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Investment in Receivable Portfolios, Net | 6 Months Ended
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Jun. 30, 2022
Receivables [Abstract] |
Investment in Receivable Portfolios, Net | Investment in Receivable Portfolios, Net The Company’s purchased portfolios of loans are grossed-up to their face value with an offsetting allowance and noncredit discount allocated to the individual receivables as the unit of account is at the individual loan level. Since each loan is deeply delinquent and deemed uncollectible at the individual loan level, the Company applies its charge-off policy and fully writes-off the amortized costs (i.e., face value net of noncredit discount) of the individual receivables immediately after purchasing the portfolio. The Company then records a negative allowance that represents the present value of all expected future recoveries for pools of receivables that share similar risk characteristics using a discounted cash flow approach, which ultimately equals the amount paid for a portfolio purchase and presented as “Investment in receivable portfolios, net” in the Company’s consolidated statements of financial condition. The discount rate is an effective interest rate (or “purchase EIR”) based on the purchase price of the portfolio and the expected future cash flows at the time of purchase. Receivable portfolio purchases are aggregated into pools based on similar risk characteristics. Examples of risk characteristics include financial asset type, collateral type, size, interest rate, date of origination, term, and geographic location. The Company’s static pools are typically grouped into credit card, purchased consumer bankruptcy, and mortgage portfolios. The Company further groups these static pools by geographic location. Once a pool is established, the portfolios will remain in the designated pool unless the underlying risk characteristics change. The purchase EIR of a pool will not change over the life of the pool even if expected future cash flows change. Revenue is recognized for each static pool over the economic life of the pool. Debt purchasing revenue includes two components: (1) Revenue from receivable portfolios, which is the accretion of the discount on the negative allowance due to the passage of time (generally the portfolio balance multiplied by the EIR) and also includes all revenue from zero basis portfolio (“ZBA”) collections, and (2) Changes in recoveries, which includes (a) Recoveries above or below forecast, which is the difference between (i) actual cash collected/recovered during the current period and (ii) expected cash recoveries for the current period, which generally represents over or under performance for the period; and (b) Changes in expected future recoveries, which is the present value change of expected future recoveries, where such change generally results from (i) collections “pulled forward from” or “pushed out to” future periods (i.e. amounts either collected early or expected to be collected later) and (ii) magnitude and timing changes to estimates of expected future collections (which can be increases or decreases). The Company measures expected future recoveries based on historical experience, current conditions, and reasonable and supportable forecasts. Both internal and external factors may have an impact on expected future recoveries. Internal factors include operational performance, such as capacity and the productivity of our collection staff. External factors include new laws or regulations, new interpretations of existing laws or regulations, and macroeconomic conditions. The following table summarizes the changes in the balance of investment in receivable portfolios, net during the periods presented (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30, |  |
| 2022 |  | 2021 |  | 2022 |  | 2021 |  |  |  |
Balance, beginning of period | $ | 3,137,386 |  |  | $ | 3,225,678 |  |  | $ | 3,065,553 |  |  | $ | 3,291,918 |  |  |  |  |
Purchases of receivable portfolios (1) | 173,007 |  |  | 142,728 |  |  | 342,512 |  |  | 312,906 |  |  |  |  |
Collections applied to investment in receivable portfolios, net (2) | (191,429) |  |  | (284,277) |  |  | (406,738) |  |  | (552,720) |  |  |  |  |
Changes in recoveries (3) | 25,150 |  |  | 66,178 |  |  | 192,373 |  |  | 110,715 |  |  |  |  |
Put-backs and Recalls | (1,373) |  |  | (3,204) |  |  | (4,580) |  |  | (6,357) |  |  |  |  |
Disposals and transfers to assets held for sale | (1,856) |  |  | (2,647) |  |  | (3,832) |  |  | (4,312) |  |  |  |  |
Foreign currency adjustments | (105,762) |  |  | 9,545 |  |  | (150,165) |  |  | 1,851 |  |  |  |  |
Balance, end of period | $ | 3,035,123 |  |  | $ | 3,154,001 |  |  | $ | 3,035,123 |  |  | $ | 3,154,001 |  |  |  |  |
_______________________ (1)The table below provides the detail on the establishment of negative allowance for expected recoveries of portfolios purchased during the periods presented:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Purchase price | $ | 173,007 |  |  | $ | 142,728 |  |  | $ | 342,512 |  |  | $ | 312,906 |
Allowance for credit losses | 768,932 |  |  | 350,537 |  |  | 1,119,118 |  |  | 725,112 |
Amortized cost | 941,939 |  |  | 493,265 |  |  | 1,461,630 |  |  | 1,038,018 |
Noncredit discount | 907,249 |  |  | 658,358 |  |  | 1,564,307 |  |  | 1,442,470 |
Face value | 1,849,188 |  |  | 1,151,623 |  |  | 3,025,937 |  |  | 2,480,488 |
Write-off of amortized cost | (941,939) |  |  | (493,265) |  |  | (1,461,630) |  |  | (1,038,018) |
Write-off of noncredit discount | (907,249) |  |  | (658,358) |  |  | (1,564,307) |  |  | (1,442,470) |
Negative allowance | 173,007 |  |  | 142,728 |  |  | 342,512 |  |  | 312,906 |
Negative allowance for expected recoveries - current period purchases | $ | 173,007 |  |  | $ | 142,728 |  |  | $ | 342,512 |  |  | $ | 312,906 |
(2)Collections applied to investment in receivable portfolios, net, is calculated as follows during the periods presented:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cash Collections | $ | 497,711 |  |  | $ | 612,427 |  |  | $ | 1,017,125 |  |  | $ | 1,218,888 |
Less - amounts classified to revenue from receivable portfolios | (306,282) |  |  | (328,150) |  |  | (610,387) |  |  | (666,168) |
Collections applied to investment in receivable portfolios, net | $ | 191,429 |  |  | $ | 284,277 |  |  | $ | 406,738 |  |  | $ | 552,720 |
(3)Changes in recoveries is calculated as follows during the periods presented, where recoveries include cash collections, put-backs and recalls, and other cash-based adjustments:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Recoveries above forecast | $ | 9,935 |  |  | $ | 109,396 |  |  | $ | 56,287 |  |  | $ | 200,797 |
Changes in expected future recoveries | 15,215 |  |  | (43,218) |  |  | 136,086 |  |  | (90,082) |
Changes in recoveries | $ | 25,150 |  |  | $ | 66,178 |  |  | $ | 192,373 |  |  | $ | 110,715 |
Recoveries above or below forecast represent over and under-performance in the reporting period, respectively. Collections during the three and six months ended June 30, 2022 outperformed the projected cash flows by approximately $9.9 million and $56.3 million, respectively. The Company believes the collection over-performance was a result of its sustained improvements in portfolio collections driven by change in consumer behavior and the Company’s liquidation improvement initiatives. When reassessing the forecasts of expected lifetime recoveries during the three months ended June 30, 2022, management considered historical and current collection performance, and believes that for certain static pools sustained collections over-performance resulted in increased total expected recoveries. As a result, the Company has updated its forecast, resulting in a net increase of total estimated remaining collections which in turn, when discounted to present value, resulted in a positive change in expected future period recoveries of approximately $15.2 million and $136.1 million during the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, the Company recorded approximately $43.2 million and $90.1 million, respectively, in negative change in expected future period recoveries.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI https://asc.fasb.org/subtopic&trid=2196772 + Details
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