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Fair Value Measurements

6 Months Ended

Jun. 30, 2024

(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 quarter ended June 30, 2024, the Company evaluated 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 did not record a mark down to that portfolio.

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						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
	(In thousands)						(In thousands)
Balance at beginning of period	$	2,791,373		$	2,575,117		$	2,722,662		$	2,476,617
Finance receivables at fair value acquired during period		424,867			305,450			753,760			658,048
Payments received on finance receivables at fair value		(208,964	)		(215,314	)		(419,899	)		(421,940	)
Net interest income accretion on fair value receivables		(52,401	)		(46,833	)		(106,648	)		(94,305	)
Mark to fair value		5,500			–			10,500			–
Balance at end of period	$	2,960,375		$	2,618,420		$	2,960,375		$	2,618,420

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


	June 30, 2024				December 31, 2023
	Contractual		Fair		Contractual		Fair
	Balance		Value		Balance		Value
	(In thousands)
Finance receivables measured at fair value	$	3,160,134	$	2,960,375	$	2,941,915	$	2,722,662

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


Financial Instrument	Fair Values as of					Weighted Avg. Inputs as of
	June 30,		December 31,			June 30,		December 31,
	2024		2023		Unobservable Inputs	2024		2023
	(In thousands)
Assets:
Finance receivables measured at fair value	$	2,960,375	$	2,722,662	Discount rate		11.39%		11.35%
					Cumulative net losses		15.38%		15.25%

The following table summarizes the delinquency status of these finance receivables measured at fair value as of June 30, 2024 and December 31, 2023:


	June 30,		December 31,
	2024		2023
	(In thousands)
Delinquency Status
Current	$	2,743,578	$	2,520,158
31 - 60 days		201,748		204,574
61 - 90 days		91,353		101,057
91 + days		47,122		49,541
Repo		76,333		66,585
	$	3,160,134	$	2,941,915

There were no transfers in or out of level 1, level 2 or level 3 assets and liabilities for the three months ended June 30, 2024 and 2023.

The estimated fair values of financial assets and liabilities at June 30, 2024 and December 31, 2023, were as follows:


	As of June 30, 2024
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	9,752	$	9,752	$	–	$	–	$	9,752
Restricted cash and equivalents		256,859		256,859		–		–		256,859
Finance receivables, net		12,030		–		–		10,326		10,326
Accrued interest receivable		129		–		–		129		129
Liabilities:
Warehouse lines of credit	$	82,175	$	–	$	–	$	82,175	$	82,175
Residual interest financing		99,079						99,079		99,079
Accrued interest payable		8,473		–		–		8,473		8,473
Securitization trust debt		2,736,225		–		–		2,711,060		2,711,060
Subordinated renewable notes		22,356		–		–		22,356		22,356


	As of December 31, 2023
Financial Instrument	(In thousands)
	Carrying		Fair Value Measurements Using:
	Value		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	6,174	$	6,174	$	–	$	–	$	6,174
Restricted cash and equivalents		119,257		119,257		–		–		119,257
Finance receivables, net		24,684		–		–		20,848		20,848
Accrued interest receivable		292		–		–		292		292
Liabilities:
Warehouse lines of credit	$	234,025	$	–	$	–	$	234,025	$	234,025
Accrued interest payable		7,928		–		–		7,928		7,928
Securitization trust debt		2,265,446		–		–		2,183,331		2,183,331
Subordinated renewable notes		17,188		–		–		17,188		17,188