(9) Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

(9) Fair Value Measurements

(9) 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 effect on our fair value measurement.

For the period ended March 31, 2021, the Company evaluated of the appropriate fair value and future earnings rate of existing receivables compared to recently acquired receivables and our assessment of potential additional future net losses on the portfolio of finance receivables carried at fair value and recorded a mark down to that portfolio of $4.4 million.

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,
		2021			2020
		(In thousands)
Balance at beginning of period	$	1,523,726		$	1,444,038
Finance receivables at fair value acquired during period		205,459			265,282
Payments received on finance receivables at fair value		(156,020	)		(109,558	)
Net interest income accretion on fair value receivables		(35,025	)		(29,715	)
Mark to fair value		(4,417	)		(10,350	)
Balance at end of period	$	1,533,723		$	1,559,697

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

	March 31, 2021				December 31, 2020
	Contractual		Fair		Contractual		Fair
	Balance		Value		Balance		Value
	(In thousands)
Finance receivables measured at fair value	$	1,698,110	$	1,533,723	$	1,668,076	$	1,523,726

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,
		2021		2020	Unobservable Inputs	2021	2020
	(In thousands)
Assets:
Finance receivables measured at fair value	$	1,533,723	$	1,523,726	Discount rate	11.0% - 11.3%	10.4% - 11.1%
					Cumulative net losses	15.4% - 18.4%	15.3% - 18.4%

The following table summarizes the delinquency status of these finance receivables measured at fair value as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
	2021		2020
	(In thousands)
Delinquency Status
Current	$	1,594,070	$	1,505,486
31 - 60 days		58,534		96,296
61 - 90 days		20,114		36,436
91 + days		5,378		9,607
Repo		20,014		20,251
	$	1,698,110	$	1,668,076

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, 2021 the finance receivables related to the repossessed vehicles in inventory totaled $10.3 million. We have applied a valuation adjustment, or loss allowance, of $6.8 million, which is based on a recovery rate of approximately 34%, resulting in an estimated fair value and carrying amount of $3.5 million. The fair value and carrying amount of the repossessed inventory at December 31, 2020 was $3.8 million after applying a valuation adjustment of $11.8 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, 2021 and 2020.

The estimated fair values of financial assets and liabilities at March 31, 2021 and December 31, 2020, were as follows:

	As of March 31, 2021
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	9,197	$	9,197	$	–	$	–	$	9,197
Restricted cash and equivalents		159,404		159,404		–		–		159,404
Finance receivables, net		337,612		–		–		348,892		348,892
Accrued interest receivable		3,744		–		–		3,744		3,744
Liabilities:
Warehouse lines of credit	$	71,097	$	–	$	–	$	71,097	$	71,097
Accrued interest payable		4,740		–		–		4,740		4,740
Securitization trust debt		1,791,583		–		–		1,813,370		1,813,370
Subordinated renewable notes		23,740		–		–		23,740		23,740

	As of December 31, 2020
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	13,466	$	13,466	$	–	$	–	$	13,466
Restricted cash and equivalents		130,686		130,686		–		–		130,686
Finance receivables, net		411,343		–		–		429,972		429,972
Accrued interest receivable		5,017		–		–		5,017		5,017
Liabilities:
Warehouse lines of credit	$	118,999	$	–	$	–	$	118,999	$	118,999
Accrued interest payable		4,919		–		–		4,919		4,919
Securitization trust debt		1,803,673		–		–		1,862,630		1,862,630
Subordinated renewable notes		21,323		–		–		21,323		21,323