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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
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 quarter ended September 30, 2023, 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:
Schedule of reconciliation of the finance receivables measured at fair value on a recurring basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (In thousands) |  |  | (In thousands) |
Balance at beginning of period |  | $ | 2,618,420 |  |  | $ | 2,174,133 |  |  | $ | 2,476,617 |  |  | $ | 1,749,098 |
Finance receivables at fair value acquired during period |  |  | 300,539 |  |  |  | 407,260 |  |  |  | 958,587 |  |  |  | 1,311,735 |
Payments received on finance receivables at fair value |  |  | (203,775 | ) |  |  | (209,627 | ) |  |  | (625,715 | ) |  |  | (635,401 | )
Net interest income accretion on fair value receivables |  |  | (49,644 | ) |  |  | (36,696 | ) |  |  | (143,949 | ) |  |  | (97,462 | )
Mark to fair value |  |  | 6,000 |  |  |  | 8,183 |  |  |  | 6,000 |  |  |  | 15,283 |
Balance at end of period |  | $ | 2,671,540 |  |  | $ | 2,343,253 |  |  | $ | 2,671,540 |  |  | $ | 2,343,253 |
The table below compares the fair values of these finance receivables to their contractual balances for the periods shown:
Schedule of finance receivables fair and contractual balances |  |  |  |  |  |  |  |  |  |  |  |
|  | September 30, 2023 |  |  | December 31, 2022 |
|  | Contractual |  |  | Fair |  |  | Contractual |  |  | Fair |
|  | Balance |  |  | Value |  |  | Balance |  |  | Value |
|  | (In thousands) |
Finance receivables measured at fair value. |  | $ | 2,904,235 |  |  | $ | 2,671,540 |  |  | $ | 2,701,184 |  |  | $ | 2,476,617 |
The following table provides certain qualitative information about our level 3 fair value measurements:
Schedule of level 3 fair value measurements |  |  |  |  |  |  |  |  |  |  |  |
Financial Instrument |  | Fair Values as of |  |  |  |  | Inputs as of
|  | September 30, |  |  | December 31, |  |  |  |  | September 30, |  | December 31,
|  | 2023 |  |  | 2022 |  |  | Unobservable Inputs |  | 2023 |  | 2022
|  | (In thousands) |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Finance receivables measured at fair value |  | $ | 2,671,540 |  |  | $ | 2,476,617 |  |  | Discount rate |  | 11.0% - 11.7% |  | 11.0% - 11.3%
|  |  |  |  |  |  |  |  |  | Cumulative net losses |  | 10.0% - 21.7% |  | 13.4% - 19.4%
The following table summarizes the delinquency status of these finance receivables measured at fair value as of September 30, 2023 and December 31, 2022:
Schedule of delinquency status of finance receivables measured at fair value |  |  |  |  |  |  |  |
|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
|  | (In thousands) |
Delinquency Status |  |  |  |  |  |  |  |
Current |  | $ | 2,525,830 |  |  | $ | 2,375,271 |
31 - 60 days |  |  | 192,735 |  |  |  | 184,968 |
61 - 90 days |  |  | 90,847 |  |  |  | 72,390 |
91 + days |  |  | 49,337 |  |  |  | 29,048 |
Repo |  |  | 45,486 |  |  |  | 39,507 |
|  | $ | 2,904,235 |  |  | $ | 2,701,184 |
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 September 30, 2023 the finance receivables related to the repossessed vehicles in inventory totaled $604,000. We have applied a valuation adjustment, or loss allowance, of $444,000, which is based on a recovery rate of approximately 26%, resulting in an estimated fair value and carrying amount of $160,000. The fair value and carrying amount of the repossessed inventory at December 31, 2022 was $1.9 million after applying a valuation adjustment of $1.3 million. There were no transfers in or out of level 1, level 2 or level 3 assets and liabilities for the three months ended September 30, 2023 and 2022. The estimated fair values of financial assets and liabilities at September 30, 2023 and December 31, 2022, were as follows:
Schedule of estimated fair values of financial assets and liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | As of September 30, 2023 |
Financial Instrument |  | (In thousands) |
|  | Carrying |  |  | Fair Value Measurements Using: |  |  |  |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 8,306 |  |  | $ | 8,306 |  |  | $ | – |  |  | $ | – |  |  | $ | 8,306 |
Restricted cash and equivalents |  |  | 133,787 |  |  |  | 133,787 |  |  |  | – |  |  |  | – |  |  |  | 133,787 |
Finance receivables, net |  |  | 34,265 |  |  |  | – |  |  |  | – |  |  |  | 25,171 |  |  |  | 25,171 |
Accrued interest receivable |  |  | 284 |  |  |  | – |  |  |  | – |  |  |  | 284 |  |  |  | 284 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warehouse lines of credit |  | $ | 240,384 |  |  | $ | – |  |  | $ | – |  |  | $ | 240,384 |  |  | $ | 240,384 |
Residual interest financing |  |  | 49,812 |  |  |  |  |  |  |  |  |  |  |  | 49,812 |  |  |  | 49,812 |
Accrued interest payable |  |  | 7,468 |  |  |  | – |  |  |  | – |  |  |  | 7,468 |  |  |  | 7,468 |
Securitization trust debt |  |  | 2,243,284 |  |  |  | – |  |  |  | – |  |  |  | 2,134,496 |  |  |  | 2,134,496 |
Subordinated renewable notes |  |  | 19,163 |  |  |  | – |  |  |  | – |  |  |  | 19,163 |  |  |  | 19,163 |
|  | As of December 31, 2022 |
Financial Instrument |  | (In thousands) |
|  | Carrying |  |  | Fair Value Measurements Using: |  |  |  |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 13,490 |  |  | $ | 13,490 |  |  | $ | – |  |  | $ | – |  |  | $ | 13,490 |
Restricted cash and equivalents |  |  | 149,299 |  |  |  | 149,299 |  |  |  | – |  |  |  | – |  |  |  | 149,299 |
Finance receivables, net |  |  | 70,551 |  |  |  | – |  |  |  | – |  |  |  | 60,063 |  |  |  | 60,063 |
Accrued interest receivable |  |  | 649 |  |  |  | – |  |  |  | – |  |  |  | 649 |  |  |  | 649 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warehouse lines of credit |  | $ | 285,328 |  |  | $ | – |  |  | $ | – |  |  | $ | 285,328 |  |  | $ | 285,328 |
Accrued interest payable |  |  | 6,190 |  |  |  | – |  |  |  | – |  |  |  | 6,190 |  |  |  | 6,190 |
Securitization trust debt |  |  | 2,108,744 |  |  |  | – |  |  |  | – |  |  |  | 1,957,995 |  |  |  | 1,957,995 |
Subordinated renewable notes |  |  | 25,263 |  |  |  | – |  |  |  | – |  |  |  | 25,263 |  |  |  | 25,263 |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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