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Fair Value | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value |
12. | Fair Value
Certain of the Company’s financial assets and liabilities are recorded at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as model pricing, when market quotes are not readily accessible or available. Various factors are considered in determining the fair value of the Company’s obligations, including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options and derivatives; price activity for equivalent instruments; and the Company’s own credit standing. These valuation techniques may be based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy: •Level 1 – Quoted prices for identical instruments in active markets. •Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. •Level 3 – Instruments whose significant value drivers are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:
(In thousands) | Fair Value Hierarchy | September 30, 2021 |  | December 31, 2020
Financial Assets: |  |  |  |
Money market mutual funds 1 | 1 | $ | — |  |  | $ | 335,449 |
Investment securities |  |  |  |
Municipal bonds | 2 | $ | 109 |  |  | $ | 197 |
Asset-backed securities | 2 | 177 |  |  | 210 |
Mortgage-backed securities | 2 | 129 |  |  | 138 |
Pooled investment fund measured at NAV 2 |  | 9,000 |  |  | 9,000 |
Fixed-income mutual fund | 1 | 27,440 |  |  | 27,728 |
Total investment securities |  | $ | 36,855 |  |  | $ | 37,273 |
Executive deferred compensation plan trust 3 | 1 | $ | 10,851 |  |  | $ | 9,586 |
Interest rate swaps 4 | 2 | $ | 7,449 |  |  | $ | — |
Liabilities |  |  |  |
Interest rate swaps 4 | 2 | $ | 32,379 |  |  | $ | 44,938 |
Contingent consideration 5 | 3 | $ | 72,100 |  |  | $ | — |
1 The fair value is recorded in cash and cash equivalents. 2 The fair value of this security is measured at NAV as a practical expedient and has not been classified within the fair value hierarchy. The amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets. 3 The fair value is recorded as current or long-term based on the timing of the Company’s executive deferred compensation plan payment obligations. At September 30, 2021, $1.5 million and $9.3 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2020, $0.9 million an d $8.7 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. 4 The fair value is recorded as current or long-term depending on the timing of expected discounted cash flows. At September 30, 2021, $7.4 million of fair value was recorded in other assets. At September 30, 2021, $24.3 million and $8.1 million in fair value is recorded within other current liabilities and other liabilities, respectively. At December 31, 2020, $22.0 million and $22.9 million in fair value is recorded within other current liabilities and other liabilities, respectively. 5 The fair value is recorded in other liabilities. Money Market Mutual Funds From time to time, a portion of the Company’s cash and cash equivalents are invested in money market mutual funds that primarily consist of short-term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices in an active market. Investment Securities When available, the Company uses quoted market prices to determine the fair value of investment securities; such inputs are classified as Level 1 of the fair-value hierarchy. These securities primarily consist of an open-ended mutual fund, which is invested in fixed-income securities and is held in order to satisfy the regulatory requirements of WEX Bank. For mortgage-backed and asset-backed debt securities and municipal bonds, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally valued using Level 2 inputs. Pooled Investment Fund
(In thousands) | Fair Value |  | Unfunded Commitments |  | Redemption Frequency |  | Redemption Notice Period
Pooled investment fund, as of September 30, 2021 | $ | 9,000 |  |  | — |  |  | Monthly |  | 30 days
The pooled investment fund is a Community Reinvestment Act-eligible investment fund, which seeks to provide bank investors with current income consistent with the returns available in adjustable-rate government guaranteed financial products by investing in Community Development loans guaranteed by the Small Business Administration. The fund maintains individual capital accounts for each investor, which reflect each individual investor’s share of the NAV of the fund. Executive Deferred Compensation Plan Trust The investments held in the executive deferred compensation plan trust, which consist primarily of mutual funds, are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted prices for identical instruments in active markets. Interest Rate Swaps The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference between the projected fixed payments on the swaps and the implied floating payments using the current LIBOR curve, which are Level 2 inputs of the fair value hierarchy. Contingent Consideration As part of the asset acquisition from Bell Bank discussed in Note 4, Acquisitions, the Company is obligated to pay additional consideration contingent upon increases in the Federal Funds rate. The Company determined the fair value of this contingent consideration derivative liability based on discounted cash flows using the difference between the baseline Federal Funds rate in the purchase agreement with Bell Bank and future forecasted Federal Funds rates over the agreement term. The forecasted Federal Funds rates represent a Level 3 input within the fair value hierarchy. The resulting probability-weighted contingent consideration amounts were discounted using a weighted average discount rate, which was 1.32 percent as of September 30, 2021. Significant increases or decreases in the Federal Funds rates could result in material increases or decreases, respectively, to the fair value of the Company’s contingent consideration derivative liability. The Company records changes in the estimated fair value of the contingent consideration in the condensed consolidated statements of operations. Changes in the contingent consideration liability are measured at fair value on a recurring basis using unobservable inputs (Level 3) and during the nine months ended September 30, 2021 are as follows:
(In thousands) |  |  | Fair Value |  |
Contingent consideration – December 31, 2020 |  |  | $ | — |  |
Contingent consideration recorded as a result of the acquisition (Note 4) |  |  | 27,200 |  |
Change in estimated fair value |  |  | 44,900 |  |
Contingent consideration – September 30, 2021 |  |  | $ | 72,100 |  |
Assets and Liabilities Measured at Carrying Value, for which Fair Value is Disclosed Term Loans and borrowings on Revolving Credit Facility The Company determines the fair value of borrowings on the Revolving Credit Facility and Tranche A Term Loans and Tranche B Term Loans based on market rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy. As of September 30, 2021 and December 31, 2020, the carrying value of outstanding borrowings on the Tranche A Term Loans and Tranche B Term Loans approximated fair value. As of September 30, 2021, the principal amount of the outstanding borrowings on the Revolving Credit Facility approximated fair value. Convertible Notes The Company determines the fair value of the Convertible Notes outstanding using our stock price and volatility, the conversion premium on the Convertible Notes and effective interest rates for similarly-rated credit issuances, all of which are Level 2 inputs in the fair value hierarchy. As of September 30, 2021 and December 31, 2020, the fair value of our Convertible Notes approximated $367.1 million and $405.6 million, respectively. Other Assets and Liabilities The carrying value of certain of the Company’s financial instruments, other than those presented above, including cash, cash equivalents, restricted cash, short-term certificates of deposit, accounts receivable, accounts payable, accrued expenses and other liabilities, approximate their respective fair values due to their short-term nature or maturities. The carrying value of certain other financial instruments, including interest-bearing money market deposits, certificates of deposit with maturity dates in excess of one year, securitized debt, participation debt and borrowed federal funds approximate their respective fair values due to their interest rates being consistent with current market interest rates.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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