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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2020

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables present the assets and liabilities that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of June 30, 2020 and December 31, 2019.


(in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2020		Level 1		Level 2		Level 3		Balance at December 31, 2019
Financial assets:
U.S. Treasury securities	$	—	$	1,521,795	$	—	$	1,521,795	$	—	$	4,090,938	$	—	$	4,090,938
Corporate debt	—		98,486		—		98,486		—		139,713		—		139,713
ABS	—		62,601		50,664		113,265		—		75,165		63,235		138,400
State and municipal securities	—		5		—		5		—		9		—		9
MBS	—		10,314,372		—		10,314,372		—		9,970,698		—		9,970,698
Investment in debt securities AFS⁽³⁾	—		11,997,259		50,664		12,047,923		—		14,276,523		63,235		14,339,758
Other investments - trading securities	—		19,766		—		19,766		379		718		—		1,097
RICs HFI⁽⁴⁾	—		—		72,862		72,862		—		17,634		84,334		101,968
LHFS ⁽¹⁾⁽⁵⁾	—		241,250		—		241,250		—		289,009		—		289,009
MSRs ⁽²⁾	—		—		88,674		88,674		—		—		130,855		130,855
Other assets - derivatives ⁽³⁾	—		1,628,619		16,767		1,645,386		—		553,222		3,109		556,331










Total financial assets ⁽⁶⁾	$	—	$	13,886,894	$	228,967	$	14,115,861	$	379	$	15,137,106	$	281,533	$	15,419,018
Financial liabilities:
Other liabilities - derivatives ⁽³⁾	—		1,428,086		6,797		1,434,883		—		543,560		2,854		546,414










Total financial liabilities	$	—	$	1,428,086	$	6,797	$	1,434,883	$	—	$	543,560	$	2,854	$	546,414

(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value and are not presented within this table.

(2) The Company had total MSRs of $90.2 million and $132.7 million as of June 30, 2020 and December 31, 2019, respectively. The Company has elected to account for the majority of its MSR balance using the FVO, while the remainder of the MSRs are accounted for using the lower of cost or fair value and are not presented within this table.

(3) Refer to Note 2 for the fair value of investment securities and to Note 11 for the fair values of derivative assets and liabilities on a further disaggregated basis.

(4) RICs collateralized by vehicle titles at SC and RV/marine loans at SBNA.

(5) Residential mortgage loans.

(6) Approximately $229.0 million of these financial assets were measured using model-based techniques, or Level 3 inputs, and represented approximately 1.6% of total assets measured at fair value on a recurring basis and approximately 0.2% of total consolidated assets.

Rollforward for Recurring Assets and Liabilities

The tables below present the changes in Level 3 balances for the three-month and six-month periods ended June 30, 2020 and 2019, respectively, for those assets and liabilities measured at fair value on a recurring basis.


	Three-Month Period Ended June 30, 2020																		Three-Month Period Ended June 30, 2019
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net			Total
Balances, beginning of period	$	62,827	$	87,384	$	97,697	$	4,897	$	252,805	$	326,108	$	114,809	$	140,134	$	1,252		$	582,303
Losses in OCI	(88)		—		—		—		(88)		(830)		—		—		—			(830)
Gains/(losses) in earnings	—		4,059		(3,341)		4,990		5,708		—		3,405		(14,691)		599			(10,687)
Additions/Issuances	—		—		2,521		—		2,521		—		2,079		8,206		—			10,285
Settlements⁽¹⁾	(12,075)		(18,581)		(8,203)		83		(38,776)		(299)		(16,100)		(3,736)		88			(20,047)
Balances, end of period	$	50,664	$	72,862	$	88,674	$	9,970	$	222,170	$	324,979	$	104,193	$	129,913	$	1,939		$	561,024
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	4,059	$	(3,341)	$	3,596	$	4,314	$	—	$	3,405	$	(14,691)	$	(896)		$	(12,182)

	Six-Month Period Ended June 30, 2020																		Six-Month Period Ended June 30, 2019
(in thousands)	Investments AFS		RICs HFI		MSRs		Derivatives, net		Total		Investments AFS		RICs HFI		MSRs		Derivatives, net			Total
Balances, beginning of period	$	63,235	$	84,334	$	130,855	$	255	$	278,679	$	327,199	$	126,312	$	149,660	$	1,866		$	605,037
Losses in OCI⁽²⁾	(319)		—		—		—		(319)		(1,502)		—		—		—			(1,502)
Gains/(losses) in earnings	—		6,950		(35,623)		9,550		(19,123)		—		6,952		(23,937)		(101)			(17,086)
Additions/Issuances	—		2,512		6,423		—		8,935		—		2,079		11,103		—			13,182
Transfer from level 2⁽³⁾	—		17,634		—		—		17,634		—		—		—		—			—
Settlements⁽¹⁾	(12,252)		(38,568)		(12,981)		165		(63,636)		(718)		(31,150)		(6,913)		174			(38,607)
Balances, end of period	$	50,664	$	72,862	$	88,674	$	9,970	$	222,170	$	324,979	$	104,193	$	129,913	$	1,939		$	561,024
Changes in unrealized gains (losses) included in earnings related to balances still held at end of period	$	—	$	6,950	$	(35,623)	$	(3,843)	$	(32,516)	$	—	$	6,952	$	(23,937)	$	(1,895)		$	(18,880)

(1)Settlements include charge-offs, prepayments, paydowns and maturities.

(2)Losses in OCI during the three-month period ended June 30, 2020 increased by $0.1 million from the prior reporting date of March 31, 2020.

(3)The Company transferred RIC's from Level 2 to Level 3 during 2020 because the fair value for these assets cannot be determined by using readily observable inputs as of June 30, 2020. There were no other transfers into or out of Level 3 during the three-month and six-month periods ended June 30, 2020 and 2019.

Fair Value Measurements, Nonrecurring

Assets measured at fair value on a nonrecurring basis that were still held on the balance sheet were as follows:


(in thousands)	Level 1		Level 2		Level 3		Balance at June 30, 2020		Level 1		Level 2		Level 3		Balance at December 31, 2019
Impaired commercial LHFI	$	—	$	52,195	$	133,066	$	185,261	$	—	$	133,640	$	356,220	$	489,860
Foreclosed assets	—		8,693		40,665		49,358		—		17,168		51,080		68,248
Vehicle inventory	—		294,156		—		294,156		—		346,265		—		346,265
LHFS⁽¹⁾⁽²⁾	—		103		5,198,011		5,198,114		—		—		1,131,214		1,131,214
Auto loans impaired due to bankruptcy	—		187,837		—		187,837		—		200,504		503		201,007
Goodwill	—		—		350,000		350,000		—		—		—		—
MSRs	—		—		7,318		7,318		—		—		8,197		8,197

Increases and Decreases in Value of Certain Assets Measured at Fair Value on Nonrecurring Basis

The following table presents the increases and decreases in value of certain assets that are measured at fair value on a nonrecurring basis for which a fair value adjustment has been included in the Condensed Consolidated Statements of Operations relating to assets held at period-end:


		Three-Month Period Ended June 30,						Six-Month Period Ended June 30,
(in thousands)	Statement of Operations Location	2020		2019		2020		2019
Impaired LHFI	Credit loss expense	$	2,461	$	479	$	6,153	$	(6,113)
Foreclosed assets	Miscellaneous income, net ⁽¹⁾	(1,171)		(1,532)		(3,121)		(3,784)

LHFS	Miscellaneous income, net ⁽¹⁾	(268,364)		(104,365)		(331,302)		(172,038)
Auto loans impaired due to bankruptcy	Credit loss expense	4,953		(7,254)		—		(11,664)
Goodwill impairment	Impairment of goodwill ⁽²⁾	1,848,228		—		1,848,228		—
MSRs	Miscellaneous income, net ⁽¹⁾	(5)		(182)		(138)		(355)

(1) Gains are disclosed as positive numbers while losses are shown as a negative number regardless of the line item being affected.

(2) In the period ended June 30, 2020, Goodwill totaling $2.2 billion was written down to its implied fair value of $350.0 million, resulting in a goodwill impairment charge of $1.8 billion.

Quantitative Information on Level 3 Recurring Assets and Liabilities

The following table presents quantitative information about the significant unobservable inputs within significant Level 3 recurring and nonrecurring assets and liabilities at June 30, 2020 and December 31, 2019, respectively:


(dollars in thousands)	Fair Value at June 30, 2020		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Financial Assets:
ABS
Financing bonds	$	50,664	DCF	Discount rate ⁽¹⁾	0.37% - 0.37% (0.37% )

RICs HFI	72,862		DCF	CPR ⁽²⁾	6.66	%
				Discount rate ⁽³⁾	9.5% - 14.5% (12.01%)
				Recovery rate ⁽⁴⁾	25% - 43% (41.96%)
Personal LHFS ⁽⁸⁾	808,405		Lower of market or Income approach	Market participant view	65.00% - 70.00%
				Discount rate	20.00% - 30.00%
				Default rate	45.00% - 55.00%
				Net principal & interest payment rate	50.00% - 60.00%
				Loss severity rate	90.00% - 95.00%
RICs HFS	1,637,194		DCF	Discount rate	1.50% - 2.50% (2.00%)
				Default rate	1.00% - 2.00% (1.80%)
				Prepayment rate	10.00% - 20.00% (15.00%)
				Loss severity rate	50.00% - 60.00% (55.00%)
MSRs ⁽⁷⁾	88,674		DCF	CPR ⁽⁵⁾	[0.00% - 28.71%] (16.96%)
				Discount rate ⁽⁶⁾	9.43	%

(1) Based on the applicable term and discount index.

(2) Based on the analysis of available data from a comparable market securitization of similar assets.

(3) Based on the cost of funding of debt issuance and recent historical equity yields. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(4) Based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(5) Average CPR projected from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(6) Average discount rate from collateral stratified by loan type and note rate. Weighted average amount was developed by weighting the associated relative unpaid principal balances.

(7) Excludes MSR valued on a non-recurring basis for which we do not consider there to be significant unobservable assumptions.

(8) Excludes non-significant Level 3 LHFS portfolios and LHFS associated with BSPR. The estimated fair value for personal LHFS (Bluestem) is calculated based on the lower of market participant view, a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, and also considers the possible outcomes of the Bluestem bankruptcy process.

NOTE 12. FAIR VALUE (continued)


(dollars in thousands)	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Financial Assets:
ABS
Financing bonds	$	51,001	DCF	Discount rate ⁽¹⁾	1.64% - 1.64% (1.64% )
Sale-leaseback securities	12,234		Consensus pricing ⁽⁹⁾	Offered quotes ⁽¹⁰⁾	103.00	%
RICs HFI	84,334		DCF	CPR ⁽²⁾	6.66	%
				Discount rate ⁽³⁾	9.50% - 14.50% (13.16%)
				Recovery rate ⁽⁴⁾	25% - 43% (41.12%)
Personal LHFS ⁽⁸⁾	1,007,105		Lower of market or Income approach	Market participant view	70.00% - 80.00%
				Discount rate	15.00% - 25.00%
				Default rate	30.00% - 40.00%
				Net principal & interest payment rate	70.00% - 85.00%
				Loss severity rate	90.00% - 95.00%




MSRs ⁽⁷⁾	130,855		DCF	CPR ⁽⁵⁾	7.83% - 100.00% (11.97%)
				Discount rate ⁽⁶⁾	9.63	%

(1), (2), (3), (4), (5), (6), (7), (8) - See corresponding footnotes to the June 30, 2020 Level 3 significant inputs table above.

(9) Consensus pricing refers to fair value estimates that are generally developed using information such as dealer quotes or other third-party valuations or comparable asset prices.

(10) Based on the nature of the input, a range or weighted average does not exist. The Company owns one sale-leaseback security.

Schedule of Fair Value of Financial Instruments

The carrying amounts and estimated fair values, as well as the level within the fair value hierarchy, of the Company's financial instruments are as follows:


	June 30, 2020																		December 31, 2019
(in thousands)	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	11,085,206	$	11,085,206	$	11,085,206	$	—	$	—	$	7,644,372	$	7,644,372	$	7,644,372	$	—	$	—
Investments in debt securities AFS	12,047,923		12,047,923		—		11,997,259		50,664		14,339,758		14,339,758		—		14,276,523		63,235
Investments in debt securities HTM	5,229,562		5,414,720		—		5,414,720		—		3,938,797		3,957,227		—		3,957,227		—
Other investments ⁽³⁾	769,766		769,766		—		769,766		—		1,097		1,097		379		718		—
LHFI, net	84,181,092		88,368,326		—		52,195		88,316,131		89,059,251		90,490,760		—		1,142,998		89,347,762
LHFS	5,439,364		5,439,364		—		241,353		5,198,011		1,420,223		1,420,295		—		289,009		1,131,286
Restricted cash	5,189,766		5,189,766		5,189,766		—		—		3,881,880		3,881,880		3,881,880		—		—
MSRs⁽¹⁾	90,231		95,992		—		—		95,992		132,683		139,052		—		—		139,052
Derivatives	1,645,386		1,645,386		—		1,628,619		16,767		556,331		556,331		—		553,222		3,109

Financial liabilities:
Deposits ⁽²⁾	5,528,540		5,575,162		—		5,575,162		—		9,375,281		9,384,994		—		9,384,994		—
Borrowings and other debt obligations	49,857,326		50,291,535		—		33,991,246		16,300,289		50,654,406		51,232,798		—		36,114,404		15,118,394
Derivatives	1,434,883		1,434,883		—		1,428,086		6,797		546,414		546,414		—		543,560		2,854

(1) The Company has elected to account for the majority of its MSR balance using the FVO, while the remainder of the MSRs are accounted for using the lower of cost or fair value.

(2) This line item excludes deposit liabilities with no defined or contractual maturities in accordance with ASU 2016-01.

(3) This line item includes CDs with a maturity greater than 90 days and investments in trading securities.

Summary of Difference Between Fair Value and Principal Balance of LHFS

The following table summarizes the differences between the fair value and the principal balance of LHFS and RICs measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:


	June 30, 2020										December 31, 2019
(in thousands)	Fair Value		Aggregate UPB		Difference		Fair Value		Aggregate UPB		Difference
LHFS⁽¹⁾	$	241,250	$	228,660	$	12,590	$	289,009	$	284,111	$	4,898

RICs HFI	72,862		79,249		(6,387)		101,968		113,863		(11,895)
Nonaccrual loans	2,382		3,558		(1,176)		10,616		12,917		(2,301)

(1) LHFS disclosed on the Condensed Consolidated Balance Sheets also includes LHFS that are held at the lower of cost or fair value that are not presented within this table. There were no nonaccrual loans related to the LHFS measured using the FVO.