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Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  
FORM 10-Q
 
For the quarterly period ended September 30, 2016
 
of
image0a03.jpg
ATLANTICUS HOLDINGS CORPORATION
 
a Georgia Corporation
IRS Employer Identification No. 58-2336689
SEC File Number 0-53717
 
Five Concourse Parkway, Suite 300
Atlanta, Georgia 30328
(770) 828-2000
 
Atlanticus’ common stock, no par value per share, is registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”).
 
Atlanticus is not a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.
 
Atlanticus (1) is required to file reports pursuant to Section 13 of the Act, (2) has filed all reports required to be filed by Section 13 of the Act during the preceding 12 months and (3) has been subject to such filing requirements for the past 90 days.
 
Atlanticus has submitted electronically and posted on its corporate Web site every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
 
Atlanticus is a smaller reporting company and is not a shell company.

As of November 4, 2016, 13,912,652 shares of common stock, no par value, of Atlanticus were outstanding. This excludes 1,459,233 loaned shares to be returned.


Table of Contents

Table of Contents
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive (Loss) Income
 
 
Consolidated Statements of Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
Part II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosure
 
Item 5.
Other Information
 
Item 6.
Exhibits
 
 
Signatures
 



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PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
 
Atlanticus Holdings Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
Unrestricted cash and cash equivalents
$
58,720

 
$
51,033

Restricted cash and cash equivalents
17,229

 
20,547

Loans and fees receivable:
 

 
 

Loans and fees receivable, at fair value
18,445

 
26,706

Loans and fees receivable, gross
264,327

 
180,144

Allowances for uncollectible loans and fees receivable
(34,643
)
 
(21,474
)
Deferred revenue
(21,216
)
 
(16,721
)
Net loans and fees receivable
226,913

 
168,655

Rental merchandise, net of depreciation
128

 
4,666

Property at cost, net of depreciation
4,049

 
5,686

Investment in equity-method investee
7,683

 
10,123

Deposits
530

 
825

Prepaid expenses and other assets
20,578

 
19,194

Total assets
$
335,830

 
$
280,729

Liabilities
 

 
 

Accounts payable and accrued expenses
$
76,309

 
$
51,722

Notes payable, at face value
117,908

 
90,000

Notes payable to related parties
40,000

 
20,000

Notes payable associated with structured financings, at fair value
14,367

 
20,970

Convertible senior notes
62,030

 
64,783

Income tax liability
17,819

 
22,303

Total liabilities
328,433

 
269,778

Commitments and contingencies (Note 9)


 


Equity
 

 
 

Common stock, no par value, 150,000,000 shares authorized: 15,369,085 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at September 30, 2016; and 15,332,041 shares issued and outstanding (including 1,459,233 loaned shares to be returned) at December 31, 2015
—

 
—

Additional paid-in capital
211,165

 
211,083

Accumulated other comprehensive loss
—

 
(600
)
Retained deficit
(203,759
)
 
(199,524
)
Total shareholders’ equity
7,406

 
10,959

Noncontrolling interests
(9
)
 
(8
)
Total equity
7,397

 
10,951

Total liabilities and equity
$
335,830

 
$
280,729


 
See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share data)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Consumer loans, including past due fees
$
24,053

 
$
16,863

 
$
63,663

 
$
51,175

Other
36

 
10

 
188

 
52

Total interest income
24,089

 
16,873

 
63,851

 
51,227

Interest expense
(5,257
)
 
(4,653
)
 
(14,693
)
 
(13,739
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
18,832

 
12,220

 
49,158

 
37,488

Fees and related income on earning assets
75

 
16,677

 
13,840

 
42,647

Net recovery of charge off of loans and fees receivable recorded at fair value
1,556

 
8,375

 
12,607

 
28,738

Provision for losses on loans and fees receivable recorded at net realizable value
(17,470
)
 
(8,876
)
 
(33,012
)
 
(18,005
)
Net interest income, fees and related income on earning assets
2,993

 
28,396

 
42,593

 
90,868

Other operating income:
 

 
 

 
 
 
 
Servicing income
885

 
1,124

 
3,313

 
4,074

Other income
69

 
76

 
214

 
435

Gain on repurchase of convertible senior notes
—

 
—

 
1,037

 
—

Equity in income of equity-method investee
629

 
431

 
1,956

 
2,213

Total other operating income
1,583

 
1,631

 
6,520

 
6,722

Other operating expense:
 

 
 

 
 
 
 
Salaries and benefits
6,329

 
4,700

 
18,242

 
13,142

Card and loan servicing
7,027

 
9,749

 
23,300

 
29,628

Marketing and solicitation
587

 
711

 
2,374

 
1,529

Depreciation, primarily related to rental merchandise
794

 
10,372

 
7,049

 
33,179

Other
3,570

 
4,969

 
6,199

 
16,402

Total other operating expense
18,307

 
30,501

 
57,164

 
93,880

(Loss) income before income taxes
(13,731
)
 
(474
)
 
(8,051
)
 
3,710

Income tax benefit
4,666

 
903

 
3,811

 
81

Net (loss) income
(9,065
)
 
429

 
(4,240
)
 
3,791

Net loss attributable to noncontrolling interests
—

 
4

 
5

 
6

Net (loss) income attributable to controlling interests
$
(9,065
)
 
$
433

 
$
(4,235
)
 
$
3,797

Net (loss) income attributable to controlling interests per common share—basic
$
(0.65
)
 
$
0.03

 
$
(0.31
)
 
$
0.27

Net (loss) income attributable to controlling interests per common share—diluted
$
(0.65
)
 
$
0.03

 
$
(0.31
)
 
$
0.27


 
See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
(Dollars in thousands)

 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net (loss) income
$
(9,065
)
 
$
429

 
$
(4,240
)
 
$
3,791

Other comprehensive (loss) income:
 

 
 

 
 
 
 
Foreign currency translation adjustment
—

 
(283
)
 
—

 
(143
)
Reclassifications of foreign currency translation adjustment to consolidated statements of operations
—

 
—

 
600

 
1,535

Income tax benefit (expense) related to other comprehensive (loss) income
—

 
97

 
—

 
(422
)
Comprehensive (loss) income
(9,065
)
 
243

 
(3,640
)
 
4,761

Comprehensive loss attributable to noncontrolling interests
—

 
4

 
5

 
6

Comprehensive (loss) income attributable to controlling interests
$
(9,065
)
 
$
247

 
$
(3,635
)
 
$
4,767


 

 

 

 

 

 

 

 

 

 

 

 

 
See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Equity
For the Nine Months Ended September 30, 2016 (Unaudited)
(Dollars in thousands)
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares Issued
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Retained Deficit
 
Noncontrolling Interests
 
Total Equity
Balance at December 31, 2015
15,332,041

 
$
—

 
$
211,083

 
$
(600
)
 
$
(199,524
)
 
$
(8
)
 
$
10,951

Stock options exercises and proceeds related thereto
1,666

 
—

 
4

 
—

 
—

 
—

 
4

Compensatory stock issuances, net of forfeitures
321,601

 
—

 
—

 
—

 
—

 
—

 
—

Contributions from owners of noncontrolling interests
—

 
—

 
—

 
—

 
—

 
4

 
4

Amortization of deferred stock-based compensation costs
—

 
—

 
984

 
—

 
—

 
—

 
984

Redemption and retirement of shares
(286,223
)
 
—

 
(869
)
 
—

 
—

 
—

 
(869
)
Tax effects of stock-based compensation plans
—

 
—

 
(37
)
 
—

 
—

 
—

 
(37
)
Other comprehensive (loss) income
—

 
—

 
—

 
600

 
(4,235
)
 
(5
)
 
(3,640
)
Balance at September 30, 2016
15,369,085

 
$
—

 
$
211,165

 
$
—

 
$
(203,759
)
 
$
(9
)
 
$
7,397



See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
For the Nine Months Ended September 30,
 
2016
 
2015
Operating activities
 
 
 
Net (loss) income
$
(4,240
)
 
$
3,791

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
 

 
 

Depreciation of rental merchandise
5,172

 
31,470

Depreciation, amortization and accretion, net
1,877

 
1,517

Losses upon charge off of loans and fees receivable recorded at fair value
4,647

 
6,364

Provision for losses on loans and fees receivable
33,012

 
18,005

Interest expense from accretion of discount on convertible senior notes
385

 
357

Income from accretion of discount associated with receivables purchases
(30,662
)
 
(29,650
)
Unrealized gain on loans and fees receivable and underlying notes payable held at fair value
(2,931
)
 
(5,878
)
Income from equity-method investments
(1,956
)
 
(2,213
)
Gain on repurchase of convertible senior notes
(1,037
)
 
—

Changes in assets and liabilities:
 

 
 

Increase in uncollected fees on earning assets
(2,782
)
 
(993
)
Decrease in income tax liability
(4,521
)
 
(852
)
Decrease in deposits
295

 
602

Increase in accounts payable and accrued expenses
28,555

 
5,231

Additions to rental merchandise
(634
)
 
(26,522
)
Other
(475
)
 
(8,399
)
Net cash provided by (used in) operating activities
24,705

 
(7,170
)
Investing activities
 

 
 

Decrease in restricted cash
3,252

 
1,258

Proceeds from equity-method investee
4,396

 
6,729

Investments in earning assets
(286,654
)
 
(203,041
)
Proceeds from earning assets
222,606

 
207,848

Purchases and development of property, net of disposals
(244
)
 
(835
)
Net cash (used in) provided by investing activities
(56,644
)
 
11,959

Financing activities
 

 
 

Noncontrolling interests contributions (distributions), net
4

 
(2
)
Proceeds from exercise of stock options
4


8

Purchase and retirement of outstanding stock
(869
)
 
(178
)
Proceeds from borrowings
156,865

 
130,614

Repayment of borrowings
(115,245
)
 
(136,374
)
Net cash provided by (used in) financing activities
40,759

 
(5,932
)
Effect of exchange rate changes on cash
(1,133
)
 
(546
)
Net increase (decrease) in unrestricted cash
7,687

 
(1,689
)
Unrestricted cash and cash equivalents at beginning of period
51,033

 
39,925

Unrestricted cash and cash equivalents at end of period
$
58,720

 
$
38,236

Supplemental cash flow information
 

 
 

Cash paid for interest
$
15,390

 
$
14,805

Net cash income tax payments
$
710

 
$
777

Supplemental non-cash information
 

 
 

Issuance of stock options and restricted stock
$
2,310

 
$
509

See accompanying notes.

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Atlanticus Holdings Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2016 and 2015
 
1.
Description of Our Business
 
Our accompanying consolidated financial statements include the accounts of Atlanticus Holdings Corporation (the “Company”) and those entities we control. We are primarily focused on providing financial technology and related services. Through our subsidiaries, we provide technology and other support services to lenders who offer an array of financial products and services to consumers who may have been declined under traditional financing options. In most cases, we invest in the receivables originated by lenders who utilize our technology platform and other related services. As discussed further below, we reflect our business lines within two reportable segments:  Credit and Other Investments; and Auto Finance. See also Note 3, “Segment Reporting,” for further details.

Within our Credit and Other Investments segment, we facilitate consumer finance programs offered by our bank partners to originate consumer loans through multiple channels, including retail point-of-sale, direct mail solicitation, on-line and partnerships. Currently, these products are all offered under the Fortiva brand. In the retail credit (the "point-of-sale" operations) channel, we partner with retailers and service providers in various industries across the United States ("U.S.") to enable them to provide credit to their customers for the purchase of goods and services. These services of our lending partners, are often extended to consumers who may have been declined under traditional financing options. We specialize in supporting this "second look" credit service in various industries across the U.S. Additionally, we support lenders who market general purpose personal loans and credit cards (collectively, the "direct-to-consumer" operations) directly to consumers through additional channels enabling them to reach consumers through a diverse origination platform which includes direct mail, Internet-based marketing and through partnerships. Using our infrastructure and technology platform, we also provide loan servicing activities, including risk management and customer service outsourcing for third parties.
Beyond these activities within our Credit and Other Investments segment, we continue to service portfolios of credit card receivables. One of our portfolios of credit card receivables is encumbered by non-recourse structured financing, and for this portfolio our principal remaining economic interest is the servicing compensation we receive as an offset against our servicing costs given that the likely future collections on the portfolio are insufficient to allow for full repayment of the financing.

Additionally, we report within our Credit and Other Investments segment the income earned from an investment in an equity-method investee that holds credit card receivables for which we are the servicer.

Lastly, we report within our Credit and Other Investments segment gains associated with investments previously made in consumer finance technology platforms. These include investments in companies engaged in mobile technologies, marketplace lending and other financial technologies. These investments are carried at the lower of cost or market valuation as of September 30, 2016. Some of these investees have raised, and continue to seek, capital at valuations substantially in excess of our associated book value. However, none of these companies are publicly-traded, there are no pending liquidity events, and ascribing value to these investments at this time would be speculative.

Within our Auto Finance segment, our CAR subsidiary operations principally purchase and service loans secured by automobiles from or for, and also provide floor plan financing for, a pre-qualified network of independent automotive dealers and automotive finance companies in the buy-here, pay-here, used car business. We purchase auto loans at a discount and with dealer retentions or holdbacks that provide risk protection. Also within our Auto Finance segment, we are providing certain installment lending products in addition to our traditional loans secured by automobiles.

2.
Significant Accounting Policies and Consolidated Financial Statement Components
 
The following is a summary of significant accounting policies we follow in preparing our consolidated financial statements, as well as a description of significant components of our consolidated financial statements.
 
Basis of Presentation and Use of Estimates
 
We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of our consolidated financial statements, as well as the reported amounts of revenues and expenses during each reporting

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period. We base these estimates on information available to us as of the date of the financial statements. Actual results could differ materially from these estimates. Certain estimates, such as credit losses, payment rates, costs of funds, discount rates and the yields earned on credit card receivables, significantly affect the reported amount of credit card receivables that we report at fair value and our notes payable associated with structured financings, at fair value; these estimates likewise affect the changes in these amounts reflected within our fees and related income on earning assets line item on our consolidated statements of operations. Additionally, estimates of future credit losses have a significant effect on loans and fees receivable, net, as shown on our consolidated balance sheets, as well as on the provision for losses on loans and fees receivable within our consolidated statements of operations.
 
We have eliminated all significant intercompany balances and transactions for financial reporting purposes.

Loans and Fees Receivable
 
Our loans and fees receivable include:  (1) loans and fees receivable, net; (2) loans and fees receivable, at fair value; and (3) loans and fees receivable pledged as collateral under structured financings, at fair value.

As of September 30, 2016 and September 30, 2015, the weighted average remaining accretion period for the $21.2 million and $16.3 million, respectively, of deferred revenue reflected in the above tables was 10 months and 11 months, respectively.
A roll-forward (in millions) of our allowance for uncollectible loans and fees receivable by class of receivable is as follows: 
For the Three Months Ended September 30, 2016

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.1
)

$
(2.0
)

$
(21.1
)

$
(24.2
)
Provision for loan losses

0.1


(0.7
)

(16.9
)

(17.5
)
Charge offs

0.5


0.8


6.9


8.2

Recoveries

(0.5
)

(0.2
)

(0.4
)

(1.1
)
Balance at end of period

$
(1.0
)

$
(2.1
)

$
(31.5
)

$
(34.6
)









For the Nine Months Ended September 30, 2016

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.2
)

$
(1.7
)

$
(18.6
)

$
(21.5
)
Provision for loan losses

0.7


(2.1
)

(31.6
)

(33.0
)
Charge offs

1.5


2.5


20.1


24.1

Recoveries

(2.0
)

(0.8
)

(1.4
)

(4.2
)
Balance at end of period

$
(1.0
)

$
(2.1
)

$
(31.5
)

$
(34.6
)

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As of September 30, 2016
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at end of period individually evaluated for impairment
 
$
—

 
$
(0.4
)
 
$
(0.3
)
 
$
(0.7
)
Balance at end of period collectively evaluated for impairment
 
$
(1.0
)
 
$
(1.7
)
 
$
(31.2
)
 
$
(33.9
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
6.1

 
$
74.2

 
$
184.0

 
$
264.3

Loans and fees receivable individually evaluated for impairment
 
$
—

 
$
0.6

 
$
0.3

 
$
0.9

Loans and fees receivable collectively evaluated for impairment
 
$
6.1

 
$
73.6

 
$
183.7

 
$
263.4


For the Three Months Ended September 30, 2015

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(1.5
)

$
(1.3
)

$
(13.5
)

$
(16.3
)
Provision for loan losses

(0.3
)

(0.8
)

(7.8
)

(8.9
)
Charge offs

0.9


0.8


4.4


6.1

Recoveries

(0.2
)

(0.2
)

(0.2
)

(0.6
)
Balance at end of period

$
(1.1
)

$
(1.5
)

$
(17.1
)

$
(19.7
)









For the Nine Months Ended September 30, 2015

Credit Cards

Auto Finance

Other Unsecured Lending Products

Total
Allowance for uncollectible loans and fees receivable:

 

 

 

 
Balance at beginning of period

$
(2.7
)

$
(1.2
)

$
(16.1
)

$
(20.0
)
Provision for loan losses

(1.2
)

(1.4
)

(15.4
)

(18.0
)
Charge offs

3.2


1.7


15.3


20.2

Recoveries

(0.4
)

(0.6
)

(0.9
)

(1.9
)
Balance at end of period

$
(1.1
)

$
(1.5
)

$
(17.1
)

$
(19.7
)


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As of December 31, 2015
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
Allowance for uncollectible loans and fees receivable:
 
 
 
 
 
 
 
 
Balance at end of period individually evaluated for impairment
 
$
—

 
$
(0.1
)
 
$
(1.3
)
 
$
(1.4
)
Balance at end of period collectively evaluated for impairment
 
$
(1.2
)
 
$
(1.6
)
 
$
(17.3
)
 
$
(20.1
)
Loans and fees receivable:
 
 

 
 

 
 

 
 

Loans and fees receivable, gross
 
$
5.2

 
$
76.0

 
$
98.9

 
$
180.1

Loans and fees receivable individually evaluated for impairment
 
$
—

 
$
0.2

 
$
1.5

 
$
1.7

Loans and fees receivable collectively evaluated for impairment
 
$
5.2

 
$
75.8

 
$
97.4

 
$
178.4

    
An aging of our delinquent loans and fees receivable, gross (in millions) by class of receivable as of September 30, 2016 and December 31, 2015 is as follows:
Balance at September 30, 2016
 
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
 
$
0.1

 
$
6.3

 
$
7.2

 
$
13.6

60-89 days past due
 
0.2

 
2.1

 
5.3

 
7.6

90 or more days past due
 
0.4

 
1.4

 
9.0

 
10.8

Delinquent loans and fees receivable, gross
 
0.7

 
9.8

 
21.5

 
32.0

Current loans and fees receivable, gross
 
5.4

 
64.4

 
162.5

 
232.3

Total loans and fees receivable, gross
 
$
6.1

 
$
74.2

 
$
184.0

 
$
264.3

Balance of loans 90 or more days past due and still accruing interest and fees
 
$
—

 
$
1.1

 
$
—

 
$
1.1


Balance at December 31, 2015
Credit Cards
 
Auto Finance
 
Other Unsecured Lending Products
 
Total
30-59 days past due
$
0.2

 
$
6.9

 
$
4.4

 
$
11.5

60-89 days past due
0.1

 
2.2

 
3.1

 
5.4

90 or more days past due
0.4

 
1.8

 
6.5

 
8.7

Delinquent loans and fees receivable, gross
0.7

 
10.9

 
14.0

 
25.6

Current loans and fees receivable, gross
4.5

 
65.1

 
84.9

 
154.5

Total loans and fees receivable, gross
$
5.2

 
$
76.0

 
$
98.9

 
$
180.1

Balance of loans 90 or more days past due and still accruing interest and fees
$
—

 
$
1.5

 
$
—

 
$
1.5


Income Taxes

We experienced effective income tax benefit rates of 34.0% and 47.3% for the three and nine months ended September 30, 2016, respectively, compared to an effective income tax expense rate of 190.5% and a negative effective income tax expense rate of 2.2% for the three and nine months ended September 30, 2015, respectively.  Our effective income tax benefit rate for the three months ended September 30, 2016 is below the statutory rate principally due to our accruals of interest and penalties on unpaid tax liabilities relative to our $13.7 million of pre-tax loss during this period. Our effective income tax benefit rate for the nine months ended September 30, 2016 is above the statutory rate principally due to the income of our U.K. subsidiary (1) that is not subject to tax in the U.S., and (2) the U.K. tax on which was fully offset by the release of U.K.

9
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valuation allowances.  Our negative effective income tax expense rate for the nine months ended September 30, 2015 differs significantly from the statutory rate principally as a result of (1) the release of prior year accruals for uncertain tax positions and interest thereon due to a favorable effective settlement with the Internal Revenue Service (“IRS”) that we reached in February 2015 with respect to our 2012 tax year and the expiration of the statute of limitations for our 2011 tax year, and (2) our reversal of a portion of the interest and penalty accruals on tax liability assessments associated with our 2007 and 2008 IRS audits. With the exception of the February 2015 effective settlement with the IRS, the above factors likewise contributed to our negative effective income tax expense rate for the three months ended September 30, 2015.

                As noted above, we report potential accrued interest and penalties related to both our accrued liabilities for uncertain tax positions and unpaid tax liabilities within our income tax benefit or expense line item on our consolidated statements of operations. We likewise report the reversal of such accrued interest and penalties within the income tax benefit or expense line item to the extent that we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. During the three and nine months ended September 30, 2016, our income tax expense includes $0.2 million and $0.6 million, respectively, accrued for income tax-related interest and penalties.  During the three and nine months ended September 30, 2015, our income tax expense included $0.0 million and $0.7 million, respectively, accrued for income tax-related interest and penalties.

In December 2014, we reached a settlement with the IRS concerning the tax treatment of net operating losses that we incurred in 2007 and 2008 and carried back to obtain refunds of federal income taxes paid in earlier years dating back to 2003. Our net unpaid income tax assessment associated with that settlement was $7.3 million at September 30, 2016; this amount excludes unpaid interest and penalties on the tax assessment, the accruals for which aggregated $3.3 million at September 30, 2016. The IRS is currently examining amended return claims we have made, which, if ultimately approved by the IRS or the courts, would eliminate the $7.3 million assessment and cause the reversal of the $3.3 million accrual we have made for interest and penalties thereon. We have been informed that the IRS intends to deny our amended return claims. Once we receive their formal disallowance, we plan to protest the disallowance with IRS Appeals, and in litigation should we not receive favorable resolution of the matter with IRS Appeals.  As is customary, the IRS has filed a lien in respect of their assessment.

Fees and Related Income on Earning Assets

The components (in thousands) of our fees and related income on earning assets are as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Fees on credit products
$
944

 
$
1,759

 
$
2,599

 
$
5,824

Changes in fair value of loans and fees receivable recorded at fair value
(1,857
)
 
1,307

 
568

 
4,519

Changes in fair value of notes payable associated with structured financings recorded at fair value
259

 
2,141

 
2,363

 
1,359

Rental revenue
758

 
9,378

 
8,091

 
28,765

Other
(29
)
 
2,092

 
219

 
2,180

Total fees and related income on earning assets
$
75

 
$
16,677

 
$
13,840

 
$
42,647


The above changes in the fair value of loans and fees receivable recorded at fair value category exclude the impact of charge offs associated with these receivables which are separately stated in Net recovery of (losses upon) charge off of loans and fees receivable recorded at fair value, net of recoveries on our consolidated statements of operations.  See Note 6, “Fair Values of Assets and Liabilities,” for further discussion of these receivables and their effects on our consolidated statements of operations.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance requires an assessment of credit losses based on expected rather than incurred losses. This generally will result in the recognition of allowances for losses earlier than under current accounting guidance for trade and other receivables, held to maturity debt securities and other instruments. The standard will be adopted on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance

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is effective. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company has not yet determined the potential effects of adopting ASU 2016-13 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting. The ASU eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively, as if the equity method had been in effect during all previous periods that the investment had been held. The ASU requires that the cost of acquiring the additional interest in the investee should be combined with the current basis of the investor’s previously held interest and the equity method of accounting should be adopted as of the date the investment becomes qualified for equity method accounting. No retroactive adjustment of the investment is required. The ASU also requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings, the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The ASU is effective for us January 1, 2017. The impact of adoption of this authoritative guidance is not expected to result in a material impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which would require lessees to recognize assets and liabilities for most leases, changing certain aspects of current lessor accounting, among other things. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We have not yet determined the potential effects of adopting ASU 2016-02 on our consolidated financial statements.

In April 2015, the FASB issued updated authoritative guidance related to debt issuance costs. The amendment modifies the presentation of unamortized debt issuance costs to present such amounts as a direct deduction from the face amount of the debt, similar to unamortized debt discounts and premiums, rather than as an asset. Amortization of the debt issuance costs continues to be reported as interest expense. The guidance was effective for us beginning January 1, 2016. The impact of adoption of this authoritative guidance did not result in a material impact on our consolidated financial statements.
        
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 establishes a principles-based model under which revenue from a contract is allocated to the distinct performance obligations within the contract and recognized in income as each performance obligation is satisfied. Additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract is also required. In August 2015, the FASB delayed the effective date by one year and the guidance will now be effective for annual and interim periods beginning January 1, 2018 and early adoption is permitted. We do not plan to early adopt the guidance. We have not yet determined the potential effects of the adoption of ASU 2014-09 on our consolidated financial statements.

Subsequent Events
 
We evaluate subsequent events that occur after our consolidated balance sheet date but before our consolidated financial statements are issued. There are two types of subsequent events:  (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements; and (2) nonrecognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.  We have evaluated subsequent events occurring after September 30, 2016, and based on our evaluation we did not identify any recognized or nonrecognized subsequent events that would have required further adjustments to our consolidated financial statements.

3.
Segment Reporting
 
We operate primarily within one industry consisting of two reportable segments by which we manage our business. Our two reportable segments are:  Credit and Other Investments, and Auto Finance.

As of both September 30, 2016 and December 31, 2015, we did not have a material amount of long-lived assets located outside of the U.S., and only a negligible portion of our revenues for the nine months ended September 30, 2016 and 2015 were generated outside of the U.S.

We measure the profitability of our reportable segments based on their income after allocation of specific costs and corporate overhead; however, our segment results do not reflect any charges for internal capital allocations among our segments. Overhead costs are allocated based on headcounts and other applicable measures to better align costs with the associated revenues.


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Summary operating segment information (in thousands) is as follows:
Three months ended September 30, 2016
 
 Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
16,701

 
$
7,352

 
$
24,053

Other
 
36

 
—

 
36

Total interest income
 
16,737

 
7,352

 
24,089

Interest expense
 
(4,944
)
 
(313
)
 
(5,257
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
11,793

 
$
7,039

 
$
18,832

Fees and related income on earning assets
 
$
92

 
$
(17
)
 
$
75

Servicing income
 
$
645

 
$
240

 
$
885

Gain on repurchase of convertible senior notes
 
$
—

 
$
—

 
$
—

Depreciation of rental merchandise
 
$
(458
)
 
$
—

 
$
(458
)
Equity in income of equity-method investee
 
$
629

 
$
—

 
$
629

(Loss) income before income taxes
 
$
(15,709
)
 
$
1,978

 
$
(13,731
)
Income tax benefit (expense)
 
$
5,296

 
$
(630
)
 
$
4,666

 
 
 
 
 
 
 
Nine months ended September 30, 2016
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
42,018

 
$
21,645

 
$
63,663

Other
 
188

 
—

 
188

Total interest income
 
42,206

 
21,645

 
63,851

Interest expense
 
(13,735
)
 
(958
)
 
(14,693
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
28,471

 
$
20,687

 
$
49,158

Fees and related income on earning assets
 
$
13,761

 
$
79

 
$
13,840

Servicing income
 
$
2,569

 
$
744

 
$
3,313

Gain on repurchase of convertible senior notes
 
$
1,037

 
$
—

 
$
1,037

Depreciation of rental merchandise
 
$
(5,172
)
 
$
—

 
$
(5,172
)
Equity in income of equity-method investee
 
$
1,956

 
$
—

 
$
1,956

(Loss) income before income taxes
 
$
(13,047
)
 
$
4,996

 
$
(8,051
)
Income tax benefit (expense)
 
$
5,500

 
$
(1,689
)
 
$
3,811

Total assets
 
$
267,390

 
$
68,440

 
$
335,830



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Three months ended September 30, 2015
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
9,902

 
$
6,961

 
$
16,863

Other
 
10

 
—

 
10

Total interest income
 
9,912

 
6,961

 
16,873

Interest expense
 
(4,349
)
 
(304
)
 
(4,653
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
5,563

 
$
6,657

 
$
12,220

Fees and related income on earning assets
 
$
14,577

 
$
2,100

 
$
16,677

Servicing income
 
$
890

 
$
234

 
$
1,124

Depreciation of rental merchandise
 
$
(9,847
)
 
$
—

 
$
(9,847
)
Equity in income of equity-method investee
 
$
431

 
$
—

 
$
431

(Loss) income before income taxes
 
$
(3,853
)
 
$
3,379

 
$
(474
)
Income tax benefit (expense)
 
$
2,067

 
$
(1,164
)
 
$
903

 
 
 
 
 
 
 
Nine months ended September 30, 2015
 
Credit and Other Investments
 
Auto Finance
 
Total
Interest income:
 
 
 
 
 
 
Consumer loans, including past due fees
 
$
30,520

 
$
20,655

 
$
51,175

Other
 
52

 
—

 
52

Total interest income
 
30,572

 
20,655

 
51,227

Interest expense
 
(12,828
)
 
(911
)
 
(13,739
)
Net interest income before fees and related income on earning assets and provision for losses on loans and fees receivable
 
$
17,744

 
$
19,744

 
$
37,488

Fees and related income on earning assets
 
$
40,333

 
$
2,314

 
$
42,647

Servicing income
 
$
3,428

 
$
646

 
$
4,074

Depreciation of rental merchandise
 
$
(31,470
)
 
$
—

 
$
(31,470
)
Equity in income of equity-method investee
 
$
2,213

 
$
—

 
$
2,213

(Loss) income before income taxes
 
$
(3,246
)
 
$
6,956

 
$
3,710

Income tax benefit (expense)
 
$
2,419

 
$
(2,338
)
 
$
81

Total assets
 
$
201,706

 
$
69,310

 
$
271,016


4.
Shareholders' Equity
 
Retired Shares
 
During the three months ended September 30, 2016 and 2015, we repurchased and contemporaneously retired 39,580 and 14,176 shares of our common stock at an aggregate cost of $124,000 and $55,718, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations. During the nine months ended September 30, 2016 and 2015, we repurchased and contemporaneously retired 286,223 and 60,481 shares of our common stock at an aggregate cost of $869,000 and $178,270, respectively, pursuant to both open market and private purchases and the return of stock by holders of equity incentive awards to pay tax withholding obligations.

We had 1,459,233 loaned shares outstanding at September 30, 2016 and December 31, 2015, which were originally lent in connection with our November 2005 issuance of convertible senior notes. We retire lent shares as they are returned to us.

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5.
Investment in Equity-Method Investee
 
Our equity-method investment outstanding at September 30, 2016 consists of our 66.7% interest in a joint venture formed to purchase a credit card receivable portfolio.

In the following tables, we summarize (in thousands) combined balance sheet and results of operations data for our equity-method investee:
 
As of
 
September 30, 2016
 
December 31, 2015
Loans and fees receivable, at fair value
$
11,011

 
$
14,470

Total assets
$
11,564

 
$
15,237

Total liabilities
$
40

 
$
54

Members’ capital
$
11,524

 
$
15,183


 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Net interest income, fees and related income on earning assets
$
949

 
$
659

 
$
2,957

 
$
3,343

Net income
$
822

 
$
475

 
$
2,537

 
$
2,756

Net income attributable to our equity investment in investee
$
629

 
$
431

 
$
1,956

 
$
2,213

         
6.
Fair Values of Assets and Liabilities
 
Valuations and Techniques for Assets
 
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. The table below summarizes (in thousands) by fair value hierarchy the September 30, 2016 and December 31, 2015 fair values and carrying amounts of (1) our assets that are required to be carried at fair value in our consolidated financial statements and (2) our assets not carried at fair value, but for which fair value disclosures are required:
Assets – As of September 30, 2016 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$
—

 
$
—

 
$
228,435

 
$
208,468

Loans and fees receivable, at fair value
 
$
—

 
$
—

 
$
4,321

 
$
4,321

Loans and fees receivable pledged as collateral, at fair value
 
$
—

 
$
—

 
$
14,124

 
$
14,124



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Table of Contents

Assets – As of December 31, 2015 (1)
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Assets
Loans and fees receivable, net for which it is practicable to estimate fair value
 
$
—

 
$
—

 
$
161,199

 
$
141,949

Loans and fees receivable, at fair value
 
$
—

 
$
—

 
$
6,353

 
$
6,353

Loans and fees receivable pledged as collateral, at fair value
 
$
—

 
$
—

 
$
20,353

 
$
20,353

  
(1)
For cash, deposits and other short-term investments (including our investments in rental merchandise), the carrying amount is a reasonable estimate of fair value.

For those asset classes above that are required to be carried at fair value in our consolidated financial statements, gains and losses associated with fair value changes are detailed on our fees and related income on earning assets table within Note 2, “Significant Accounting Policies and Consolidated Financial Statement Components.”

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2016 and September 30, 2015:
 
Loans and Fees
Receivable, at
Fair Value
 
Loans and Fees
Receivable Pledged as
Collateral under
Structured
Financings, at Fair
Value
 
Total
Balance at January 1, 2016
$
6,353

 
$
20,353

 
$
26,706

Total gains—realized/unrealized:


 


 


Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value
—

 
1,889

 
1,889

Net revaluations of loans and fees receivable, at fair value
(1,321
)
 
—

 
(1,321
)
Settlements, net
(472
)
 
(8,118
)
 
(8,590
)
Impact of foreign currency translation
(239
)
 
—

 
(239
)
Balance at September 30, 2016
$
4,321

 
$
14,124

 
$
18,445

Balance at January 1, 2015
$
18,255

 
$
34,905

 
$
53,160

Total gains—realized/unrealized:
 

 
 

 
 

Net revaluations of loans and fees receivable pledged as collateral under structured financings, at fair value
—

 
1,000

 
1,000

Net revaluations of loans and fees receivable, at fair value
3,519

 
—

 
3,519

Settlements, net
(12,719
)
 
(13,622
)
 
(26,341
)
Impact of foreign currency translation
(230
)
 
—

 
(230
)
Balance at September 30, 2015
$
8,825

 
$
22,283

 
$
31,108

  
The unrealized gains and losses for assets within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. Impacts related to foreign currency translation are included as a component of other operating expense on the consolidated statements of operations.
 
Net Revaluation of Loans and Fees Receivable. We record the net revaluation of loans and fees receivable (including those pledged as collateral) in the fees and related income on earning assets category in our consolidated statements of operations, specifically as changes in fair value of loans and fees receivable recorded at fair value.


15
Table of Contents

For Level 3 assets carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of September 30, 2016 and December 31, 2015:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at September 30, 2016
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)(1)
Loans and fees receivable, at fair value
 
$
4,321

 
Discounted cash flows
 
Gross yield
 
28.7% to 36.1% (32.8%)

 
 
 

 
 
 
Principal payment rate
 
3.5% to 4.4% (4.0%)

 
 
 

 
 
 
Expected credit loss rate
 
16.8% to 17.9% (17.4%)

 
 
 

 
 
 
Servicing rate
 
7.8% to 8.6% (8.2%)

 
 
 

 
 
 
Discount rate
 
16.2% to 16.2% (16.2%)

Loans and fees receivable pledged as collateral under structured financings, at fair value
 
$
14,124

 
Discounted cash flows
 
Gross yield
 
24.9
%
 
 
 

 
 
 
Principal payment rate
 
2.3
%
 
 
 

 
 
 
Expected credit loss rate
 
10.9
%
 
 
 

 
 
 
Servicing rate
 
7.9
%
 
 
 

 
 
 
Discount rate
 
16.2
%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2015
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)(1)
Loans and fees receivable, at fair value
 
$
6,353

 
Discounted cash flows
 
Gross yield
 
15.8% to 22.7% (20.0%)

 
 
 

 
 
 
Principal payment rate
 
2.1% to 3.0% (2.7%)

 
 
 

 
 
 
Expected credit loss rate
 
12.9% to 22.7% (16.7%)

 
 
 

 
 
 
Servicing rate
 
8.4% to 12.5% (10.9%)

 
 
 

 
 
 
Discount rate
 
16.0% to 16.2% (16.1%)

Loans and fees receivable pledged as collateral under structured financings, at fair value
 
$
20,353

 
Discounted cash flows
 
Gross yield
 
28.5
%
 
 
 

 
 
 
Principal payment rate
 
2.9
%
 
 
 

 
 
 
Expected credit loss rate
 
12.5
%
 
 
 

 
 
 
Servicing rate
 
12.9
%
 
 
 

 
 
 
Discount rate
 
16.0
%

 
(1) Our loans and fees receivable, pledged as collateral under structured financings, at fair value consist of a single portfolio with one set of assumptions. As such, no range is given.


16
Table of Contents

Valuations and Techniques for Liabilities
 
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 liability. The table below summarizes (in thousands) by fair value hierarchy the September 30, 2016 and December 31, 2015 fair values and carrying amounts of (1) our liabilities that are required to be carried at fair value in our consolidated financial statements and (2) our liabilities not carried at fair value, but for which fair value disclosures are required:
Liabilities – As of September 30, 2016
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
Significant Other
Observable Inputs (Level 2)
 
Significant
Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 
 
 
 
 
 
 
Revolving credit facilities
 
$
—

 
$
—

 
$
59,936

 
$
59,936

Amortizing debt facilities
 
$
—

 
$
—

 
$
57,972

 
$
57,972

Senior secured term loan
 
$
—

 
$
—

 
$
40,000

 
$
40,000

5.875% convertible senior notes
 
$
—

 
$
36,844

 
$
—

 
$
62,030

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Economic sharing arrangement liability
 
$
—

 
$
—

 
$
21

 
$
21

Notes payable associated with structured financings, at fair value
 
$
—

 
$
—

 
$
14,367

 
$
14,367


Liabilities - As of December 31, 2015
 
Quoted Prices in Active
Markets for Identical Assets (Level 1)
 
 Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Carrying Amount of Liabilities
Liabilities not carried at fair value
 
 

 
 

 
 

 
 

Revolving credit facilities
 
$
—

 
$
—

 
$
53,800

 
$
53,800

Amortizing debt facilities
 
$
—

 
$
—

 
$
36,200

 
$
36,200

Senior secured term loan
 
$
—

 
$
—

 
$
20,000

 
$
20,000

5.875% convertible senior notes
 
$
—

 
$
42,734

 
$
—

 
$
64,783

Liabilities carried at fair value
 
 

 
 

 
 

 
 

Economic sharing arrangement liability
 
$
—

 
$
—

 
$
42

 
$
42

Notes payable associated with structured financings, at fair value
 
$
—

 
$
—

 
$
20,970

 
$
20,970


For our material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) a reconciliation of the beginning and ending balances for the nine months ended September 30, 2016 and 2015.
 
Notes Payable Associated with
Structured Financings, at Fair Value
 
2016
 
2015
Beginning balance, January 1
$
20,970

 
$
36,511

Total (gains) losses—realized/unrealized:
 

 
 

Net revaluations of notes payable associated with structured financings, at fair value
(2,363
)
 
(1,359
)
Repayments on outstanding notes payable, net
(4,240
)
 
(11,927
)
Ending balance, September 30
$
14,367

 
$
23,225



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The unrealized gains and losses for liabilities within the Level 3 category presented in the tables above include changes in fair value that are attributable to both observable and unobservable inputs. We provide below a brief description of the valuation techniques used for Level 3 liabilities.

Net Revaluation of Notes Payable Associated with Structured Financings, at Fair Value. We record the net revaluations of notes payable associated with structured financings, at fair value, in the changes in fair value of notes payable associated with structured financings line item within the fees and related income on earning assets category of our consolidated statements of operations.

For material Level 3 liabilities carried at fair value measured on a recurring basis using significant unobservable inputs, the following table presents (in thousands) quantitative information about the valuation techniques and the inputs used in the fair value measurement as of September 30, 2016 and December 31, 2015:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at September 30, 2016 (in Thousands)
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
14,367

 
Discounted cash flows
 
Gross yield
 
24.9
%
 
 
 

 
 
 
Principal payment rate
 
2.3
%
 
 
 

 
 
 
Expected credit loss rate
 
10.9
%
 
 
 

 
 
 
Discount rate
 
16.2
%

Quantitative Information about Level 3 Fair Value Measurements
Fair Value Measurements
 
Fair Value at December 31, 2015 (in Thousands)
 
Valuation Technique
 
Unobservable Input
 
Weighted Average
Notes payable associated with structured financings, at fair value
 
$
20,970

 
Discounted cash flows
 
Gross yield
 
28.5
%
 
 
 

 
 
 
Principal payment rate
 
2.9
%
 
 
 

 
 
 
Expected credit loss rate
 
12.5
%
 
 
 

 
 
 
Discount rate
 
16.0
%


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Other Relevant Data
 
Other relevant data (in thousands) as of September 30, 2016 and December 31, 2015 concerning certain assets and liabilities we carry at fair value are as follows:
As of September 30, 2016
 
Loans and Fees
Receivable at
Fair Value
 
Loans and Fees Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value
 
$
4,194

 
$
18,466

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
4,321

 
$
14,124

Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)
 
$
5

 
$
22

Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable
 
$
252

 
$
627

 
As of December 31, 2015
 
Loans and Fees
Receivable at
Fair Value
 
Loans and Fees
Receivable Pledged as Collateral under Structured Financings at Fair Value
Aggregate unpaid principal balance within loans and fees receivable that are reported at fair value
 
$
8,560

 
$
25,837

Aggregate fair value of loans and fees receivable that are reported at fair value
 
$
6,353

 
$
20,353

Aggregate fair value of receivables carried at fair value that are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies)
 
$
12

 
$
31

Aggregate excess of balance of unpaid principal receivables within loans and fees receivable that are reported at fair value and are 90 days or more past due (which also coincides with finance charge and fee non-accrual policies) over the fair value of such loans and fees receivable
 
$
374

 
$
889


Notes Payable
 
Notes Payable Associated with Structured Financings, at Fair Value as of September 30, 2016
 
Notes Payable Associated with Structured Financings, at Fair Value as of December 31, 2015
Aggregate unpaid principal balance of notes payable
 
$
102,717

 
$
106,956

Aggregate fair value of notes payable
 
$
14,367

 
$
20,970



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7.
Notes Payable
 
Notes Payable Associated with Structured Financings, at Fair Value
 
Scheduled (in millions) in the table below are (1) the carrying amount of our structured financing note secured by certain credit card receivables and reported at fair value as of September 30, 2016 and December 31, 2015, (2) the outstanding face amount of our structured financing note secured by certain credit card receivables and reported at fair value as of September 30, 2016, and (3) the carrying amount of the credit card receivables and restricted cash that provide the exclusive means of repayment for the note (i.e., lenders have recourse only to the specific credit card receivables and restricted cash underlying each respective facility and cannot look to our general credit for repayment) as of September 30, 2016 and December 31, 2015.
 
Carrying Amounts at Fair Value as of
 
September 30, 2016
 
December 31, 2015
Amortizing securitization facility issued out of our upper-tier originated portfolio master trust (stated maturity of December 2021), outstanding face amount of $102.7 million ($107.0 million as of December 31, 2015) bearing interest at a weighted average 5.9% interest rate (5.6% as of December 31, 2015), which is secured by credit card receivables and restricted cash aggregating $14.4 million ($21.0 million as of December 31, 2015) in carrying amount
$
14.4

 
$
21.0

 
Contractual payment allocations within these credit cards receivable structured financings provide for a priority distribution of cash flows to us to service the credit card receivables, a distribution of cash flows to pay interest and principal due on the notes, and a distribution of all excess cash flows (if any) to us. The structured financing facility in the above table is amortizing down along with collections of the underlying receivables and there are no provisions within the debt agreement that allow for acceleration or bullet repayment of the facility prior to its scheduled expiration date. The aggregate carrying amount of the credit card receivables and restricted cash that provide security for the $14.4 million in fair value of the structured financing note in the above table is $14.4 million, which means that we have no aggregate exposure to pre-tax equity loss associated with the above structured financing arrangement at September 30, 2016.
 
Beyond our role as servicer of the underlying assets within the credit cards receivable structured financings, we have provided no other financial or other support to the structures, and we have no explicit or implicit arrangements that could require us to provide financial support to the structures.


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Notes Payable, at Face Value and Notes Payable to Related Parties
 
Other notes payable outstanding as of September 30, 2016 and December 31, 2015 that are secured by the financial and operating assets of either the borrower, another of our subsidiaries or both, include the following, scheduled