LM FUNDING AMERICA, INC. Fair Value Disclosure
Note 13. Fair Value of Financial Instruments
The Company estimates that the fair value of its financial assets and liabilities approximate carrying value except for its finance receivables. FASB ASC 820, Fair Value Measurements and Disclosures defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to classify its fair value estimates based on the “Level” of reliability of data inputs used in those estimates. Under this guidance, financial instruments are categorized within the fair value hierarchy as follows:
Level 1 inputs – Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be assessed at the measurement date.
Level 2 inputs – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs – Unobservable inputs significant to the fair value estimate that are supported by little or no market pricing and are based on the Company’s estimates and assumptions that presumably market participants would use.
The Company considers the data inputs used to estimate the fair value of its finance receivables to fall within Level 3 of the fair value hierarchy. Fair value measurements as noted below are based on the income approach using a discount rate of 7.55% and 8.65% for finance receivables at December 31, 2019 and 2018, respectively. The recovery period as of both dates was assumed to be 10 years and 8.5 years at December 31, 2019 and 2018, respectively. The carrying amount and estimated fair value of finance receivables at December 31 2019 and 2018 are as follows:
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2019 |
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2018 |
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Carrying |
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Fair |
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Carrying |
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Fair |
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Amount |
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Value |
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Amount |
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Value |
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Finance receivables: |
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Original product |
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$ |
274,000 |
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$ |
2,995,000 |
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$ |
425,000 |
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$ |
4,005,000 |
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Special product, net of allowance (1) |
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129,000 |
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300,000 |
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237,000 |
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543,000 |
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(1)New Neighbor Guaranty program
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2019 | Apr 14, 2020 | Showing above |
| 2018 | Apr 16, 2019 | |
| 2017 | Apr 17, 2018 | |
| 2016 | Mar 31, 2017 | |
| 2015 | Mar 30, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.