilities

Valuations and Techniques for Assets

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The table below summarizes (in thousands) by fair value hierarchy the

March 

31,

2019

and

December 

31,

2018

fair values and carrying amounts of (

1

) our assets that are required to be carried at fair value in our consolidated financial statements and (

2

) our assets

not

carried at fair value, but for which fair value disclosures are required:

Assets – As of March 31, 2019 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	476,959	$	429,902
Loans, interest and fees receivable, at fair value	$	—	$	—	$	5,394	$	5,394

Assets – As of December 31, 2018 (1)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Assets
Loans, interest and fees receivable, net for which it is practicable to estimate fair value	$	—	$	—	$	470,496	$	418,236
Loans, interest and fees receivable, at fair value	$	—	$	—	$	6,306	$	6,306

( 1 ) For cash, deposits and other short-term investments, the carrying amount is a reasonable estimate of fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note

2,

“Significant Accounting Policies and Consolidated Financial Statement Components.”

For Level

3

assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the

three

months ended

March 

31,

2019

and

2018:

	Loans, Interest and Fees Receivables, at Fair Value
	2019			2018
Balance at January 1,	$	6,306		$	11,109
Total gains—realized/unrealized:
Net revaluations of loans, interest and fees receivable, at fair value		(1	)		(18	)
Settlements		(911	)		(1,691	)
Impact of foreign currency translation		—			13
Balance at March 31,	$	5,394		$	9,413

The unrealized gains and losses for assets within the Level

3

category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations. 

Net Revaluation of Loans, Interest and Fees Receivable.

We record the net revaluation of loans, interest and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans, interest and fees receivable recorded at fair value. The net revaluation of loans, interest and fees receivable is based on the present value of future cash flows using a valuation model of expected cash flows and the estimated cost to service and collect those cash flows. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions

third

-party market participants would use in determining fair value, including estimates of net collected yield, principal payment rates, expected principal credit loss rates, costs of funds, discount rates and servicing costs. Accrued interest income on receivables underlying our asset classes that are carried at fair value in our consolidated financial statements is recorded in Interest income - Consumer loans, including past due fees in our Consolidated Statements of Operations.

For Level

3

assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of

March 

31,

2019

and

December 

31,

2018:

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at March 31, 2019 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	5,394	Discounted cash flows	Gross yield		25.2% to 33.5% (26.3%)
				Principal payment rate		2.1% to 3.1% (2.2%)
				Expected credit loss rate		10.6% to 11.2% (10.7%)
				Servicing rate		15.6% to 20.9% (16.3%)
				Discount rate		14.9% to 14.9% (14.9%)

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at December 31, 2018 (in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average)
Loans, interest and fees receivable, at fair value	$	6,306	Discounted cash flows	Gross yield		25.8% to 30.8% (26.4%)
				Principal payment rate		2.2% to 3.0% (2.3%)
				Expected credit loss rate		8.7% to 11.3% (9.0%)
				Servicing rate		14.9% to 19.5% (15.5%)
				Discount rate		14.9% to 14.9% (14.9%)

Valuations and Techniques for Liabilities

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the liability. The table below summarizes (in thousands) by fair value hierarchy the

March 

31,

2019

and

December 

31,

2018

fair values and carrying amounts of (

1

) our liabilities that are required to be carried at fair value in our consolidated financial statements and (

2

) our liabilities

not

carried at fair value, but for which fair value disclosures are required:

Liabilities – As of March 31, 2019	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	407,022	$	407,022
Amortizing debt facilities	$	—	$	—	$	1,220	$	1,220
Notes payable to related parties	$	—	$	—	$	40,000	$	40,000
Convertible senior notes	$	—	$	47,230	$	—	$	62,313
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	4,776	$	4,776

Liabilities - As of December 31, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Amount of Liabilities
Liabilities not carried at fair value
Revolving credit facilities	$	—	$	—	$	389,707	$	389,707
Amortizing debt facilities	$	—	$	—	$	1,220	$	1,220
Notes payable to related parties	$	—	$	—	$	40,000	$	40,000
Convertible senior notes	$	—	$	47,230	$	—	$	62,142
Liabilities carried at fair value
Notes payable associated with structured financings, at fair value	$	—	$	—	$	5,651	$	5,651

For our material Level

3

liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the

three

months ended

March 

31,

2019

and

2018.

	Notes Payable Associated with Structured Financings, at Fair Value
	2019			2018
Beginning balance, January 1,	$	5,651		$	9,240
Total (gains) losses—realized/unrealized:
Net revaluations of notes payable associated with structured financings, at fair value		(875	)		(1,331	)
Repayments on outstanding notes payable, net		—			—
Ending balance, March 31,	$	4,776		$	7,909

The unrealized gains and losses for liabilities within the Level

3

category presented in the table above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level

3

liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value.

We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations. The legal entity associated with the securitization transaction is consolidated as a VIE as the Company is deemed the primary beneficiary of the entity.  The Company is

not

liable for the full face value of the liability in the VIE so it is carried at fair value based upon amounts the borrower will receive from the legal entity. The net revaluation of these notes is based on the present value of future cash flows utilized in repayment of the outstanding principal and interest under the facilities using a valuation model of expected cash flows net of the contractual service expenses within the facilities. We estimate the present value of these future cash flows using a valuation model consisting of internally developed estimates of assumptions

third

-party market participants would use in determining fair value, including: estimates of net collected yield, principal payment rates and expected principal credit loss rates on the credit card receivables that secure the non-recourse notes payable; costs of funds; discount rates; and contractual servicing fees. Accrued interest expense on notes payable underlying our notes payable associated with structured financings, at fair value is recorded in Interest expense in our consolidated statements of operations.

For material Level

3

liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of

March 

31,

2019

and

December 

31,

2018:

Quantitative information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at March 31, 2019 (in thousands)		Valuation Technique		Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	4,776		Discounted cash flows	Gross yield		25.2	%
					Principal payment rate		2.1	%
					Expected credit loss rate		10.6	%
					Discount rate		14.9	%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements	Fair Value at December 31, 2018 (in thousands)		Valuation Technique		Unobservable Input	Weighted Average
Notes payable associated with structured financings, at fair value	$	5,651		Discounted cash flows	Gross yield		25.8	%
					Principal payment rate		2.2	%
					Expected credit loss rate		8.7	%
					Discount rate		14.9	%

Other Relevant Data

Other relevant data (in thousands) as of

March 

31,

2019

and

December 

31,

2018

concerning certain assets and liabilities we carry at fair value are as follows:

As of March 31, 2019	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans, interest and fees receivable that are reported at fair value	$	1,016	$	7,009
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	618	$	4,776
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	4	$	8
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	28	$	252

As of December 31, 2018	Loans, Interest and Fees Receivable at Fair Value		Loans, Interest and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans, interest and fees receivable that are reported at fair value	$	1,160	$	7,708
Aggregate fair value of loans, interest and fees receivable that are reported at fair value	$	655	$	5,651
Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)	$	3	$	7
Unpaid principal balance of receivables within loans, interest and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans, interest and fees receivable	$	35	$	224

Notes Payable	Notes Payable Associated with Structured Financings, at Fair Value as of March 31, 2019		Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2018
Aggregate unpaid principal balance of notes payable	$	101,314	$	101,314
Aggregate fair value of notes payable	$	4,776	$	5,651