|GREENSKY, INC. filed this Form 10-Q on 11/09/2018|
The payments that we may be required to make under the TRA to the TRA Parties may be significant and are not reflected in the contractual obligations tables set forth above. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” in our Final IPO Prospectus for more details. Also, refer to Part II, Item 1A "Risk Factors - Risks Related to Our Organizational Structure" within this Form 10-Q.
Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements as of September 30, 2018 or December 31, 2017.
From time to time, we may become a party to civil claims and lawsuits arising in the ordinary course of our business. We record a provision for a liability when we believe that it is both probable that a liability has been incurred and the amount can be reasonably estimated, which requires management judgment. As of September 30, 2018 and December 31, 2017, we were not a party as a defendant to any litigation that we believed was material and did not record any provision for liability during those periods. Should any of our estimates or assumptions change or prove to be incorrect, it could have a material adverse impact on our business.
Recently Adopted or Issued Accounting Standards
See “Recently Adopted Accounting Standards” and "Accounting Standards Issued, But Not Yet Adopted" in Note 1 to the Unaudited Consolidated Financial Statements included in Part I, Item 1 for additional information.
Critical Accounting Policies and Estimates
There have been no significant changes to the accounting policies that we believe are the most critical to an understanding of our unaudited results of operations and financial condition that were disclosed in our Final IPO Prospectus.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands unless otherwise indicated)
We are exposed to market risk, including changes to interest rates, and credit risk.
Interest rate risk
Loans originated by Bank Partners. The fixed interest rates charged on the loans that our Bank Partners originate are calculated based upon a margin above a market benchmark at the time of origination. Increases in the market benchmark would result in increases in the interest rates on new loans. Increased interest rates may adversely impact the spending levels of our merchants’ customers and their ability and willingness to borrow money. Higher interest rates often lead to higher payment obligations, which may reduce the ability of customers to remain current on their obligations to our Bank Partners and, therefore, lead to increased delinquencies, defaults, customer bankruptcies and charge-offs, and decreasing recoveries, all of which could have a material adverse effect on our business. Further, even though we intend to increase our transaction fee rates in response to rising interest rates, we might not be able to do so rapidly enough (or at all).
Loan receivables held for sale. Changes in U.S. interest rates affect the interest earned on our cash and could impact the market value of loan receivables held for sale. A hypothetical 100 basis points increase in interest rates may have resulted in a decrease of $0.4 million and $2.0 million in the carrying value of our loan receivables held for sale as of September 30, 2018 and December 31, 2017, respectively. Alternatively, a 100 basis points decrease in interest rates would not have impacted the reported value of our loan receivables held for sale, as they are carried at the lower of cost or fair value. Since we typically sell loan receivables held for sale at par to our Bank Partners, which is indicative of our short-term holding period, we do not expect interest rate risk to be a material risk to our operations. As of September 30, 2018 and December 31, 2017, the weighted average age of our loan receivables held for sale based on the origination date relative to the respective reporting date was approximately 3 months and 11 months, respectively.