UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
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ý☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017
March 31, 2021 |
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¨☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from to |
Commission File Number: 001-36270
SANTANDER CONSUMER USA HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
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| Delaware | | 32-0414408 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification Number)
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| 1601 Elm Street | Suite 800 Dallas, Texas | Dallas | Texas | 75201 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code (214) 634-1110
Not Applicable
(Former name, former address, and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol (s) | | Name of each exchange on which registered | | Outstanding shares at April 26, 2021 |
| Common Stock ($0.01 par value) | | SC | | New York Stock Exchange | | 306,035,735 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | | ý☒ | | Accelerated filer | | ¨☐ | | Emerging growth company | | ¨
☐ |
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| Non-accelerated filer | | ¨☐ | | Smaller reporting company | | ¨☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨☐
No ý☒
Indicate
EXPLANATORY NOTE
Santander Consumer USA Holdings Inc. ("SC" or the number"Company") is filing this Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 2021 (the "Form 10-Q/A").
This Form 10-Q/A amends the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as originally filed with the Securities and Exchange Commission (the "SEC") on April 29, 2021 (the "Original Filing"). This Form 10-Q/A is being filed to restate our unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2021, to make corrections to the Condensed Consolidated Statements of shares outstandingCash Flows in the Original Filing. The restatement of eachour financial statements in this Form 10-Q/A reflects the correction of errors for the classification of certain loan activities related to finance receivables held for sale and finance receivables held for investment within the Condensed Consolidated Statements of Cash Flows. Further explanation regarding the restatement is set forth in Note 1 to the unaudited Condensed Consolidated Financial Statements included in this Form 10-Q/A.
The following sections in the Original Filing have been corrected in this Form 10-Q/A to reflect this restatement:
•Part I - Item 1: Condensed Consolidated Financial Information
•Part I - Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
•Part I - Item 4: Controls and Procedures
•Part II - Item 6: Exhibits
Our principal executive officer and principal financial officer have also provided new certifications as required by Sections 302 and 906 of the issuer’s classesSarbanes-Oxley Act of common stock,2002. The certifications are included in this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2.
For the convenience of the latest practicable date.reader, this Form 10-Q/A sets forth the information in the Original Filing in its entirety, as such information is modified and superseded where necessary to reflect the restatement. Except as provided above, this Amendment does not reflect events occurring subsequent to the filing of the Original Filing and does not amend or otherwise update any information in the Original Filing.
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Class | | Outstanding at October 31, 2017 |
Common Stock ($0.01 par value) | | 359,946,656 shares |
INDEX
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| Item 1. | | |
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| (As Restated) | |
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| Note 4. Leases | | |
| Note 5. Other Assets | |
| Note 6. Variable Interest Entities | |
| Note 7. Debt | |
| Note 7.8. Shareholders' Equity | |
| Note 9. Derivative Financial Instruments | |
| Note 10. Fair Value of Financial Instruments | | |
| Note 11. Investment Losses, Net | | |
| Note 12. Income Taxes | | |
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| Note 14. Commitments and Contingencies | | |
| Note 15. Related-Party Transactions | |
| Note 14.16. Employee Benefit Plans | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Item 1. | Legal Proceedings | | |
| Item 1A. | Risk Factors | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | Other Information | | |
| Item 6. | Exhibits | | |
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Unless otherwise specified or the context otherwise requires, the use herein of the terms “ we,“we,” “our,” “us,” “SC,” and the “Company” refer to Santander Consumer USA Holdings Inc. and its consolidated subsidiaries.
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q10-Q/A contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company'sCompany’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond the Company'sCompany’s control. For more information regarding these risks and uncertainties as well as certain additional risks that the Company faces, refer to the Risk Factors detailed in Item 1A of Part I of the 2016 Annual Report on Form 10-K, as well as factors more fully described in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, including the exhibits hereto, and subsequent reports and registration statements filed from time to time with the SEC. Among the factors that could cause the Company'sCompany’s actual resultsperformance to differ materially from those suggested by the forward-looking statements are:
•the Company operatesadverse impact of COVID-19 on our business, financial condition, liquidity and results of operations;
•our agreement with Stellantis N.V. may not result in a highly regulated industrycurrently anticipated levels of growth and is subject to certain conditions that could result in termination of the agreement;
•continually changing federal, state, and local laws and regulations could materially adversely affect its business;our business, including changes to tax laws and regulations and the outcome of ongoing tax audits by federal, state and local income tax authorities that may require the Company to pay additional taxes or recover fewer overpayments compared to what has been accrued or paid as of period-end;
the Company's ability to remediate any material weaknesses in internal controls over financial reporting completely and in a timely manner;
•adverse economic conditions in the United States and worldwide may negatively impact the Company'sour results;
the•our business could suffer if our access to funding is reduced;
the Company faces •significant risks we face implementing itsour growth strategy some of which are outside its control;including our ability to grow revenue, manage expenses, attract and retain highly-skilled people and raise capital necessary to achieve our business goals;
the Company may not realize the anticipated benefits from, and may incur •unexpected costs and delays in connection with exiting itsour personal lending business;
the Company's agreement with FCA may not result in anticipated levels of growth and is subject to performance conditions that could result in termination of the agreement;
the•our business could suffer if the Company iswe are unsuccessful in developing and maintaining relationships with automobile dealerships;
the Company's•our financial condition, liquidity, and results of operations depend on the credit performance of itsour loans;
•loss of the Company'sour key management or other personnel, or an inability to attract such management and personnel, could negatively impact its business;personnel;
•the Company is directly and indirectly, through its relationship with SHUSA, subject to certain banking and financial services regulations, including oversight byeffects of regulation, actions and/or policies of the Federal Reserve Bank of Boston (FRBB), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the European Central Bank and the Federal Reserve Bank of Boston (FRBB); such(ECB), whose oversight and regulation may limit certain of the Company'sour activities, including share repurchase programs, the timing and amount of dividends and other limitations on our business;
•acts of God, including pandemics and other significant public health emergencies, and other natural or man-made disasters, and the Company'sCompany’s ability to deal with disruptions caused by such acts, emergencies and disasters;
•inflation, interest rate, market and monetary fluctuations, including effects from the pending discontinuation of LIBOR as an interest rate benchmark, may, among other things, reduce net interest margins and impact funding sources, revenue and expenses, and the value of assets and obligations;
•adverse publicity, and negative public opinion, whether specific to the Company or regarding other industry participants or industry-wide factors, or other reputational harm;
•the ability of the Company and its third-party vendors to convert, maintain and upgrade, as necessary, the Company’s data processing and other IT infrastructure on a timely and acceptable basis, within projected cost estimates and without significant disruption to the Company’s business;
•the Company’s ability to control operational risks, data security breach risks and outsourcing risks, and the possibility of errors in quantitative models and software the Company uses in its business, including as a result of cyberattacks, technological failure, human error, fraud or malice by internal or external parties, and the possibility that the Company’s controls will prove insufficient, fail or be circumvented;
•future changes in the Company'sour relationship with SHUSA and Banco Santander that could adversely affect its operations.our operations; and
•the other factors that are described in Part I, Item IA – Risk Factors of the Annual Report of the Company on Form 10-K for the year ended December 31, 2020 (the 2020 Annual Report on Form 10-K).
If one or more of the factors affecting the Company'sCompany’s forward-looking information and statements provesrenders forward-looking information or statements incorrect, itsthe Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, the Company cautions the reader not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the Company'sCompany’s results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties as new factors emerge from time to time. AnyManagement cannot assess the
impact of any such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Forward-looking statements reflect the current beliefs and expectations of the Company's management and only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.
Glossary
The following is a list of abbreviations, acronyms, and commonly used terms used in this Quarterly Report on Form 10-Q.
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2016 Annual Report on Form 10-K
ABS | Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017 and Amendment No. 1 on Form 10-K/A filed with the SEC on March 2, 2017
Asset-backed securities |
ABSACL | Asset-backed securitiesAllowance for credit loss |
| Advance Rate | The maximum percentage of collateral that a lender is willing to lend. |
| Affiliates | A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity.
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ALGAFS | Available for sale |
| ALG | Automotive Lease Guide |
APRAmortized costs | Includes unpaid principal balance (UPB), net of discounts and premiums |
| APR | Annual Percentage Rate |
ASCARRC | Alternative Reference Rates Committee |
| ASC | Accounting Standards Codification |
| ASU | Accounting Standards Update |
Auto Finance Holdings | Sponsor Auto Finance Holdings Series LP, a former investor in SC |
| Bluestem | Bluestem Brands, Inc., an online retailer for whose customers SC provides financing |
| Board | SC’s Board of Directors |
CBP | |
| CBP | Citizens Bank of Pennsylvania |
CCARTCCAR | ChryslerComprehensive Capital Auto Receivables Trust, a securitization platformAnalysis and Review |
CEOCCAP | Chrysler Capital |
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| CDO | Chief Diversity Officer |
| CECL | Current Expected Credit Loss, Amendments based on ASU 2016-13, ASU 2019-04, and ASU 2019-11 |
| CEO | Chief Executive Officer |
| CFPB | Consumer Financial Protection Bureau |
| CFO | Chief Financial Officer |
Chrysler Agreement | Ten-year private-label financing agreement with FCA |
| Clean-up Call | The early redemption of a debt instrument by the issuer, generally when the underlying portfolio has amortized to 5% or 10% of its original balance |
CommissionCOVID-19 | U.S. Securities and Exchange CommissionCoronavirus disease 2019 |
| Credit Enhancement | A method such as overcollateralization, insurance, or a third-party guarantee, whereby a borrower reduces default risk |
| DCF | Discounted Cash Flow Analysis |
DDFS | Dundon DFS LLC |
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| Dealer Loan | A floorplan line of credit,Floorplan Loan, real estate loan, working capital loan, or other credit extended to an automobile dealer |
Dodd-Frank Act | Comprehensive financial regulatory reform legislation enacted by the U.S. Congress on July 21, 2010 |
| DOJ | U.S. Department of Justice |
DRIVE | Drive Auto Receivables Trust, a securitization platform |
ECOA | Equal Credit Opportunity Act |
Employment Agreement | The amended and restated employment agreement, executed as of December 31, 2011, by and among SC, Banco Santander, S.A. and Thomas G. Dundon |
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| EIR | Effective interest rate |
| ECL | Expected credit losses |
| Exchange Act | Securities Exchange Act of 1934, as amended |
FASB | Financial Accounting Standards Board |
FCAFICO® | Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC |
FICO® | A common credit score created by Fair Isaac Corporation that is used on the credit reports that lenders use to assess an applicant’s credit risk. FICO® is computed using mathematical models that take into account five factors: payment history, current level of indebtedness, types of credit used, length of credit history, and new credit |
| FIRREA | Financial Institutions Reform, Recovery and Enforcement Act of 1989 |
| Floorplan Loan | A revolving line of credit that finances dealer inventory until sold |
| Federal Reserve Board | Board of Governors of the Federal Reserve System |
| FRBB | Federal Reserve Bank of Boston |
| FTC | Federal Trade Commission |
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| GAP | Guaranteed Auto Protection |
| GAAP | U.S. Generally Accepted Accounting Principles |
| HPI | Housing Price Index |
| HTM | Held to maturity |
| IPO | SC’s Initial Public Offering |
| ISDA | International Swaps and Derivative Association |
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GAP | Guaranteed Auto Protection |
IPO | SC's Initial Public Offering |
ISDA | International Swaps and Derivative Association |
LendingClub | LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquired loans under terms of flow agreements |
| Managed Assets | Managed assets included assets (a) owned and serviced by the Company; (b) owned by the Company and serviced by others; and (c) serviced for others |
MSA | Master Service Agreement |
Nonaccretable Difference | The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows of a portfolio acquired with deteriorated credit quality |
OCCMPLFA | Ten-year master private-label financing agreement with Stellantis N.V., signed in May 2013 |
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| OCC | Office of the Comptroller of the Currency |
| Overcollateralization | A credit enhancement method whereby more collateral is posted than is required to obtain financing |
OEM | Original equipment manufacturer |
Private-labelPD | Probability of default |
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| Private-label | Financing branded in the name of the product manufacturer rather than in the name of the finance provider |
RC | Risk Committee |
Remarketing | |
| RC | The Risk Committee of the Board |
| Remarketing | The controlled disposal of leased vehicles that have been reachedat the end of theirthe lease term or upon early termination or of financed vehicles obtained through repossession and their subsequent sale |
| Residual Value | The future value of a leased asset at the end of its lease term |
RSURetail installment contracts | Includes retail installment contracts individually acquired or originated by the Company and purchased non-credit deteriorated finance receivables |
| ROU | Right-of-use (related to operating leases) |
| RSU | Restricted stock unit |
SantanderSAF | Santander Auto Finance |
| Santander | Banco Santander, S.A. |
| SBNA | Santander Bank, N.A., a wholly-owned subsidiary of SHUSA. Formerly Sovereign Bank, N.A. |
| SC | Santander Consumer USA Holdings Inc., a Delaware corporation, and its consolidated subsidiaries |
SCISCART | Santander Consumer International Puerto Rico, LLCAuto Receivables Trust, a securitization platform |
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| SC Illinois | Santander Consumer USA Inc., an Illinois Corporationcorporation and wholly-owned subsidiary of SC |
| SCRA | Servicemembers Civil Relief Act |
| SDART | Santander Drive Auto Receivables Trust, a securitization platform |
| SEC | U.S. Securities and Exchange Commission |
Separation Agreement | The Separation Agreement dated July 2, 2015 entered into by Thomas G. Dundon with SC, DDFS LLC, SHUSA, Santander Consumer USA Inc. (the wholly owned subsidiary of SC) and Banco Santander, S.A. |
Shareholders Agreement
| The Shareholders Agreement dated January 28, 2014, by and among the Company, SHUSA, DDFS, Thomas G. Dundon, Sponsor Auto Finance Holdings Series LP, and, for the certain sections set forth therein, Banco Santander, as amended |
| SHUSA | Santander Holdings USA, Inc., a wholly-owned subsidiary of Santander and the majority ownerstockholder of SC |
| SPAIN | Santander Prime Auto Issuing Note Trust, a securitization platform |
SubventionSRT | Santander Retail Auto Lease Trust, a lease securitization platform |
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| Stellantis N.V. | FCA US LLC, its parent Stellantis N.V., and/or any affiliates |
| Subvention | Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer |
TDR | |
| TDR | Troubled Debt Restructuring |
| Trusts | Special purpose financing trustsentities utilized in SC’s financing transactions |
U.S. GAAP | U.S. Generally Accepted Accounting Principles |
VIE | |
| VIE | Variable Interest Entity |
| Warehouse Line | A revolving line of credit generally used to fund finance receivable originations |
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited) |
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Item 1. | Condensed Consolidated Financial Statements (Unaudited) |
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands, except per share amounts) | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| ASSETS | | | |
| Cash and cash equivalents - $356,911 and $32,490 held at affiliates, respectively | $ | 415,969 | | | $ | 109,053 | |
| Finance receivables held for sale, net | — | | | 1,567,527 | |
| Finance receivables held for investment, at amortized cost | 32,090,201 | | | 33,114,638 | |
| Allowance for credit loss | (6,005,115) | | | (6,110,633) | |
| Finance receivables held for investment, at amortized cost, net | 26,085,086 | | | 27,004,005 | |
| Restricted cash - $27 and $27 held at affiliates, respectively | 2,623,565 | | | 2,221,094 | |
| Accrued interest receivable | 345,769 | | | 415,765 | |
| Leased vehicles, net | 16,478,224 | | | 16,391,107 | |
| Furniture and equipment, net of accumulated depreciation of $106,292 and $104,452, respectively | 58,081 | | | 62,032 | |
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| Goodwill | 74,056 | | | 74,056 | |
| Intangible assets, net of amortization of $68,013 and $63,488, respectively | 73,833 | | | 70,128 | |
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| Other assets - $5,886 and $14,451 held at affiliates, respectively | 1,079,419 | | | 972,726 | |
| TOTAL ASSETS | $ | 47,234,002 | | | $ | 48,887,493 | |
| LIABILITIES AND EQUITY | | | |
| LIABILITIES | | | |
| Borrowings and other debt obligations - $10,501,060 and $10,801,318 to/from affiliates, respectively | $ | 38,541,624 | | | $ | 41,138,674 | |
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| Deferred tax liabilities, net | 1,497,829 | | | 1,263,796 | |
| Accounts payable and accrued expenses - $83,994 and $80,428 held at affiliates, respectively | 567,474 | | | 531,369 | |
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| Other liabilities - $1,438 and $463 held at affiliates, respectively | 395,222 | | | 331,693 | |
| TOTAL LIABILITIES | 41,002,149 | | | 43,265,532 | |
| Commitments and contingencies (Notes 7 and 14) | 0 | | 0 |
| STOCKHOLDERS' EQUITY: | | | |
| Common stock, $0.01 par value — 1,100,000,000 shares authorized; | | | |
| 363,459,117 and 363,159,613 shares issued and 306,033,735 and 306,091,978 shares outstanding, respectively | 3,060 | | | 3,061 | |
| Additional paid-in capital | 387,946 | | | 393,800 | |
| Accumulated other comprehensive income (loss), net of taxes | (41,818) | | | (50,566) | |
| Retained earnings | 5,882,665 | | | 5,275,666 | |
| TOTAL STOCKHOLDERS' EQUITY | 6,231,853 | | | 5,621,961 | |
| TOTAL LIABILITIES AND EQUITY | $ | 47,234,002 | | | $ | 48,887,493 | |
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| | September 30,
2017 | | December 31,
2016 |
| Assets | | | |
| Cash and cash equivalents - $71,870 and $98,536 held at affiliates, respectively | $ | 397,311 |
| | $ | 160,180 |
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| Finance receivables held for sale, net | 1,775,459 |
| | 2,123,415 |
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| Finance receivables held for investment, net (includes $24,799 and $24,495 of loans recorded at fair value, respectively) | 22,667,203 |
| | 23,481,001 |
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| Restricted cash - $3,035 and $11,629 held at affiliates, respectively | 2,559,246 |
| | 2,757,299 |
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| Accrued interest receivable | 330,554 |
| | 373,274 |
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| Leased vehicles, net | 9,931,283 |
| | 8,564,628 |
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| Furniture and equipment, net of accumulated depreciation of $49,963 and $47,365, respectively | 72,519 |
| | 67,509 |
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| Federal, state and other income taxes receivable | 112,794 |
| | 87,352 |
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| Related party taxes receivable | 467 |
| | 1,087 |
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| Goodwill | 74,056 |
| | 74,056 |
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| Intangible assets, net of amortization of $39,265 and $33,652, respectively | 31,534 |
| | 32,623 |
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| Due from affiliates | 26,871 |
| | 31,270 |
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| Other assets | 786,260 |
| | 785,410 |
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| Total assets | $ | 38,765,557 |
| | $ | 38,539,104 |
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| Liabilities and Equity | | | |
| Liabilities: | | | |
| Notes payable — credit facilities | $ | 4,965,888 |
| | $ | 6,739,817 |
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| Notes payable — secured structured financings | 23,258,363 |
| | 21,608,889 |
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| Notes payable — related party | 2,369,850 |
| | 2,975,000 |
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| Accrued interest payable | 38,012 |
| | 33,346 |
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| Accounts payable and accrued expenses | 336,390 |
| | 379,021 |
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| Deferred tax liabilities, net | 1,515,932 |
| | 1,278,064 |
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| Due to affiliates | 67,059 |
| | 50,620 |
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| Other liabilities | 328,829 |
| | 235,728 |
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| Total liabilities | 32,880,323 |
| | 33,300,485 |
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| Commitments and contingencies (Notes 5 and 10) |
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| Equity: | | | |
| Common stock, $0.01 par value — 1,100,000,000 shares authorized; | | | |
| 359,873,905 and 359,002,145 shares issued and 359,750,398 and 358,907,550 shares outstanding, respectively | 3,598 |
| | 3,589 |
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| Additional paid-in capital | 1,672,392 |
| | 1,657,611 |
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| Accumulated other comprehensive income, net | 27,481 |
| | 28,259 |
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| Retained earnings | 4,181,763 |
| | 3,549,160 |
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| Total stockholders’ equity | 5,885,234 |
| | 5,238,619 |
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| Total liabilities and equity | $ | 38,765,557 |
| | $ | 38,539,104 |
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See notes to unaudited condensed consolidated financial statements.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands)
The assets of consolidated variable interest entities (VIEs), presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated VIE and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to the Company's general credit were as follows:
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| | September 30,
2017 | | December 31,
2016 |
| Assets | | | |
| Restricted cash | $ | 1,969,094 |
| | $ | 2,087,177 |
|
| Finance receivables held for sale, net | 832,394 |
| | 1,012,277 |
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| Finance receivables held for investment, net | 21,902,383 |
| | 22,919,312 |
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| Leased vehicles, net | 9,931,283 |
| | 8,564,628 |
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| Various other assets | 634,338 |
| | 686,253 |
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| Total assets | $ | 35,269,492 |
| | $ | 35,269,647 |
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| Liabilities | | | |
| Notes payable | $ | 28,651,897 |
| | $ | 31,659,203 |
|
| Various other liabilities | 153,942 |
| | 91,234 |
|
| Total liabilities | $ | 28,805,839 |
| | $ | 31,750,437 |
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Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying condensed consolidated balance sheets due to intercompany eliminations between the VIEs and other entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by U.S. GAAP.
See notes to unaudited condensed consolidated financial statements.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) (Dollars in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | |
| March 31, | | | | | |
| | | | | | | | | | |
| | 2021 | | 2020 | | | | | | | |
| Interest on finance receivables and loans | $ | 1,304,651 | | | $ | 1,273,819 | | | | | | | | |
| Leased vehicle income | 740,884 | | | 747,979 | | | | | | | | |
| Other finance and interest income | 1,426 | | | 7,551 | | | | | | | | |
| Total finance and other interest income | 2,046,961 | | | 2,029,349 | | | | | | | | |
| Interest expense — Including $85,904 and $62,770 to affiliates, respectively | 253,537 | | | 328,834 | | | | | | | | |
| Leased vehicle expense | 423,795 | | | 552,912 | | | | | | | | |
| Net finance and other interest income | 1,369,629 | | | 1,147,603 | | | | | | | | |
| Credit loss expense | 136,209 | | | 907,887 | | | | | | | | |
| Net finance and other interest income after credit loss expense | 1,233,420 | | | 239,716 | | | | | | | | |
| Profit sharing | 67,326 | | | 14,295 | | | | | | | | |
| Net finance and other interest income after credit loss expense and profit sharing | 1,166,094 | | | 225,421 | | | | | | | | |
| Investment losses, net | (14,712) | | | (63,426) | | | | | | | | |
| Servicing fee income — Including $9,197 and $12,552 from affiliates, respectively | 18,694 | | | 19,103 | | | | | | | | |
| Fees, commissions, and other — Including $3,330 and $3,306 from affiliates, respectively | 100,528 | | | 95,130 | | | | | | | | |
| Total other income | 104,510 | | | 50,807 | | | | | | | | |
| Compensation and benefits | 153,895 | | | 133,326 | | | | | | | | |
| Repossession expense | 45,346 | | | 57,662 | | | | | | | | |
| Other expenses — Including $1,814 and $1,097 to affiliates, respectively | 95,251 | | | 91,685 | | | | | | | | |
| Total operating expenses | 294,492 | | | 282,673 | | | | | | | | |
| Income (loss) before income taxes | 976,112 | | | (6,445) | | | | | | | | |
| Income tax expense (benefit) | 234,457 | | | (2,458) | | | | | | | | |
| Net income (loss) | $ | 741,655 | | | $ | (3,987) | | | | | | | | |
| | | | | | | | | | |
| Net income (loss) | $ | 741,655 | | | $ | (3,987) | | | | | | | | |
| Other comprehensive income (loss): | | | | | | | | | | |
| Unrealized gains (losses) on cash flow hedges, net of tax of $2,949 and $(12,543) respectively | 9,066 | | | (39,019) | | | | | | | | |
| Unrealized gains (losses) on available-for-sale and held-to-maturity debt securities net of tax of $(103) and $661, respectively | (318) | | | 2,057 | | | | | | | | |
| Comprehensive income (loss) | $ | 750,403 | | | $ | (40,949) | | | | | | | | |
| Net income per common share (basic) | $ | 2.42 | | | $ | (0.01) | | | | | | | | |
| Net income per common share (diluted) | $ | 2.42 | | | $ | (0.01) | | | | | | | | |
| Dividend declared per common share | $ | 0.44 | | | $ | 0.22 | | | | | | | | |
| Weighted average common shares (basic) | 306,108,987 | | | 334,026,052 | | | | | | | | |
| Weighted average common shares (diluted) | 306,325,155 | | | 334,346,122 | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Interest on finance receivables and loans | $ | 1,185,059 |
| | $ | 1,246,386 |
| | $ | 3,626,497 |
| | $ | 3,804,322 |
|
| Leased vehicle income | 457,932 |
| | 388,501 |
| | 1,305,429 |
| | 1,086,651 |
|
| Other finance and interest income | 6,385 |
| | 3,638 |
| | 15,415 |
| | 11,440 |
|
| Total finance and other interest income | 1,649,376 |
| | 1,638,525 |
| | 4,947,341 |
| | 4,902,413 |
|
| Interest expense — Including $35,132, $28,131, $109,648 and $88,814 to affiliates, respectively | 250,674 |
| | 207,175 |
| | 711,134 |
| | 590,504 |
|
| Leased vehicle expense | 339,581 |
| | 252,730 |
| | 927,976 |
| | 717,230 |
|
| Net finance and other interest income | 1,059,121 |
| | 1,178,620 |
| | 3,308,231 |
| | 3,594,679 |
|
| Provision for credit losses | 536,447 |
| | 610,398 |
| | 1,692,015 |
| | 1,782,489 |
|
| Net finance and other interest income after provision for credit losses | 522,674 |
| | 568,222 |
| | 1,616,216 |
| | 1,812,190 |
|
| Profit sharing | 5,945 |
| | 6,400 |
| | 22,333 |
| | 35,640 |
|
| Net finance and other interest income after provision for credit losses and profit sharing | 516,729 |
| | 561,822 |
| | 1,593,883 |
| | 1,776,550 |
|
| Investment gains (losses), net — Including $29,081, $346, $22,900, and $346 from affiliates, respectively | (52,592 | ) | | (106,050 | ) | | (228,513 | ) | | (276,415 | ) |
| Servicing fee income — Including $2,739, $4,049, $8,627 and $13,180 from affiliates, respectively | 28,673 |
| | 36,447 |
| | 92,310 |
| | 123,929 |
|
| Fees, commissions, and other — Including $225, $225, $830 and $675 from affiliates, respectively | 82,866 |
| | 96,285 |
| | 275,025 |
| | 294,028 |
|
| Total other income | 58,947 |
| | 26,682 |
| | 138,822 |
| | 141,542 |
|
| Compensation expense | 134,169 |
| | 128,056 |
| | 398,325 |
| | 371,242 |
|
| Repossession expense | 66,877 |
| | 75,920 |
| | 205,445 |
| | 217,816 |
|
| Other operating costs — Including $1,037, ($871), $3,403, and $3,615 to affiliates, respectively | 96,857 |
| | 80,508 |
| | 281,626 |
| | 258,509 |
|
| Total operating expenses | 297,903 |
| | 284,484 |
| | 885,396 |
| | 847,567 |
|
| Income before income taxes | 277,773 |
| | 304,020 |
| | 847,309 |
| | 1,070,525 |
|
| Income tax expense | 78,385 |
| | 90,473 |
| | 239,819 |
| | 365,334 |
|
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
| | | | | | | | |
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
| Other comprehensive income (loss): | | | | | | | |
| Change in unrealized gains (losses) on cash flow hedges, net of tax of $201, (14,397), $297, and $17,081, respectively | (379 | ) | | 24,168 |
| | (778 | ) | | (28,723 | ) |
| Comprehensive income | $ | 199,009 |
| | $ | 237,715 |
| | $ | 606,712 |
| | $ | 676,468 |
|
| Net income per common share (basic) | $ | 0.55 |
| | $ | 0.60 |
| | $ | 1.69 |
| | $ | 1.97 |
|
| Net income per common share (diluted) | $ | 0.55 |
| | $ | 0.59 |
| | $ | 1.69 |
| | $ | 1.96 |
|
| Weighted average common shares (basic) | 359,619,083 |
| | 358,343,781 |
| | 359,397,063 |
| | 358,179,618 |
|
| Weighted average common shares (diluted) | 360,460,353 |
| | 360,087,749 |
| | 360,069,449 |
| | 359,635,034 |
|
See notes to unaudited condensed consolidated financial statements.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited) (In thousands)thousands except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-In Capital | | Accumulated
Other
Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders' Equity |
| Shares | | Amount | | | | |
| Balance — January 1, 2021 | 306,092 | | | $ | 3,061 | | | $ | 393,800 | | | $ | (50,566) | | | $ | 5,275,666 | | | $ | 5,621,961 | |
| | | | | | | | | | | |
| Stock issued in connection with employee incentive compensation plans | 300 | | | 3 | | | (1,832) | | | — | | | — | | | (1,829) | |
| Stock-based compensation expense | — | | | — | | | 5,448 | | | — | | | — | | | 5,448 | |
| | | | | | | | | | | |
| Stock repurchase/Treasury stock | (358) | | | (4) | | | (9,470) | | | — | | | — | | | (9,474) | |
| Dividends-Common stock, $0.44/share | — | | | — | | | — | | | — | | | (134,656) | | | (134,656) | |
| | | | | | | | | | | |
| Net income (loss) | — | | | — | | | — | | | — | | | 741,655 | | | 741,655 | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | — | | | 8,748 | | | — | | | 8,748 | |
| Balance — March 31, 2021 | 306,034 | | | $ | 3,060 | | | $ | 387,946 | | | $ | (41,818) | | | $ | 5,882,665 | | | $ | 6,231,853 | |
| | | | | | | | | | | |
| Balance — January 1, 2020 | 339,202 | | | $ | 3,392 | | | $ | 1,173,262 | | | $ | (26,693) | | | $ | 6,168,659 | | | $ | 7,318,620 | |
| Cumulative-effect adjustment upon adoption of ASU 2016-13 | — | | | — | | | — | | | — | | | (1,590,885) | | | (1,590,885) | |
| Stock issued in connection with employee incentive compensation plans | 277 | | | 3 | | | (1,634) | | | — | | | — | | | (1,631) | |
| Stock-based compensation expense | — | | | — | | | 4,038 | | | — | | | — | | | 4,038 | |
| | | | | | | | | | | |
| Stock repurchase/Treasury stock | (18,361) | | | (184) | | | (468,282) | | | — | | | — | | | (468,466) | |
| Dividends-Common stock, $0.22/share | — | | | — | | | — | | | — | | | (74,624) | | | (74,624) | |
| | | | | | | | | | | |
| Net income (loss) | — | | | — | | | — | | | — | | | (3,987) | | | (3,987) | |
| Other comprehensive income (loss), net of taxes | — | | | — | | | — | | | (36,962) | | | — | | | (36,962) | |
| Balance — March 31, 2020 | 321,118 | | | $ | 3,211 | | | $ | 707,384 | | | $ | (63,655) | | | $ | 4,499,163 | | | $ | 5,146,103 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders’ Equity |
| | Shares | | Amount | | | | |
| Balance — January 1, 2016 | 357,946 |
| | $ | 3,579 |
| | $ | 1,644,151 |
| | $ | 2,125 |
| | $ | 2,782,694 |
| | $ | 4,432,549 |
|
| Stock issued in connection with employee incentive compensation plans | 410 |
| | 5 |
| | 2,014 |
| | — |
| | — |
| | 2,019 |
|
| Stock-based compensation expense | — |
| | — |
| | 7,013 |
| | — |
| | — |
| | 7,013 |
|
| Tax sharing with affiliate | — |
| | — |
| | (392 | ) | | — |
| | — |
| | (392 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 705,191 |
| | 705,191 |
|
| Other comprehensive income (loss), net of taxes | — |
| | — |
| | — |
| | (28,723 | ) | | — |
| | (28,723 | ) |
| Balance — September 30, 2016 | 358,356 |
| | $ | 3,584 |
| | $ | 1,652,786 |
| | $ | (26,598 | ) | | $ | 3,487,885 |
| | $ | 5,117,657 |
|
| | | | | | | | | | | | |
| Balance — January 1, 2017 | 358,908 |
| | $ | 3,589 |
| | $ | 1,657,611 |
| | $ | 28,259 |
| | $ | 3,549,160 |
| | $ | 5,238,619 |
|
| Cumulative-effect adjustment upon adoption of ASU 2016-09 (Note 1) | — |
| | — |
| | 1,439 |
| | — |
| | 25,113 |
| | 26,552 |
|
| Stock issued in connection with employee incentive compensation plans | 871 |
| | 9 |
| | 1,582 |
| | — |
| | — |
| | 1,591 |
|
| Stock-based compensation expense | — |
| | — |
| | 12,166 |
| | — |
| | — |
| | 12,166 |
|
| Purchase of treasury stock | (29 | ) | | — |
| | (404 | ) | | — |
| | — |
| | (404 | ) |
| Tax sharing with affiliate | — |
| | — |
| | (2 | ) | | — |
| | — |
| | (2 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 607,490 |
| | 607,490 |
|
| Other comprehensive income (loss), net of taxes | — |
| | — |
| | — |
| | (778 | ) | | — |
| | (778 | ) |
| Balance — September 30, 2017 | 359,750 |
| | $ | 3,598 |
| | $ | 1,672,392 |
| | $ | 27,481 |
| | $ | 4,181,763 |
| | $ | 5,885,234 |
|
See notes to unaudited condensed consolidated financial statements.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars in thousands) | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| |
| 2021 | | 2020 | | |
| As Restated - Note 1 | | | | |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 741,655 | | | $ | (3,987) | | | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
| Derivative mark to market | (503) | | | 8,923 | | | |
| Credit loss expense | 136,209 | | | 907,887 | | | |
| Depreciation, amortization and accretion | 477,423 | | | 564,878 | | | |
| | | | | |
| Proceeds from sales of and collections on retail installment contracts held for sale (a) | 1,333,954 | | | 24,263 | | | |
| | | | | |
| Investment losses, net | 14,712 | | | 63,426 | | | |
| | | | | |
| Stock-based compensation | 5,448 | | | 4,038 | | | |
| Deferred tax expense/(benefit) | 231,187 | | | (4,798) | | | |
| Net change in: | | | | | |
| Revolving personal loans | 34,246 | | | 19,012 | | | |
| Other assets | 80,933 | | | (43,309) | | | |
| Other liabilities | 97,634 | | | (145,217) | | | |
| Net cash provided by operating activities | 3,152,898 | | | 1,395,116 | | | |
| Cash flows from investing activities: | | | | | |
| Originations and purchases of portfolios on finance receivables held for investment | (4,492,802) | | | (3,939,255) | | | |
| | | | | |
| Collections on finance receivables held for investment | 3,610,444 | | | 3,294,442 | | | |
| Proceeds from sales of retail installment contracts held for sale, originated as held for investment (b) | 1,812,552 | | | — | | | |
| Leased vehicles purchased | (2,172,167) | | | (2,030,936) | | | |
| Manufacturer and Dealer incentives | 15,354 | | | 170,800 | | | |
| Proceeds from sale of leased vehicles | 1,497,995 | | | 941,551 | | | |
| Change in revolving personal loans, net | 31,121 | | | 28,478 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Proceeds from repayments and maturities of held-to-maturity securities | 6,318 | | | — | | | |
| Purchases of furniture and equipment | (3,496) | | | (7,508) | | | |
| Sales of furniture and equipment | 1,332 | | | 1 | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by (used in) investing activities | 306,651 | | | (1,542,427) | | | |
| Cash flows from financing activities: | | | | | |
| Proceeds from borrowings and other debt obligations, net of debt issuance costs - $2,200,000 and $1,835,000 from affiliates, respectively | 9,081,404 | | | 11,374,959 | | | |
| Payments on borrowings and other debt obligations - $(2,500,000) and $(1,835,000) to affiliates, respectively | (11,687,888) | | | (10,357,462) | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Proceeds from stock option exercises, gross | 452 | | | 409 | | | |
| Shares repurchased | (9,474) | | | (468,466) | | | |
| Dividends paid | (134,656) | | | (74,624) | | | |
| | | | | |
| Net cash provided by (used in) financing activities | (2,750,162) | | | 474,816 | | | |
| | | | | |
(a)Included in this balance is sales proceeds from Bluestem portfolio sale of $608 million for loans originated as held for sale.
(b)Included in this balance is sales proceeds from Bluestem portfolio sale of $188 million for loans originated as held for investment.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited) (Dollars in thousands)
|
| | | | | | | |
| | For the Nine Months Ended
September 30, |
| | 2017 | | 2016 |
| Cash flows from operating activities: | | | |
| Net income | $ | 607,490 |
| | $ | 705,191 |
|
| Adjustments to reconcile net income to net cash provided by operating activities | | | |
| Derivative mark to market | (7,694 | ) | | 4,653 |
|
| Provision for credit losses | 1,692,015 |
| | 1,782,489 |
|
| Depreciation and amortization | 1,013,738 |
| | 788,084 |
|
| Accretion of discount | (193,473 | ) | | (281,295 | ) |
| Originations and purchases of receivables held for sale | (2,773,407 | ) | | (3,018,287 | ) |
| Proceeds from sales of and collections on receivables held for sale | 3,032,688 |
| | 2,460,399 |
|
| Change in revolving personal loans | (139,358 | ) | | (471,061 | ) |
| Investment losses, net | 228,513 |
| | 276,415 |
|
| Stock-based compensation | 12,166 |
| | 7,013 |
|
| Deferred tax expense | 264,720 |
| | 363,036 |
|
| Changes in assets and liabilities: | | | |
| Accrued interest receivable | 21,729 |
| | 13,591 |
|
| Accounts receivable | (6,049 | ) | | 7,161 |
|
| Federal income tax and other taxes | (24,823 | ) | | 176,978 |
|
| Other assets | (61,765 | ) | | (31,572 | ) |
| Accrued interest payable | (86 | ) | | 6,657 |
|
| Other liabilities | (28,176 | ) | | (106,879 | ) |
| Due to/from affiliates | 27,858 |
| | (6,440 | ) |
| Net cash provided by operating activities | 3,666,086 |
| | 2,676,133 |
|
| Cash flows from investing activities: | | | |
| Originations of and disbursements on finance receivables held for investment | (8,448,231 | ) | | (9,769,563 | ) |
| Purchases of portfolios of finance receivables held for investment | (228,843 | ) | | (427,384 | ) |
| Collections on finance receivables held for investment | 7,744,969 |
| | 7,875,592 |
|
| Proceeds from sale of loans held for investment | 135,577 |
| | 823,877 |
|
| Leased vehicles purchased | (4,718,388 | ) | | (4,624,096 | ) |
| Manufacturer incentives received | 787,093 |
| | 1,081,399 |
|
| Proceeds from sale of leased vehicles | 1,807,729 |
| | 1,135,723 |
|
| Change in revolving personal loans | 57,761 |
| | 362,671 |
|
| Purchases of furniture and equipment | (15,113 | ) | | (19,971 | ) |
| Sales of furniture and equipment | 747 |
| | 1,985 |
|
| Change in restricted cash | 191,842 |
| | (460,749 | ) |
| Other investing activities | (5,852 | ) | | (6,165 | ) |
| Net cash used in investing activities | (2,690,709 | ) | | (4,026,681 | ) |
| Cash flows from financing activities: | | | |
| Proceeds from notes payable related to secured structured financings — net of debt issuance costs | 12,272,344 |
| | 9,637,933 |
|
| Payments on notes payable related to secured structured financings | (10,638,153 | ) | | (9,130,280 | ) |
| Proceeds from unsecured notes payable | 6,165,000 |
| | 6,718,900 |
|
| Payments on unsecured notes payable | (4,885,577 | ) | | (6,968,900 | ) |
| Proceeds from notes payable | 15,466,611 |
| | 15,885,951 |
|
| Payments on notes payable | (19,123,441 | ) | | (14,738,924 | ) |
| Proceeds from stock option exercises, gross | 4,970 |
| | 2,848 |
|
| Net cash provided by (used in) financing activities | (738,246 | ) | | 1,407,528 |
|
| Net increase in cash and cash equivalents | 237,131 |
| | 56,980 |
|
| Cash — Beginning of period | 160,180 |
| | 18,893 |
|
| Cash — End of period | $ | 397,311 |
| | $ | 75,873 |
|
| | | | |
| Noncash investing and financing transactions: | | | |
| Transfer of secured notes payable to (from) unsecured notes payable | $ | (495,991 | ) | | $ | — |
|
| | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| |
| | 2021 | | 2020 | | |
| As Restated - Note 1 | | | | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | 709,387 | | | 327,505 | | | |
| Cash and cash equivalents and restricted cash— Beginning of year | 2,330,147 | | | 2,161,087 | | | |
| Cash and cash equivalents and restricted cash— End of year | $ | 3,039,534 | | | $ | 2,488,592 | | | |
| Supplemental cash flow information: | | | | | |
| Cash and cash equivalents | 415,969 | | | 501,588 | | | |
| Restricted cash | 2,623,565 | | | 1,987,004 | | | |
| Total cash, cash equivalents and restricted cash | $ | 3,039,534 | | | $ | 2,488,592 | | | |
| | | | | |
| | | | | |
| | | | | |
See notes to unaudited condensed consolidated financial statements.
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
1.Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices
Santander Consumer USA Holdings Inc., a Delaware corporation (together with its subsidiaries, SC or the Company),The Company is the holding company for Santander Consumer USA Inc., anSC Illinois, corporation (SC Illinois), and its subsidiaries, a specialized consumer finance company focused on vehicle finance and third-party servicing.servicing and delivering service to dealers and customers across the full credit spectrum. The Company’s primary business is the indirect origination and securitizationservicing of retail installment contracts and leases, principally, through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers.
In conjunction with a ten-year private label financing agreement (the Chrysler Agreement) with Fiat Chrysler Automobiles US LLC (FCA) that became effective May 1, 2013, Additionally, the Company offerssells consumer retail installment contracts through flow agreements and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer retail installment contracts. SAF is our primary vehicle financing brand, and is available as a full spectrum of auto financing productsfinance option for automotive dealers across the United States.
Since May 2013, under the MPLFA with Stellantis N.V., the Company has operated as Stellantis N.V.’s preferred provider for consumer loans, leases and dealer loans and provides services to FCAStellantis N.V. customers and dealers under the Chrysler CapitalCCAP brand. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.
The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle retail installment contracts from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally, the Company has severalother relationships through which it provides personal loans, private-label credit cards and other consumer finance products.
As of September 30, 2017,March 31, 2021, the Company was owned approximately 58.7%80.3% by Santander Holdings USA, Inc. (SHUSA),SHUSA, a subsidiary of Banco Santander, S.A. (Santander),and approximately 31.6%19.7% by public shareholders, approximately 9.7%other shareholders.
Correction of Errors
Subsequent to the issuance of the Company's March 31, 2021, Consolidated Financial Statements, errors were identified in the historical Consolidated Statement of Cash Flows for the three months ended March 31, 2021. Accordingly, the Company has restated the unaudited interim Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2021, to reflect the error corrections.
•During three months ended March 31, 2021, the Company reported $1,173 million of Originations and purchases of receivables held for salewithin Net Cash Provided by DDFS LLC, an entity affiliated with Thomas G. Dundon,Operating Activities that should have been reported as Originations and purchases of portfolios on finance receivables held for investment within Net Cash Provided by Investing Activities.
•During the three months ended March 31, 2021, the Company reported $82 million as Proceeds from sales of and collections on retail installment contracts held for sale within Net Cash Provided by Operating Activities that should have been reported as Collections on finance receivables held for investment within Net Cash Provided by Investing Activities.
The impact of the above two errors on the Company’s former Chairman and CEO, and an insignificant amount held by other holders, primarily membersConsolidated Statement of senior management.Cash Flows for the three months ended March 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | As Reported(1) | | Corrections | | As Restated |
| Originations and purchases of receivables held for sale | | $ | (1,173,287) | | $ | 1,173,287 | | $ | — | |
| Proceeds from sales of and collections on retail installment contracts held for sale | | 1,415,460 | | (81,506) | | 1,333,954 | |
| Net cash provided by operating activities | | $ | 2,061,117 | | $ | 1,091,781 | | $ | 3,152,898 | |
| | | | | | |
| Originations and purchases of portfolios on finance receivables held for investment | | $ | (3,319,515) | | $ | (1,173,287) | | $ | (4,492,802) | |
| Collections on finance receivables held for investment | | 3,528,938 | | 81,506 | | 3,610,444 | |
| Net cash provided by investing activities | | $ | 1,398,432 | | $ | (1,091,781) | | $ | 306,651 | |
| | | | | | |
(1) - Originally reported amounts included in the Quarterly Report on Form 10-Q for the three-month period ended March 31, 2021 filed on April 29, 2021. |
Sale of the Personal Lending Portfolio
During the first quarter, the Company completed the sale of the Bluestem personal lending portfolio to a third party. In addition, the Company executed a forward flow sale agreement with a third party to purchase all personal lending receivables that the Company purchases from Bluestem through the term of the agreement with Bluestem.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries, including certain Trusts whichthat are considered variable interest entities (VIEs).VIEs. The Company also consolidates other VIEs for which it wasis deemed to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying
These condensed consolidated financial statements as of September 30, 2017 and December 31, 2016, and for the three and nine months ended September 30, 2017 and 2016, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructionspursuant to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.SEC regulations. In the opinion of management, thesethe accompanying condensed consolidated financial statements containreflect all adjustments consisting of a normal and recurring adjustments,nature necessary for thea fair statement of the financial position, resultsConsolidated Balance Sheets, Statements of operationsOperations, Statements of Comprehensive Income, Statements of Stockholder's Equity and cash flowsStatement of Cash Flow for the interim periods indicated.indicated, and contain adequate disclosure to make the information presented not misleading. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the 2016Annual Report of the Company on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report on Form 10-K.10-K").
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, as of the date ofin the financial statements and the amount of revenue and expenses during the reporting periods.accompanying notes. Actual results could differ from those estimates and those differences may be material. TheseThe most significant estimates include the determination of credit loss allowance, discount accretion, impairment, fair value measurements, expected end-of-term lease residual values, values of repossessed assets, and income taxes. These estimates, although based on actual historical trends and modeling, may potentially show significant variances over time.
Business Segment Information
The Company has one1 reportable segment:segment, Consumer Finance, which includes the Company’s vehicle financial products and services, including retail installment contracts, vehicle leases, and dealer loans, as well as financial products and services related to motorcycles, recreational vehicles and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.
Accounting Policies
There have been no material changes in the Company's accounting policies from those disclosed in Part II, Item 8 - Financial Statements and Supplementary Data in the 20162020 Annual Report on Form 10-K.
Recently Adopted Accounting Standards
Since January 1, 2017, the Company adopted the following Financial Accounting Standards Board (FASB) Accounting Standards Updates (ASUs):
ASU 2016-09, Compensation - Stock Compensation (Topic 718). This new guidance simplifies certain aspects related to income taxes, the Statement of Cash Flows (SCF), and forfeitures when accounting14
2. Finance Receivables
Held for share-based payment transactions. ASU 2016-09 eliminates the requirement to recognize excess tax benefits in APIC pools, and instead requires companies to record all excess tax benefits and deficiencies at settlement, vesting or expiration in the income statement as provision for income taxes. At adoption of ASU 2016-09 on January 1, 2017, the cumulative-effect for previously unrecognized excess tax benefits totaled $26,552 net of tax, and was recognized, as an increase, through an adjustment in beginning retained earnings. The Company recorded excess tax deficiency, net of tax of $671 and $430 in the provision for income taxes rather than as an increase to additional paid-in capital for the three and nine months ended September 30, 2017, respectively, on a prospective basis. Therefore, the prior period presented has not been adjusted. All excess tax benefits along with other income tax cash flows are now being classified as operating activities rather than financing activities in the SCF on a prospective basis.
In addition, the Company changed its accounting policy on forfeitures from previously recognizing forfeitures based on estimating the number of awards expected to be forfeited to electing to recognize forfeiture of awards as they occur to simplify the accounting for forfeitures. This resulted in a cumulative adjustment, as a decrease to, beginning retained earnings of $1,439.
ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative ContractNovations on Existing Hedge Accounting Relationships. The new guidance clarifies that a change in the counterparties to a derivative contract, i.e., a novation, in and of itself, does not require the de-designation of a hedging relationship. An entity will, however, still need to evaluate whether it is probable that the counterparty will perform under the contract as part of its ongoing effectiveness assessment for hedge accounting. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. This new guidance clarifies that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis of hybrid financial instruments. In other words, a contingent put or call option embedded in a debt instrument would be evaluated for possible separate accounting as a derivative instrument without regard to the nature of the exercise contingency. However, as required under existing guidance, companies will still need to evaluate other relevant embedded derivative guidance, such as whether the payoff from the contingent put or call option is adjusted based on changes in an index other than interest rates or credit risk, and whether the debt involves a substantial premium or discount. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323). The new guidance eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Instead, the equity method of accounting should be applied prospectively from the date significant influence is obtained. Investors should add the cost of acquiring the additional interest in the investee (if any) to the current basis of their previously held interest. The new standard also provides specific guidance for available-for-sale securities that become eligible for the equity method of accounting. In those cases, any unrealized gain
or loss recorded within accumulated other comprehensive income should be recognized in earnings at the date the investment initially qualifies for the use of the equity method of accounting. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
ASU 2016-17, Consolidation (Topic 810), Interest Held Through Related Parties That Are Under Common Control, which amends the guidance in U.S. GAAP on related parties that are under common control. Specifically, the new ASU requires that a single decision maker consider indirect interests held by related parties under common control on a proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendment for a period of one year from the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for the Company for the first annual period beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09, which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12, an amendment to ASU 2014-09, which provided practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on transition, collectability, non-cash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB issued ASU 2016-20, a separate update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09. The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
Because ASU 2014-09 does not apply to revenue associated with leases and financial instruments (including loans and securities), the Company does not expect the new guidance to have a material impact on the elements of its Consolidated Statements of Operations most closely associated with leases and financial instruments (such as interest income, interest expense and investment gain). The Company expects to adopt this ASU in the first quarter of 2018 with a cumulative-effect adjustment to opening retained earnings. The Company’s ongoing implementation efforts include the identification of other revenue streams that are within the scope of the new guidance and reviewing related contracts with customers. Upon adoption of this standard, the Company does not expect the impact to be material to its financial position, results of operation or cash flow and expects the impact to be disclosure only.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition andMeasurement of Financial Assets and Financial Liabilities. This amendment requires that equity investments, except those accounted for under the equity method of accounting or which result in consolidation of the investee, to be measured at fair value, with changes in the fair value being recorded in net income. However, equity investments that do not have readily determinable fair values will be measured at cost less impairment, if any, plus the effect of changes resulting from observable price transactions in orderly transactions or for the identical or similar investment of the same issuer. The amendment also simplifies the impairment assessment of equity instruments that do not have readily determinable fair values, eliminates the requirement to disclose methods and assumptions used to estimate fair value of instruments measured at their amortized cost on the balance sheet, requires that the disclosed
fair values of financial instruments represent "exit price," requires entities to separately present in other comprehensive income the portion of the total change in fair value of a liability resulting from instrument-specific credit risk when the fair value option has been elected for that liability, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes, and clarifies that an entity should evaluate the need for a valuation allowance on its deferred tax asset related to its available-for-sale securities in combination with its other deferred tax assets. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2017, with earlier adoption permitted by public entities on a limited basis. Adoption of the amendment must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for amendments related to equity instruments that do not have readily determinable fair values, for which it should be applied prospectively. Upon adoption of this standard, the Company does not expect the impact to be material to its financial position, results of operations, cash flows or disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance will be effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. Once effective, the new guidance must be applied for all periods presented. The Company does not expect the new guidance to have a material impact on the Consolidated Statements of Income or the Consolidated Statements of Shareholders' Equity, since the Company recognizes assets and liabilities for all of its vehicle lease transactions. The Company will continue to evaluate the impact of the new guidance on its operating leases primarily for office space and computer equipment. Upon adoption, the Company will gross up its balance sheet by the present value of future minimum lease payments for these operating leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the criteria under which credit losses are measured. The amendment introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to establish credit loss estimates. The guidance will be effective for the fiscal year beginning after December 15, 2019, including interim periods within that year. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new CECL model will alter the assumptions used in calculating the Company's credit losses, given the change to estimated losses for the estimated life of the financial asset, and will likely result in material changes to the Company’s credit and capital reserves.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain CashReceipts and Cash Payments. This update amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the SCF. The ASU’s amendments add or clarify guidance on eight cash flow issues including debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted, including adoption in an interim period, however any adjustments should be reflected as of the beginning of the fiscal year that includes the period of adoption. All of the amended guidance must be adopted in the same period. Upon adoption of this standard, the Company does not expect the impact to be material to its financial position, results of operations or cash flows.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods. Early adoption is permitted at the beginning of an annual reporting period for which annual or interim financial statements have not been issued or made available for issuance. Upon
adoption of this standard, the Company does not expect the impact to be material to its financial position, results of operation or cash flow.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A consensus of the FASB Emerging Issues Task Force), which requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown on the statement of cash flows and that the statement of cash flows explain changes in restricted cash during the period. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, however, adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations or cash flows and expects the impact to be disclosure only.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of aBusiness. The new guidance revises the definition of a business, potentially affecting areas of accounting such as acquisitions, disposals, goodwill impairment, and consolidation. Under the new guidance, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired (or disposed of) would not represent a business. If this initial screen is met, no further analysis would be required. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create an output. In addition, the amendments narrow the definition of the term “output” so that it is consistent with how outputs are defined in ASC Topic 606, Revenue from Contracts with Customers. This new guidance will be effective for the Company for the first reporting period beginning after December 15, 2017, with earlier adoption permitted. Adoption of the amendments must be applied on a prospective basis. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill & Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. It removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The new rules state that a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company expects to early adopt this ASU in the fourth quarter of 2017 and does not expect the adoption of this ASU to have an impact on its financial position, results of operations or cash flows and expects the impact to be disclosure only.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under the ASU, entities will apply modification accounting guidance if the value, vesting conditions or classification of award changes. The new guidance also clarifies that a modification to an award could be significant and therefore require disclosure, even if modification accounting is not required. The guidance will be applied prospectively to awards modified on or after the adoption date and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including in an interim period. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations or cash flows.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The new guidance amends the hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The amendments expand an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line in which the earnings effect of the hedged item is reported. The new guidance is effective for public business entities for fiscal years beginning after December 15,
2018, with early adoption, including adoption in an interim period, permitted. The Company is in the process of evaluating the impact of the adoption of this ASU.
Held For Investment
Finance receivables held for investment, net is comprised of the following at September 30, 2017March 31, 2021 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Retail installment contracts acquired individually (a) | $ | 22,599,161 |
| | $ | 23,219,724 |
|
| Purchased receivables | 30,396 |
| | 158,264 |
|
| Receivables from dealers | 15,902 |
| | 68,707 |
|
| Personal loans | 5,623 |
| | 12,272 |
|
| Capital lease receivables (Note 3) | 16,121 |
| | 22,034 |
|
| Finance receivables held for investment, net | $ | 22,667,203 |
| | $ | 23,481,001 |
|
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Retail installment contracts, net (a) | $ | 26,056,708 | | | $ | 26,975,368 | |
| Purchased receivables - credit deteriorated | 4,655 | | | 6,197 | |
| | | |
| | | |
| Finance lease receivables (Note 4) | 23,723 | | | 22,440 | |
| Finance receivables held for investment, net | $ | 26,085,086 | | | $ | 27,004,005 | |
(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net.
As at September 30, 2017of March 31, 2021 and December 31, 2016, $24,7992020, $3,965 and $24,495$5,614 of loans were recorded at fair value, respectively (Note 13)10).
The Company'sCompany’s held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans is comprised of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020: | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Retail Installment Contracts | | | | |
| Non-TDR | | TDR | | |
| Unpaid principal balance | $ | 27,442,853 | | $ | 4,357,438 | | | | |
| ACL | (4,662,633) | | (1,338,708) | | | | |
| | | | | | | |
| Discount (net of subvention and participation) | 166,786 | | (6,839) | | | | |
| Capitalized origination costs and fees | 92,954 | | 4,857 | | | | |
| Net carrying balance | $ | 23,039,960 | | $ | 3,016,748 | | | | |
| ACL as a percentage of unpaid principal balance | 17.0 | % | | 30.7 | % | | | | |
| ACL and discount as a percentage of unpaid principal balance | 16.4 | % | | 30.9 | % | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | |
| December 31, 2020 |
| Retail Installment Contracts | | | | |
| Non-TDR | | TDR | | |
| Unpaid principal balance | $ | 28,977,299 | | $ | 3,945,040 | | | | |
| ACL | (4,792,464) | | (1,314,170) | | | | |
| | | | | | | |
| Discount (net of subvention and participation) | 66,373 | | (8,389) | | | | |
| Capitalized origination costs and fees | 97,638 | | 4,041 | | | | |
| Net carrying balance | $ | 24,348,846 | | $ | 2,626,522 | | | | |
| ACL as a percentage of unpaid principal balance | 16.5 | % | | 33.3 | % | | | | |
| ACL and discount as a percentage of unpaid principal balance | 16.3 | % | | 33.5 | % | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Retail Installment Contracts
Acquired
Individually |
| Receivables from
Dealers |
| Personal Loans |
| Non-TDR |
| TDR |
|
|
| Unpaid principal balance | $ | 20,044,330 |
|
| $ | 6,276,659 |
|
| $ | 16,069 |
|
| $ | 9,188 |
|
| Credit loss allowance - specific | — |
|
| (1,782,114 | ) |
| — |
|
| — |
|
| Credit loss allowance - collective | (1,589,151 | ) |
| — |
|
| (167 | ) |
| (3,725 | ) |
| Discount | (331,179 | ) |
| (84,588 | ) |
| — |
|
| (16 | ) |
| Capitalized origination costs and fees | 59,295 |
|
| 5,909 |
|
| — |
|
| 176 |
|
| Net carrying balance | $ | 18,183,295 |
|
| $ | 4,415,866 |
|
| $ | 15,902 |
|
| $ | 5,623 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Retail Installment Contracts
Acquired
Individually |
| Receivables from
Dealers |
| Personal Loans |
| Non-TDR |
| TDR |
|
|
| Unpaid principal balance | $ | 21,528,406 |
|
| $ | 5,599,567 |
|
| $ | 69,431 |
|
| $ | 19,361 |
|
| Credit loss allowance - specific | — |
|
| (1,611,295 | ) |
| — |
|
| — |
|
| Credit loss allowance - collective | (1,799,760 | ) |
| — |
|
| (724 | ) |
| — |
|
| Discount | (467,757 | ) |
| (91,359 | ) |
| — |
|
| (7,721 | ) |
| Capitalized origination costs and fees | 56,704 |
|
| 5,218 |
|
| — |
|
| 632 |
|
| Net carrying balance | $ | 19,317,593 |
|
| $ | 3,902,131 |
|
| $ | 68,707 |
|
| $ | 12,272 |
|
Retail installment contracts
Retail installment contracts are collateralized by vehicle titles, and the Company has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company’s retail installment contracts held for investment are pledged against warehouse lines or securitization bonds (Note 5)7). Most of the borrowers on the Company’s retail installment contracts held for investment are retail consumers; however, $634,677$902,246 and $848,918$864,680 of the unpaid principal balance represented fleet contracts with commercial borrowers as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.
During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Company originated $5,168,089(including through the SBNA originations program) $3,659,282 and $6,507,597,$2,621,828, respectively, in Chrysler CapitalCCAP loans which represented 46%57% and 51%53%, respectively, of the total retail installment contract originations. Additionally, duringoriginations (including the nine months ended September 30, 2017 and 2016, the Company originated $4,693,392 and $4,612,284, respectively, in Chrysler Capital leases. As of September 30, 2017 and December 31, 2016, the Company's auto retail installment contract portfolio consisted of $6,936,988 and $7,365,444, respectively, of Chrysler loans which represents 31% and 32%, respectively, of the Company's auto retail installment contract portfolio. Retail installment contracts and vehicle leases entered into with FCA customers, as part of the Chrysler Agreement, represent a significant concentration of those portfolios and there is a risk that the Chrysler Agreement could be terminated prior to its expiration date. Termination of the Chrysler Agreement could result in a decrease in the amount of new retail installment contracts and vehicle leases entered into with FCA customers.SBNA originations program).
As of September 30, 2017,March 31, 2021, borrowers on the Company’s retail installment contracts held for investment are located in Texas (16%), Florida (12%(11%), California (9%(8%), Georgia (6%) and other states each individually representing less than 5% of the Company’s total portfolio.
Purchased receivables
Purchased receivables portfolios, which were acquired with deteriorated credit quality, is comprised of the following at September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Outstanding balance | $ | 49,089 |
| | $ | 231,360 |
|
| Outstanding recorded investment, net of impairment | 30,646 |
| | 159,451 |
|
Changes in accretable yield on the Company’s purchased receivables portfolios for the periods indicated were as follows: |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Balance — beginning of period | $ | 87,994 |
| | $ | 137,747 |
| | $ | 107,041 |
| | $ | 178,582 |
|
| Accretion of accretable yield | (5,223 | ) | | (17,830 | ) | | (26,670 | ) | | (58,774 | ) |
| Disposals/transfers | (62,183 | ) | | — |
| | (62,183 | ) | | — |
|
| Reclassifications from (to) nonaccretable difference (a) | 1,648 |
| | (8,627 | ) | | 4,048 |
| | (8,518 | ) |
| Balance — end of period | $ | 22,236 |
| | $ | 111,290 |
| | $ | 22,236 |
| | $ | 111,290 |
|
(a) Reclassifications from (to) nonaccretable difference represents the increases (decreases) in accretable yield resulting from higher (lower) estimated undiscounted cash flows.
During the three months ended September 30, 2017, the Company sold receivables previously acquired with deteriorated credit quality to SBNA (Note 11). Carrying value of the receivables at the date of sale was $99,301. No such sales occurred during the three or nine months ended September 30, 2016.
During the threeMarch 31, 2021 and nine months ended September 30, 2017 and 2016,2020, the Company did not acquire any vehicle loan portfolios for which it was probable at acquisition that not all contractually required payments would be collected. However, duringfrom third party lenders.
During the three months ended September 30, 2016,March 31, 2021 and 2020, the Company recognized certain retail installment contracts with an unpaid principal balance of $135,772 (nil for the three months ended September 30, 2017)zero and for the nine months ended September 30, 2017 and 2016, the Company recognized certain retail installment contracts with an unpaid principal balance of $226,613 and $327,443,$76,878, respectively, held by non-consolidated securitization Trusts, under optional clean-up calls.calls (Note 6). Following the initial recognition of these loans at fair value, the performing loans in the portfolio are carried at amortized cost, net of allowance for credit losses. The Company elected the fair value option for all non-performing loans acquired (more than 60 days delinquent as of the re-recognition date), for which it was probable that not all contractually required payments would be collected (Note 13)10).
Receivable from Dealers
The receivables from dealers held for investment are all Chrysler Agreement-related. As of September 30, 2017, borrowers on these dealer receivables are located in Virginia (62%), New York (28%), Missouri (10%) and Wisconsin (1%). The Company previously held a term loan with a third-party vehicle dealer and lender that operates in multiple states. The loan allowed committed borrowings of $50,000 at December 31, 2016. During the three months ended September 30, 2017, the unpaid principal balance of the facility of $50,000 along with accrued interest was repaid.
Personal Loans
At September 30, 2016, the Company determined that its intent to sell certain personal revolving loans had changed and now expects to hold these loans through their maturity. The Company recorded a lower of cost or market adjustment through investment gains (losses), net, immediately prior to transferring the loans to finance receivables held for investment at their new recorded investment. The carrying value of these loans was $5,623 and $11,733 at September 30, 2017 and December 31, 2016, respectively.
Held Forfor Sale
The carrying value of the Company'sCompany’s finance receivables held for sale, net is comprised of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020: | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Retail installment contracts acquired individually | $ | — | | | $ | 674,048 | |
| | | |
| Personal loans (a) | — | | | 893,479 | |
| | | |
(a) On March 31, 2021, the Company sold the personal lending portfolio. Refer to Note 1 – “Description of Business, Basis of Presentation, and Accounting Principles” to these Condensed Consolidated Financial Statements for more information. |
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Retail installment contracts acquired individually | $ | 845,910 |
| | $ | 1,045,815 |
|
| Personal loans | 929,549 |
| | 1,077,600 |
|
| Finance receivables held for sale, net | $ | 1,775,459 |
| | $ | 2,123,415 |
|
Sales of retail installment contracts, personal loans to third parties and proceeds from sales of charged-off assets for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were as follows: | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | | | | |
| March 31, 2021 | | March 31, 2020 | | | | | | |
| Sales of retail installment contracts to third parties | $ | 2,380,785 | | | $ | — | | | | | | | |
| Sales of Personal Loans to third parties | $ | 1,253,746 | | | 0 | | | | | | |
| | | | | | | | | |
| Proceeds from sales of charged-off assets to third parties | $ | — | | | $ | 20,875 | | | | | | | |
|
| | | | | | | | | | | | | |
| | For the Three Months Ended
September 30, | | For the Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Sales of retail installment contracts to third parties | — |
| | $ | 793,804 |
| | 260,568 |
| | $ | 2,312,983 |
|
| Proceeds from sales of charged-off assets | 27,954 |
| | 12,521 |
| | 76,746 |
| | 47,594 |
|
The Company retains servicing of retail installment contracts and leases sold to third parties. Total contracts sold to unrelated third parties and serviced as of September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Serviced balance of retail installment contracts and leases sold to third parties | $ | 6,674,980 |
| | $ | 10,116,788 |
|
The Company has both operating and capital leases, which are separately accounted3. Allowance for and recorded on the Company's condensed consolidated balance sheets. Operating leases are reported as leased vehicles, net, while capital leases are included in finance receivables held for investment, net.
Operating Leases
Leased vehicles, net, which is comprised of leases originated under the Chrysler Agreement, consisted of the following as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Leased vehicles | $ | 13,831,441 |
| | $ | 11,939,295 |
|
| Less: accumulated depreciation | (2,830,041 | ) | | (2,326,342 | ) |
| Depreciated net capitalized cost | 11,001,400 |
| | 9,612,953 |
|
| Manufacturer subvention payments, net of accretion | (1,098,331 | ) | | (1,066,531 | ) |
| Origination fees and other costs | 28,214 |
| | 18,206 |
|
| Net book value | $ | 9,931,283 |
| | $ | 8,564,628 |
|
Periodically, the Company executes bulk sales of Chrysler Capital leases to a third party. The bulk sale agreements include certain provisions whereby the Company agrees to share in residual losses for lease terminations with losses over a specific percentage threshold (Note 10). The Company has retained servicing on the sold leases. During the three and nine months ended September 30, 2017 and 2016, the Company did not execute any bulk sales of leases originated under the Chrysler Capital program.
The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of September 30, 2017:
|
| | | |
| | |
| Remainder of 2017 | $ | 474,217 |
|
| 2018 | 1,497,436 |
|
| 2019 | 859,498 |
|
| 2020 | 219,541 |
|
| 2021 | 4,282 |
|
| Thereafter | — |
|
| Total | $ | 3,054,974 |
|
Capital Leases
Certain leases originated by the Company are accounted for as capital leases, as the contractual residual values are nominal amounts. Capital lease receivables, net consisted of the following as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Gross investment in capital leases | $ | 25,725 |
| | $ | 39,417 |
|
| Origination fees and other | 79 |
| | 150 |
|
| Less: unearned income | (4,077 | ) | | (7,545 | ) |
| Net investment in capital leases before allowance | 21,727 |
| | 32,022 |
|
| Less: allowance for lease losses | (5,606 | ) | | (9,988 | ) |
| Net investment in capital leases | $ | 16,121 |
| | $ | 22,034 |
|
The following summarizes the future minimum lease payments due to the Company as lessor under capital leases as of September 30, 2017:
|
| | | |
| | |
| Remainder of 2017 | $ | 2,864 |
|
| 2018 | 11,004 |
|
| 2019 | 5,907 |
|
| 2020 | 3,206 |
|
| 2021 | 1,994 |
|
| Thereafter | 750 |
|
| Total | $ | 25,725 |
|
| |
4. | Credit Loss Allowance and Credit Quality |
Credit Loss Allowanceand Credit Quality
The Company estimates the allowanceAllowance for credit losses on individually acquired retail installment contracts and personal loans held for investment not classified as TDRs based on delinquency status, historical loss experience, estimated values of underlying collateral, when applicable, and various economic factors. In developing the allowance, the Company utilizes a loss emergence period assumption, a loss given default assumption applied to recorded investment, and a probability of default assumption based on a loss forecasting model. The loss emergence period assumption represents the average length of time between when a loss event is first estimated to have occurred and when the account is charged-off. The recorded investment represents unpaid principal balance adjusted for unaccreted net discounts, subvention from manufacturers, and origination costs. Under this approach, the resulting allowance represents the expected net losses of recorded investment inherent in the portfolio.
For loans classified as TDRs, impairment is generally measured based on the present value of expected future cash flows discounted at the original effective interest rate. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. The amount of the allowance is equal to the difference between the loan’s impaired value and the recorded investment.Credit Loss
The Company maintains a general credit loss allowancean ACL on the retail installment contracts held for investment, excluding those loans measured at fair value in accordance with applicable accounting standards. The Company maintains an expected ACL for receivables from dealers based on risk ratings and individually evaluates loans for specific impairment as necessary. As of September 30, 2017 and 2016,March 31, 2021, there is no ACL on receivables from dealers as the credit loss allowanceportfolio has a zero balance. As of March 31, 2020, the ACL for receivables from dealers iswas comprised entirely of a general allowance of $167 and $648, respectively, as none of these receivables have been determined to be individually impaired. The Company estimates losses on the finance lease receivable portfolio based on delinquency status, loss experience to date, future expectation of losses as well as various economic factors.
Retail installment contracts
The activity in the credit loss allowance for individually acquired and dealer loansACL for the three and nine months ended September 30, 2017 and 2016 was as follows: |
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| | Retail Installment Contracts Acquired Individually | | Receivables from Dealers | | Personal Loans | | Retail Installment Contracts Acquired Individually | | Receivables from Dealers |
| | | | | |
| Balance — beginning of period | $ | 3,446,968 |
| | $ | 713 |
| | $ | 4,362 |
| | $ | 3,422,736 |
| | $ | 837 |
|
| Provision for credit losses | 535,427 |
| | (546 | ) | | 1,134 |
| | 609,396 |
| | (189 | ) |
| Charge-offs (a) | (1,206,059 | ) | | — |
| | (1,976 | ) | | (1,246,760 | ) | | — |
|
| Recoveries | 594,929 |
| | — |
| | 205 |
| | 615,913 |
| | — |
|
| Balance — end of period | $ | 3,371,265 |
| | $ | 167 |
| | $ | 3,725 |
| | $ | 3,401,285 |
| | $ | 648 |
|
(a) Forretail installment contracts for the three months ended
September 30, 2017, charge-offsMarch 31, 2021 and 2020 was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | |
| March 31, 2021 | | March 31, 2020 | | | | | | |
| Retail Installment Contracts | | | | | | |
| Non-TDR | | TDR | | Non-TDR | | TDR | | | | | | |
| | | | | |
| Balance — beginning of period | $ | 4,792,464 | | | $ | 1,314,170 | | | $ | 2,123,878 | | | $ | 914,718 | | | | | | | | | |
| Day 1 - Adjustment to allowance for adoption of CECL standard | — | | | — | | | 2,030,473 | | | 71,833 | | | | | | | | | |
| Credit loss expense | 40,059 | | | 98,722 | | | 757,193 | | | 150,850 | | | | | | | | | |
| Charge-offs (a) | (586,793) | | | (202,461) | | | (899,550) | | | (289,567) | | | | | | | | | |
| Recoveries | 416,903 | | | 128,277 | | | 470,669 | | | 125,402 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance — end of period | $ | 4,662,633 | | | $ | 1,338,708 | | | $ | 4,482,663 | | | $ | 973,236 | | | | | | | | | |
| | | | | | | | | | | | | | | |
(a) Charge-offs for retail installment contracts acquired individually includes approximately $18 million for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. No such charge-offs were recordedThere is no additional ACL on these loans.
The credit risk in the Company’s loan portfolios is driven by credit and collateral quality, and is affected by borrower-specific and economy-wide factors. In general, there is an inverse relationship between credit quality of loans and projections of impairment losses so that loans with better credit quality require a lower expected loss. The Company manages this risk through its underwriting, pricing strategies, credit policy standards, and servicing guidelines and practices, as well as the application of geographic and other concentration limits.
The Company estimates current expected credit losses based on prospective information as well as account level models based on historical data. Unemployment, HPI, and used vehicle index growth rates, along with loan level characteristics, are the key inputs used in the models for prediction of the likelihood that the borrower will default in the forecasted period (the probability of default). The used vehicle index is also used to estimate the loss in the event of default.
The Company has determined the reasonable and supportable period to be three years at which time economic forecasts generally tend to revert to historical averages. The Company utilizes qualitative factors to capture any additional risks that may not be captured in either the economic forecasts or in the historical data, including consideration of the current levels of delinquency and used vehicle prices.
The Company generally uses a third-party vendor's consensus baseline macroeconomic scenario for the quantitative estimate and additional positive and negative macroeconomic scenarios to make a qualitative adjustment for macroeconomic uncertainty, and considers adjustments to macroeconomic inputs and outputs based on market volatility. The scenarios used are periodically updated over a reasonable and supportable time horizon with weightings assigned by management and approved through established committee governance.
The Company’s ACL decreased $0.1 billion for the three months ended September 30, 2016.
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| | Retail Installment Contracts Acquired Individually | | Receivables from Dealers | | Personal Loans | | Retail Installment Contracts Acquired Individually | | Receivables from Dealers |
| | | | | |
| Balance — beginning of period | $ | 3,411,055 |
| | $ | 724 |
| | $ | — |
| | $ | 3,197,414 |
| | $ | 916 |
|
| Provision for credit losses | 1,682,894 |
| | (557 | ) | | 10,275 |
| | 1,787,277 |
| | (133 | ) |
| Charge-offs (a) | (3,542,471 | ) | | — |
| | (7,194 | ) | | (3,429,905 | ) | | (135 | ) |
| Recoveries | 1,819,787 |
| | — |
| | 644 |
| | 1,846,499 |
| | — |
|
| Balance — end of period | $ | 3,371,265 |
| | $ | 167 |
| | $ | 3,725 |
| | $ | 3,401,285 |
| | $ | 648 |
|
(a)March 31, 2021. For the ninethree months ended September 30, 2017, charge-offs for retail installment contracts acquired individually includes approximately $66 millionMarch 31, 2021, the decrease was primarily due to volume and improved macroeconomic outlook.
Other portfolios
The ACL for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. No such charge-offs were recordedperiod end and its activity for the nine months ended September 30, 2016.
The impairment activity related tofinance lease receivable portfolio and purchased receivables portfoliosreceivable portfolio-credit deteriorated, for the three and nine months ended September 30, 2017March 31, 2021 and 20162020, was as follows:insignificant.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Balance — beginning of period | $ | 169,323 |
| | $ | 168,518 |
| | $ | 169,323 |
| | $ | 172,308 |
|
| Incremental provisions for purchased receivable portfolios | — |
| | — |
| | — |
| | — |
|
| Incremental reversal of provisions for purchased receivable portfolios | — |
| | 804 |
| | — |
| | (2,986 | ) |
| Balance — end of period | $ | 169,323 |
| | $ | 169,322 |
| | $ | 169,323 |
| | $ | 169,322 |
|
The Company estimates lease losses on the capital lease receivable portfolio based on delinquency status and loss experience to date, as well as various economic factors. The activity in the lease loss allowance for capital leases for the three and nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Balance — beginning of period | $ | 6,367 |
| | $ | 12,752 |
| | $ | 9,988 |
| | $ | 19,878 |
|
| Provision for lease losses | 432 |
| | 387 |
| | (597 | ) | | (1,669 | ) |
| Charge-offs | (2,655 | ) | | (5,712 | ) | | (9,415 | ) | | (28,267 | ) |
| Recoveries | 1,462 |
| | 3,617 |
| | 5,630 |
| | 21,102 |
|
| Balance — end of period | $ | 5,606 |
| | $ | 11,044 |
| | $ | 5,606 |
| | $ | 11,044 |
|
Delinquencies
Retail installment contracts and personal amortizing term loans are generally classified as non-performing (or nonaccrual) when they are greater than 60 days past due as to contractual principal or interest payments. See discussion of TDR loans below. Dealer receivables are classified as non-performing when they are greater than 90 days past due. At the time a loan is placed in non-performing (nonaccrual) status, previously accrued and uncollected interest is reversed against interest income. If an account is returned to a performing (accrual) status, the Company returns to accruing interest on the contract.loan. When an account is deferred, the loan is returned to accrual status during the deferral period and accrued interest related to the loan is evaluated for collectability.
The Company considers an account delinquent when an obligor fails to pay the required minimum portionsubstantially all (defined as 90%) of the scheduled payment by the due date. With respect to receivables originated by the Company prior to January 1, 2017 and through its “Chrysler Capital” channel, the required minimum payment is 90% of the scheduled payment. With respect to all other receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator prior to January 1, 2017, the required minimum payment is 50% of the scheduled payment. With respect to receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator on or after January 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of which channel the receivable was originated through. In each case, the period of delinquency is based on the number of days payments are contractually past due.
AsA summary of September 30, 2017delinquencies as of March 31, 2021, and December 31, 2016, a summary2020 is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Finance Receivables Held for Investment |
| | Retail Installment Contract Loans | | Purchased Receivables Portfolios - credit deteriorated | | Total | | Percent |
| | | | | | | |
| Amortized cost, 30-59 days past due | $ | 1,409,974 | | | $ | 599 | | | $ | 1,410,573 | | | 4.4 | % |
| Amortized cost over 59 days | 698,620 | | | 385 | | | 699,005 | | | 2.2 | % |
| Total delinquent balance at amortized cost (a) | $ | 2,108,594 | | | $ | 984 | | | $ | 2,109,578 | | | 6.6 | % |
(a) The amount of delinquenciesaccrued interest excluded from the disclosed amortized cost table is $49,165.
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Finance Receivables Held for Investment |
| | Retail Installment Contract Loans | | Purchased Receivables Portfolios - credit impaired | | Total | | Percent |
| | | | | | | |
| Amortized cost, 30-59 days past due | $ | 1,971,766 | | | $ | 687 | | | $ | 1,972,453 | | | 6.0 | % |
| Amortized cost over 59 days | 1,038,869 | | | 441 | | | 1,039,310 | | | 3.1 | % |
| Total delinquent balance at amortized cost (a) | $ | 3,010,635 | | | $ | 1,128 | | | $ | 3,011,763 | | | 9.1 | % |
(a) The amount of accrued interest excluded from the disclosed amortized cost table is $73,794.
The unpaid principal balance on revolving personal loans 90 days past due and still accruing totaled zero and $78,880 as of March 31, 2021 and December 31, 2020, respectively. On March 31, 2021, the Company sold the personal lending portfolio. Refer to Note 1 – “Description of Business, Basis of Presentation, and Accounting Principles” to these Condensed Consolidated Financial Statements for more information.
Non-Accrual Loans for Retail Installment Contracts
The amortized cost basis of financial instruments that are either non-accrual with related expected credit loss or non-accrual without related expected credit loss for retail installment contracts held for investment portfolio is as follows:
|
| | | | | | | | | | | |
| | September 30, 2017 |
| | Retail Installment Contracts Held for Investment |
| | Loans Acquired Individually | | Purchased Receivables Portfolios | | Total |
| Principal, 30-59 days past due | $ | 2,574,165 |
| | $ | 6,061 |
| | $ | 2,580,226 |
|
| Delinquent principal over 59 days (a) | 1,460,793 |
| | 3,750 |
| | 1,464,543 |
|
| Total delinquent principal | $ | 4,034,958 |
| | $ | 9,811 |
| | $ | 4,044,769 |
|
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Retail Installment Contracts Held for Investment |
| | Loans Acquired Individually | | Purchased Receivables Portfolios | | Total |
| Principal, 30-59 days past due | $ | 2,911,800 |
| | $ | 13,703 |
| | $ | 2,925,503 |
|
| Delinquent principal over 59 days (a) | 1,520,105 |
| | 6,638 |
| | 1,526,743 |
|
| Total delinquent principal | $ | 4,431,905 |
| | $ | 20,341 |
| | $ | 4,452,246 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Non-accrual loans | | Non-accrual loans with no allowance (a) | | Interest income recognized on nonaccrual loans (YTD) | | Non-accrual loans as a percent of total amortized cost |
| Non-TDR | $ | 544,228 | | | $ | 133,628 | | | $ | 16,959 | | | 1.7 | % |
| TDR | 260,408 | | | 41,774 | | | 9,212 | | | 0.8 | % |
| Total non-accrual loans | $ | 804,636 | | | $ | 175,402 | | | $ | 26,171 | | | 2.5 | % |
(a) InterestThese represent loans for which a bankruptcy notice was received, and have been partially write-down to the collateral value less estimated costs to sell. Accordingly, there is accrued until 60 days pastno additional ACL on these loans.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Non-accrual loans | | Non-accrual loans with no allowance (a) | | Interest income recognized on nonaccrual loans (YTD) | | Non-accrual loans as a percent of total amortized cost |
| Non-TDR | $ | 748,026 | | | $ | 145,287 | | | $ | 72,926 | | | 2.3 | % |
| TDR | 385,021 | | | 46,498 | | | 35,620 | | | 1.2 | % |
| Total nonaccrual loans | $ | 1,133,047 | | | $ | 191,785 | | | $ | 108,546 | | | 3.5 | % |
(a) These represent loans for which a bankruptcy notice was received and that have been partially written down to the collateral value less estimated costs to sell. Accordingly, there is no additional ACL on these loans.
Delinquent balances and nonaccrual balances are lower as of March 31, 2021 primarily due in accordance with the Company's accounting policy for retail installment contracts. The Company's delinquency ratio continues to be calculated using the end of period delinquent principal over 60 days.government stimulus payments and tax refunds provided to customers.
The balances in the above tables reflect total unpaid principal balance rather than net recorded investment before allowance.
As of September 30, 2017 and December 31, 2016, there were no receivables from dealers that were 30 days or more delinquent. As of September 30, 2017 and December 31, 2016, there were $34,109 and $33,886, respectively, of retail installment contracts held for sale that were 30 days or more delinquent.
Credit Quality Indicators
FICO®FICO® Distribution (determined at origination) — A summaryAmortized Cost Basis (in millions) by Origination Year for Retail Installment Contacts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total |
| March 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Amount | % |
| | | | | | | | | | | | | | | | | |
No-FICO®s | | 568 | | | 1,564 | | | 997 | | | 458 | | | 411 | | | 191 | | | 107 | | | 4,296 | | 13.4% |
| <540 | | 523 | | | 1,649 | | | 1,226 | | | 806 | | | 391 | | | 221 | | | 211 | | | 5,027 | | 15.7% |
| 540-599 | | 1,384 | | | 3,923 | | | 2,685 | | | 1,526 | | | 578 | | | 351 | | | 272 | | | 10,719 | | 33.4% |
| 600-639 | | 914 | | | 2,424 | | | 1,590 | | | 853 | | | 283 | | | 185 | | | 124 | | | 6,373 | | 19.9% |
| >=640 (a) | | 925 | | | 2,331 | | | 1,202 | | | 707 | | | 223 | | | 154 | | | 101 | | | 5,643 | | 17.6% |
| Total (b) | | $ | 4,314 | | | $ | 11,891 | | | $ | 7,700 | | | $ | 4,350 | | | $ | 1,886 | | | $ | 1,102 | | | $ | 815 | | | $ | 32,058 | | 100.00% |
(a) Beginning in 2021, loans with FICO score of 640 are disclosed in the credit risk profile>=640 category.
(b) The amount of accrued interest excluded from the Company’s retail installment contracts held for investment by FICO® distribution, determined at origination, asdisclosed amortized cost table is $346 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total |
| December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | Prior | | Amount | % |
| | | | | | | | | | | | | | | | | |
No-FICO®s | | 1,760 | | | 1,151 | | | 530 | | | 501 | | | 247 | | | 128 | | | 26 | | | 4,343 | | 13.1% |
| <540 | | 1,789 | | | 1,370 | | | 913 | | | 454 | | | 263 | | | 186 | | | 90 | | | 5,065 | | 15.3% |
| 540-599 | | 4,269 | | | 3,005 | | | 1,736 | | | 673 | | | 423 | | | 264 | | | 96 | | | 10,466 | | 31.7% |
| 600-639 | | 2,759 | | | 1,838 | | | 990 | | | 335 | | | 230 | | | 126 | | | 47 | | | 6,325 | | 19.1% |
| >640 (a) | | 4,040 | | | 1,411 | | | 810 | | | 265 | | | 200 | | | 124 | | | 33 | | | 6,883 | | 20.8% |
| Total (b) | | $ | 14,617 | | | $ | 8,775 | | | $ | 4,979 | | | $ | 2,228 | | | $ | 1,363 | | | $ | 828 | | | $ | 292 | | | $ | 33,082 | | 100.0% |
(a) As of September 30, 2017 and December 31, 2016 was as follows:2020, loans with FICO score of 640 were included in the 600-639 category.
|
| | | | |
FICO® Band | | September 30, 2017 | | December 31, 2016 |
| Commercial (a) | | 2.4% | | 3.1% |
| No-FICOs | | 11.6% | | 12.2% |
| <540 | | 22.4% | | 22.1% |
| 540-599 | | 32.4% | | 31.4% |
| 600-639 | | 17.5% | | 17.4% |
| >640 | | 13.7% | | 13.8% |
(a)FICO scores are not obtained on loans to commercial borrowers.
Commercial Lending —(b) The Company's risk department performs a commercial analysis and classifies certain loans over an internal threshold based onamount of accrued interest excluded from the commercial lending classifications described in Note 4 of the 2016 Annual Report on Form 10-K. Fleet loan credit quality indicators for retail installment contracts held for investment with commercial borrowers as of September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Pass | $ | 13,482 |
| | $ | 17,585 |
|
| Special Mention | 5,688 |
| | 2,790 |
|
| Substandard | 808 |
| | 1,488 |
|
| Doubtful | — |
| | — |
|
| Loss | — |
| | — |
|
| Total | $ | 19,978 |
| | $ | 21,863 |
|
Commercial loan credit quality indicators for receivables from dealers held for investment as of September 30, 2017 and December 31, 2016 were as follows: |
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Pass | $ | 14,340 |
| | $ | 67,681 |
|
| Special Mention | 117 |
| | — |
|
| Substandard | 1,613 |
| | 1,750 |
|
| Doubtful | — |
| | — |
|
| Loss | — |
| | — |
|
| Unpaid principal balance | $ | 16,069 |
| | $ | 69,431 |
|
disclosed amortized cost table is $416 million.
Troubled Debt Restructurings
In certain circumstances, the Company modifies the terms of its finance receivables to troubled borrowers. Modifications may include a temporary reduction in monthly payment, reduction in interest rate, an extension of the maturity date, rescheduling of future cash flows, or a combination thereof. A modification of finance receivable terms is considered a TDR if the Company grants a concession to a borrower for economic or legal reasons related to the debtor’s financial difficulties that would not otherwise have been considered. Management considers TDRs to include all individually acquired retail installment contracts that have been modified at least once, deferred for a period of 90 days or more, or deferred at least twice. Additionally, restructurings through bankruptcy proceedings are deemed to be TDRs. The purchased receivables portfolio - credit deteriorated, operating and capitalfinance leases, and loans held for sale including personal loans, are excluded from the scope of the applicable guidance. The Company'sCompany’s TDR balance as of September 30, 2017March 31, 2021 and December 31, 20162020 primarily consisted of loans that had been deferred or modified to receive a temporary reduction in monthly payment. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, there were no receivables from dealers classified as a TDR.
For loans not classified as TDRs, the Company generally estimates an appropriate allowance for credit losses based on
delinquency status, the Company’s historical loss experience, estimated values of underlying collateral, and various
economic factors. Once a loan has been classified as a TDR, it is generally assessed for impairment based on the
present value of expected future cash flows discounted at the loan'sloan’s original effective interest rate considering all
available evidence. For loans that are considered collateral-dependent, such as certain bankruptcy modifications,
impairment is measured based on the fair value of the collateral, less its estimated cost to sell.
The table below presents the Company’s TDRs as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| | Retail Installment Contracts |
| Outstanding recorded investment (a) | $ | 6,330,331 |
| | $ | 5,637,792 |
|
| Impairment | (1,782,114 | ) | | (1,611,295 | ) |
| Outstanding recorded investment, net of impairment | $ | 4,548,217 |
| | $ | 4,026,497 |
|
(a) As of September 30, 2017, the outstanding recorded investment excludes $50.7 million of collateral-dependent bankruptcy TDRs that has been written down by $23.7 million to fair value less cost to sell.
A summary of the Company’s delinquent TDRs at September 30, 2017 and December 31, 2016, is as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| | Retail Installment Contracts |
| Principal, 30-59 days past due | $ | 1,184,804 |
| | $ | 1,253,848 |
|
| Delinquent principal over 59 days | 753,606 |
| | 736,691 |
|
| Total delinquent TDR principal | $ | 1,938,410 |
| | $ | 1,990,539 |
|
(a) The balances in the above table reflects total unpaid principal balance rather than net recorded investment before allowance.
A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. TDRs are placedThe recognition of interest income on nonaccrual status whenTDR loans reflects management’s best estimate of the Company believes repayment under the revised termsamount that is not reasonably assured of collection and atis consistent with the latest, whenestimate of future cash flows used in the account becomes past due more than 60 days,impairment measurement. Any accrued but unpaid interest is fully reserved for through the recognition of additional impairment, if not expected to be collected.
The table below presents the Company’s amortized cost of TDRs as of March 31, 2021 and considered for return to accrual when a sustained period of repayment performance has been achieved.December 31, 2020: | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| |
| Retail Installment Contracts |
| Amortized Cost (including accrued interest) (a) | $ | 4,430,512 | | | $ | 4,011,780 | |
| Impairment | (1,338,708) | | | (1,314,170) | |
| Amortized cost including accrued interest, net of impairment | $ | 3,091,804 | | | $ | 2,697,610 | |
(a) As of September 30, 2017,March 31, 2021, this balance excludes $62.8 million of collateral-dependent bankruptcy TDRs that have been written down by $21.1 million to fair value less cost to sell. As of December 31, 2020, this balance excludes $67.9 million of collateral-dependent bankruptcy TDRs that have been written down by $21.4 million to fair value less cost to sell.
A summary of the Company had $482,593amortized cost of the Company’s delinquent TDRs at March 31, 2021 and December 31, 2020 is as follows: | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| |
| Retail Installment Contracts |
| | | |
| 30-59 days past due | $ | 548,849 | | | $ | 637,560 | |
| Delinquent balance over 59 days | 247,638 | | | 344,776 | |
| Total delinquent TDRs | $ | 796,487 | | | $ | 982,336 | |
of TDR loans which were less than 60 days past due, but for which repayment was not reasonably assured,Average amortized cost and were therefore in nonaccrual status.
Average recorded investment andinterest income recognized on TDR loans are as follows:
| | | | | | | | | | | | | | | | | |
| | | |
| | | Three Months Ended | | |
| | | | | | March 31, 2021 | | March 31, 2020 | | |
| | | | Retail Installment Contracts |
| Average amortized cost (including accrued interest) | | | | | $ | 4,265,282 | | | $ | 3,687,797 | | | |
| Interest income recognized | | | | | 209,281 | | | 156,238 | | | |
|
| | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Average outstanding recorded investment in TDRs | $ | 6,143,345 |
| | $ | 5,213,132 |
|
| Interest income recognized | $ | 225,871 |
| | $ | 207,115 |
|
|
| | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Average outstanding recorded investment in TDRs | $ | 5,929,146 |
| | $ | 4,940,280 |
|
| Interest income recognized | $ | 711,033 |
| | $ | 576,682 |
|
The following table summarizes the financial effects, excluding impacts related to credit loss allowance and impairment, of TDRs that occurred duringfor the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020: | | | | | | | | | | | | | | | | | |
| | | |
| Three Months Ended | | |
| | March 31, 2021 | | March 31, 2020 | | | | | | |
| | Retail Installment Contracts | | |
| Amortized cost (including accrued interest) before TDR | $ | 902,144 | | | $ | 177,215 | | | | | | | |
| Amortized cost (including accrued interest) after TDR (a) | 907,907 | | | 177,604 | | | | | | | |
| Number of contracts (not in thousands) | 44,191 | | | 9,826 | | | | | | | |
(a) excluding collateral-dependent bankruptcy TDRs |
| | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Outstanding recorded investment before TDR | $ | 1,123,080 |
| | $ | 929,871 |
|
| Outstanding recorded investment after TDR | $ | 1,122,450 |
| | $ | 932,472 |
|
| Number of contracts (not in thousands) | 66,001 |
| | 52,780 |
|
|
| | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Outstanding recorded investment before TDR | $ | 2,778,407 |
| | $ | 2,463,409 |
|
| Outstanding recorded investment after TDR | $ | 2,776,006 |
| | $ | 2,478,035 |
|
| Number of contracts (not in thousands) | 160,098 |
| | 139,524 |
|
A TDR is considered to be in default at charge-off. For retail installment contracts, charge-off is at the earlier of the date of repossession or 120 days past due. Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2017 and 2016March 31, 2021and 2020 are summarized in the following table: | | | | | | | | | | | | | | | | | |
| | | |
| | Three Months Ended | | |
| | March 31, 2021 | | March 31, 2020 | | | | | | |
| | Retail Installment Contracts | | |
| Amortized cost (including accrued interest) in TDRs that subsequently defaulted (a) | $ | 110,179 | | | $ | 69,335 | | | | | | | |
| Number of contracts (not in thousands) | 5,637 | | | 4,085 | | | | | | | |
|
| | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Recorded investment in TDRs that subsequently defaulted (a) | $ | 197,953 |
| | $ | 206,247 |
|
| Number of contracts (not in thousands) | 11,219 |
| | 11,745 |
|
|
| | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Retail Installment Contracts |
| Recorded investment in TDRs that subsequently defaulted (a) | $ | 600,117 |
| | $ | 565,724 |
|
| Number of contracts (not in thousands) | 33,735 |
| | 32,256 |
|
(a) For TDR modifications and TDR modifications that subsequently defaults,default, the allowance methodology remains unchanged.unchanged; however, the transition rates of the TDR loans are adjusted to reflect the respective risks.
4. Leases (SC as Lessor)
The Company originates operating and finance leases, which are separately accounted for and recorded on the Company’s condensed consolidated balance sheets. Operating leases are reported as leased vehicles, net, while finance leases are included in finance receivables held for investment, net.
Income continues to accrue during the extension period and remaining lease payments are recorded on a straight-line basis over the modified lease term.
Operating Leases
Leased vehicles, net, which is comprised of leases originated under the MPLFA, consisted of the following as of March 31, 2021 and December 31, 2020: | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Leased vehicles | $ | 21,907,106 | | | $ | 22,056,063 | |
| Less: accumulated depreciation | (4,633,289) | | | (4,796,595) | |
| Depreciated net capitalized cost | 17,273,817 | | | 17,259,468 | |
| Manufacturer subvention payments, net of accretion | (867,231) | | | (934,381) | |
| Origination fees and other costs | 71,638 | | | 66,020 | |
| Net book value | $ | 16,478,224 | | | $ | 16,391,107 | |
The following summarizes the maturity analysis of lease payments due to the Company as lessor under operating leases as of March 31, 2021: | | | | | |
| |
| Remainder of 2021 | $ | 2,164,161 | |
| 2022 | 1,678,058 | |
| 2023 | 878,677 | |
| 2024 | 72,105 | |
| 2025 | 234 | |
| Thereafter | — | |
| Total | $ | 4,793,235 | |
Finance Leases
Certain leases originated by the Company are accounted for as direct financing leases, as the contractual residual values are nominal amounts. Finance lease receivables, net consisted of the following as of March 31, 2021 and December 31, 2020: | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Gross investment in finance leases | $ | 35,745 | | | $ | 34,461 | |
| Origination fees and other | 298 | | | 289 | |
| Less: unearned income | (8,546) | | | (8,311) | |
| Net investment in finance leases before allowance | 27,497 | | | 26,439 | |
| Less: allowance for lease losses (a) | (3,774) | | | (3,999) | |
| Net investment in finance leases | $ | 23,723 | | | $ | 22,440 | |
(a) The impact of day 1 - Adjustment to allowance for adoption of CECL standard was insignificant.
The following summarizes the maturity analysis of lease payments due to the Company, as lessor, under finance leases as of March 31, 2021: | | | | | |
| | |
| Remainder of 2021 | $ | 8,338 | |
| 2022 | 9,957 | |
| 2023 | 8,188 | |
| 2024 | 5,839 | |
| 2025 | 3,153 | |
| Thereafter | 270 | |
| Total | $ | 35,745 | |
5. DebtOther Assets
RevolvingOther assets were comprised as follows: | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Vehicles (a) | $ | 371,110 | | | $ | 311,557 | |
| Manufacturer subvention payments receivable (b) | 43,744 | | | 57,996 | |
| Upfront fee (b) | 61,862 | | | 69,286 | |
| Derivative assets at fair value (c) | 16,548 | | | 4,740 | |
| Derivative - collateral | 84,002 | | | 92,132 | |
| Operating leases (Right-of-use-assets) | 50,468 | | | 46,441 | |
| Available-for-sale debt securities | 95,689 | | | 95,654 | |
| Held-to-maturity debt securities (d) | 129,537 | | | 44,875 | |
| Equity securities not held for trading | 3,725 | | | 1,380 | |
| Prepaids | 54,282 | | | 45,667 | |
| Accounts receivable | 26,167 | | | 34,607 | |
| Federal and State tax receivable | 94,143 | | | 99,666 | |
| Other | 48,142 | | | 68,725 | |
| Other assets | $ | 1,079,419 | | | $ | 972,726 | |
(a)Includes vehicles recovered through repossession as well as vehicles recovered due to lease terminations.
(b)These amounts relate to the MPLFA. The Company paid a $150,000 upfront fee upon the May 2013 inception of the MPLFA. The fee is being amortized into finance and other interest income over a ten-year term. In addition, in June 2019, in connection with the execution of an amendment to the MPLFA, the Company paid a $60,000 upfront fee to Stellantis N.V.. This fee is being amortized into finance and other interest income over the remaining term of the MPLFA.
(c)Derivative assets at fair value represent the gross amount of derivatives presented in the condensed consolidated financial statements. Refer to Note 9 - "Derivative Financial Instruments" to these Condensed Consolidated Financial Statements for the detail of these amounts.
(d)Held-to-maturity debt securities includes accrued interest as of March 31, 2021.
Operating Leases (SC as Lessee)
The Company has entered into various operating leases, primarily for office space. Operating leases are included within other assets as operating lease ROU assets and other liabilities within our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one year to 15 years or more. The exercise of lease renewal options is at our sole discretion. The Company does not include any of the renewal options in the lease term as it is not reasonably certain that these options will be exercised.
Supplemental information relating to these operating leases is as follows: | | | | | |
| March 31, 2021 |
| Operating leases-right of use assets | $ | 50,468 |
| Other liabilities | 68,187 |
| Weighted average lease term | 4.9 |
| Weighted average discount rate | 3.2 | % |
Lease expense incurred totaled$3,267 and $3,562 for the three months ended March 31, 2021 and2020, respectively, and is included within “other operating costs” in the income statement. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Cash paid for amounts included in the measurement of operating lease liabilities was $4,372 during the three months ended March 31, 2021.
The maturity of lease liabilities at March 31, 2021 are as follows: | | | | | |
| March 31, 2021 |
| 2021 | $ | 12,547 | |
| 2022 | 16,215 | |
| 2023 | 12,761 | |
| 2024 | 12,701 | |
| 2025 | 12,765 | |
| Thereafter | 6,926 | |
| Total | $ | 73,915 | |
| Less: Interest | (5,728) | |
| Present value of lease liabilities | $ | 68,187 | |
| |
Available-for-sale and Held-to-maturity debt securities
Debt securities expected to be held for an indefinite period of time are classified as AFS and are carried at fair value, with temporary unrealized gains and losses reported as a component of accumulated other comprehensive income within stockholder's equity, net of estimated income taxes. All of these securities are used to satisfy collateral requirements for our derivative financial instruments.
Debt securities that the Company has the positive intent and ability to hold until maturity are classified as HTM securities. HTM securities are reported at cost and adjusted for payments, charge-offs, amortization of premium and accretion of discount.
Realized gains and losses on sales of investment securities are recognized on the trade date and are determined using the specific identification method and are included in earnings within Investment gain (losses) on sale of securities. Unamortized premiums and discounts are recognized in interest income over the estimated life of the security using the interest method.
The following tables present the amortized cost, gross unrealized gains and losses and approximate fair values of debt securities available-for-sale and held-to-maturity debt securities as of March 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 |
| | Amortized cost (before unrealized gains / losses) | | Gross Unrealized gain | | Gross Unrealized loss | | Fair value |
| Available-for-sale debt securities (US Treasury securities) | | $ | 93,535 | | | $ | 2,154 | | | $ | — | | | $ | 95,689 | |
| Held-to-maturity debt securities (Asset-Backed Notes) | | $ | 129,484 | | | $ | 697 | | | $ | — | | | $ | 130,181 | |
| | | | | | | | |
Contractual Maturities
The contractual maturities of available-for-sale and held-to-maturity debt instruments are summarized in the following table: | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | |
| Available-for-sale debt securities | Held-to-maturity debt securities | |
| Amortized cost | | Fair value | Amortized cost | | Fair value | |
| Due within one year | $ | 39,210 | | | $ | 39,836 | | $ | 3,134 | | | $ | 3,134 | | |
| Due after one year but within 5 years | 54,325 | | | 55,853 | | 53,703 | | | 53,967 | | |
| Due after 5 year but within 10 years | — | | | — | | 72,647 | | | 73,080 | | |
| Total | $ | 93,535 | | | $ | 95,689 | | $ | 129,484 | | | $ | 130,181 | | |
There were no transfers of securities between available-for-sale and held-to-maturity for the three months ended March 31, 2021.
The Company did not record an allowance for credit-related losses on available-for-sale and held-to-maturity securities at March 31, 2021 or December 31, 2020. As discussed in Part II, Item 8 – Financial Statements and Supplementary Data (Note 1) in the 2020 Annual Report on Form 10-K, securities for which management has an expectation that nonpayment of the amortized cost basis is zero, do not have a reserve.
Other Investments
Other investments includes equity securities not held for trading as 5% of the certificate related to off-balance sheet securitizations. Equity securities are measured at fair value as of March 31, 2021 for $3,725, with changes in fair value recognized in net income.
6. Variable Interest Entities
The Company transfers retail installment contracts and vehicle leases into newly formed Trusts that then issue one or more classes of notes payable backed by the collateral. The Company’s continuing involvement with these Trusts is in the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under GAAP and the Company may or may not consolidate these VIEs on the condensed consolidated balance sheets.
For further description of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidation of VIEs, see Part II, Item 8 – Financial Statements and Supplementary Data (Note 7) in the 2020 Annual Report on Form 10-K.
On-balance sheet variable interest entities
The assets of consolidated VIEs, presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated VIE and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to the Company’s general credit were as
follows: | | | | | | | | | | | |
| |
| | March 31, 2021 | | December 31, 2020 |
| Assets | | | |
| Restricted cash | $ | 2,040,255 | | | $ | 1,737,021 | |
| Finance receivables held for sale, net | — | | | 581,938 | |
| Finance receivables held for investment, net | 22,335,539 | | | 22,572,549 | |
| Leased vehicles, net | 16,478,224 | | | 16,391,107 | |
| Various other assets | 842,105 | | | 791,306 | |
| Total assets | $ | 41,696,123 | | | $ | 42,073,921 | |
| Liabilities | | | |
| Notes payable | $ | 29,670,906 | | | $ | 31,700,709 | |
| Various other liabilities | 55,669 | | | 84,922 | |
| Total liabilities | $ | 29,726,575 | | | $ | 31,785,631 | |
Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying condensed consolidated balance sheets due to intercompany eliminations between the VIEs and other entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by GAAP.
The Company retains servicing rights for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in fees, commissions and other income.
As of March 31, 2021 and December 31, 2020, the Company was servicing$27,284,782 and $27,658,182, respectively, of gross retail installment contracts that had been transferred to consolidated Trusts. The remainder of the Company’s retail installment contracts remain unpledged.
A summary of the cash flows received from consolidated securitization Trusts during the three months ended March 31, 2021 and 2020, is as follows: | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| | | | | |
| | March 31, 2021 | | March 31, 2020 | | | | | | |
| | | | | | | | | |
| Assets securitized | $ | 4,123,051 | | | $ | 6,675,730 | | | | | | | |
| | | | | | | | | |
| Net proceeds from new securitizations (a) | $ | 3,586,124 | | | $ | 3,876,529 | | | | | | | |
| Net proceeds from retained bonds | 63,781 | | | 54,467 | | | | | | | |
| Cash received for servicing fees (b) | 228,188 | | | 246,743 | | | | | | | |
| Net distributions from Trusts (b) | 1,140,377 | | | 866,936 | | | | | | | |
| Total cash received from Trusts | $ | 5,018,470 | | | $ | 5,044,675 | | | | | | | |
(a)Includes additional advances on existing securitizations.
(b)These amounts are not reflected in the accompanying condensed consolidated statements of cash flows because these cash flows are intra-company and eliminated in consolidation.
Off-balance sheet variable interest entities
During the three months ended March 31, 2021 and 2020, the Company sold $1,891,278 and zero respectively, of gross retail installment contracts to third party investors in off-balance sheet securitizations for a gain of $7,233 and zero, respectively. The gains were recorded in investment gains, net, in the accompanying condensed consolidated statements of income.
As of March 31, 2021 and December 31, 2020, the Company was servicing $3,707,862 and $2,226,786, respectively, of gross retail installment contracts that have been sold in off-balance sheet securitizations and were subject to an
optional clean-up call. The portfolio was comprised as follows: | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| |
| | | |
| Related party SPAIN serviced securitizations | $ | 1,021,099 | | | $ | 1,214,644 | |
| Third party SCART serviced securitizations | 2,623,575 | | | 929,429 | |
| Third party CCAP serviced securitizations | 63,188 | | | 82,713 | |
| Total serviced for others portfolio | $ | 3,707,862 | | | $ | 2,226,786 | |
Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.
A summary of the cash flows received from off-balance sheet securitization Trusts for the three months ended March 31, 2021 and 2020, is as follows: | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Three Months Ended | | |
| | | | | | | | | |
| | | | | March 31, 2021 | | March 31, 2020 | | |
| Receivables securitized (a) | | | | | $ | 1,891,278 | | | $ | — | | | |
| | | | | | | | | |
| Net proceeds from new securitizations | | | | | 1,779,532 | | | — | | | |
| Cash received for servicing fees | | | | | 6,726 | | | 6,179 | | | |
| Total cash received from securitization trusts | | | | | $ | 1,786,258 | | | $ | 6,179 | | | |
(a) Represents the unpaid principal balance at the time of original securitization.
7. Debt | | | | | | | | | | | |
| Total borrowings and other debt obligations as of March 31, 2021 and December 31, 2020 consists of: |
| March 31, 2021 | | December 31, 2020 |
| Notes Payable — Facilities with Third Parties | $ | 2,348,545 | | | $ | 4,159,955 | |
| Notes Payable — Secured Structured Financings | 25,692,019 | | | 26,177,401 | |
| | | |
| Notes Payable — Facilities with Santander and Related Subsidiaries (a) | 10,501,060 | | | 10,801,318 | |
| $ | 38,541,624 | | | $ | 41,138,674 | |
Notes Payable - Credit Facilities
The following table presents information regarding the Company’s credit facilities as of September 30, 2017March 31, 2021 and December 31, 2016:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| Maturity Date(s) | | Utilized Balance | | Committed Amount | | Effective Rate | | Assets Pledged | | Restricted Cash Pledged |
| Facilities with third parties: | | | | | | | | | | | |
| Warehouse line | August 2022 | | $ | 167,000 | | | $ | 500,000 | | | 1.95% | | $ | 592,553 | | | $ | — | |
| Warehouse line | March 2022 | | 1,072,345 | | | 1,250,000 | | | 0.63% | | 1,719,708 | | | 1 | |
| Warehouse line | October 2022 | | — | | | 1,500,000 | | | 2.59% | | 159,339 | | | — | |
| Warehouse line | October 2022 | | — | | | 3,500,000 | | | 3.22% | | 1,378,224 | | | — | |
| Warehouse line | October 2022 | | — | | | 500,000 | | | 3.96% | | 118,970 | | | 570 | |
| Warehouse line | October 2022 | | 658,500 | | | 2,100,000 | | | 3.32% | | 968,850 | | | 103 | |
| Warehouse line | January 2023 | | 450,700 | | | 1,000,000 | | | 1.16% | | 1,142,351 | | | — | |
| Warehouse line | November 2022 | | — | | | 500,000 | | | 0.92% | | 392,637 | | | — | |
| Warehouse line | July 2022 | | — | | | 900,000 | | | —% | | — | | | 1,684 | |
| Total facilities with third parties | | | 2,348,545 | | | 11,750,000 | | | | | 6,472,632 | | | 2,358 | |
| Facilities with Santander and related subsidiaries: | | | | | | | | | | | |
| Promissory Note | December 2021 | | 250,000 | | | 250,000 | | | 3.70% | | — | | | — | |
| Promissory Note | December 2022 | | 250,000 | | | 250,000 | | | 3.95% | | — | | | — | |
| Promissory Note | December 2023 | | 250,000 | | | 250,000 | | | 5.25% | | — | | | — | |
| Promissory Note | December 2022 | | 250,000 | | | 250,000 | | | 5.00% | | — | | | — | |
| Promissory Note | May 2021 | | 250,000 | | | 250,000 | | | 2.25% | | — | | | — | |
| Promissory Note | May 2023 | | 350,000 | | | 350,000 | | | 3.80% | | — | | | — | |
| Promissory Note | November 2022 | | 400,000 | | | 400,000 | | | 3.00% | | — | | | — | |
| Promissory Note | April 2023 | | 450,000 | | | 450,000 | | | 6.13% | | — | | | — | |
| Promissory Note | June 2022 | | 500,000 | | | 500,000 | | | 3.30% | | — | | | — | |
| Promissory Note | July 2024 | | 500,000 | | | 500,000 | | | 3.90% | | — | | | — | |
| Promissory Note | March 2022 | | 650,000 | | | 650,000 | | | 4.20% | | — | | | — | |
| Promissory Note | August 2021 | | 650,000 | | | 650,000 | | | 3.44% | | — | | | — | |
| Promissory Note | September 2023 | | 750,000 | | | 750,000 | | | 3.27% | | — | | | — | |
| Promissory Note | May 2025 | | 1,000,000 | | | 1,000,000 | | | 3.99% | | — | | | — | |
| Promissory Note | June 2022 | | 2,000,000 | | | 2,000,000 | | | 1.34% | | — | | | — | |
| Promissory Note | September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.04% | | — | | | — | |
| Line of credit | July 2021 | | — | | | 500,000 | | | 2.14% | | — | | | — | |
| Line of credit | March 2023 | | — | | | 2,500,000 | | | 3.31% | | — | | | — | |
| Total facilities with Santander and related subsidiaries | | | 10,500,000 | | | 13,500,000 | | | | | — | | | — | |
| Total revolving credit facilities | | | $ | 12,848,545 | | | $ | 25,250,000 | | | | | $ | 6,472,632 | | | $ | 2,358 | |
(a) In 2017, the Company entered into an interest rate swap to hedge the interest rate risk on this fixed rate debt. This derivative was designated as fair value hedge at inception. This derivative was later terminated and the unamortized fair value hedge adjustment as of March 31, 2021 and December 31, 2020 was $1.1 million and $1.3 million, respectively, the amortization of which will reduce interest expense over the remaining life of the fixed rate debt.
| | | | September 30, 2017 | | December 31, 2020 |
| | Maturity Date(s) | | Utilized Balance | | Committed Amount | | Effective Rate | | Assets Pledged | | Restricted Cash Pledged | | Maturity Date(s) | | Utilized Balance | | Committed Amount | | Effective Rate | | Assets Pledged | | Restricted Cash Pledged |
| Facilities with third parties: | | | | | | | | | Facilities with third parties: | | | | | | | | | | | |
| Warehouse line | January 2018 | | $ | 181,083 |
| | $ | 500,000 |
| | 2.96% | | $ | 276,519 |
| | $ | — |
| Warehouse line | August 2022 | | $ | — | | | $ | 500,000 | | | 1.50% | | $ | 159,348 | | | $ | — | |
| Warehouse line | Various (a) | | 258,545 |
| | 1,250,000 |
| | 1.21% | | 387,668 |
| | 11,554 |
| Warehouse line | March 2022 | | 942,845 | | | 1,250,000 | | | 1.34% | | 1,621,206 | | | 1 | |
| Warehouse line (b) | August 2018 | | — |
| | 780,000 |
| | 1.39% | | 2,329 |
| | 121 |
| |
| Warehouse line (c) | August 2018 | | 2,766,543 |
| | 3,120,000 |
| | 2.22% | | 3,724,088 |
| | 61,367 |
| |
| Warehouse line | October 2018 | | 445,277 |
| | 1,800,000 |
| | 3.45% | | 661,090 |
| | 12,644 |
| |
| Repurchase facility (d) | December 2017 | | 254,120 |
| | 254,120 |
| | 3.35% | | — |
| | 13,708 |
| |
| Repurchase facility (d) | April 2018 | | 202,311 |
| | 202,311 |
| | 2.62% | | — |
| | — |
| |
| Repurchase facility (d) | March 2018 | | 148,690 |
| | 148,690 |
| | 3.88% | | — |
| | — |
| |
| Repurchase facility (d) | November 2017 | | 53,335 |
| | 53,335 |
| | 2.43% | | — |
| | — |
| |
| Warehouse line | November 2018 | | 274,499 |
| | 1,000,000 |
| | 3.44% | | 401,219 |
| | 7,920 |
| Warehouse line | October 2022 | | 1,000,600 | | | 1,500,000 | | | 1.85% | | 639,875 | | | — | |
| Warehouse line | October 2018 | | 87,965 |
| | 400,000 |
| | 3.72% | | 132,197 |
| | 2,852 |
| Warehouse line | October 2022 | | 441,143 | | | 3,500,000 | | | 3.45% | | 2,057,758 | | | — | |
| Warehouse line | November 2018 | | 57,820 |
| | 500,000 |
| | 4.54% | | 63,712 |
| | 2,215 |
| Warehouse line | October 2022 | | 168,300 | | | 500,000 | | | 3.07% | | 243,649 | | | 1,201 | |
| Warehouse line (e) | October 2017 | | 235,700 |
| | 300,000 |
| | 2.67% | | 276,521 |
| | 9,278 |
| |
| Warehouse line | | Warehouse line | October 2022 | | 845,800 | | | 2,100,000 | | | 3.29% | | 1,156,885 | | | — | |
| Warehouse line | | Warehouse line | January 2022 | | 415,700 | | | 1,000,000 | | | 1.81% | | 595,518 | | | — | |
| Warehouse line | | Warehouse line | November 2022 | | 177,600 | | | 500,000 | | | 1.18% | | 371,959 | | | — | |
| Warehouse line | | Warehouse line | July 2022 | | — | | | 900,000 | | | 1.46% | | — | | | 1,684 | |
| Repurchase facility | | Repurchase facility | January 2021 | | 167,967 | | | 167,967 | | | 1.64% | | 217,200 | | | — | |
| | Total facilities with third parties | | 4,965,888 |
| | 10,308,456 |
| | 5,925,343 |
| | 121,659 |
| Total facilities with third parties | | 4,159,955 | | | 11,917,967 | | | | | 7,063,398 | | | 2,886 | |
| Facilities with Santander and related subsidiaries (f,g): | | | | | | | | | |
| Line of credit | December 2017 | | — |
| | 1,000,000 |
| | 3.04% | | — |
| | — |
| |
| Line of credit | December 2018 | | — |
| | 1,000,000 |
| | 3.09% | | — |
| | — |
| |
| Facilities with Santander and related subsidiaries: | | Facilities with Santander and related subsidiaries: | | | | | | | | | | | |
| Promissory Note | March 2019 | | 300,000 |
| | 300,000 |
| | 2.45% | | — |
| | — |
| Promissory Note | December 2021 | | 250,000 | | | 250,000 | | | 3.70% | | — | | | — | |
| Promissory Note | May 2020 | | 500,000 |
| | 500,000 |
| | 3.49% | | — |
| | — |
| Promissory Note | December 2022 | | 250,000 | | | 250,000 | | | 3.95% | | — | | | — | |
| Promissory Note (h) | March 2022 | | 650,000 |
| | 650,000 |
| | 4.20% | | — |
| | — |
| |
| Promissory Note | | Promissory Note | December 2023 | | 250,000 | | | 250,000 | | | 5.25% | | — | | | — | |
| Promissory Note | | Promissory Note | December 2022 | | 250,000 | | | 250,000 | | | 5.00% | | — | | | — | |
| Promissory Note | | Promissory Note | May 2021 | | 250,000 | | | 250,000 | | | 2.25% | | — | | | — | |
| Promissory Note | | Promissory Note | March 2021 | | 300,000 | | | 300,000 | | | 3.95% | | — | | | — | |
| Promissory Note | | Promissory Note | May 2023 | | 350,000 | | | 350,000 | | | 3.80% | | — | | | — | |
| Promissory Note | | Promissory Note | November 2022 | | 400,000 | | | 400,000 | | | 3.00% | | — | | | — | |
| Promissory Note | | Promissory Note | April 2023 | | 450,000 | | | 450,000 | | | 6.13% | | — | | | — | |
| Promissory Note | | Promissory Note | June 2022 | | 500,000 | | | 500,000 | | | 3.30% | | — | | | — | |
| Promissory Note | | Promissory Note | July 2024 | | 500,000 | | | 500,000 | | | 3.90% | | — | | | — | |
| Promissory Note | | Promissory Note | March 2022 | | 650,000 | | | 650,000 | | | 4.20% | | — | | | — | |
| Promissory Note | | Promissory Note | August 2021 | | 650,000 | | | 650,000 | | | 3.44% | | — | | | — | |
| Promissory Note | | Promissory Note | September 2023 | | 750,000 | | | 750,000 | | | 3.27% | | — | | | — | |
| Promissory Note | | Promissory Note | May 2025 | | 1,000,000 | | | 1,000,000 | | | 3.99% | | — | | | — | |
| Promissory Note | | Promissory Note | June 2022 | | 2,000,000 | | | 2,000,000 | | | 1.40% | | — | | | — | |
| Promissory Note | August 2021 | | 650,000 |
| | 650,000 |
| | 3.44% | | — |
| | — |
| Promissory Note | September 2022 | | 2,000,000 | | | 2,000,000 | | | 1.04% | | — | | | — | |
| Line of credit | December 2018 | | 265,400 |
| | 750,000 |
| | 3.77% | | — |
| | — |
| Line of credit | July 2021 | | — | | | 500,000 | | | 2.19% | | — | | | — | |
| Line of credit | March 2019 | | — |
| | 3,000,000 |
| | 3.94% | | — |
| | — |
| Line of credit | March 2022 | | — | | | 2,500,000 | | | 3.34% | | — | | | — | |
| Total facilities with Santander and related subsidiaries | | 2,365,400 |
| | 7,850,000 |
| |
| | — |
| | — |
| Total facilities with Santander and related subsidiaries | | | 10,800,000 | | | 13,800,000 | | | | | — | | | — | |
| Total revolving credit facilities | | $ | 7,331,288 |
| | $ | 18,158,456 |
| | $ | 5,925,343 |
| | $ | 121,659 |
| Total revolving credit facilities | | | 14,959,955 | | | 25,717,967 | | | | | 7,063,398 | | | 2,886 | |
| |
(a) | Half of the outstanding balance on this facility matures in March 2018 and half matures in March 2019. |
| |
(b) | This line is held exclusively for financing of Chrysler Capital loans. |
| |
(c) | This line is held exclusively for financing of Chrysler Capital leases. |
| |
(d) | These repurchase facilities are collateralized by securitization notes payable retained by the Company. These facilities have rolling maturities of up to one year. |
| |
(e) | In October 2017, the warehouse line that matured was extended to December 2017. |
| |
(f) | The lines of credit generally are also collateralized by securitization notes payable and residuals retained by the Company. As of September 30, 2017 and December 31, 2016, zero and $1,316,568, respectively, of the aggregate outstanding balances on these facilities were unsecured. |
| |
(g) | In October 2017, the Company executed a $400 million promissory note with SHUSA. The promissory note matures October 10, 2020. |
| |
(h) | The Company entered into an interest rate swap to hedge the interest rate risk on this fixed rate debt. During the three months ended September 30, 2017, the Company terminated the fair value hedge. At the time of termination, the fair value hedge adjustment was $4.5 million, the amortization of which will reduce interest expense over the remaining life of the fixed rate debt. |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Maturity Date(s) | | Utilized Balance | | Committed Amount | | Effective Rate | | Assets Pledged | | Restricted Cash Pledged |
| Facilities with third parties: | | | | | | | | | | | |
| Warehouse line | January 2018 | | $ | 153,784 |
| | $ | 500,000 |
| | 3.17% | | $ | 213,578 |
| | $ | — |
|
| Warehouse line | Various | | 462,085 |
| | 1,250,000 |
| | 2.52% | | 653,014 |
| | 14,916 |
|
| Warehouse line | August 2018 | | 534,220 |
| | 780,000 |
| | 1.98% | | 608,025 |
| | 24,520 |
|
| Warehouse line | August 2018 | | 3,119,943 |
| | 3,120,000 |
| | 1.91% | | 4,700,774 |
| | 70,991 |
|
| Warehouse line | October 2018 | | 702,377 |
| | 1,800,000 |
| | 2.51% | | 994,684 |
| | 23,378 |
|
| Repurchase facility | December 2017 | | 507,800 |
| | 507,800 |
| | 2.83% | | — |
| | 22,613 |
|
| Repurchase facility | April 2017 | | 235,509 |
| | 235,509 |
| | 2.04% | | — |
| | — |
|
| Warehouse line | November 2018 | | 578,999 |
| | 1,000,000 |
| | 1.56% | | 850,758 |
| | 17,642 |
|
| Warehouse line | October 2018 | | 202,000 |
| | 400,000 |
| | 2.22% | | 290,867 |
| | 5,435 |
|
| Warehouse line | November 2018 | | — |
| | 500,000 |
| | 2.07% | | — |
| | — |
|
| Warehouse line | October 2017 | | 243,100 |
| | 300,000 |
| | 2.38% | | 295,045 |
| | 9,235 |
|
| Total facilities with third parties | | | 6,739,817 |
| | 10,393,309 |
| | | | 8,606,745 |
| | 188,730 |
|
| Facilities with Santander and related subsidiaries: | | | | | | | | | | | |
| Line of credit | December 2017 | | 500,000 |
| | 500,000 |
| | 3.04% | | — |
| | — |
|
| Line of credit | December 2018 | | 175,000 |
| | 500,000 |
| | 3.87% | | — |
| | — |
|
| Line of credit | December 2017 | | 1,000,000 |
| | 1,000,000 |
| | 2.86% | | — |
| | — |
|
| Line of credit | December 2018 | | 1,000,000 |
| | 1,000,000 |
| | 2.88% | | — |
| | — |
|
| Line of credit | March 2017 | | 300,000 |
| | 300,000 |
| | 2.25% | | — |
| | — |
|
| Line of credit | March 2019 | | — |
| | 3,000,000 |
| | 3.74% | | — |
| | — |
|
| Total facilities with Santander and related subsidiaries | | | 2,975,000 |
| | 6,300,000 |
| | | | — |
| | — |
|
| Total revolving credit facilities | | | $ | 9,714,817 |
| | $ | 16,693,309 |
| | | | $ | 8,606,745 |
| | $ | 188,730 |
|
Notes Payable - Facilities with Third Parties
The warehouse lines and repurchase facilities are fully collateralized by a designated portion of the Company’s retail installment contracts (Note 2), leased vehicles (Note 3)4), securitization notes payables and residuals retained by the Company.`
Facilities with Santander and Related Subsidiaries
Lines of Credit
Through SHUSA Santander provides the CompanyCompany with $3,000,000$500,000 of committed revolvingrevolving credit and $2,500,000 of contingent liquidity that can be drawn on an unsecured basis. Through its New York branch, Santander provides the Company with $2,750,000 of long-term committed revolving credit facilities. The facilities offered through the New York branch are structured as three- and five-year floating rate facilities, with current maturity dates of December 31, 2017 and December 31, 2018, respectively. These facilities currently permit unsecured borrowing but generally are collateralized by retail installment contracts and retained residuals. Any secured balances outstanding under the facilities at the time of their maturity will amortize to match the maturities and expected cash flows of the corresponding collateral.
Promissory Notes
Through SHUSA provides the Company with $6,500,000 of unsecured promissory notes.
Santander provides the Company with $2,100,000$4,000,000 of unsecured promissory notes. Santander Consumer ABS Funding 2, LLC (a subsidiary) established a committed facility of $300 million with SHUSA on March 6, 2014. This facility matured on March 6, 2017 and was replaced on the same day with a $300 million term promissory note executed by SC Illinois as the borrower and SHUSA as the lender. Interest accrues on this note at a rate equal to three-month LIBOR plus 1.35%. The note has a maturity date of March 6, 2019.
In addition, SC Illinois as borrower executed the following promissory notes with SHUSA;
•a $500 million term promissory note on May 11, 2017. Interest accrues on this note at the rate of 3.49%. The note has a maturity date of May 11, 2020.
•a $650 million term promissory note on March 31, 2017. Interest accrues on this note at the rate of 4.20%. The note has a maturity date of March 31, 2022.
•a $650 million term promissory note on August 3, 2017. Interest accrues on this note at the rate of 3.44%. The note has a maturity date of August 3, 2021.
Notes Payable - Secured Structured Financings
The following table presents information regarding secured structured financings as of September 30, 2017March 31, 2021 and December 31, 2016:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Estimated Maturity Date(s) at Issuance | | Balance | | Initial Note Amounts Issued (d) | | Initial Weighted Average Interest Rate | | Collateral (b) | | Restricted Cash |
| 2016 Securitizations | March 2024 | | $ | 91,428 | | | $ | 1,250,000 | | | 2.34% | | $ | 160,734 | | | $ | 46,666 | |
| 2017 Securitizations | July 2022 - September 2024 | | 864,178 | | | 8,262,940 | | | 1.35% - 2.52% | | 1,399,990 | | | 232,606 | |
| 2018 Securitizations | February 2024 - April 2026 | | 2,250,155 | | | 11,000,280 | | | 2.41% - 3.42% | | 3,435,529 | | | 372,049 | |
| 2019 Securitizations | May 2024 - February 2027 | | 5,959,087 | | | 11,924,720 | | | 2.08% - 3.34% | | 7,691,626 | | | 576,514 | |
| 2020 Securitizations | November 2024 - May 2028 | | 7,431,733 | | | 10,028,425 | | | 0.60% - 2.73% | | 9,345,987 | | | 633,342 | |
| 2021 Securitizations | November 2026 - March 2027 | | 3,429,197 | | | 3,497,230 | | | 0.50% - 0.51% | | 3,905,821 | | | 154,211 | |
| Public Securitizations (a) | | | 20,025,778 | | | 45,963,595 | | | | | 25,939,687 | | | 2,015,388 | |
| 2013 Private issuances | July 2024 - September 2024 | | 521,397 | | | 1,537,025 | | | 1.28% | | 1,521,220 | | | 751 | |
| 2018 Private issuances | June 2022 - April 2024 | | 1,837,240 | | | 4,186,002 | | | 2.42% - 3.53% | | 2,774,962 | | | 6,561 | |
| 2019 Private issuance | September 2022 - November 2026 | | 2,335,820 | | | 3,524,536 | | | 2.45% - 3.90% | | 3,287,079 | | | 10,294 | |
| 2020 Private issuance | April 2024 - December 2027 | | 971,784 | | | 1,500,000 | | | 1.29% - 2.68% | | 1,351,381 | | | 4,902 | |
| | | | | | | | | | | |
| Privately issued amortizing notes (c) | | | 5,666,241 | | | 10,747,563 | | | | | 8,934,642 | | | 22,508 | |
| Total secured structured financings | | | $ | 25,692,019 | | | $ | 56,711,158 | | | | | $ | 34,874,329 | | | $ | 2,037,896 | |
(a)Securitizations executed under Rule 144A of the Securities Act are included within this balance.
(b)Secured structured financings may be collateralized by the Company’s collateral overages of other issuances.
(c)All privately issued amortizing notes issued in 2014 through 2017 were paid in full.
(d)Excludes securitizations that no longer have outstanding debt and excludes any incremental borrowings.
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Original Estimated Maturity Date(s) | | Balance | | Initial Note Amounts Issued | | Initial Weighted Average Interest Rate | | Collateral (b) | | Restricted Cash |
| 2013 Securitizations | April 2019 - March 2021 | | $ | 612,494 |
| | $ | 5,439,700 |
| | 0.90% - 1.59% | | $ | 797,901 |
| | $ | 166,215 |
|
| 2014 Securitizations | February 2020 - April 2022 | | 1,340,311 |
| | 6,391,020 |
| | 1.16% - 1.72% | | 1,584,279 |
| | 220,843 |
|
| 2015 Securitizations | April 2020- January 2023 | | 2,821,425 |
| | 9,185,032 |
| | 1.33% - 2.29% | | 3,964,228 |
| | 387,272 |
|
| 2016 Securitizations | April 2022 - March 2024 | | 4,087,267 |
| | 7,462,790 |
| | 1.63% - 2.80% | | 5,425,003 |
| | 366,363 |
|
| 2017 Securitizations | April 2023 - Sept 2024 | | 6,066,240 |
| | 7,391,890 |
| | 1.35% - 2.52% | | 7,853,934 |
| | 346,534 |
|
| Public securitizations (a) | | | 14,927,737 |
| | 35,870,432 |
| | | | 19,625,345 |
| | 1,487,227 |
|
| 2011 Private issuances | December 2018 | | 360,029 |
| | 1,700,000 |
| | 1.46% | | 475,937 |
| | 23,648 |
|
| 2013 Private issuances | September 2018 | | 2,379,762 |
| | 2,044,054 |
| | 1.28% - 1.38% | | 3,716,406 |
| | 153,499 |
|
| 2014 Private issuances | March 2018 -November 2021 | | 159,957 |
| | 1,530,125 |
| | 1.05% - 1.40% | | 274,552 |
| | 11,055 |
|
| 2015 Private issuances | December 2016 - July 2019 | | 2,223,017 |
| | 2,305,062 |
| | 0.88% - 2.81% | | 1,137,412 |
| | 52,172 |
|
| 2016 Private issuances | May 2020 - September 2024 | | 1,720,933 |
| | 3,050,000 |
| | 1.55% - 2.86% | | 2,441,657 |
| | 89,456 |
|
| 2017 Private issuances | April 2021 - September 2021 | | 1,486,928 |
| | 1,600,000 |
| | 1.85% - 2.44% | | 1,877,131 |
| | 41,287 |
|
| Privately issued amortizing notes | | | 8,330,626 |
| | 12,229,241 |
| | | | 9,923,095 |
| | 371,117 |
|
| Total secured structured financings | | | $ | 23,258,363 |
| | $ | 48,099,673 |
| | | | $ | 29,548,440 |
| | $ | 1,858,344 |
|
| |
(a) | Secured structured financings executed under Rule 144A of the Securities Act are included within this balance. |
| |
(b) | Secured structured financings may be collateralized by the Company's collateral overages of other issuances. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Estimated Maturity Date(s) at Issuance | | Balance | | Initial Note Amounts Issued | | Initial Weighted Average Interest Rate | | Collateral | | Restricted Cash |
| 2016 Securitizations | August 2022 - March 2024 | | $ | 259,078 | | | $ | 2,519,810 | | | 1.63% - 2.34% | | $ | 354,985 | | | $ | 85,041 | |
| 2017 Securitizations | July 2022 - September 2024 | | 1,049,867 | | | 8,262,940 | | | 1.35% - 2.52% | | 1,661,845 | | | 211,606 | |
| 2018 Securitizations | May 2022 - April 2026 | | 2,723,099 | | | 12,039,840 | | | 2.41% - 3.42% | | 4,130,936 | | | 376,246 | |
| 2019 Securitizations | May 2024 - February 2027 | | 6,653,226 | | | 11,924,720 | | | 2.08% - 3.34% | | 8,582,241 | | | 488,546 | |
| 2020 Securitizations | November 2024 - May 2028 | | 8,256,890 | | | 10,028,425 | | | 0.60% - 2.73% | | 10,292,570 | | | 548,912 | |
| Public Securitizations | | | 18,942,160 | | | 44,775,735 | | | | | 25,022,577 | | | 1,710,351 | |
| 2013 Private issuances | July 2024 - September 2024 | | 777,210 | | | 1,537,025 | | | 1.28% | | 1,843,443 | | | 751 | |
| 2018 Private issuances | June 2022 - April 2024 | | 2,768,145 | | | 4,186,002 | | | 2.42%- 3.53% | | 4,223,567 | | | 7,675 | |
| 2019 Private issuance | September 2022 - November 2026 | | 2,584,974 | | | 3,524,536 | | | 2.45% - 3.90% | | 3,632,833 | | | 10,457 | |
| 2020 Private issuance | April 2024 - December 2027 | | 1,104,912 | | | 1,500,000 | | | 1.29% - 2.68% | | 1,532,280 | | | 4,902 | |
| Privately issued amortizing notes | | | 7,235,241 | | | 10,747,563 | | | | | 11,232,123 | | | 23,785 | |
| Total secured structured financings | | | $ | 26,177,401 | | | $ | 55,523,298 | | | | | $ | 36,254,700 | | | $ | 1,734,136 | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Original Estimated Maturity Date(s) | | Balance | | Initial Note Amounts Issued | | Initial Weighted Average Interest Rate | | Collateral | | Restricted Cash |
| 2012 Securitizations | September 2018 | | $ | 197,470 |
| | $ | 2,525,540 |
| | 0.92%-1.23% | | $ | 312,710 |
| | $ | 73,733 |
|
| 2013 Securitizations | January 2019 - January 2021 | | 1,172,904 |
| | 6,689,700 |
| | 0.89%-1.59% | | 1,484,014 |
| | 222,187 |
|
| 2014 Securitizations | February 2020 - January 2021 | | 1,858,600 |
| | 6,391,020 |
| | 1.16%-1.72% | | 2,360,939 |
| | 250,806 |
|
| 2015 Securitizations | September 2019 - January 2023 | | 4,326,292 |
| | 9,317,032 |
| | 1.33%-2.29% | | 5,743,884 |
| | 468,787 |
|
| 2016 Securitizations | April 2022 - March 2024 | | 5,881,216 |
| | 7,462,790 |
| | 1.63%-2.46% | | 7,572,977 |
| | 408,086 |
|
| Securitizations | | | 13,436,482 |
| | 32,386,082 |
| | | | 17,474,524 |
| | 1,423,599 |
|
| 2010 Private issuances | June 2011 | | 113,157 |
| | 516,000 |
| | 1.29% | | 213,235 |
| | 6,270 |
|
| 2011 Private issuances | December 2018 | | 342,369 |
| | 1,700,000 |
| | 1.46% | | 617,945 |
| | 31,425 |
|
| 2013 Private issuances | September 2018-September 2020 | | 2,375,964 |
| | 2,693,754 |
| | 1.13%-1.38% | | 4,122,963 |
| | 164,740 |
|
| 2014 Private issuances | March 2018 - December 2021 | | 643,428 |
| | 3,271,175 |
| | 1.05%-1.40% | | 1,129,506 |
| | 68,072 |
|
| 2015 Private issuances | December 2016 - July 2019 | | 2,185,166 |
| | 2,855,062 |
| | 0.88%-2.81% | | 2,384,661 |
| | 140,269 |
|
| 2016 Securitizations | May 2020 - September 2024 | | 2,512,323 |
| | 3,050,000 |
| | 1.55%-2.86% | | 3,553,577 |
| | 90,092 |
|
| Privately issued amortizing notes | | | 8,172,407 |
| | 14,085,991 |
| | | | 12,021,887 |
| | 500,868 |
|
| Total secured structured financings | | | $ | 21,608,889 |
| | $ | 46,472,073 |
| | | | $ | 29,496,411 |
| | $ | 1,924,467 |
|
Most of the Company’s secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company’s securitizationssecuritizations and private issuances are collateralized by vehicle retail installment contracts and loans or leases. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company had private issuances of notes backed by vehicle leases totaling $5,507,315totaling $8.7 billion and $3,862,274,$8.7 billion, respectively.
Unamortized debt issuance costs are amortized as interest expense over the terms of the related notes payable using the effectiveeffective interest method and are classified as a discount to the related recorded debt balance. Amortized debt issuance costs were $9,489$10,599 and $7,021$9,352 for the three months ended September 30, 2017March 31, 2021 and 2016, respectively, and $26,595 and $20,224 for the nine months ended September 30, 2017 and 2016,2020, respectively. For securitizations, the term takes into consideration the expected execution of the contractual call option, if applicable. Amortization of premium or accretion of discount on acquired notes payable is also included in interest expense using the effective interest method over the estimated remaining life of the acquired notes. Total interest expense on secured structured financings for the three months ended September 30, 2017March 31, 2021 and 20162020 was $152,950$122,514 and $108,720, $198,463, respectively and for.
8. Shareholders’ Equity
Share Repurchases
In June 2019, the nineCompany announced that the Board had authorized purchases by the Company of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020. The Company extended the share repurchase program through the end of the third quarter of 2020. During the three months ended September 30, 2017March 31, 2020, the Company purchased shares of its common stock through a modified Dutch Auction Tender Offer, and 2016then extended the share repurchase program through the end of the third quarter of 2020.
On July 31, 2020, the Company announced that SHUSA’s request for certain exceptions to the Federal Reserve Board’s interim policy (the “Interim Policy”), prohibiting share repurchases (other than repurchases relating to issuances of common stock under employee stock ownership plans) and limiting dividends paid by certain CCAR institutions to the average trailing four quarters of net income, had been approved. Such exception approval permitted the Company to continue its share repurchase program through the end of the third quarter of 2020. On August 10, 2020, the Company announced that it had substantially exhausted the amount of shares the Company was $409,968permitted to repurchase under the exception approval and $305,677, respectively.that the Company expected to repurchase an immaterial number of shares remaining under the exception approval.
| |
6. | Variable Interest Entities |
The Company transfers retail installment contracts and leased vehicles into newly formed Trusts that then issue one or more classes
Subsequently, the Federal Reserve Board extended the Interim Policy through the second quarter of notes payable backed by2021. As a result of the collateral. The Company’s continuing involvement with these Trusts is inextension of the form of servicing the assets and, generally, through holding residual interests in the Trusts. The Trusts are considered VIEs under U.S. GAAP andInterim Policy, the Company may or may not consolidate these VIEs oncontinue, consistent with the condensed consolidated balance sheets.
For further descriptionInterim Policy, to repurchase only a number of shares of the Company’s securitization activities, involvement with VIEs and accounting policies regarding consolidationcommon stock equal to the amount of VIEs, see Note 7share issuances related to the Company’s expensed employee compensation through the second quarter of 2021.
Please find below the details of the 2016 Annual ReportCompany's tender offer and other share repurchase programs for the three months ended March 31, 2021 and 2020: | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | | | | | | |
| March 31, 2021 | | March 31, 2020 | | | | |
| Tender offer (a): | | | | | | | |
| Number of shares purchased | — | | | 17,514,707 | | | | | |
| Average price per share | $ | — | | | $ | 26.00 | | | | | |
| Cost of shares purchased (b) | $ | — | | | $ | 455,382 | | | | | |
| | | | | | | |
| Other share repurchases: | | | | | | | |
| Number of shares purchased | 357,747 | | | 846,461 | | | | | |
| Average price per share | $ | 26.46 | | | $ | 13.82 | | | | | |
| Cost of shares purchased (b) | $ | 9,468 | | | $ | 11,700 | | | | | |
| | | | | | | |
| Total number of shares purchased | 357,747 | | | 18,361,168 | | | | | |
| Average price per share | $ | 26.46 | | | $ | 25.44 | | | | | |
| Total cost of shares purchased (b) | $ | 9,468 | | | $ | 467,082 | | | | | |
(a) During the three months ended March 31, 2020, the Company purchased shares of its common stock through a modified Dutch Auction Tender Offer.
(b) Cost of shares exclude commissions
Refer to Part II Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds" below section for additional details on Form 10-K.share repurchases.
On-balance sheet variable interest entities
Treasury Stock
The Company retains servicing for receivables transferred to the Trustshad 57,425,382 and receives 57,067,635 shares of treasury stock outstanding, with a monthly servicing fee on the outstanding principal balance. Supplemental fees, suchcost of $1,311,339 and $1,301,864 as late charges, for servicing the receivables are reflected in fees, commissions and other income. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. No shares were withheld to cover income taxes related to stock issued in connection with employee incentive compensation plans for the Company was servicing $26,315,659 and $27,802,971, respectively, of gross retail installment contracts that have been transferred to consolidated Trusts.three months ended March 31, 2021. The remaindervalue of the Company’s retail installment contracts remain unpledged.treasury stock is included within the additional paid-in-capital.
Accumulated Other Comprehensive Income (Loss)
A summary of changes in accumulated other comprehensive income (loss), net of tax, for the cash flows received from consolidated securitization truststhree months ended March 31, 2021 and 2020 is as follows: | | | | | | | | | | | | | | | | | |
| | | | | |
| Three Months Ended | | | | |
| | | | | | | | | |
| | March 31, 2021 | | March 31, 2020 | | | | | | |
| Beginning balance, unrealized gains (losses) | $ | (50,566) | | | $ | (26,693) | | | | | | | |
| Other comprehensive income (loss) before reclassifications (gross) | 2,970 | | | (37,585) | | | | | | | |
| Amounts (gross) reclassified out of accumulated other comprehensive income (loss) | 5,778 | | | 623 | | | | | | | |
| Ending balance, unrealized gains (losses) | $ | (41,818) | | | $ | (63,655) | | | | | | | |
Amounts (gross) reclassified out of accumulated other comprehensive income (loss) during the three and nine months ended September 30, 2017March 31, 2021 and 2016, is as follows:2020 consist of the following: | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended | | | | | | Income statement line item |
| | | | | | | | | | |
| Reclassification | March 31, 2021 | | March 31, 2020 | | | | | | | |
| Cash flow hedges | $ | 7,657 | | | $ | 824 | | | | | | | | | Interest expense |
| | | | | | | | | | | |
| Tax benefit | (1,879) | | | (201) | | | | | | | | | |
| Net of tax | $ | 5,778 | | | $ | 623 | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Assets securitized | $ | 2,998,430 |
| | $ | 2,043,114 |
| | $ | 15,395,158 |
| | $ | 12,026,706 |
|
| | | | | | | | |
| Net proceeds from new securitizations (a) | $ | 2,936,719 |
| | $ | 1,688,822 |
| | $ | 11,998,611 |
| | $ | 9,509,135 |
|
| Net proceeds from sale of retained bonds | — |
| | — |
| | 273,733 |
| | 128,798 |
|
| Cash received for servicing fees (b) | 228,131 |
| | 200,634 |
| | 653,048 |
| | 595,070 |
|
| Net distributions from Trusts (b) | 666,179 |
| | 776,306 |
| | 2,073,965 |
| | 2,167,512 |
|
| Total cash received from Trusts | $ | 3,831,029 |
| | $ | 2,665,762 |
| | $ | 14,999,357 |
| | $ | 12,400,515 |
|
| |
(a) | Includes additional advances on existing securitizations. |
| |
(b) | These amounts are not reflected in the accompanying condensed consolidated statements of cash flows because these cash flows are intra-company and eliminated in consolidation. |
Off-balance sheet variable interest entitiesDividends
During the three and nine months ended September 30, 2017,On March 31, 2021, the Company sold $1,347,010paid a cash dividend of $0.22 per share and $2,583,341a special dividend of gross retail installment contracts to VIEs in off-balance sheet securitizations$0.22 per share of common stock for a losstotal of $6,846 and $13,026, respectively, which is recorded in investment losses, net$0.44 per share to shareholders of record as of the close of business on March 29, 2021.
On April 27, 2021, the Company received written notification from the FRB that the FRB has approved SHUSA’s request for an exception from the prohibition in the accompanying condensed consolidated statementsInterim Policy restricting the payment of income.certain dividends in the second quarter of 2021. The transactions were executed under securitization platforms with Santander. Santander, asCompany’s Board of Directors will determine whether a majority owned affiliate,dividend will hold eligible vertical interest in Notesbe declared and Certificatesthe timing and amount of not less than 5% to comply with the Dodd-Frank Act risk retention rules. For the three and nine months ended September 30, 2016, the Company executed no off-balance sheet securitizations with VIEs with which it has continuing involvement.any such dividend.
As of September 30, 2017 and December 31, 2016, the Company was servicing $3,955,935 and $2,741,101, respectively, of gross retail installment contracts that have been sold in off-balance sheet securitizations and were subject to an optional clean-up call. The portfolio was comprised as follows:
9. Derivative Financial Instruments
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| SPAIN | $ | 2,265,206 |
| | $ | — |
|
| Total serviced for related parties | 2,265,206 |
| | — |
|
| Chrysler Capital securitizations | 1,690,729 |
| | 2,472,756 |
|
| Other third parties | — |
| | 268,345 |
|
| Total serviced for third parties | 1,690,729 |
| | 2,741,101 |
|
| Total serviced for others portfolio | $ | 3,955,935 |
| | $ | 2,741,101 |
|
Other than repurchases of sold assets due to standard representations and warranties, the Company has no exposure to loss as a result of its involvement with these VIEs.
A summary of the cash flows received from off-balance sheet securitization trusts during the three and nine months ended September 30, 2017 and 2016 is as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Receivables securitized (a) | $ | 1,347,010 |
| | $ | — |
| | $ | 2,583,341 |
| | $ | — |
|
| | | | | | | | |
| Net proceeds from new securitizations | $ | 1,347,430 |
| | $ | — |
| | $ | 2,588,227 |
| | $ | — |
|
| Cash received for servicing fees | 12,309 |
| | 10,027 |
| | 25,677 |
| | 38,885 |
|
| Total cash received from securitization trusts | $ | 1,359,739 |
| | $ | 10,027 |
| | $ | 2,613,904 |
| | $ | 38,885 |
|
(a) Represents the unpaid principal balance at the time of original securitization.
| |
7. | Derivative Financial Instruments |
The Company uses derivativesderivative financial instruments such as interest rate swaps, interest rate caps and the corresponding options written in order to offset the interest rate caps to manage the Company'sCompany’s exposure to changing interest rates. The Company uses both derivatives that qualify for hedge accounting treatment and economic hedges.
In addition, the Company is the holder of a warrant that gives it the right, if certain vesting conditions are satisfied, to purchase additional shares in a company in which it has a cost method investment. This warrant was issued in 2012 and is carried at its estimated fair value of zero at September 30, 2017 and December 31, 2016.
The underlying notional amounts and aggregate fair values of these derivativesderivative financial instruments at September 30, 2017March 31, 2021 and December 31, 2016,2020, are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | |
| | Notional | | Asset | | Liability | | Notional | | Asset | | Liability | | | | |
| Interest rate swap agreements designated as cash flow hedges | $ | 2,150,000 | | | $ | 765 | | | $ | (59,147) | | | $ | 2,450,000 | | | $ | 123 | | | $ | (70,589) | | | | | |
| Interest rate swap agreements not designated as hedges | 250,000 | | | — | | | (11,119) | | | 250,000 | | | — | | | (12,934) | | | | | |
| Interest rate cap agreements | 9,338,393 | | | 15,783 | | | — | | | 10,199,134 | | | 4,617 | | | — | | | | | |
| Options for interest rate cap agreements | 9,338,393 | | | — | | | (15,783) | | | 10,199,134 | | | — | | | (4,617) | | | | | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Notional | | Fair Value | | Asset | | Liability |
| Interest rate swap agreements designated as cash flow hedges | $ | 4,978,500 |
| | $ | 39,986 |
| | $ | 39,986 |
| | $ | — |
|
| Interest rate swap agreements not designated as hedges | 1,493,800 |
| | 8,801 |
| | 8,801 |
| | — |
|
| Interest rate cap agreements | 11,900,578 |
| | 90,313 |
| | 116,568 |
| | (26,255 | ) |
| Options for interest rate cap agreements | 11,900,578 |
| | (90,259 | ) | | 26,304 |
| | (116,563 | ) |
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Notional | | Fair Value | | Asset | | Liability |
| Interest rate swap agreements designated as cash flow hedges | $ | 7,854,700 |
| | $ | 44,618 |
| | $ | 45,551 |
| | $ | (933 | ) |
| Interest rate swap agreements not designated as hedges | 1,019,900 |
| | 1,939 |
| | 2,076 |
| | (137 | ) |
| Interest rate cap agreements | 9,463,935 |
| | 76,269 |
| | 76,269 |
| | — |
|
| Options for interest rate cap agreements | 9,463,935 |
| | (76,281 | ) | | — |
| | (76,281 | ) |
| Total return settlement | 658,471 |
| | (30,618 | ) | | — |
| | (30,618 | ) |
During the three months ended June 30, 2017, the Company entered into an interest rate swap to hedge the interest rate risk on a certain fixed rate debt. This derivative was designated as a fair value hedge at inception and was accounted for by recording the change in theThe aggregate fair value of the derivative instrumentinterest rate swap agreements is included on the Company’s consolidated balance sheets in other assets and other liabilities, as appropriate. The aggregate fair value of interest rate cap agreements are included in other assets and the related hedged item attributable to interest rate riskoptions in other liabilities on the Company’s consolidated balance sheets. See Note 10 - “Fair Value of Financial Instruments” to these Condensed Consolidated Balance Sheets, with the corresponding income or expense recorded in the Condensed ConsolidatedFinancial Statements of Operations. During the three months ended September 30, 2017, the Company terminated the interest rate swap.
The Company purchased price holdback payments and total return settlement payments that were considered to be derivatives, collectively referred to herein as “total return settlement,” and accordingly were marked to fair value each reporting period. The Company was obligated to make purchase price holdback payments on a periodic basis to a third-party originator of loans that the Company has purchased, when losses are lower than originally expected. The Company also was obligated to make total return settlement payments to this third-party originator in 2016 and 2017 if returns on the purchased loans are greater than originally expected. All purchase price holdback payments and all total return settlement payments due in 2016 and 2017 have been made and as of September 30, 2017, the derivative instrument has been settled.
See Note 13 for additional disclosure of fair value and balance sheet location of the Company'sCompany’s derivative financial instruments.
The Company enters into legally enforceable master netting agreements that reduce risk by permitting netting of transactions, such as derivatives and collateral posting, with the same counterparty on the occurrence of certain events. A master netting agreement allows two counterparties the ability to net-settle amounts under all contracts, including any related collateral posted, through a single payment. The right to offset and certain terms regarding the collateral process, such as valuation, credit events and settlement, are contained in ISDA master agreements. The Company has elected to present derivative balances on a gross basis even if the derivative is subject to a legally enforceable master netting (ISDA) agreement. Collateral that is received or pledged for these transactions is disclosed within the “Gross amounts not offsetAmounts Not Offset in the Condensed Consolidated Balance Sheet” section of the tables below. Information on the offsetting of derivative assets and derivative liabilities due to the right of offset was as follows, as of September 30, 2017March 31, 2021 and December 31, 2016:
|
| | | | | | | | | | | |
| | Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheet |
| | Assets Presented
in the
Condensed Consolidated
Balance Sheet | | Cash
Collateral
Received (a) | | Net
Amount |
| September 30, 2017 | | | | | |
| Interest rate swaps - Santander and affiliates | $ | 6,042 |
| | $ | (336 | ) | | $ | 5,706 |
|
| Interest rate swaps - third party | 42,745 |
| | (27,146 | ) | | 15,599 |
|
| Interest rate caps - Santander and affiliates | 5,053 |
| | (5,053 | ) | | — |
|
| Interest rate caps - third party | 111,515 |
| | (78,896 | ) | | 32,619 |
|
| Back to back - Santander & affiliates | $ | 9,775 |
| | — |
| | $ | 9,775 |
|
| Back to back - third party | $ | 16,529 |
| | — |
| | $ | 16,529 |
|
| Total derivatives subject to a master netting arrangement or similar arrangement | 191,659 |
| | (111,431 | ) | | 80,228 |
|
| Total derivatives not subject to a master netting arrangement or similar arrangement | — |
| | — |
| | — |
|
| Total derivative assets | $ | 191,659 |
| | $ | (111,431 | ) | | $ | 80,228 |
|
| Total financial assets | $ | 191,659 |
| | $ | (111,431 | ) | | $ | 80,228 |
|
| | | | | | |
| December 31, 2016 | | | | | |
| Interest rate swaps - Santander and affiliates | $ | 5,372 |
| | $ | — |
| | $ | 5,372 |
|
| Interest rate swaps - third party | 42,254 |
| | (22,100 | ) | | 20,154 |
|
| Interest rate caps - Santander and affiliates | 7,593 |
| | — |
| | 7,593 |
|
| Interest rate caps - third party | 68,676 |
| | — |
| | 68,676 |
|
| Total derivatives subject to a master netting arrangement or similar arrangement | 123,895 |
| | (22,100 | ) | | 101,795 |
|
| Total derivatives not subject to a master netting arrangement or similar arrangement | — |
| | — |
| | — |
|
| Total derivative assets | $ | 123,895 |
| | $ | (22,100 | ) | | $ | 101,795 |
|
| Total financial assets | $ | 123,895 |
| | $ | (22,100 | ) | | $ | 101,795 |
|
| |
(a) | Cash collateral received is reported in Other liabilities or Due to affiliate, as applicable, in the condensed consolidated balance sheet. |
31, 2020: | | | | | | | | | | | | | | | | | | | |
| |
| Gross Amounts Not Offset in the
Consolidated Balance Sheet |
| Assets Presented in the
Consolidated Balance Sheet | | Collateral
Received (a) | | | | Net
Amount |
| March 31, 2021 | | | | | | | |
| | | | | | | |
| Interest rate swaps - third party (b) | $ | 765 | | | $ | (765) | | | | | $ | — | |
| Interest rate caps - Santander and affiliates | $ | 1,438 | | | $ | (1,390) | | | | | $ | 48 | |
| Interest rate caps - third party | 14,345 | | | (14,345) | | | | | — | |
| | | | | | | |
| | | | | | | |
| Total derivatives subject to a master netting arrangement or similar arrangement | 16,548 | | | (16,500) | | | | | 48 | |
| Total derivatives not subject to a master netting arrangement or similar arrangement | — | | | — | | | | | — | |
| Total derivative assets | $ | 16,548 | | | $ | (16,500) | | | | | $ | 48 | |
| Total financial assets | $ | 16,548 | | | $ | (16,500) | | | | | $ | 48 | |
| | | | | | | |
| December 31, 2020 | | | | | | | |
| | | | | | | |
| Interest rate swaps - third party (b) | $ | 123 | | | $ | (123) | | | | | $ | — | |
| Interest rate caps - Santander and affiliates | 463 | | | (463) | | | | | — | |
| Interest rate caps - third party | 4,154 | | | (4,154) | | | | | — | |
| Total derivatives subject to a master netting arrangement or similar arrangement | 4,740 | | | (4,740) | | | | | — | |
| Total derivatives not subject to a master netting arrangement or similar arrangement | — | | | — | | | | | — | |
| Total derivative assets | $ | 4,740 | | | $ | (4,740) | | | | | $ | — | |
| Total financial assets | $ | 4,740 | | | $ | (4,740) | | | | | $ | — | |
(a) Collateral received includes cash, cash equivalents, initial margin and other financial instruments. Cash collateral received is reported in Other liabilities in the consolidated balance sheet. Financial instruments that are pledged to the Company are not reflected in the accompanying balance sheet since the Company does not control or have the ability of rehypothecation of these instruments. In certain instances, the counter party is over-collateralized since the actual amount of collateral received exceeds the associated financial asset. As a result, the actual amount of collateral received that is reported may be greater than the amount shown in the table above.
(b) Includes derivative instruments originally transacted with Santander and affiliates and subsequently amended to reflect clearing with central clearing counterparties.
| | | | | | | | | | | | | | | | | | | | |
| |
| Gross Amounts Not Offset in the
Consolidated Balance Sheet |
| Liabilities Presented in the
Consolidated Balance Sheet | | | Collateral
Pledged (a) | | | | Net
Amount |
| March 31, 2021 | | | | | | | | |
| | | | | | | | |
| Interest rate swaps - third party (b) | $ | 70,266 | | | | $ | (70,266) | | | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| Interest rate caps - Santander and affiliates | 1,438 | | | | (1,250) | | | | | 188 | |
| Interest rate caps - third party | 14,345 | | | | (6,323) | | | | | 8,022 | |
| | | | | | | | |
| Total derivatives subject to a master netting arrangement or similar arrangement | 86,049 | | | | (77,839) | | | | | 8,210 | |
| | | | | | | | |
| | | | | | | | |
| Total derivatives not subject to a master netting arrangement or similar arrangement | — | | | | — | | | | | — | |
| Total derivative liabilities | $ | 86,049 | | | | $ | (77,839) | | | | | $ | 8,210 | |
| Total financial liabilities | $ | 86,049 | | | | $ | (77,839) | | | | | $ | 8,210 | |
| | | | | | | | |
| December 31, 2020 | | | | | | | | |
| | | | | | | | |
| Interest rate swaps - third party | $ | 83,523 | | | | $ | (83,523) | | | | | $ | — | |
| Interest rate caps - Santander and affiliates | 463 | | | | (463) | | | | | — | |
| Interest rate caps - third party | 4,154 | | | | (4,154) | | | | | — | |
| Total derivatives subject to a master netting arrangement or similar arrangement | 88,140 | | | | (88,140) | | | | | — | |
| | | | | | | | |
| | | | | | | | |
| Total derivatives not subject to a master netting arrangement or similar arrangement | — | | | | — | | | | | — | |
| Total derivative liabilities | $ | 88,140 | | | | $ | (88,140) | | | | | $ | — | |
| Total financial liabilities | $ | 88,140 | | | | $ | (88,140) | | | | | $ | — | |
(a) Collateral pledged includes cash, cash equivalents, initial margin and other financial instruments. These balances are reported in Other assets in the consolidated balance sheet. In certain instances, the Company is over-collateralized since the actual amount of collateral pledged exceeds the associated financial liability. As a result, the actual amount of collateral pledged that is reported in Other assets may be greater than the amount shown in the table above.
(b) Includes derivative instruments originally transacted with Santander and affiliates and subsequently amended to reflect clearing with central clearing counterparties.
|
| | | | | | | | | | | |
| | Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheet |
| | Liabilities Presented
in the Condensed
Consolidated
Balance Sheet | | Cash
Collateral
Pledged (a) | | Net
Amount |
| September 30, 2017 | | | | | |
| Interest rate swaps - Santander & affiliates | $ | — |
| | $ | — |
| | $ | — |
|
| Interest rate swaps - third party | — |
| | — |
| | — |
|
| Interest rate caps - Santander and affiliates | 9,775 |
| | — |
| | 9,775 |
|
| Interest rate caps - third party | 16,480 |
| | $ | (372 | ) | | 16,108 |
|
| Back to back - Santander & affiliates | 5,053 |
| | (5,053 | ) | | — |
|
| Back to back - third party | 111,510 |
| | (46,650 | ) | | 64,860 |
|
| Total derivatives subject to a master netting arrangement or similar arrangement | 142,818 |
| | (52,075 | ) | | 90,743 |
|
| Total derivatives not subject to a master netting arrangement or similar arrangement | — |
| | — |
| | — |
|
| Total derivative liabilities | $ | 142,818 |
| | $ | (52,075 | ) | | $ | 90,743 |
|
| Total financial liabilities | $ | 142,818 |
| | $ | (52,075 | ) | | $ | 90,743 |
|
| | | | | | |
| December 31, 2016 | | | | | |
| Interest rate swaps - Santander & affiliates | $ | 546 |
| | $ | (546 | ) | | $ | — |
|
| Interest rate swaps - third party | 524 |
| | (524 | ) | | — |
|
| Back to back - Santander & affiliates | 7,593 |
| | (7,593 | ) | | — |
|
| Back to back - third party | 68,688 |
| | (68,688 | ) | | — |
|
| Total derivatives subject to a master netting arrangement or similar arrangement | 77,351 |
| | (77,351 | ) | | — |
|
| Total return settlement | 30,618 |
| | — |
| | 30,618 |
|
| Total derivatives not subject to a master netting arrangement or similar arrangement | 30,618 |
| | — |
| | 30,618 |
|
| Total derivative liabilities | $ | 107,969 |
| | $ | (77,351 | ) | | $ | 30,618 |
|
| Total financial liabilities | $ | 107,969 |
| | $ | (77,351 | ) | | $ | 30,618 |
|
| |
(a) | Cash collateral pledged is reported in Other assets or Due from affiliate, as applicable, in the condensed consolidated balance sheet. In certain instances, the Company is over-collateralized since the actual amount of cash pledged as collateral exceeds the associated financial liability. As a result, the actual amount of cash collateral pledged that is reported in Other assets or Due from affiliates may be greater than the amount shown in the table above. |
The gross gains (losses) reclassified from accumulated other comprehensive income (loss) to net income, and gains (losses) recognized in net income, are included as components of interest expense. The impacts on the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were as follows: | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Recognized in Earnings | | Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross amount Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | — | | | $ | 4,358 | | | $ | (7,657) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Derivative instruments not designated as hedges | | | | | |
| Losses (Gains) recognized in interest expenses | $ | (244) | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Recognized in Earnings | | Gross Gains (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross amount Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | — | | | $ | (52,386) | | | $ | (824) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Derivative instruments not designated as hedges | | | | | |
| Losses (Gains) recognized in interest expenses | $ | 9,171 | | | | | |
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Recognized in Earnings | | Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | (2,061 | ) | | $ | (882 | ) | | $ | 1,461 |
|
| Interest rate swap agreements designated as fair value hedges | (1,232 | ) | | — |
| | — |
|
| Total | $ | (3,293 | ) | | $ | (882 | ) | | $ | 1,461 |
|
| | | | | | |
| Derivative instruments not designated as hedges: | | | | | |
| Gains (losses) recognized in interest expense | $ | 90 |
| | | | |
| Gains (losses) recognized in operating expenses | $ | (2,723 | ) | | | | |
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| | Recognized in Earnings | | Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | 293 |
| | $ | 27,764 |
| | $ | (10,799 | ) |
| | | | | | |
| Derivative instruments not designated as hedges: | | | | | |
| Gains (losses) recognized in interest expense | $ | (3,769 | ) | | | | |
| Gains (losses) recognized in operating expenses | $ | 343 |
| | | | |
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Recognized in Earnings | | Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | (11,573 | ) | | $ | 4,233 |
| | $ | (3,158 | ) |
| | | | | | |
| Derivative instruments not designated as hedges: | | | | | |
| Gains (losses) recognized in interest expense | $ | 90 |
| | | | |
| Gains (losses) recognized in operating expenses | $ | (2,297 | ) | | | | |
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| | Recognized in Earnings | | Gross Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) | | Gross Gains (Losses) Reclassified From Accumulated Other Comprehensive
Income to Interest Expense |
| Interest rate swap agreements designated as cash flow hedges | $ | 528 |
|
| $ | (81,247 | ) |
| $ | (35,442 | ) |
| | | | | | |
| Derivative instruments not designated as hedges: | | | | | |
| Gains (losses) recognized in interest expense | $ | 2,428 |
| | | | |
| Gains (losses) recognized in operating expenses | $ | (2,337 | ) | | | | |
The ineffectiveness related to the interest rate swap agreements designated as cash flow hedges was insignificant for the nine months ended September 30, 2017 and 2016. The Company estimates that approximately $12,648approximately $29,585 of unrealized gains included in accumulated other comprehensive income (loss) will be reclassified to interest expense within the next twelve months.
Other assets were comprised as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Vehicles (a) | $ | 206,076 |
| | $ | 257,382 |
|
| Manufacturer subvention payments receivable (b) | 102,383 |
| | 161,447 |
|
| Upfront fee (b) | 83,750 |
| | 95,000 |
|
| Derivative assets at fair value (c) | 170,789 |
| | 110,930 |
|
| Derivative - third party collateral | 120,711 |
| | 75,089 |
|
| Prepaids | 41,324 |
| | 46,177 |
|
| Accounts receivable | 28,758 |
| | 22,480 |
|
| Other | 32,469 |
| | 16,905 |
|
| Other assets | $ | 786,260 |
| | $ | 785,410 |
|
| |
(a) | Includes vehicles obtained through repossession as well as vehicles obtained due to lease terminations. |
| |
(b) | These amounts relate to the Chrysler Agreement. The Company paid a $150,000 upfront fee upon the May 2013 inception of the agreement. The fee is being amortized into finance and other interest income over a ten-year term. As the preferred financing provider for FCA, the Company is entitled to subvention payments on loans and leases with below-market customer payments. |
| |
(c) | Derivative assets at fair value represent the gross amount of derivatives presented in the condensed consolidated financial statements. Refer to Note 7 to these Condensed Consolidated Financial Statements for the detail of these amounts. |
The Company recorded income tax expense of $78,385 (28.2% effective tax rate) and $90,473 (29.8% effective tax rate) during the three months ended September 30, 2017 and 2016, respectively, and $239,819 (28.3% effective tax rate) and $365,334 (34.1%effective tax rate) during the nine months ended September 30, 2017 and 2016, respectively.
The Company has historically provided deferred taxes under ASC 740-30-25, formerly APB 23, for the presumed repatriation to the United States earnings from the Company’s Puerto Rican subsidiary, SCI. In June 2017, the Company asserted that undistributed net earnings of SCI would be indefinitely reinvested outside the United States. This change in assertion was primarily driven by future United States cash projections and the Company’s intent to invest the earnings generated outside the United States. Under ASC 740-30 (formerly APB 23), unremitted earnings that are no longer permanently invested would become subject to deferred income taxes under United States law. The Company had $156.7 million of undistributed net earnings and a $52.8 million unrecorded deferred tax liability at September 30, 2017.
The Company is a party to a tax sharing agreement requiring that the unitary state tax liability among affiliates included in unitary state tax returns be allocated using the hypothetical separate company tax calculation method. The Company had a net receivable from affiliates under the tax sharing agreement of $467 and $1,087 at September 30, 2017 and December 31, 2016, respectively, which was included in related party taxes receivable in the condensed consolidated balance sheet.
Significant judgment is required in evaluating and reserving for uncertain tax positions. Although management believes adequate reserves have been established for all uncertain tax positions, the final outcomes of these matters may differ. Management does not believe the outcome of any uncertain tax position, individually or combined, will have a material effect on the results of operations. The reserve for uncertain tax positions, as well as associated penalties and interest, is a component of the income tax provision.
| |
10. | Commitments and Contingencies |
The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2017 and December 31, 2016, all of which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets:
|
| | | | | | | | | | | | |
| Agreement or Legal Matter | | Commitment or Contingency | | September 30, 2017 | | December 31, 2016 |
| Chrysler Agreement | | Revenue-sharing and gain-sharing payments | | $ | 13,270 |
| | $ | 10,134 |
|
| Agreement with Bank of America | | Servicer performance fee | | 8,066 |
| | 9,797 |
|
| Agreement with CBP | | Loss-sharing payments | | 4,874 |
| | 4,563 |
|
| Other Contingencies | | Consumer arrangements | | 8,637 |
| | — |
|
| Legal and regulatory proceedings | | Aggregate legal and regulatory liabilities | | 17,800 |
| | 39,200 |
|
Following is a description of the agreements and legal matters pursuant to which the liabilities in the preceding table were recorded.
Chrysler Agreement
Under terms of the Chrysler Agreement, the Company must make revenue sharing payments to FCA and gain-sharing payments when residual gains on leased vehicles exceed a specified threshold. The Company had accrued $13,270 and $10,134 at September 30, 2017 and December 31, 2016, respectively, related to these obligations.
The Chrysler Agreement requires, among other things, that the Company bear the risk of loss on loans originated pursuant to the agreement, but also that FCA shares in any residual gains and losses from consumer leases. The agreement also requires that the Company maintain at least $5.0 billion in funding available for dealer inventory financing and $4.5 billion of financing dedicated to FCA retail financing. In turn, FCA must provide designated minimum threshold percentages of its subvention business to the Company. The Chrysler Agreement is subject to early termination in certain circumstances, including the failure by either party to comply with certain of their ongoing obligations under the Chrysler Agreement. These obligations include the Company's meeting specified escalating penetration rates for the first five years of the agreement. The Company has not met these penetration rates at September 30, 2017. If the Chrysler Agreement were to terminate, there could be a materially adverse impact to the Company's financial condition and results of operations.
Agreement with Bank of America
Until January 31, 2017, the Company had a flow agreement with Bank of America whereby the Company was committed to sell up to $300,000 of eligible loans to the bank each month. On October 27, 2016, Bank of America notified the Company that it was terminating the flow agreement effective January 31, 2017, and accordingly, the flow agreement is terminated. The Company retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale. The Company had accrued $8,066 and $9,797 at September 30, 2017 and December 31, 2016, respectively, related to this obligation.
Agreement with CBP
Until May 1, 2017, the Company sold loans to CBP under terms of a flow agreement and predecessor sale agreements. Under the flow agreement, as amended, CBP's committed purchases of Chrysler Capital prime loans were a maximum of $200,000 and a minimum of $50,000 per quarter. The Company retained servicing on the sold loans and will owe CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued $4,874 and $4,563 at September 30, 2017 and December 31, 2016, respectively, related to the loss-sharing obligation.
Other Contingencies
The Company is or may be subject to potential liability under various other contingent exposures. The Company had accrued $8,637 and zero at September 30, 2017 and December 31, 2016, respectively, for other miscellaneous contingencies.
Legal and regulatory proceedings
Periodically, the Company is party to, or otherwise involved in, various lawsuits and other legal proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such lawsuit, regulatory matter and legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matter. Accordingly, except as provided below, the Company is unable to reasonably estimate its potential exposure, if any, to these lawsuits, regulatory matters and other legal proceedings at this time. However, it is reasonably possible that actual outcomes or losses may differ materially from the Company's current assessments and estimates and any adverse resolution of any of these matters against it could have a material adverse effect on the Company's financial position, liquidity, and results of operation.
In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation, regulatory matters and other legal proceedings when those matters present material loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation, regulatory matter or other legal proceeding develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a material loss contingency that is probable and estimable. If a determination is made during a given quarter that a material loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency. The Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.
As of September 30, 2017, the Company has accrued aggregate legal and regulatory liabilities of $17,800. Further, the Company believes that the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for legal and regulatory proceedings is up to $18,000 as of September 30, 2017. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.
Securities Class Action and Shareholder Derivative Lawsuits
•Deka Lawsuit
On August 26, 2014, a purported securities class action lawsuit was filed in the United States District Court, Southern District of New York, captioned Steck v. Santander Consumer USA Holdings Inc. et al., No. 1:14-cv-06942 (the Deka Lawsuit). The Deka Lawsuit was brought against the Company, certain of its current and former directors and executive officers and certain institutions that served as underwriters in the Company's IPO on behalf of a class consisting of those who purchased or otherwise acquired our securities between January 23, 2014 and June 12, 2014. In June 2015, the venue of the Deka Lawsuit was transferred to the United States District Court, Northern District of Texas. In September 2015, the court granted a motion to appoint lead plaintiffs and lead counsel, and the Deka Lawsuit is now captioned Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. 3:15-cv-2129-K.
The amended class action complaint in the Deka Lawsuit alleges that our Registration Statement and Prospectus and certain subsequent public disclosures contained misleading statements concerning the Company’s ability to pay dividends and the adequacy of the Company’s compliance systems and oversight. The amended complaint asserts claims under Sections 11, 12(a) and 15 of the Securities Act of 1933 and under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and seeks damages and other relief. On December 18, 2015, the Company and the individual defendants moved to dismiss the amended class action complaint, and on June 13, 2016, the motion to dismiss was denied. On December 2, 2016, the plaintiffs moved to certify the proposed classes, on February 17, 2017, the Company filed an opposition to the plaintiffs' motion to certify the proposed classes, and on March 31, 2017, the plaintiffs filed their reply brief. On July 11, 2017, the court granted an order staying the Deka Lawsuit pending the resolution of the appeal of a class certification order in In re Cobalt Int’l Energy, Inc. Sec. Litig., No. H-14-3428, 2017 U.S. Dist. LEXIS 91938 (S.D. Tex. June 15, 2017).
•Feldman Lawsuit
On October 15, 2015, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Feldman v. Jason A. Kulas, et al., C.A. No. 11614 (the Feldman Lawsuit). The Feldman Lawsuit names as defendants current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the current and former director defendants breached their fiduciary duties in connection with overseeing the Company’s subprime auto lending practices, resulting in harm to the Company. The
complaint seeks unspecified damages and equitable relief. On December 29, 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.
•Parmelee Lawsuit
On March 18, 2016, a purported securities class action lawsuit was filed in the United States District Court, Northern District of Texas, captioned Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783 (the Parmelee Lawsuit). On April 4, 2016, another purported securities class action lawsuit was filed in the United States District Court, Northern District of Texas, captioned Benson v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-919 (the Benson Lawsuit). Both the Parmelee Lawsuit and the Benson Lawsuit were filed against the Company and certain of its current and former directors and executive officers on behalf of a class consisting of all those who purchased or otherwise acquired our securities between February 3, 2015 and March 15, 2016. On May 25, 2016, the Benson Lawsuit was consolidated into the Parmelee Lawsuit, with the consolidated case captioned as Parmelee v. Santander Consumer USA Holdings Inc. et al., No. 3:16-cv-783.
On December 20, 2016, the plaintiffs filed an amended class action complaint. The amended class action complaint in the Parmelee Lawsuit alleges that the Company made false or misleading statements, as well as failed to disclose material adverse facts, in prior Annual and Quarterly Reports filed under the Exchange Act and certain other public disclosures, in connection with, among other things, the Company’s change in its methodology for estimating its allowance for credit losses and correction of such allowance for prior periods in, among other public disclosures, the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, and the Company’s amended filings for prior reporting periods. The amended class action complaint asserts claims under Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and seeks damages and other relief. On March 14, 2017, the Company filed a motion to dismiss the Parmelee Lawsuit, on April 25, 2017, the plaintiffs filed an opposition to the motion to dismiss, and on June 9, 2017, the Company filed a reply to the plaintiffs’ opposition.
•Jackie888 Lawsuit
On September 27, 2016, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Jackie888, Inc. v. Jason Kulas, et al., C.A. # 12775 (the Jackie888 Lawsuit). The Jackie888 Lawsuit names as defendants current and former members of the Board, and names the Company as a nominal defendant. The complaint alleges, among other things, that the defendants breached their fiduciary duties in connection with the Company’s accounting practices and controls. The complaint seeks unspecified damages and equitable relief. On April 13, 2017, the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit.
Consumer Lending Cases
The Company is also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.
Regulatory Proceedings
The Company is party to, or is periodically otherwise involved in, reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRBB, the CFPB, the DOJ, the SEC, the FTC and various state regulatory and enforcement agencies.
•Civil Subpoenas Relating to Underwriting and Securitization of Nonprime Loans
Currently, such proceedings include, but are not limited to, a civil subpoena from the DOJ, under FIRREA, requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2007, and from the SEC requesting the production of documents and communications that, among other things, relate to the underwriting and securitization of nonprime auto loans since 2013.
•2017 Written Agreement with the Federal Reserve
On March 21, 2017, the Company and SHUSA entered into a written agreement (the “2017 Written Agreement”) with the FRBB. Under the terms of the 2017 Written Agreement, the Company is required to enhance its compliance risk management program, board oversight of risk management and senior management oversight of risk management, and SHUSA is required to enhance its oversight of SC’s management and operations.
•Attorneys General Enforcement Actions
In October 2014, May 2015, July 2015, and February 2017, the Company received subpoenas and/or Civil Investigative Demands (CIDs) from the Attorneys General of California, Illinois, Oregon, New Jersey, Maryland and Washington under the authority of each state's consumer protection statutes. The Company has been informed that these states will serve as an executive committee on behalf of a group of 30 state Attorneys General. The subpoenas and/or CIDs from the executive committee states contain broad requests for information and the production of documents related to the Company's underwriting, securitization, servicing and collection of nonprime auto loans. The Company believes that several other companies in the auto finance sector have received similar subpoenas and CIDs. The Company is cooperating with the Attorneys General of the states involved. The Company believes that it is reasonably possible that it will suffer a loss related to the Attorneys General, however, any such loss is not currently estimable.
•Mississippi Attorney General Lawsuit
On January 10, 2017, the Attorney General of the State of Mississippi (the Mississippi AG) filed a lawsuit against the Company in the Chancery Court of the First Judicial District of Hinds County, State of Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that the Company engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the MCPA) and seeks unspecified civil penalties, equitable relief and other relief. On March 31, 2017, the Company filed motions to dismiss the Mississippi AG’s lawsuit. On May 18, 2017, the Company filed a motion to stay the Mississippi AG’s lawsuit pending the resolution of an interlocutory appeal relating to the MCPA before the Mississippi Supreme Court in Purdue Pharma, L.P., et al. v. State, No. 2017-IA- 00300-SCT, on May 30, 2017, the Mississippi AG filed an opposition to the motion to stay, and on June 14, 2017, the Company filed a reply to the Mississippi AG’s opposition. On September 25, 2017, the court granted the motion to stay and ordered a stay of all proceedings, excluding discovery and final briefing on motions to dismiss.
•SCRA Consent Order
On February 25, 2015, the Company entered into a consent order with the DOJ, approved by the United States District Court for the Northern District of Texas, that resolves the DOJ's claims against the Company that certain of its repossession and collection activities during the period of time between January 2008 and February 2013 violated the Servicemembers Civil Relief Act (SCRA). The consent order requires the Company to pay a civil fine in the amount of $55, as well as at least $9,360 to affected servicemembers consisting of $10 per servicemember plus compensation for any lost equity (with interest) for each repossession by the Company, and $5 per servicemember for each instance where the Company sought to collect repossession-related fees on accounts where a repossession was conducted by a prior account holder. The consent order also provides for monitoring by the DOJ for the Company’s SCRA compliance for a period of five years and requires the Company to undertake certain additional remedial measures.
•ECOA Investigation
On July 31, 2015, the CFPB notified the Company that it had referred to the DOJ certain alleged violations by the Company of the ECOA regarding statistical disparities in markups charged by automobile dealers to protected groups on loans originated by those dealers and purchased by the Company and the treatment of certain types of income in the Company’s underwriting process. On September 25, 2015, the DOJ notified the Company that it has initiated, based on the referral from the CFPB, an investigation under the ECOA of the Company's pricing of automobile loans.
Agreements
The Company committed to purchase certain new advances on personal revolving financings originated by a third party retailer, along with existing balances on accounts with new advances, for an initial term ending in April 2020 and renewing through April 2022 at the retailer's option. Each customer account generated under the agreements generally is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of September 30, 2017 and December 31, 2016, the Company was obligated to purchase $12,865 and $12,634, respectively, in receivables that had been originated by the retailer but not yet purchased by the Company.
The Company also is required to make a profit-sharing payment to the retailer each month if performance exceeds a specified return threshold. During the year ended December 31, 2015, the Company and the third-party retailer executed an amendment that, among other provisions, increases the profit-sharing percentage retained by the Company, gives the retailer the right to repurchase up to 9.99% of the existing portfolio at any time during the term of the agreement, and, provided that repurchase right is exercised, gives the retailer the right to retain up to 20% of new accounts subsequently originated.
Under terms of an application transfer agreement with another OEM, the Company has the first opportunity to review for its own portfolio any credit applications turned down by the OEM's captive finance company. The agreement does not require the Company to originate any loans, but for each loan originated the Company will pay the OEM a referral fee.
The Company also has agreements with SBNA to service recreational and marine vehicle portfolios. These agreements call for a periodic retroactive adjustment, based on cumulative return performance, of the servicing fee rate to inception of the contract. The Company recorded no adjustments for the three and nine months ended September 30, 2017 and downward adjustments of zero and $836 for the three and nine months ended September 30, 2016, respectively.
In connection with the sale of retail installment contracts through securitizations and other sales, the Company has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require the Company to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of September 30, 2017, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for the Company's asset-backed securities or other sales. In the opinion of management, the potential exposure of other recourse obligations related to the Company’s retail installment contract sales agreements will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
Santander has provided guarantees on the covenants, agreements, and obligations of the Company under the governing documents of its warehouse lines and privately issued amortizing notes. These guarantees are limited to the obligations of the Company as servicer.
The Company provided SBNA with the first right to review and approve consumer vehicle lease applications, subject to volume constraints, under terms of a flow agreement that was terminated on May 9, 2015. The Company has indemnified SBNA for potential credit and residual losses on $48,226 of leases that had been originated by SBNA under this program but were subsequently determined not to meet SBNA’s underwriting requirements. This indemnification agreement is supported by an equal amount of cash collateral posted by the Company in an SBNA bank account. The collateral account balance is included in restricted cash in the Company's condensed consolidated balance sheets. As of September 30, 2017, the balance in the collateral account is $22. In January 2015, the Company additionally agreed to indemnify SBNA for residual losses, up to a cap, on certain leases originated under the flow agreement between September 24, 2014 and May 9, 2015 for which SBNA and the Company had differing residual value expectations at lease inception. As of September 30, 2017 and December 31, 2016, the Company had a recorded liability of $2,983 and $2,691, respectively, related to the residual losses covered under the agreement.
On March 31, 2015, the Company executed a forward flow asset sale agreement with a third party under terms of which the Company committed to sell charged off loan receivables in bankruptcy status on a quarterly basis until sales total at least $200,000 in proceeds. On June 29, 2015, the Company and the third party executed an amendment to the forward flow asset sale agreement, which increased the committed sales of charged off loan receivables in bankruptcy status to $275,000. On September 30, 2015, the Company and the third party executed a second amendment to the forward flow asset sale agreement, which required sales to occur quarterly. On November 13, 2015, the Company and the third party executed a third amendment to the forward flow asset sale agreement, which increased the committed sales of charged off loan receivables in bankruptcy status to $350,000. However, any sale more than $275,000 is subject to a market price check. As of September 30, 2017 and December 31, 2016, the remaining aggregate commitment was $108,403 and $166,167, respectively.
Employment Agreements
Pursuant to the terms of a Separation Agreement among former CEO Thomas G. Dundon, the Company, DDFS LLC, SHUSA and Santander, upon satisfaction of applicable conditions, including receipt of required regulatory approvals, the Company will owe Mr. Dundon a cash payment of up to $115,139 (Note 11).
Leases
The Company has entered into various operating leases, primarily for office space and computer equipment. Lease expense incurred totaled $2,773 and $8,240 for the three and nine months ended September 30, 2017, respectively and $2,749 and $8,588 for the three and nine months ended September 30, 2016, respectively. The remaining obligations under lease commitments at September 30, 2017 are as follows: |
| | | |
| Years ended December 31, | |
| 2017 | $ | 2,992 |
|
| 2018 | 12,645 |
|
| 2019 | 12,773 |
|
| 2020 | 13,035 |
|
| 2021 | 12,910 |
|
| Thereafter | 56,794 |
|
| Total | $ | 111,149 |
|
| |
11. | Related-Party Transactions |
Related-party transactions not otherwise disclosed in these footnotes to the condensed consolidated financial statements include the following:
Credit Facilities
Interest expense, including unused fees, for affiliate lines/letters of credit for the three and nine months ended September 30, 2017 and 2016, was as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Line of credit agreement with Santander - New York Branch (Note 5) | $ | 8,158 |
| | $ | 16,404 |
| | $ | 46,624 |
| | $ | 52,800 |
|
| Debt facilities with SHUSA (Note 5) | 26,211 |
| | 6,023 |
| | 59,105 |
| | 14,892 |
|
Accrued interest for affiliate lines/letters of credit at September 30, 2017 and December 31, 2016, was as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| Line of credit agreement with Santander - New York Branch (Note 5) | $ | 1,409 |
| | $ | 6,297 |
|
| Debt facilities with SHUSA (Note 5) | 15,192 |
| | 1,737 |
|
In August 2015, under an agreement with Santander, the Company agreed to begin incurring a fee of 12.5 basis points (per annum) on certain warehouse lines, as they renew, for which Santander provides a guarantee of the Company's servicing obligations. The Company recognized guarantee fee expense of $1,672 and $4,620 for the three and nine months ended September 30, 2017, respectively, and $1,616 and $4,783 for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and December 31, 2016, the Company had $6,239 and $1,620 of related fees payable to Santander, respectively.
Derivatives
The Company has derivative financial instruments with Santander and affiliates with outstanding notional amounts of $4,372,800 and $7,259,400 at September 30, 2017 and December 31, 2016, respectively (Note 7). The Company had a collateral overage on derivative liabilities with Santander and affiliates of $9,169 and $15,092 at September 30, 2017 and December 31, 2016, respectively. Interest expense and mark-to-market adjustments on these agreements totaled $1,227 and $1,932 for the three months ended September 30, 2017 and 2016, respectively, and $1,443 and $16,098 for the nine months ended September 30, 2017 and 2016, respectively.
Originations
The Company is required to permit SBNA a first right to review and assess Chrysler Capital dealer lending opportunities, and SBNA is required to pay the Company a relationship management fee based upon the performance and yields of Chrysler Capital dealer loans held by SBNA. On April 15, 2016, the relationship management fee was replaced with an origination fee and annual renewal fee for each loan. The Company did not recognize any relationship management fee income the three and nine month period ended September 30, 2017. The Company recognized relationship management fee income of zero and $419 for the three and nine month period ended September 30, 2016. The Company recognized $246 and $1,009 of origination fee income for the three months ended September 30, 2017 and 2016, respectively, and $1,213 and $2,292 of origination fee income for the nine months ended September 30, 2017 and 2016, respectively. Additionally, the Company recognized $357 and $158 of renewal fee income for the three months ended September 30, 2017 and 2016, respectively, and $935 and $271 for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and December 31, 2016, the Company had origination and renewal fees receivable from SBNA of $237 and $552. The agreement also transferred the servicing of all Chrysler Capital receivables from dealers, including receivables held by SBNA and by the Company, from the Company to SBNA. Servicing fee expense under this agreement totaled $21 and $77 for the three and nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, the Company had $16 and $21, respectively, of servicing fees payable to SBNA. The Company may provide advance funding for dealer loans originated by SBNA, which is reimbursed to the Company by SBNA. The Company had no outstanding receivable from SBNA as of September 30, 2017 or December 31, 2016 for such advances.
Under the agreement with SBNA, the Company may originate retail consumer loans in connection with sales of vehicles that are collateral held against floorplan loans by SBNA. Upon origination, the Company remits payment to SBNA, who settles the transaction with the dealer. The Company owed SBNA $3,482 and $2,761 related to such originations as of September 30, 2017 and December 31, 2016, respectively.
The Company received a $9,000 referral fee in connection with the original arrangement and was amortizing the fee into income over the ten-year term of the agreement. The remaining balance of the referral fee SBNA paid to the Company in connection with the original sourcing and servicing agreement is considered a referral fee in connection with the new agreements and will continue to be amortized into income through the July 1, 2022 termination date of the new agreements. As of September 30, 2017 and December 31, 2016, the unamortized fee balance was $5,175 and $5,850, respectively. The Company recognized $225 and $675 of income related to the referral fee for the three and nine months ended September 30, 2017 and 2016, respectively.
The Company also has agreements with SBNA to service auto retail installment contracts and recreational and marine vehicle portfolios. Servicing fee income recognized under these agreements totaled $887 and $1,140 for the three months ended September 30, 2017 and 2016, respectively and $2,658 and $4,457 for the nine months ended September 30, 2017 and 2016, respectively. Other information on the serviced auto loan and retail installment contract portfolios for SBNA as of September 30, 2017 and December 31, 2016 is as follows: |
| | | | | | | |
| | September 30,
2017 |
| December 31,
2016 |
| Total serviced portfolio | $ | 427,168 |
|
| $ | 531,117 |
|
| Cash collections due to owner | 13,425 |
|
| 21,427 |
|
| Servicing fees receivable | 983 |
|
| 1,123 |
|
During the three months ended September 30, 2017, the Company sold certain receivables previously acquired with deteriorated credit quality to SBNA. These loans were sold with a gain of $35,927 recognized in investment losses, net in the accompanying condensed consolidated financial statements. The Company will continue to perform the servicing of these assets and has recorded $231 of servicing fee income from SBNA during the period ended September 30, 2017.
Other information on the serviced receivables for SBNA as of September 30, 2017 is as follows:
|
| | | |
| | September 30,
2017 |
| Total serviced portfolio | $ | 129,727 |
|
| Cash collections due to owner | 273 |
|
| Servicing fees receivable | 110 |
|
Beginning in 2016, the Company agreed to pay SBNA a market rate-based fee expense for payments made at SBNA retail branch locations for accounts originated/serviced by the Company and the costs associated with modifying the
Advanced Teller platform to the payments. The Company incurred $62 and $178 for these services during the three and nine months ended September 30, 2017.
Flow Agreements
Until May 9, 2015, the Company was party to a flow agreement with SBNA whereby SBNA had the first right to review and approve Chrysler Capital consumer vehicle lease applications. The Company could review any applications declined by SBNA for the Company’s own portfolio. The Company received an origination fee on all leases originated under this agreement and continues to service these vehicles leases. Pursuant to the Chrysler Agreement, the Company pays FCA on behalf of SBNA for residual gains and losses on the flowed leases. Servicing fee income recognized on leases serviced for SBNA totaled $1,066 and $1,742 for the three months ended September 30, 2017 and 2016, respectively, and $4,115 and $5,741 for the nine months ended September 30, 2017 and 2016, respectively. Other information on the consumer vehicle lease portfolio serviced for SBNA as of September 30, 2017 and December 31, 2016 is as follows: |
| | | | | | | |
| | September 30,
2017 |
| December 31,
2016 |
| Total serviced portfolio | $ | 459,524 |
|
| $ | 1,297,317 |
|
| Cash collections due to owner | — |
|
| 78 |
|
| Origination and servicing fees receivable | 2,020 |
|
| 926 |
|
| Revenue share reimbursement receivable | 3,365 |
|
| 612 |
|
On June 30, 2014, the Company entered into an indemnification agreement with SBNA whereby the Company indemnifies SBNA for any credit or residual losses on a pool of $48,226 in leases originated under the flow agreement. The covered leases are non-conforming units because they did not meet SBNA’s credit criteria at origination. At the time of the agreement, the Company established a $48,226 collateral account with SBNA in restricted cash that will be released over time to SBNA, in the case of losses, and the Company, in the case of payments and sale proceeds. As of September 30, 2017 and December 31, 2016, the balance in the collateral account is $22 and $11,329, respectively. The Company recognized no indemnification expense for the three and nine months ended September 30, 2017, and 2016.
Also, in January 2015, the Company agreed to indemnify SBNA for residual losses, up to a cap, on certain leases originated under the flow agreement between September 24, 2014 and May 9, 2015 for which SBNA and the Company had differing residual value expectations at lease inception. At the time of the agreement, the Company established a collateral account held by SBNA to cover the expected losses, as of September 30, 2017 and December 31, 2016, the balance in the collateral account was $2,713 and $2,706, respectively. As of September 30, 2017 and December 31, 2016, the Company had a recorded liability of $2,983 and $2,691 respectively, related to the residual losses covered under the agreement.
Securitizations
On March 29, 2017, the Company entered into a Master Securities Purchase Agreement (MSPA) with Santander, whereby it has the option to sell a contractually determined amount of eligible prime loans to Santander, through the SPAIN securitization platform, for a term ending in December 2018. The Company will provide servicing on all loans originated under this arrangement. As at September 30, 2017, the Company sold $1,236,331 of loans under this arrangement. Under a separate securities purchase agreement, the Company sold $1,347,010 of prime loans to Santander during the three months ended September 30, 2017. A total loss of $6,846 and $13,026 was recognized for the three and nine months period ended September 30, 2017, which is included in investment losses, net in the accompanying condensed consolidated financial statements. Servicing fee income recognized totaled $529 and $1,419 for the three and nine ended September 30, 2017. The Company had $14,083 of collections due to Santander as of September 30, 2017.
Employment Agreements
On July 2, 2015, the Company announced the departure of Thomas G. Dundon from his roles as Chairman of the Board and CEO of the Company, effective as of the close of business on July 2, 2015. In connection with his departure, and subject to the terms and conditions of his Employment Agreement, including Mr. Dundon's execution of a release of claims against the Company, Mr. Dundon became entitled to receive certain payments and benefits under his Employment Agreement.
Also in connection with his departure, Mr. Dundon entered into a Separation Agreement with the Company, DDFS LLC, SHUSA and Santander. Subject to applicable regulatory approvals and law, the Separation Agreement provided, among other things, that Mr. Dundon’s outstanding stock options would remain exercisable until the third anniversary of his resignation, and subject to certain time limitations, Mr. Dundon would be permitted to exercise such options in whole, but not in part, and settle such options for a cash payment equal to the difference between the closing trading price of a share of Company common stock as of the date immediately preceding such exercise and the exercise price of such option. Mr. Dundon exercised this cash settlement option on July 2, 2015. The Separation Agreement also provided for the modification of terms for certain other equity-based awards (Note 14), subject to limitations of banking regulators and applicable law. The Separation Agreement also provided that Mr. Dundon would serve as a consultant to the Company for twelve months from the date of the Separation Agreement at a mutually agreed rate, subject to required regulatory approvals.
As of September 30, 2017, the Company has not made any payments to Mr. Dundon, nor recorded any liability or obligation arising from or pursuant to the terms of the Separation Agreement. If all applicable conditions are satisfied, including receipt of required regulatory approvals and satisfaction of any conditions thereto, the Company will be obligated to make a cash payment to Mr. Dundon of up to $115,139. This amount would be recorded as compensation expense in the condensed consolidated statement of income and comprehensive income in the period in which approval is obtained.
Also, in connection with, and pursuant to, the Separation Agreement, on July 2, 2015, Mr. Dundon, the Company, DDFS LLC, SHUSA and Santander entered into an amendment to the Shareholders Agreement (the Second Amendment). The Second Amendment amended, for purposes of calculating the price per share to be paid in the event that a put or call option was exercised with respect to the shares of Company Common Stock owned by DDFS LLC in accordance with the terms and conditions of the Shareholders Agreement, the definition of the term “Average Stock Price” to mean $26.83. Pursuant to the Separation Agreement, SHUSA was deemed to have delivered as of July 3, 2015 an irrevocable notice to exercise the call option with respect to all 34,598,506 shares of the Company's Common Stock owned by DDFS LLC and consummate the transactions contemplated by such call option notice, subject to the receipt of required bank regulatory approvals and any other approvals required by law (the Call Transaction). Because the Call Transaction was not consummated prior to the Call End Date, DDFS LLC is free to transfer any or all shares of Company Common Stock it owns, subject to the terms and conditions of the Amended and Restated Loan Agreement, dated as of July 16, 2014, between DDFS LLC and Santander (the Loan Agreement). The Loan Agreement provides for a $300,000 revolving loan which, as of the maturity date, had a $290,000 unpaid principal balance. Pursuant to the Loan Agreement, 29,598,506 shares of the Company’s common stock owned by DDFS LLC are pledged as collateral under a related pledge agreement (the Pledge Agreement). Because the Call Transaction was not completed on or before the Call End Date, interest began accruing on the price paid per share in the Call Transaction at the overnight LIBOR rate on the third business day preceding the consummation of the Call Transaction plus 100 basis points with respect to any shares of Company Common Stock ultimately sold in the Call Transaction. The Shareholder Agreement further provides that Santander may, at its option, become the direct beneficiary of the Call Option. If consummated in full, SHUSA would pay DDFS LLC $928,278 plus interest that has accrued since the Call End Date. To date, the Call Transaction has not been consummated.
Pursuant to the Loan Agreement, if at any time the value of the Common Stock pledged under the Pledge Agreement is less than 150% of the aggregate principal amount outstanding under the Loan Agreement, DDFS LLC has an obligation to either (a) repay a portion of such outstanding principal amount such that the value of the pledged collateral is equal to at least 200% of the outstanding principal amount, or (b) pledge additional shares of Company Common Stock such that the value of the additional shares of Common Stock, together with the 29,598,506 shares already pledged under the Pledge Agreement, is equal to at least 200% of the outstanding principal amount. The value of the pledged collateral is less than 150% of aggregate principal amount outstanding under the Loan Agreement, and DDFS LLC has not taken any of the collateral posting actions described in clauses (a) or (b) above. If Santander declares the borrower’s obligations under the Loan Agreement due and payable as a result of an event of default (including with respect to the collateral posting obligations described above), under the terms of the Loan Agreement and the Pledge Agreement, Santander’s ability to rely upon the shares of SC Common Stock subject to the Pledge Agreement is, subject to certain exceptions, limited to the exercise by SHUSA and/or Santander of the right to deliver the call option notice and to consummate the Call Transaction at the price specified in the Shareholders Agreement. If the borrower fails to pay obligations under the Loan Agreement when due, including because of Santander’s declaration of such obligations as due and payable as a result of an event of default, a higher default interest rate will apply to such overdue amounts.
In connection with, and pursuant to, the Separation Agreement, on July 2, 2015, DDFS LLC and Santander entered into an amendment to the Loan Agreement and an amendment to the Pledge Agreement that provide, among other things, that outstanding balance under the Loan Agreement shall become due and payable upon the consummation of the Call Transaction and that the amount otherwise payable to DDFS LLC under the Call Transaction shall be reduced by the amount outstanding under the Loan Agreement, including principal, interest and fees, and further that any net cash proceeds received by DDFS LLC on account of sales of Company Common Stock after the Call End Date shall be applied to the outstanding balance under the Loan Agreement.
On August 31, 2016, Mr. Dundon, DDFS LLC, the Company, Santander and SHUSA entered into a Second Amendment to the Separation Agreement, and Mr. Dundon, DDFS LLC, Santander and SHUSA entered into a Third Amendment to the Shareholders Agreement, whereby the price per share to be paid to DDFS LLC in connection with the Call Transaction was reduced from $26.83 to $26.17, the arithmetic mean of the daily volume-weighted average price for a share of Company common stock for each of the ten consecutive complete trading days immediately prior to July 2, 2015, the date on which the call option was exercised.
On April 17, 2017, the Loan Agreement matured and became due and payable with an unpaid principal balance of approximately $290,000 as of that date. Because the borrower failed to pay obligations under the Loan Agreement on April 17, 2017, the borrower is in default and is currently being charged the default interest rate as defined by the Loan Agreement. The Loan Agreement generally defines the default interest rate as the Base Rate plus 2%. The Base Rate as defined in the Loan Agreement is the higher of (i) the federal funds rate plus ½ of 1% or (ii) the prime rate, which is the annual rate of interest publicly announced by the New York Branch of Santander from time to time. As of April 21, 2017, the prime rate as announced by the New York Branch of Santander was 4%.
The parties continue in discussions on these matters. Any future agreement on these matters would be subject to any required internal and regulatory approvals and execution of definitive documentation.
Other related-party transactions
As of September 30, 2017, Jason Kulas and Mr. Dundon, both being former members of the Board and CEO of the Company, along with a Santander employee who was a member of the Board until the second quarter of 2015, each had a minority equity investment in a property in which the Company leases 373,000 square feet as its corporate headquarters. For the three months ended September 30, 2017 and 2016, the Company recorded $1,275 and $1,361, respectively, in lease expenses on this property and for the nine months ended September 30, 2017 and 2016, the Company recorded $3,836 and $3,832, respectively, in lease expenses on this property. The Company subleases approximately13,000 square feet of its corporate office space to SBNA. For the three months ended September 30, 2017 and 2016, the Company recorded $41 in sublease revenue on this property, and for the nine months ended September 30, 2017 and 2016, the Company recorded $122 in sublease revenue on this property. Future minimum lease payments over the remainder of the 9-year term of the lease, which extends through 2026, total $64,050.
The Company's wholly-owned subsidiary, Santander Consumer International Puerto Rico, LLC (SCI), opened deposit accounts with Banco Santander Puerto Rico, an affiliated entity. As of September 30, 2017 and December 31, 2016, SCI had cash of $72,170 and $98,836, respectively, on deposit with Banco Santander Puerto Rico.
During 2015, Santander Investment Securities Inc. (SIS), an affiliated entity, purchased an investment of $2,000 in the Class A3 notes of CCART 2013-A, a securitization Trust formed by the Company in 2013. Although CCART 2013-A is not a consolidated entity of the Company, the Company continues to service the assets of the associated trust. SIS also serves as co-manager on certain of the Company’s securitizations. Amounts paid to SIS as co-manager for the three months ended September 30, 2017 and 2016, totaled $100 and zero, respectively, and totaled $1,259 and $1,049 for the nine months ended September 30, 2017 and 2016, respectively, and are included in debt issuance costs in the accompanying condensed consolidated financial statements.
Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract with the Company to provide professional services, telecommunications, and internal and/or external applications. Expenses incurred, which are included as a component of other operating costs in the accompanying consolidated statements of income, totaled $16 and $64 for the three and nine months ended September 30, 2016. No such expenses were incurred for the three and nine months ended September 30, 2017.
The Company is party to an MSA with a company in which it has a cost method investment and holds a warrant to increase its ownership if certain vesting conditions are satisfied. This cost method investment was carried at a value of zero in the Company's condensed consolidated balance sheets as of September 30, 2017, as it had been fully impaired. The MSA enables the Company to review point-of-sale credit applications of retail store customers. During the six months ending June 30, 2016, the Company did not originate any loans under the MSA and effective August 17, 2016, the Company ceased funding new originations from all of the retailers for which it reviews credit applications under this MSA.
Beginning in 2017, the Company and SBNA entered into a Credit Card Agreement (Card Agreement) whereby SBNA will provide credit card services for travel and related business expenses and for vendor payments. This service is at zero cost but generate rebates based on purchases made. As at September 30, 2017, the activities associated with the program were insignificant.
Effective April 1, 2017, the Company contracted Aquanima, a Santander affiliate, to provide procurement services. Expenses incurred totaled $142 and $354 for the three and nine months ended September 30, 2017. As of September 30, 2017, the amount outstanding was $354.
| |
12. | Computation of Basic and Diluted Earnings per Common Share |
Earnings per common share (EPS) is computed using the two-class method required for participating securities. Restricted stock awards whereby the holders of such shares have non-forfeitable dividend rights in the event of a declaration of a dividend on the Company’s common shares are considered to be participating securities.
The calculation of diluted EPS excludes 778,019 employee stock option awards for the three and nine months ended September 30, 2017, as the effect of those securities would be anti-dilutive if exercised and issued. The calculation of diluted EPS excludes 1,933,659 employee stock option awards for the three and nine months ended September 30, 2016, as the effect of those securities would be anti-dilutive if exercised and issued.
Restricted stock units of zero and 620,625 for three and nine months ended September 30, 2017 (nil for three and nine months ended September 30, 2016), respectively, were excluded from the calculation of diluted EPS as the effect of those securities would be anti-dilutive.
The following table represents EPS numbers for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Earnings per common share | | | | | | | |
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
Weighted average number of common shares outstanding before restricted participating shares (in thousands) | 359,496 |
| | 357,994 |
| | 359,274 |
| | 357,830 |
|
Weighted average number of participating restricted common shares outstanding (in thousands) | 123 |
| | 350 |
| | 123 |
| | 350 |
|
Weighted average number of common shares outstanding (in thousands) | 359,619 |
| | 358,344 |
| | 359,397 |
| | 358,180 |
|
| Earnings per common share | $ | 0.55 |
| | $ | 0.60 |
| | $ | 1.69 |
| | $ | 1.97 |
|
| Earnings per common share - assuming dilution | | | | | | | |
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
Weighted average number of common shares outstanding (in thousands) | 359,619 |
| | 358,344 |
| | 359,397 |
| | 358,180 |
|
Effect of employee stock-based awards (in thousands) | 841 |
| | 1,743 |
| | 672 |
| | 1,455 |
|
Weighted average number of common shares outstanding - assuming dilution (in thousands) | 360,460 |
| | 360,088 |
| | 360,069 |
| | 359,635 |
|
| Earnings per common share - assuming dilution | $ | 0.55 |
| | $ | 0.59 |
| | $ | 1.69 |
| | $ | 1.96 |
|
| |
13. | 10. Fair Value of Financial Instruments |
Fair value measurement requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that can be accessed as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 inputs are those that are unobservable or not readily observable for the asset or liability and are used to measure fair value to the extent relevant observable inputs are not available.
Financial Instruments Disclosed, But Not Carried, At Fair Value
The following tables present the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at September 30, 2017 and December 31, 2016, and the level within the fair value hierarchy:
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Carrying
Value | | Estimated
Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | |
| Cash and cash equivalents (a) | $ | 397,311 |
| | $ | 397,311 |
| | $ | 397,311 |
| | $ | — |
| | $ | — |
|
| Finance receivables held for investment, net (b) | 22,540,414 |
| | 23,590,105 |
| | — |
| | — |
| | 23,590,105 |
|
| Restricted cash (a) | 2,559,246 |
| | 2,559,246 |
| | 2,559,246 |
| | — |
| | — |
|
| Total | $ | 25,496,971 |
| | $ | 26,546,662 |
| | $ | 2,956,557 |
| | $ | — |
| | $ | 23,590,105 |
|
| Liabilities: | | | | | | | | | |
| Notes payable — credit facilities (c) | $ | 4,965,888 |
| | $ | 4,965,888 |
| | $ | — |
| | $ | — |
| | $ | 4,965,888 |
|
| Notes payable — secured structured financings (d) | 23,258,363 |
| | 23,541,974 |
| | — |
| | 13,889,699 |
| | 9,652,275 |
|
| Notes payable — related party (e) | 2,369,850 |
| | 2,369,850 |
| | — |
| | — |
| | 2,369,850 |
|
| Total | $ | 30,594,101 |
| | $ | 30,877,712 |
| | $ | — |
| | $ | 13,889,699 |
| | $ | 16,988,013 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Carrying
Value | | Estimated
Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | |
| Cash and cash equivalents (a) | $ | 160,180 |
| | $ | 160,180 |
| | $ | 160,180 |
| | $ | — |
| | $ | — |
|
| Finance receivables held for investment, net (b) | 23,456,506 |
| | 24,630,599 |
| | — |
| | — |
| | 24,630,599 |
|
| Restricted cash (a) | 2,757,299 |
| | 2,757,299 |
| | 2,757,299 |
| | — |
| | — |
|
| Total | $ | 26,373,985 |
| | $ | 27,548,078 |
| | $ | 2,917,479 |
| | $ | — |
| | $ | 24,630,599 |
|
| Liabilities: | | | | | | | | | |
| Notes payable — credit facilities (c) | $ | 6,739,817 |
| | $ | 6,739,817 |
| | $ | — |
| | $ | — |
| | $ | 6,739,817 |
|
| Notes payable — secured structured financings (d) | 21,608,889 |
| | 21,712,691 |
| | — |
| | 13,530,045 |
| | 8,182,646 |
|
| Notes payable — related party (e) | 2,975,000 |
| | 2,975,000 |
| | — |
| | — |
| | 2,975,000 |
|
| Total | $ | 31,323,706 |
| | $ | 31,427,508 |
| | $ | — |
| | $ | 13,530,045 |
| | $ | 17,897,463 |
|
| |
(a) | Cash and cash equivalents and restricted cash — The carrying amount of cash and cash equivalents, including restricted cash, is at an approximated fair value as the instruments mature within 90 days or less and bear interest at market rates.
|
| |
(b) | Finance receivables held for investment, net — Finance receivables held for investment, net are carried at amortized cost, net of an allowance. The estimated fair value for the underlying financial instruments are determined as follows:
|
Retail installment contracts held for investment, net — The estimated fair value is calculated based on a DCF in which the Company uses significant unobservable inputs on key assumptions, including
historical default rates and adjustments to reflect prepayment rates, expected recovery rates, discount rates reflective of the cost of funding, and credit loss expectations.
Receivables from dealers held for investment and Capital lease receivables, net — Receivables from dealers held for investment are carried at amortized cost, net of credit loss allowance. Capital lease receivables are carried at gross investment, net of unearned income and allowance for lease losses. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.
| |
(c) | Notes payable — credit facilities — The carrying amount of notes payable related to revolving credit facilities is estimated to approximate fair value. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements as the facilities are subject to short-term floating interest rates that approximate rates available to the Company.
|
| |
(d) | Notes payable — secured structured financings — The estimated fair value of notes payable related to secured structured financings is calculated based on market observable prices and spreads for the Company's publicly traded debt and market observed prices of similar notes issued by the Company, or recent market transactions involving similar debt with similar credit risks, which are considered level 2 inputs. The estimated fair value of notes payable related to privately issued amortizing notes is calculated based on a combination of discounted cash flow analysis and market observable spreads for similar liabilities in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations, which are considered level 3 inputs.
|
| |
(e) | Notes payable — related party — The carrying amount of notes payable to a related party is estimated to approximate fair value as the facilities are subject to short-term floating interest rates that approximate rates available to the Company.
|
Financial Instruments Measured At Fair Value On Aon a Recurring Basis
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2017March 31, 2021 and December 31, 2016,2020, and the level within the fair value hierarchy: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Balance at March 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | Balance at December 31, 2020 | |
| Other assets: | | | | | | | | | | | | | | | | |
| Trading interest rate caps (a) | $ | — | | | $ | 15,783 | | | $ | — | | | $ | 15,783 | | | $ | — | | | $ | 4,617 | | | $ | — | | | $ | 4,617 | | |
| Cash flow hedging interest rate swaps (a) | — | | | 765 | | | — | | | $ | 765 | | | — | | | 123 | | | — | | | $ | 123 | | |
| | | | | | | | | | | | | | | | |
| Available-for-sale-debt securities (b) | — | | | 95,689 | | | — | | | $ | 95,689 | | | — | | | 95,654 | | | — | | | $ | 95,654 | | |
| Retail installment contracts (c)(d) | — | | | — | | | 3,965 | | | $ | 3,965 | | | — | | | — | | | 5,614 | | | $ | 5,614 | | |
| Other liabilities: | | | | | | | | | | | | | | | | |
| Trading options for interest rate caps (a) | — | | | 15,783 | | | — | | | $ | 15,783 | | | — | | | 4,617 | | | — | | | $ | 4,617 | | |
| Cash flow hedging interest rate swaps (a) | — | | | 59,147 | | | — | | | $ | 59,147 | | | — | | | 70,589 | | | — | | | $ | 70,589 | | |
| Trading interest rate swaps (a) | — | | | 11,119 | | | — | | | $ | 11,119 | | | — | | | 12,934 | | | — | | | $ | 12,934 | | |
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2017 |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Other assets — trading interest rate caps (a) | $ | 111,515 |
| | $ | — |
| | $ | 111,515 |
| | $ | — |
|
| Due from affiliates — trading interest rate caps (a) | 5,053 |
| | — |
| | 5,053 |
| | — |
|
| Other assets — cash flow hedging interest rate swaps (a) | 35,381 |
| | — |
| | 35,381 |
| | — |
|
| Due from affiliates — cash flow hedging interest rate swaps (a) | 4,605 |
| | — |
| | 4,605 |
| | — |
|
| Other assets — trading interest rate swaps (a) | 7,364 |
| | — |
| | 7,364 |
| | — |
|
| Due from affiliates — trading interest rate swaps (a) | 1,437 |
| | — |
| | 1,437 |
| | — |
|
Other assets — trading options for interest rate caps (a)
| 16,529 |
| | — |
| | 16,529 |
| | — |
|
Due from affiliates — trading options for interest rate caps (a)
| 9,775 |
| | — |
| | 9,775 |
| | — |
|
| Other liabilities — trading options for interest rate caps (a) | 111,510 |
| | — |
| | 111,510 |
| | — |
|
| Due to affiliates — trading options for interest rate caps (a) | 5,053 |
| | — |
| | 5,053 |
| | — |
|
| Other liabilities — trading interest rate caps (a) | 16,480 |
| | — |
| | 16,480 |
| | — |
|
| Due to affiliates — trading interest rate caps (a) | 9,775 |
| | — |
| | 9,775 |
| | — |
|
| Retail installment contracts acquired individually (c) | 24,799 |
| | — |
| | — |
| | 24,799 |
|
(b)The Company's AFS debt securities includes U.S. Treasury securities that are valued utilizing observable market quotes. The Company obtains vendor trading platform data (actual prices) from a number of live data sources, including active market makers and interdealer brokers and its securities are therefore, classified as Level 2.
(c)The fair values of the retail installment contracts are estimated using a DCF model are classified as Level 3. Changes in the fair value are recorded in investment gains (losses), net in the consolidated statement of income.
(d)The aggregate fair value of retail installment contracts in non-accrual status, as of March 31, 2021 and December 31, 2020, is $656 and $1,129, respectively. |
| | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2016 |
| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Other assets — trading interest rate caps (a) | $ | 68,676 |
| | $ | — |
| | $ | 68,676 |
| | $ | — |
|
| Due from affiliates — trading interest rate caps (a) | 7,593 |
| | — |
| | 7,593 |
| | — |
|
| Other assets — cash flow hedging interest rate swaps (a) | 41,471 |
| | — |
| | 41,471 |
| | — |
|
| Due from affiliates — cash flow hedging interest rate swaps (a) | 4,080 |
| | — |
| | 4,080 |
| | — |
|
| Other assets — trading interest rate swaps (a) | 783 |
| | — |
| | 783 |
| | — |
|
| Due from affiliates — trading interest rate swaps (a) | 1,292 |
| | — |
| | 1,292 |
| | — |
|
| Other liabilities — trading options for interest rate caps (a) | 68,688 |
| | — |
| | 68,688 |
| | — |
|
| Due to affiliates — trading options for interest rate caps (a) | 7,593 |
| | — |
| | 7,593 |
| | — |
|
| Other liabilities — cash flow hedging interest rate swaps (a) | 482 |
| | — |
| | 482 |
| | — |
|
| Due to affiliates — cash flow hedging interest rate swaps (a) | 451 |
| | — |
| | 451 |
| | — |
|
| Other liabilities — trading interest rate swaps (a) | 42 |
| | — |
| | 42 |
| | — |
|
| Due to affiliates — trading interest rate swaps (a) | 95 |
| | — |
| | 95 |
| | — |
|
| Other liabilities — total return settlement (a,b) | 30,618 |
| | — |
| | — |
| | 30,618 |
|
| Retail installment contracts acquired individually (c) | 24,495 |
| | — |
| | — |
| | 24,495 |
|
| |
(a) | The valuation is determined using widely accepted valuation techniques including a DCF on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement of its derivatives. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings and guarantees. The Company utilizes the exception in ASC 820-10-35-18D (commonly referred to as the “portfolio exception”) with respect to measuring counterparty credit risk for instruments (Note 7). |
| |
(b) | The significant unobservable inputs for total return settlement derivative contracts used in the fair value measurement of the Company's liabilities are discount percentages, which are based on comparable financial instruments. |
| |
(c) | For certain retail installment contracts reported in finance receivables held for investment, net, the Company has elected the fair value option. The fair values of the retail installment contracts are estimated using a DCF model. When estimating the fair value using this model, the Company uses significant unobservable inputs on key assumptions, which includes historical default rates and adjustments to reflect prepayment rates based on available data from a comparable market securitization of similar assets, discount rates reflective of the cost of funding of debt issuance and recent historical equity yields, and recovery rates based on the average severity utilizing reported severity rates and loss severity utilizing available market data from a comparable securitized pool. Accordingly, retail installment contracts held for investment are classified as Level 3. Changes in the fair value are recorded in investment gains (losses), net in the condensed consolidated statement of income. |
The following table presents the changes in retail installment contracts held for investment balances classified as Level 3 balances for the three and nine months ended September 30, 2017March 31, 2021 and 2016: 2020: | | | | | | | | | | | | | | | | | | |
| | | | | | |
| Three Months Ended March 31, | | | | | |
| 2021 | | 2020 | | | | | | | |
| Balance — beginning of year | $ | 5,614 | | | $ | 4,719 | | | | | | | | |
| Additions / issuances | — | | | 2,512 | | | | | | | | |
| Transfer from level 2 (a) | — | | | 17,634 | | | | | | | | |
| Net collection activities | (1,649) | | | (9,680) | | | | | | | | |
| Gains recognized in earnings | — | | | 122 | | | | | | | | |
| Balance — end of year | $ | 3,965 | | | $ | 15,307 | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Balance — beginning of period | $ | 30,489 |
| | $ | 12,602 |
| | $ | 24,495 |
| | $ | 6,770 |
|
| Additions / issuances | — |
| | 11,838 |
| | 19,727 |
| | 23,712 |
|
| Net collection activities | (6,517 | ) | | (5,740 | ) | | (23,640 | ) | | (11,782 | ) |
| Gains recognized in earnings | 827 |
| | — |
| | 4,217 |
| | — |
|
| Balance — end of period | $ | 24,799 |
| | $ | 18,700 |
| | $ | 24,799 |
| | $ | 18,700 |
|
(a) The following table presents the changes in the total return settlement balance, which is classified asCompany transferred retail installment contracts from Level 2 to Level 3 for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Balance — beginning of period | $ | 31,123 |
| | $ | 53,543 |
| | $ | 30,618 |
| | $ | 53,432 |
|
| (Gains)/losses recognized in earnings | — |
| | (343 | ) | | 505 |
| | 2,337 |
|
| Settlements | (31,123 | ) | | (23,336 | ) | | (31,123 | ) | | (25,905 | ) |
| Balance — end of period | $ | — |
| | $ | 29,864 |
| | $ | — |
| | $ | 29,864 |
|
The Company did not have any transfers between Levels 1 and 2 during the three and nine months ended September 30, 2017 and 2016.March 31, 2020 because the fair value for these assets could not be determined by using readily observable inputs at March 31, 2020. There werewere no amounts transferred intoother material transfers in or out of Level 3 during the three and nine months ended March 31, 2021 and September 30, 2017 and 2016.2020.
Financial Instruments Measured At Fair Value On Aon a Nonrecurring Basis
The following table presents the Company’s assets and liabilities that are measured at fair value on a nonrecurring basis at September 30, 2017March 31, 2021 and December 31, 2016, and the level within2020, respectively: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 | | Year Ended December 31, 2020 |
| Total | | Lower of cost or fair value expense | | Total | | Lower of cost or fair value expense |
| Other assets — vehicles (a) | $ | 371,110 | | | $ | — | | | $ | 311,557 | | | $ | — | |
| Personal loans held for sale (b) | — | | | — | | | 893,479 | | | 355,136 | |
| Retail installment contracts held for sale | — | | | — | | | 674,048 | | | $ | 7,385 | |
| Auto loans impaired due to bankruptcy (c) | 175,401 | | | — | | | 191,785 | | | — | |
(a) The Company estimates the fair value hierarchy:of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market levels of used car prices.
(b) The estimated fair value for personal loans held for sale is calculated based on the lower of market participant view and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions. The lower of cost or fair value adjustment for personal loans held for sale includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period. On March 31, 2021, the Company sold the personal lending portfolio. Refer to Note 1 – “ Description of Business, Basis of Presentation, and Accounting Principles” to these Condensed Consolidated Financial Statements for more information. |
| | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2017 |
| | Total | | Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Lower of cost or fair value expense for the nine months ended September 30, 2017 |
| Other assets — vehicles (a) | $ | 206,076 |
| | $ | — |
| | $ | 206,076 |
| | $ | — |
| | $ | — |
|
| Personal loans held for sale (b) | 929,549 |
| | — |
| | — |
| | 929,549 |
| | 237,980 |
|
| Retail installment contracts held for sale (c) | 845,910 |
| | — |
| | — |
| | 845,910 |
| | 8,542 |
|
| Auto loans impaired due to bankruptcy (d) | 101,990 |
| | — |
| | 101,990 |
| | — |
| | 65,584 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2016 |
| | Total | | Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Lower of cost or fair value expense for the year ended December 31, 2016 |
| Other assets — vehicles (a) | $ | 257,382 |
| | $ | — |
| | $ | 257,382 |
| | $ | — |
| | $ | — |
|
| Personal loans held for sale (b) | 1,077,600 |
| | — |
| | — |
| | 1,077,600 |
| | 414,703 |
|
| Retail installment contracts held for sale (c) | 1,045,815 |
| | — |
| | — |
| | 1,045,815 |
| | 8,913 |
|
| |
(a) | The Company estimates the fair value of its vehicles, which are obtained either through repossession or lease termination, using historical auction rates and current market levels of used car prices. |
| |
(b) | Represents the portion of the portfolio specifically impaired as of period-end. The estimated fair value for personal loans held for sale is calculated based on a combination of estimated cash flows and market rates for similar loans with similar credit risks and a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including historical default rates and adjustments to reflect prepayment rates, discount rates reflective of the cost of funding, and credit loss expectations. The lower of cost or fair value adjustment for personal loans held for sale includes customer default activity and adjustments related to the net change in the portfolio balance during the reporting period. |
| |
(c) | The estimated fair value is calculated based on a DCF analysis in which the Company uses significant unobservable inputs on key assumptions, including expected default rates, prepayment rates, recovery rates, and discount rates reflective of the cost of funds and appropriate rate of returns. |
| |
(d) | For loans that are considered collateral-dependent, such as certain bankruptcy loans, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. For the underlying collateral, the estimated fair value is obtained using historical auction rates and current market levels of used car prices. |
Quantitative Information about Level 3 Fair Value Measurements
The following table presents quantitative information about the significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2017:March 31, 2021 and December 31, 2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial Instruments | | Fair Value at March 31, 2021 | | Valuation Technique | | Unobservable Inputs | | Range (weighted average) (a) |
| Financial Assets: |
| Retail installment contracts held for investment | | $ | 3,965 | | | Discounted Cash Flow | | Discount Rate | | 7%-13% (8%) |
| Default Rate | 4%-20% (6%) |
| Prepayment Rate | 4%-15% (15%) |
| Loss Severity Rate | 50%-60% (55%) |
| | | | | | | | |
| |
| |
| |
|
| |
| |
| |
| | | | | | | | |
| |
| |
| |
(a) Weighted average was developed by weighting the associated relative unpaid principal balances.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial Instruments | | Fair Value at December 31, 2020 | | Valuation Technique | | Unobservable Inputs | | Range |
| Financial Assets: |
| Retail installment contracts held for investment | | $ | 5,614 | | | Discounted Cash Flow | | Discount Rate | | 7%-11% |
| Default Rate | 4%-20% |
| Prepayment Rate | 15%-25% |
| Loss Severity Rate | 50%-60% |
| Personal loans held for sale | | $ | 893,479 | | | Lower of Market or Income Approach | | Market Approach | | |
| Market Participant View | 60%-70% |
| Income Approach | |
| Discount Rate | 20%-30% |
|
| Default Rate | 35%-45% |
| Net Principal & Interest Payment Rate | 65%-75% |
| Loss Severity Rate | 90%-95% |
| Retail installment contracts held for sale | | $ | 674,048 | | | Discounted Cash Flow | | Discount Rate | | 1.5% - 2.5% |
| Default Rate | 2% - 4% |
| Prepayment Rate | 10% - 20% |
| Loss Severity Rate | 50% - 60% |
| | | | | | | | |
| |
| |
| |
Financial Instruments Disclosed, But Not Carried, At Fair Value
|
| | | | | | | | | | | |
| | Financial Instruments | | Fair Value at September 30, 2017 | | Valuation Technique | | Unobservable Inputs | | Range |
| | Financial Assets: |
| | Retail installment contracts held for investment | | $ | 24,799 |
| | Discounted Cash Flow | | Discount Rate | | 9.0% - 9.5% |
| | Default Rate | 18% - 22% |
| | Prepayment Rate | 6% |
| | Personal loans held for sale | | $ | 929,549 |
| | Market / Income Approach | | Discount Rate | | 15% - 30% |
| |
| | | Default Rate | | 30% - 40% |
| | Retail installment contracts held for sale | | $ | 845,910 |
| | Discounted Cash Flow | | Discount Rate | | 3% - 8% |
| | Default Rate | 3.8% - 8.3% |
| | Prepayment Rate | 17.8% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | December 31, 2020 |
| | Carrying
Value | | Estimated
Fair Value | | Level 1 | | Level 2 | | Level 3 | | Carrying
Value | | Estimated
Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents (a) | | $ | 415,969 | | | $ | 415,969 | | | $ | 415,969 | | | $ | — | | | $ | — | | | $ | 109,053 | | | $ | 109,053 | | | $ | 109,053 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Finance receivables held for investment, net (b) | | 25,905,719 | | | 28,546,529 | | | — | | | — | | | 28,546,529 | | | 26,806,606 | | | 29,464,066 | | | — | | | — | | | 29,464,066 | |
| Restricted cash (a) | | 2,623,565 | | | 2,623,565 | | | 2,623,565 | | | — | | | — | | | 2,221,094 | | | 2,221,094 | | | 2,221,094 | | | — | | | — | |
| Investments in debt securities held to maturity (c) | | 129,484 | | | 130,181 | | | — | | | 130,181 | | | — | | | 44,841 | | | 45,606 | | | — | | | 45,606 | | | — | |
| Total | | $ | 29,074,737 | | | $ | 31,716,244 | | | $ | 3,039,534 | | | $ | 130,181 | | | $ | 28,546,529 | | | $ | 29,181,594 | | | $ | 31,839,819 | | | $ | 2,330,147 | | | $ | 45,606 | | | $ | 29,464,066 | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Notes Payable: | | | | | | | | | | | | | | | | | | | | |
| Facilities with third parties (d) | | $ | 2,348,545 | | | $ | 2,348,545 | | | $ | — | | | $ | — | | | $ | 2,348,545 | | | $ | 4,159,955 | | | $ | 4,159,955 | | | $ | — | | | $ | — | | | $ | 4,159,955 | |
| Secured structured financings (e) | | 25,692,019 | | | 26,122,220 | | | — | | | 20,154,566 | | | 5,967,654 | | | 26,177,401 | | | 26,673,970 | | | — | | | 18,291,898 | | | 8,382,072 | |
| Facilities with Santander and related subsidiaries (f) | | 10,501,060 | | | 10,707,931 | | | — | | | — | | | 10,707,931 | | | 10,801,318 | | | 11,333,823 | | | — | | | — | | | 11,333,823 | |
| Total | | $ | 38,541,624 | | | $ | 39,178,696 | | | $ | — | | | $ | 20,154,566 | | | $ | 19,024,130 | | | $ | 41,138,674 | | | $ | 42,167,748 | | | $ | — | | | $ | 18,291,898 | | | $ | 23,875,850 | |
(a)Cash and cash equivalents and restricted cash — The carrying amount of cash and cash equivalents, including restricted cash, is at an approximated fair value as the instruments mature within 90 days or less and bear interest at market rates.
(b)Finance receivables held for investment, net — Finance receivables held for investment, net are carried at amortized cost, net of an allowance. These receivables exclude retail installment contracts that are measured at fair value on a recurring and nonrecurring basis. The estimated fair value for the underlying financial instruments is determined as follows:
•Retail installment contracts held for investment and purchased receivables - credit deteriorated — The estimated fair value of all finance receivables at March 31, 2021 is estimated using a DCF model, and such receivables are classified as Level 3.
•Finance lease receivables — Finance lease receivables are carried at gross investments, net of unearned income and allowance for lease losses. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements.
(c)Investments in debt securities held to maturity - Investments in debt securities held to maturity are recorded at amortized cost and are priced by third-party pricing vendors. The third-party vendors use a variety of methods when pricing these securities that incorporate relevant observable market data to arrive at an estimate of what a buyer in the marketplace would pay for a security under current market conditions. These investment securities are, therefore, considered Level 2.
(d)Notes payable — facilities with third parties — The carrying amount of notes payable related to revolving credit facilities is estimated to approximate fair value. Management believes that the terms of these credit agreements approximate market terms for similar credit agreements as the facilities are subject to short-term floating interest rates that approximate rates available to the Company.
(e)Notes payable — secured structured financings — The estimated fair value of notes payable related to secured structured financings is calculated based on market observable prices and spreads for the Company’s publicly traded debt and market observed prices of similar notes issued by the Company, or recent market transactions involving similar debt with similar credit risks, which are considered Level 2 inputs. The estimated fair value of notes payable related to privately issued amortizing notes is calculated based on a
combination of credit enhancement review, discounted cash flow analysis and review of market observable spreads for similar liabilities. In conducting this analysis, the Company uses significant unobservable inputs on key assumptions, which are considered Level 3 inputs.
(f)Notes payable — facilities with Santander and related subsidiaries — The carrying amount of floating rate notes payable to a related party is estimated to approximate fair value as the facilities are subject to short-term floating interest rates that approximate rates available to the Company. The fair value premium/discount of the fixed rate promissory notes are derived from changes in the Company’s unsecured cost of funds since the time of issuance and weighted average life of these notes.
11. Investment Losses, Net
When the Company sells retail installment contracts, personal loans or leases to unrelated third parties or to VIEs and determines that such sale meets the applicable criteria for sale accounting, the Company recognizes a gain or loss for the difference between the cash proceeds and carrying value of the assets sold. The gain or loss is recorded in investment gains (losses), net. Lower of cost or market adjustments on the amortized cost of finance receivables held for sale are also recorded in investment gains (losses), net.
Investment gains (losses), net was comprised of the following for the three months ended March 31, 2021 and 2020: | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| March 31, 2021 | | March 31, 2020 | | |
| | | | | | | | | |
| | | | | | | | | |
| Gain (loss) on sale of loans and leases | $ | 16,357 | | | $ | — | | | | | | | |
| Lower of cost or market adjustments | (31,848) | | | (62,958) | | | | | | | |
| Other gains, (losses and impairments), net | 779 | | | (468) | | | | | | | |
| $ | (14,712) | | | $ | (63,426) | | | | | | | |
The lower of cost or market adjustments for the three months ended March 31, 2021 and 2020 included $65,047 and $110,199, respectively, in customer default activity, and favorable adjustments of $33,199 and $47,241 respectively, primarily related to net changes in the unpaid principal balance on the personal lending portfolio.
On March 31, 2021, the Company sold the personal lending portfolio. Refer to Note 1 - “Description of Business, Basis of Presentation, and Accounting Principles” to these Condensed Consolidated Financial Statements for more information.
12. Income Taxes
The Company recorded income tax expense of $234,457 (24.0% effective tax rate) and $(2,458) (38.1% effective tax rate) during the three months ended March 31, 2021 and 2020, respectively. The effective tax rate decreased primarily
due to pre-tax income in the first quarter of 2021 compared to discrete tax adjustments that increased the tax benefit recorded on the pre-tax loss in the first quarter of 2020.
The Company is a party to a tax sharing agreement requiring that the unitary state tax liability among affiliates included in unitary state tax returns be allocated using the hypothetical separate company tax calculation method. The Company had a net receivable from affiliates under the tax sharing agreement of $648 and $11,191 at March 31, 2021 and December 31, 2020, respectively, which was included in related party taxes receivable in the condensed consolidated balance sheet.
The Company provides U.S. income taxes on earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside of the United States. As of March 31, 2021 and December 31, 2020, the Company has no earnings that are considered indefinitely reinvested.
The Company applies an aggregate portfolio approach whereby disproportionate income tax effects from accumulated other comprehensive income are released only when an entire portfolio (i.e., all related units of account) of a particular type is liquidated, sold or extinguished.
Significant judgment is required in evaluating and reserving for uncertain tax positions. Although management believes adequate reserves have been established for all uncertain tax positions, the final outcomes of these matters may differ. Management does not believe the outcome of any uncertain tax position, individually or combined, will
have a material effect on the Company’s business, financial position or results of operations. The reserve for uncertain tax positions, as well as associated penalties and interest, is a component of the income tax provision.
13. Computation of Basic and Diluted Earnings per Common Share
Earnings per common share (“EPS”) is computed using the two-class method required for participating securities. Restricted stock awards are considered to be participating securities because holders of such awards have non-forfeitable dividend rights in the event of a declaration of a dividend on the Company’s common shares.
The calculation of diluted EPS excludes the effect of exercise or settlement that would be anti-dilutive for employee stock options of zero and 34,554 for the three months ended March 31, 2021 and 2020, respectively.
The following table represents EPS numbers for the three months ended March 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | | | |
| | | | | |
| | 2021 | | 2020 | | | | | | |
| Earnings per common share | | | | | | | | | |
| Net income (loss) | $ | 741,655 | | | $ | (3,987) | | | | | | | |
| Weighted average number of common shares outstanding before restricted participating shares (in thousands) | 306,109 | | | 334,026 | | | | | | | |
| | | | | | | | | |
| Weighted average number of common shares outstanding (in thousands) | 306,109 | | | 334,026 | | | | | | | |
| Earnings per common share | $ | 2.42 | | | $ | (0.01) | | | | | | | |
| Earnings per common share - assuming dilution | | | | | | | | | |
| Net income (loss) | $ | 741,655 | | | $ | (3,987) | | | | | | | |
| Weighted average number of common shares outstanding (in thousands) | 306,109 | | | 334,026 | | | | | | | |
| Effect of employee stock-based awards (in thousands) | 216 | | | 320 | | | | | | | |
| Weighted average number of common shares outstanding - assuming dilution (in thousands) | 306,325 | | | 334,346 | | | | | | | |
| Earnings per common share - assuming dilution | $ | 2.42 | | | $ | (0.01) | | | | | | | |
14. Commitments and Contingencies
The following table summarizes liabilities recorded for commitments and contingencies as of March 31, 2021 and December 31, 2020, all of which are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Agreement or Legal Matter | | Commitment or Contingency | | March 31, 2021 | | December 31, 2020 |
| MPLFA | | Revenue-sharing and gain/(loss), net-sharing payments | | $ | 65,446 | | | $ | 43,778 | |
| Agreement with Bank of America | | Servicer performance fee | | 182 | | | 1,200 | |
| Agreement with CBP | | Loss-sharing payments | | 26 | | | 181 | |
| | | | | | |
| Other Contingencies | | Consumer arrangements | | 17,186 | | | 22,155 | |
| Legal and regulatory proceedings | | Aggregate legal and regulatory liabilities | | 28,812 | | | 31,936 | |
| | Total commitments and contingencies | | $ | 111,652 | | | $ | 99,250 | |
Following is a description of the agreements and legal matters pursuant to which the liabilities in the preceding table were recorded.
MPLFA
Underterms of the MPLFA, the Company must make revenue sharing payments to Stellantis N.V. and also must share with Stellantis N.V. when residual gains/(losses) on leased vehicles exceed a specified threshold. The Company had accrued $65,446 and $43,778 at March 31, 2021 and December 31, 2020, respectively, related to these obligations. The MPLFA also requires that the Company maintain at least $5.0 billion in funding available for Floorplan Loans and $4.5 billion of financing dedicated to Stellantis N.V. retail financing. In turn, Stellantis N.V. must provide designated minimum threshold percentages of its subvention business to the Company.
Agreement with Bank of America
Until January 2017, the Company had a flow agreement with Bank of America whereby the Company was committed to selling up to $300,000 of eligible loans to the bank each month. The Company retains servicing on all sold loans and may receive or pay a servicer performance payment based on an agreed-upon formula if performance on the sold loans is better or worse, respectively, than expected performance at time of sale. Servicer performance payments are due six years from the cut-off date of each loan sale. The Company had accrued $182 and $1,200 at March 31, 2021 and December 31, 2020, respectively, related to this obligation.
Agreement with CBP
Until May 2017, the Company sold loans to CBP under terms of a flow agreement and predecessor sale agreements. The Company retained servicing on the sold loans and owes CBP a loss-sharing payment capped at 0.5% of the original pool balance if losses exceed a specified threshold, established on a pool-by-pool basis. Loss-sharing payments are due the month in which net losses exceed the established threshold of each loan sale. The Company had accrued $26 and $181 at March 31, 2021 and December 31, 2020, respectively, related to the loss-sharing obligation.
Other Contingencies
The Company is or may be subject to potential liability under various other contingent exposures. The Company had accrued $17,186 and $22,155 at March 31, 2021 and December 31, 2020, respectively, for other miscellaneous contingencies.
Legal and regulatory proceedings
Periodically, the Company, including its subsidiaries, is and in the future expects to be party to, or otherwise involved in, various claims, disputes, lawsuits, investigations, regulatory matters and other legal matters and proceedings that arise in the ordinary course of business. In view of the inherent difficulty of predicting the outcome of any such claims, disputes, lawsuit, investigations, regulatory matter or legal proceeding, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of the matters, or the eventual loss, fines or penalties related to the matter, if any. Accordingly, except as provided below, the company is unable to reasonably estimate a range of its potential exposure, if any, to these claims, disputes, lawsuits, investigations, regulatory matters, and other legal proceedings at this time. Further, it is reasonably possible that actual outcomes or losses may differ materially from the Company’s current assessments and estimates and any adverse resolution of any of these matters against it could materially and adversely affect the Company’s business, financial position, liquidity, and results of operation.
In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and, regulatory proceedings when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a legal or regulatory proceeding develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether the matter presents a loss contingency that is probable and estimable. If a determination is made during a given quarter that a loss contingency is probable and estimable, an accrued liability is established during such quarter with respect to such loss contingency and the Company continues to monitor the matter for further developments that could affect the amount of the accrued liability previously established.
As of March 31, 2021 and December 31, 2020, the Company accrued aggregate legal and regulatory liabilities of $29 million and $32 million, respectively. Further, the Company estimates the aggregate range of reasonably possible losses for legal and regulatory proceedings, in excess of reserves established, is zero as of March 31, 2021. Set forth below are descriptions of the material lawsuits, regulatory matters and other legal proceedings to which the Company is subject.
Shareholder Derivative Lawsuit
•Seattle City Employees’ Retirement System v. Santander Holdings USA, Inc., et al.: In November 2020, a shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Seattle
City v. Santander Holdings USA, Inc., C.A. No. 2020-0977-AGB. The plaintiff seeks unspecified monetary damages and other injunctive relief in the complaint. The complaint alleges, among other things, that SHUSA and the current director breached their fiduciary duties by causing the Company to engage in share repurchases for the purpose of increasing SHUSA’s ownership of the company above 80%, which the complaint alleges would allow SHUSA to obtain tax and other benefits not available to the rest of the Company’s shareholders.
Consumer Lending Cases
The Company is also party to various lawsuits pending in federal and state courts alleging violations of state and federal consumer lending laws, including, without limitation, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, Fair Credit Reporting Act, Section 5 of the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Truth in Lending Act, wrongful repossession laws, usury laws and laws related to unfair and deceptive acts or practices. In general, these cases seek damages and equitable and/or other relief.
Regulatory Investigations and Proceedings
The Company is party to, or is periodically otherwise involved in, reviews, investigations, examinations and proceedings (both formal and informal), and information-gathering requests, by government and self-regulatory agencies, including the FRBB, the CFPB, the DOJ, the SEC, the FTC and various state regulatory and enforcement agencies.
Currently, such matters include, but are not limited to, the following:
•Mississippi Attorney General Lawsuit: In January 2017, the Attorney General of Mississippi filed a lawsuit against the Company in the Chancery Court of the First Judicial District of Hinds County, Mississippi, captioned State of Mississippi ex rel. Jim Hood, Attorney General of the State of Mississippi v. Santander Consumer USA Inc., C.A. # G-2017-28. The complaint alleges that the Company engaged in unfair and deceptive business practices to induce Mississippi consumers to apply for loans that they could not afford. The complaint asserts claims under the Mississippi Consumer Protection Act (the MCPA) and seeks unspecified civil penalties, equitable relief and other relief.
Agreements
•Bluestem
The Company is party to agreements with Bluestem whereby the Company is committed to purchase certain new advances on personal revolving financings receivables, along with existing balances on account with new advances originated by Bluestem through April 2022.
During the first quarter, the Company completed the sale of the Bluestem personal lending portfolio to a third party. In addition, the Company executed a forward flow sale agreement with a third party to purchase all personal lending receivables that the Company purchases from Bluestem through the term of the agreement with Bluestem.
As of March 31, 2021 and December 31, 2020, the total unused credit available to customers was zero and $2.7 billion, respectively. In 2021, the Company purchased $0.3 billion of receivables, out of the $2.7 billion unused credit available to customers as of December 31, 2020. In 2020, the Company purchased $1.2 billion of receivables, out of the $3.0 billion unused credit available to customers as of December 31, 2019. In addition, the Company purchased $24,865 and $20,943 of receivables related to newly opened customer accounts during three months ended March 31, 2021 and 2020, respectively.
Each customer account generated under the agreements, generally, is approved with a credit limit higher than the amount of the initial purchase, with each subsequent purchase automatically approved as long as it does not cause the account to exceed its limit and the customer is in good standing. As of March 31, 2021 and December 31, 2020, the Company was obligated to purchase zero and $14,222, respectively, in receivables that had been originated by Bluestem but not yet purchased by the Company.
•Others
Under terms of an application transfer agreement with Nissan, the Company has the first opportunity to review for its own portfolio any credit applications turned down by the Nissan’s captive finance company. The agreement does not require the Company to originate any loans, but for each loan originated by the Company, it will pay Nissan a referral fee.
In connection with the sale of retail installment contracts through securitizations and other sales, the Company has made standard representations and warranties customary to the consumer finance industry. Violations of these representations and warranties may require the Company to repurchase loans previously sold to on- or off-balance sheet Trusts or other third parties. As of March 31, 2021, there were no loans that were the subject of a demand to repurchase or replace for breach of representations and warranties for the Company’s asset-backed securities or other sales. In the opinion of management, the potential exposure of other recourse obligations related to the Company’s retail installment contract sales agreements is not expected to have a material adverse effect on the Company’s business, financial position, results of operations, or cash flows.
Santander has provided guarantees on the covenants, agreements, and obligations of the Company under the governing documents of its warehouse lines and privately issued amortizing notes. These guarantees are limited to the obligations of the Company as servicer.
In November 2015, the Company executed a forward flow asset sale agreement with a third party under terms of which the Company committed to sell $350,000 in charged off loan receivables in bankruptcy status on a quarterly basis. However, any sale more than $275,000 is subject to a market price check. The remaining aggregate commitment as of March 31, 2021 and December 31, 2020, not subject to market price check was $15,318.
These matters are ongoing and could in the future result in the imposition of damages, fines or other penalties. No assurance can be given that the ultimate outcome of these matters or any resulting proceedings would not materially and adversely affect the Company’s business, financial condition and results of operations.
15. Related-Party Transactions
Related-party transactions not otherwise disclosed in these footnotes to the condensed consolidated financial statements include the following:
Credit Facilities
Interest expense, including unused fees, for lines of credit from SHUSA (Note 7) totaled $74,019 and $63,018 for the three months ended March 31, 2021 and 2020, respectively. Accrued interest for lines of credit from SHUSA at March 31, 2021 and December 31, 2020 was $38,314 and $40,234, respectively.
Interest expense, including unused fees, for lines of credit from Santander (Note 7) totaled $11,885 and zero for the three months ended March 31, 2021 and 2020, respectively. Accrued interest for lines of credit from Santander at March 31, 2021 and December 31, 2020 was $1,609 and $1,603, respectively.
Derivatives
The Company has derivative financial instruments with Santander and affiliates with outstanding notional amounts of
$2,984,250 and $3,148,850 as of March 31, 2021 and December 31, 2020, respectively (Note 9). The Company had a collateral overage on derivative liabilities with Santander and affiliates of zero and $907 as of March 31, 2021 and December 31, 2020, respectively.
Retail Installment Contracts and RV Marine
The Company also has agreements with SBNA to service auto retail installment contracts and recreational and marine vehicle portfolios.
Servicing fee income recognized under these agreements totaled $402 and $553 for the three months ended March 31, 2021 and 2020, respectively. Other information on the serviced auto loan and retail installment contract portfolios for
SBNA as of March 31, 2021 and December 31, 2020 is as follows: | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| Total serviced portfolio | $ | 171,450 | | | $ | 190,504 | |
| Cash collections due to owner | 24,281 | | | 19,650 | |
| Servicing fees receivable | 2,788 | | | 1,769 | |
Dealer Lending
Under the Company’s agreement with SBNA, the Company is required to permit SBNA a first right to review and assess CCAP dealer lending opportunities, and SBNA is required to pay the Company an origination fee for each loan originated under the agreement. The agreement also transferred the servicing of all CCAP receivables from dealers, including receivables held by SBNA to the Company and from the Company to SBNA. The Company may provide advance funding for dealer loans originated by SBNA, which is reimbursed to the Company by SBNA. The Company had no outstanding receivable from SBNA as of March 31, 2021 or December 31, 2020 for such advances.
Other information related to the above transactions with SBNA is as follows: | | | | | | | | | | | | | | | | | |
| | | | | |
| Three Months Ended | | | | |
| | March 31, 2021 | | March 31, 2020 | | | | | | |
| Origination and renewal fee income from SBNA | $ | — | | | $ | 1,509 | | | | | | | |
| Servicing fees expenses charged by SBNA | 90 | | | 74 | | | | | | | |
Under the agreement with SBNA, the Company may originate retail consumer loans in connection with sales of vehicles that are collateral held against floorplan loans by SBNA. Upon origination, the Company remits payment to SBNA, which settles the transaction with the dealer. The Company owed SBNA $9,073 and $7,548 related to such originations as of March 31, 2021 and December 31, 2020, respectively.
The Company received a $9,000 referral fee in connection with a sourcing and servicing arrangement and is amortizing the fee into income over the ten-year term of the agreement through July 1, 2022, the termination date of the agreement. As of March 31, 2021 and December 31, 2020, the unamortized fee balance was $2,025 and $2,250, respectively. The Company recognized $225 of income related to the referral fee for the three months ended March 31, 2021 and 2020, respectively.
Origination Support Services
Beginning in 2018, the Company agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchase of retail loans, primarily from Stellantis N.V. dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. For the three months ended March 31, 2021 and 2020, the Company facilitated the purchase of $2.0 billion and $1.1 billion of retail installment contacts, respectively. The Company recognized origination fee and servicing fee income of $11,566 and $10,488 for the three months ended March 31, 2021 and 2020, respectively, of which $4,120 is receivable as of March 31, 2021 and $970 was payable as of March 31, 2020.
Securitizations
The Company had a Master Securities Purchase Agreement (MSPA) with Santander, whereby the Company had the option to sell a contractually determined amount of eligible prime loans to Santander, through the SPAIN securitization platform, for a term that ended in December 2018. The Company provides servicing on all loans originated under this arrangement. For the three months ended March 31, 2021 and 2020, the Company received the servicing fee income of $2,889 and $5,973, respectively, for the servicing of these loans.
Servicing fee receivable, as of March 31, 2021 and December 31, 2020, was $914 and $1,070, respectively. The Company had $6,147 and $6,203 of collections due to Santander, as of March 31, 2021 and December 31, 2020, respectively.
Santander Investment Securities Inc. (SIS), an affiliated entity, serves as joint book runner and co-manager on certain of the Company’s securitizations. Amounts paid to SIS for the three months ended March 31, 2021 and 2020, totaled $1,192 and $808, respectively, and are included in debt issuance costs in the accompanying condensed consolidated financial statements.
Employee compensation
Sandra Broderick is Head of Operations and Executive Vice President of the Company and Head of Operations and Senior Executive Vice President of SHUSA. During the three months ended March 31, 2021, SHUSA owed the Company $48 for the share of compensation expense based on time allocation between her services to the Company and SHUSA.
In addition, certain employees of the Company and SHUSA provide services to each other. For the three months ended March 31, 2021 and 2020, the Company owed SHUSA approximately $4,896 and $4,479 and SHUSA owed the Company approximately $2,303 and $1,518 for such services, respectively.
Other related-party transactions
•The Company subleases approximately 13,000 square feet of its corporate office space to SBNA. For the three months ended March 31, 2021 and 2020, the Company recorded $44 in sublease revenue on this property.
•The Company has certain deposit and checking accounts with SBNA. As of March 31, 2021 and December 31, 2020, the Company had a balance of $356,911 and $32,490, respectively, in these accounts.
•The Company and SBNA have a Credit Card Agreement (Card Agreement) whereby SBNA provides credit card services for travel and related business expenses for vendor payments. This service is at zero cost but generates rebates based on purchases made. As of March 31, 2021, the activities associated with the program were insignificant.
•The Company pays SBNA a market rate-based fee expense for payments made at SBNA retail branch locations for accounts originated or serviced by the Company and the costs associated with modifying the Advanced Teller platform to the payments. The Company incurred expenses $33 and $58 for the three months ended March 31, 2021 and 2020, respectively.
•The Company has contracted Aquanima, a Santander affiliate, to provide procurement services. Expenses incurred totaled $787 and $510 for the three months ended March 31, 2021 and 2020, respectively.
•Santander Global Tech (formerly known as Produban Servicios Informaticos Generales S.L.), a Santander affiliate, provides professional services, telecommunications, and internal and/or external applications to the Company. Expenses incurred, which are included as a component of other operating costs in the accompanying consolidated statements of income, totaled zero and $179 for the three months ended March 31, 2021 and 2020, respectively.
•The Company partners with SHUSA to place Cyber Liability Insurance in which participating worldwide Santander entities share €270 million aggregate limits. The Company repays SHUSA for the Company’s equitably allocated portion of insurance premiums and fees. Expenses incurred totaled $188 and $108 for the three months ended March 31, 2021 and 2020, respectively. In addition, the Company partners with SHUSA for various other insurance products. Expenses incurred totaled $513 and $183 and for the three months ended March 31, 2021 and 2020, respectively.
16. Employee Benefit Plans
The Company has granted stock options to certain executives, other employees, and independent directors under the Company’s 2011 Management Equity Plan (the Plan)MEP), which enabled the Company to makegrant stock option awards up to a total of approximately 29 million common shares (net of shares canceled and forfeited),. The MEP expired in January 2015, and expired on January 31, 2015.the Company will not grant any further awards under the MEP. The Company has granted stock options, restricted stock awards and restricted stock units (RSUs) under the Omnibus Incentive Plan (the Plan), which was established in 2013 and enables the Company to grant awards of cash and of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, RSUs, and other awards that may be settled in or based upon the value of the Company'sCompany’s common stock up to a total of 5,192,6405,192,641 shares of common shares.stock. The Omnibus Incentive Plan was amended and restated as of June 16, 2016.
Stock options granted under the MEP and the Plan have an exercise price based on the estimated fair market value of the Company’s common stock on the grant date. The stock options expire ten years after grant date and include both time vesting options and performance vesting options. The fair value of the stock options is amortized into incomeexpense over the vesting period as time and performance vesting conditions are met.
Compensation expense related to the 583,890 shares of restricted stock the Company has issued to certain executives is recognized over a five-year vesting period, with $(220) and $182 recorded for the three months ended September 30, 2017 and 2016, and $139 and $543 for the nine months ended September 30, 2017 and 2016, respectively,
A summary of the Company’s stock options and related activity as of and for the nine months ended September 30, 2017 is as follows: |
| | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| Options outstanding at January 1, 2017 | 4,295,830 |
| | $ | 12.70 |
| | 5.6 |
| | $ | 12,982 |
|
| Granted | — |
| | — |
| | — |
| | — |
|
| Exercised | (594,110 | ) | | 9.40 |
| | — |
| | 2,503 |
|
| Expired | (142,795 | ) | | 12.64 |
| | — |
| | — |
|
| Forfeited | (653,258 | ) | | 14.57 |
| | — |
| | — |
|
| Options outstanding at September 30, 2017 | 2,905,667 |
| | 12.96 |
| | 5.0 |
| | 6,999 |
|
| Options exercisable at September 30, 2017 | 2,641,214 |
| | $ | 12.15 |
| | 4.8 |
| | $ | 8,517 |
|
In connection with compensation restrictions imposed on certain executive officers and other employees by the European Central Bank under the Capital Requirements Directive IV prudential rules, which require a portion of such officers'officers’ and employees'employees’ variable compensation to be paid in the form of equity, the Company periodically grants RSUs. Such RSUs were granted during the nine months ended September 30, 2017. Under the Company's Omnibus
Incentive Plan, a portion of these RSUs vest immediately upon grant, and a portion vest annually over the following three or five years. The CompanyAwards granted to certain participants may also has grantedbe subject to the achievement of certain officers RSUs that vest over either a three or five year period, with vesting dependent on Banco Santander performance over that time.conditions. After the shares subject to the RSUs vest and are settled, they are subject to transfer and sale restrictions for one year. In addition, the Company grants RSUs to certain officers and employees as part of variable compensation, and these RSUs typically vest over three years. The Company also has granted certain independent directors RSUs that vest either upon the earlier of the first anniversary of grant date or the first annual stockholder meeting following the grant date. RSUs are valued based upon the fair market value on the date of the grant.
On July 2, 2015, Mr. Dundon exercisedCompensation expense related to the 583,890 shares of restricted stock that the Company has issued to certain executives is recognized over a right underfive-year vesting period, with zero recorded for the Separation Agreementthree months ended March 31, 2021 and 2020. The Company recognized $5,448 and $4,038related to settle his vested options for a cash payment. Subject to limitations of banking regulators and applicable law, Mr. Dundon’s Separation Agreement also provided that his unvested stock options would vest in full and his unvested restricted stock awards would continue to vest in accordance with their terms as if he remained employed byunits within compensation expense for the Company.three months ended March 31, 2021 and 2020, respectively. In addition, any service-based vesting requirementsthe Company recognizes forfeitures of awards as they occur.
A summary of the Company’s stock options and related activity as of and for the three months ended March 31, 2021 is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted
Average
Exercise
Price | | Weighted
Average
Remaining
Contractual
Term (Years) | | Aggregate
Intrinsic
Value |
| Options outstanding at January 1, 2021 | 169,369 | | | $ | 13.01 | | | 1.9 | | $ | 1,543 | |
| Granted | — | | | — | | | — | | | — | |
| Exercised | (47,359) | | | 9.22 | | | — | | | 775 | |
| Expired | — | | | — | | | — | | | — | |
| Forfeited | — | | | — | | | — | | | — | |
| Other (a) | — | | | — | | | — | | | — | |
| Options outstanding at March 31, 2021 | 122,010 | | | 14.49 | | | 2.1 | | 1,534 | |
| Options exercisable at March 31, 2021 | 122,010 | | | $ | 14.49 | | | 2.1 | | $ | 1,534 | |
| Options expected to vest at March 31, 2021 | — | | | $ | — | | | 0 | | $ | — | |
(a) Represents stock options that were applicable to Mr. Dundon’s outstanding RSUs in respectreinstated.
A summary of his 2014 annual bonus were waived,the Company’s Restricted Stock Units and such RSUs continue to vestperformance stock units and be settled in accordance withrelated activity as of and for the underlying award agreement. However, because the Separation Agreement did not receive the required regulatory approvals within 60 days of Mr. Dundon’s termination without cause, both the vested and unvested stock options are considered to have expired.three months ended March 31, 2021 is as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted
Average
Grant Date Fair Value | | Weighted
Average
Remaining
Contractual
Term (Years) | | Aggregate
Intrinsic
Value |
| Outstanding as of January 1, 2021 | 367,012 | | | $ | 19.78 | | | 0.8 | | $ | 8,082 | |
| Granted | 324,295 | | | 25.38 | | | — | | | — | |
| Vested | (340,511) | | | 22.27 | | | — | | | 8,638 | |
| Forfeited/canceled | (7,362) | | | 14.32 | | | — | | | — | |
| Non-vested at March 31, 2021 | 343,434 | | | $ | 22.66 | | | 1.5 | | $ | 9,293 | |
| | | | | | | |
Treasury Stock
The Company had 123,507 shares of treasury stock outstanding, with a cost of $2,004, as of September 30, 2017 and 94,595 shares of treasury stock outstanding, with a cost of $1,600, as of December 31, 2016. Prior to the IPO, the Company repurchased 3,154 shares as a result of an employee leaving the Company. Additionally, 120,353 shares were withheld to cover income taxes related to the vesting of RSUs awarded to certain executive officers. The value of the treasury stock is immaterial and included within additional paid-in-capital.
Accumulated Other Comprehensive Income (Loss)
A summary of changes in accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2017 and 2016 is as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Beginning balance, unrealized gains (losses) on cash flow hedges | $ | 27,860 |
| | $ | (50,766 | ) | | $ | 28,259 |
| | $ | 2,125 |
|
| Other comprehensive gain (loss) before reclassifications | 1,061 |
| | 17,391 |
| | (3,062 | ) | | (50,949 | ) |
| Amounts reclassified out of accumulated other comprehensive income (loss) (a) | (1,440 | ) | | 6,777 |
| | 2,284 |
| | 22,226 |
|
| Ending balance, unrealized gains (losses) on cash flow hedges | $ | 27,481 |
| | $ | (26,598 | ) | | $ | 27,481 |
| | $ | (26,598 | ) |
| |
(a) | Amounts reclassified out of accumulated other comprehensive income (loss) during the three and nine months ended September 30, 2017 and 2016 consist of the following: |
|
| | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Reclassification | Amount reclassified | | Income statement line item | | Amount reclassified | | Income statement line item |
| Cash flow hedges: | | | | | | | |
| Settlements of derivatives | $ | (1,461 | ) | | Interest expense | | $ | 10,799 |
| | Interest expense |
| Tax expense (benefit) | 21 |
| | | | (4,022 | ) | | |
| Net of tax | $ | (1,440 | ) | | | | $ | 6,777 |
| | |
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Reclassification | Amount reclassified | | Income statement line item | | Amount reclassified | | Income statement line item |
| Cash flow hedges: | | | | | | | |
| Settlements of derivatives | $ | 3,158 |
| | Interest expense | | $ | 35,442 |
| | Interest expense |
| Tax expense (benefit) | (874 | ) | | | | (13,216 | ) | | |
| Net of tax | $ | 2,284 |
| | | | $ | 22,226 |
| | |
Dividends
On October 25, 2017, the Company declared a cash dividend of $0.03 per share, to be paid November 17, 2017 to shareholders of record as of close of business on November 7, 2017. The Company's capital action plan also includes dividend payments for the Company’s stockholders of $0.05 per share in the first and second quarters of 2018.
| |
16. | Investment Losses, Net |
When the Company sells individually acquired retail installment contracts, personal loans or leases, the Company recognizes a gain or loss for the difference between the cash proceeds and carrying value of the assets sold. The gain or loss is recorded in investment gains (losses), net. Lower of cost or market adjustments on the recorded investment of finance receivables held for sale are also recorded in investment gains (losses), net.
Investment losses, net was comprised of the following for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Gain (loss) on sale of loans and leases | $ | 29,974 |
| | $ | (3,765 | ) | | $ | 16,913 |
| | $ | (1,418 | ) |
| Lower of cost or market adjustments | (84,718 | ) | | (97,532 | ) | | (246,522 | ) | | (266,506 | ) |
| Other gains, losses and impairments, net | 2,152 |
| | (4,753 | ) | | 1,096 |
| | (8,491 | ) |
| | $ | (52,592 | ) | | $ | (106,050 | ) | | $ | (228,513 | ) | | $ | (276,415 | ) |
The lower of cost or market adjustments for the three and nine months ended September 30, 2017 included $112,055 and $336,413 in customer default activity, respectively, and net favorable adjustments of $27,337 and $89,891, respectively, primarily related to net changes in the unpaid principal balance on the personal lending portfolio, most of which has been classified as held for sale since September 30, 2015. The lower of cost or market adjustments for the three and nine months ended September 30, 2016 included $114,477 and $312,993 in customer default activity and favorable adjustments of 18,831 and 48,373, respectively, related to net changes in the unpaid principal balance on the personal lending portfolio. The key driver to continued write-downs due to customer default activity, is the lower of cost or market adjustment recorded for each new originated loan, based on forecasted lifetime loss.
|
| |
ItemITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q should be read in conjunction with the 20162020 Annual Report on Form 10-K and in conjunction with the condensed consolidated financial statements and the accompanying notes included elsewhere in this report. Additional information, not part of this filing, about the Company is available on the Company’s website at www.santanderconsumerusa.com.www.santanderconsumerusa.com. The Company’s recent annual reportsAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, as well as other filings with the SEC, are available free of charge through the Company’s website by clicking on the “Investors” page and selecting “SEC Filings.” The SEC’s website also contains current reportsCompany’s filings with the SEC and other information regardingmay also be accessed at the CompanySEC’s website at www.sec.gov.www.sec.gov.
Background and Overview
Santander Consumer USA Holdings Inc.The Company was formed in 2013 as a corporation in the state of Delaware and is the holding company for Santander Consumer USA Inc.,SC Illinois, a full-service, technology-driven consumer finance company focused on vehicle finance and third-party servicing. The Company is majority-owned (as of September 30, 2017,April 26, 2021, approximately 58.7%80.2%) by SHUSA, a wholly-owned subsidiary of Santander.
The Company is managed through a single reporting segment, Consumer Finance, which includes its vehicle financial products and services, including retail installment contracts, vehicle leases, and dealer loans, as well as financial products and services related to motorcycles, RVs,recreational and marine vehicles. The Consumer Finance segment also includes personal loanvehicles, and point-of-sale financing operations.other consumer finance products.
Since May 1, 2013, the Company has been the preferred provider for FCA’s consumer loans and leases and dealer loans under terms of a ten-year agreement with FCA. Business generated under terms of the Chrysler Agreement is branded as Chrysler Capital. In conjunction with the Chrysler Agreement, the Company offers a full spectrum of auto financing products and services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.
Under the terms of the Chrysler Agreement, the parties agreed to certain standards, including the Company meeting specified penetration rates that escalate over the first five years, and FCA treating the Company in a manner consistent with comparable OEMs' treatment of their captive providers, primarily in regard to sales support. The failure of either party to meet its obligations under the agreement could result in the agreement being terminated. The targeted and actual penetration rates under the terms of the Chrysler Agreement are as follows:
|
| | | | | | | | | | |
| | Program Year (a) |
| | 1 | 2 | 3 | 4 | 5-10 |
| Retail | 20 | % | 30 | % | 40 | % | 50 | % | 50 | % |
| Lease | 11 | % | 14 | % | 14 | % | 14 | % | 15 | % |
| Total | 31 | % | 44 | % | 54 | % | 64 | % | 65 | % |
| | | | | | |
| Actual Penetration (b) | 30 | % | 29 | % | 26 | % | 19 | % | 21 | % |
| |
(a) | Program years run from May 1 to April 30. Retail and lease penetration is based on a percentage of FCA retail sales. |
| |
(b) | Actual penetration rates shown for Program Year 1, 2 , 3 and 4 are as of April 30, 2014, 2015, 2016 and 2017, respectively, the end date of each of those Program Years. Actual penetration rate shown for Program Year 5, which ends April 30, 2018, is for the three months ended September 30, 2017. |
The target penetration rate as of April 30, 2018 is 65%. The Company's actual penetration rate for three months ended September 30, 2017 was 21%. The penetration rate has been constrained due to the competitive landscape and low interest rates, causing the subvented loan offers not to be materially more attractive than other lenders' offers. While the Company has not achieved the target penetration rates to date, Chrysler CapitalCCAP continues to be a focal point of its strategy,the Company’s strategy. Since May 2013, under the MPLFA with FCA, the Company continueshas operated as Stellantis N.V.'s preferred provider for consumer loans, leases and dealer loans and provides services to work with FCA to improveStellantis N.V. customers and dealers under the CCAP brand. The Company’s average penetration rates, and it remains committed torate under the Chrysler Agreement.MPLFA for the three months ended March 31, 2021 was 36%, decrease from 39% for the same period in 2020.
The Company has dedicated financing facilities in place for its CCAP business and has worked strategically and collaboratively with FCAStellantis N.V. to continue to strengthen its relationship and create value within the Chrysler Capital program. The Company has partnered with FCA to roll out two pilot programs, including a dealer rewards program and a nonprime subventionCCAP program. During the ninethree months ended September 30, 2017,March 31, 2021, the Company originated $5.2$3.7 billion in Chrysler CapitalCCAP loans which represented 46%57% of total retail installment contract originations with an approximately even share between prime and non-prime,(unpaid principal balance), as well as more than $4.7$2.2 billion in Chrysler CapitalCCAP leases. Since its May 1, 2013, launch, Chrysler Capital has originated $43.7 billion in retail loans and $22.3 billion in leases, and facilitated the origination of $3.0 billion in leases and dealer loans for an affiliate. As of September 30, 2017, the Company's auto retail installment contract portfolio consisted of $6.9 billion of Chrysler Capital loans which represents 31%Additionally, substantially all of the Company's auto retail installment contract portfolio.
The Company also originates vehicle loans through a web-based direct lending program, purchases vehicle retail installment contracts from other lenders, and services automobile and recreational and marine vehicle portfolios for other lenders. Additionally,leases originated by the Company has several relationships through which it has provided personal loans, private-label credit cards and other consumer finance products. In October 2015,during the Company announced its planned exit fromthree months ended March 31, 2021 were under the personal lending business.MPLFA.
The Company has dedicated financing facilities in place for its Chrysler Capital business. The Company periodically sells consumer retail installment contracts through these flow agreements, and, when market conditions are favorable, it accesses the ABS market through securitizations of consumer retail installment contracts. The Company also periodically enters into bulk sales of consumer vehicle leases with a third party. The Company typically retains servicing of loans and leases sold or securitized, and may also retain some residual risk in sales of leases. The Company has also entered into an agreement with a third party whereby the Company will periodically sell charged-off loans.
Economic and Business Environment
The U.S. economy continues to stabilize.
Unemployment rates declined to pre-recession levels of 4.2%are6.0% as reported by the Bureau of Labor Statistics for September 30, 2017. The Federal Reserve raised itsMarch 31, 2021, and the federal funds rate by 25 basis points,was in the range of 0.00% to 100 - 125 basis points in June 2017, the second rate increase during fiscal 2017. The energy sector has also stabilized after the market for oil bottomed out in January 2016 and has since continued to recover throughout the year.0.25% on March 31, 2021.
Despite this stability, consumer debt levels continued to rise, specifically auto debt. As consumers assume higher debt levels, the Company may experience an increase in delinquencies and credit losses.
Additionally, the Company is exposed to geographic customer concentration risk, which could have an adverse effect on the Company's
Company’s business, financial position, results of operations or cash flow. Refer to Note 2 - "Finance Receivables" to the
The following table showsaccompanying condensed consolidated financial statements for the percentage of unpaid principal balancedetails on the Company'sCompany’s retail installment contracts by state concentration. Total unpaid principal balance of retail installment contracts held for investment was $26,369,828 and $27,358,147 at September 30, 2017 and December 31, 2016, respectively.
|
| | | | | |
| | September 30,
2017 | | December 31, 2016 |
| | Retail Installment Contracts Held for Investment |
| Texas | 16 | % | | 17 | % |
| Florida | 12 | % | | 13 | % |
| California | 9 | % | | 10 | % |
| Georgia | 6 | % | | 5 | % |
| North Carolina | 4 | % | | 4 | % |
| Illinois | 4 | % | | 4 | % |
| New York | 4 | % | | 4 | % |
| Pennsylvania | 3 | % | | 3 | % |
| Louisiana | 3 | % | | 3 | % |
| Ohio | 3 | % | | 2 | % |
| Other states | 36 | % | | 35 | % |
| | 100 | % | | 100 | % |
Regulatory Matters
The U.S. lending industry is highly regulated under various U.S. federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practices, SCRA, and Unfair, Deceptive, or Abusive Acts or Practices, Credit CARD, Bank Secrecy Act, Telephone Consumer Protection, FIRREA, and Gramm-Leach-Bliley Acts, as well as various state laws. The Company is subject to inspections, examinations, supervision, and regulation by the Commission,SEC, the CFPB, the FTC, and the DOJ and by regulatory agencies in each state in which the Company is licensed. In addition, the Company is directly and indirectly, through its relationship with SHUSA, subject to certain bank regulations, including oversight by the OCC, the European Central Bank, and the Federal Reserve, which have the ability to limit certain of the Company'sCompany’s activities, such as share repurchase program, the timing and amount of dividends and certain transactions that the Company might otherwise desire to enter into, such as merger and acquisition opportunities, or to impose other limitations on the Company'sCompany’s growth.
The March 5, 2021, announcement by the U.K.’s Financial Conduct Authority (FCA) confirmed unavailability of USD LIBOR rates beyond June 30, 2023 and cessation of one-week and two-month USD LIBOR by December 31, 2021. ISDA announced these statements are an “Index Cessation Event” under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol, which in turn triggers a “Spread Adjustment Fixing Date” under the Bloomberg IBOR Fallback Rate Adjustments Rule Book. As a result, when USD LIBOR tenors cease and the fallback rates apply, fallbacks for derivatives under ISDA’s documentation shift to forms of the Secured Overnight Financing Rate (SOFR) plus the fixed spread adjustment.
The regulatory agencies also confirmed that the March 5, 2021 announcements constitute a “Benchmark Transition Event” with respect to all LIBOR settings.
The Company holds debt, derivatives, and other financial instruments that use USD LIBOR as a reference rate and that will be impacted by the demise of LIBOR. Transition away from LIBOR to new reference rates presents legal, financial, reputational, and operational risks to the Company as well as to other participants in the market. As of March 31, 2021, the Company has approximately $5 billion of liabilities with LIBOR exposure. The Company also had approximately $21 billion in notional amounts of derivative contracts with LIBOR exposure.
Additional legal and regulatory matters affecting the Company'sCompany’s activities are further discussed in Part I, Item 1A -– Risk Factors of the 20162020 Annual Report on Form 10-K.10-K and this Quarterly Report on Form 10-Q.
How the Company Assesses its Business Performance
Net income and the associated return on assets and equity, are the primary metrics by which the Company judges the performance of its business. Accordingly, the Company closely monitors the primary drivers of net income:
•Net financing income — The Company tracks the spread between the interest and finance charge income earned on assets and the interest expense incurred on liabilities, and continually monitors the components of its yield and cost of funds. The Company'sCompany’s effective interest rate on borrowing is driven by various items including, but not limited to, credit quality of the collateral assigned, used/unused portion of facilities, and reference rate for the credit spread. These drivers, as well as external rate trends, including the Treasury swap curve, and spot and forward rates are monitored.
•Net credit losses — The Company performs net credit loss analysis at the vintage level for individually acquired retail installment contracts, loans and leases, and at the pool level for purchased portfolios,portfolios-credit deteriorated, enabling it to pinpoint drivers of any unusual or unexpected trends. The Company also monitors its and industry-wide recovery rates as well as industry-wide rates. Additionally, because delinquencies are an early indicator of future net credit losses, the Company analyzes delinquency trends, adjusting for seasonality, to determine if the Company'sCompany’s loans are performing in line with original estimations. The net credit loss analysis does not include considerations of the Company'sCompany’s estimated allowance for credit losses.
ACL.
•Other income — The Company'sCompany’s flow agreements in connection with the Chrysler Agreementand third-party servicing agreements have resulted in a large portfolio of assets serviced for others. These assets provide a steady stream of servicing income and may provide a gain or loss on sale. The Company monitors the size of the portfolio and average servicing fee rate and gain. Additionally, due to the classification of the Company's personal lending portfolio as held for sale upon the decision to exit the personal lending line of business, adjustments to record this portfolio at the lower of cost or market are included in investment gains (losses), net, which is a component of other income (losses).
•Operating expenses — The Company assesses its operational efficiency using the cost-to-managed assets ratio. The Company performs extensive analysis to determine whether observed fluctuations in operating expense levels indicate a trend or are the nonrecurring impact of large projects. The operating expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist the Company in assessing profitability by pool and vintage.
Because volume and portfolio size determine the magnitude of the impact of each of the above factors on the Company'sCompany’s earnings, the Company also closely monitors origination and sales volume along with APR and discounts (including subvention and net of dealer participation).
Third Quarter 2017 Summary of Results
Key highlights of the Company's performance in the third quarter of 2017 included:
Total auto originations of $5.0 billion, down 3% from $5.2 billion originated in the same quarter in 2016;
Net finance and other interest income of $1.1 billion, down 10% compared to the same quarter in 2016;
Return on average assets of 2.0%, down from 2.2% compared to the same quarter in 2016;
Common equity tier 1 (CET1) ratio of 15.0%, up 190 bps compared to the same quarter in 2016; and
Net leased vehicle income of $118.4 million, down 13% compared to the same quarter in 2016.
Recent Developments and Other Factors Affecting The Company'sCompany’s Results of Operations
ChangesCOVID-19 Summary
Beginning in March 2020, the novel strain of coronavirus, or COVID-19, had materially impacted our business. Similar to Boardmany other financial institutions, we took measures to mitigate our customers’ COVID-19 related economic challenges. We experienced an increase in requests for extensions and modifications related to COVID-19 nationwide and a significant number of Directors & Management Teamsuch extensions and modifications have been granted as detailed in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Credit Quality.
On August 28, 2017, the Company announced the departurePlease refer to Part II, Item 7 – Management’s Discussion and Analysis of its PresidentFinancial Condition and Chief Executive Officer (CEO), Mr. Jason Kulas, effective August 27, 2017. Mr. Scott Powell was named successor and was also appointed to the Executive CommitteeResults of Operations of the Board. Both appointments were effective August 27, 2017. Mr. Mahesh Aditya was also elected to the Board to fill the vacancy created by the departure2020 Annual Report on Form 10-K for additional details regarding COVID-19.
Volume
The Company’s originations of Mr. Kulas effective August 27, 2017.
On October 2, 2017, the Company announced the departure of its Chief Financial Officer (CFO), Mr. Ismail Dawood, effective September 29, 2017. Mr. Juan Carlos Alvarez de Soto was named successor effective September 29, 2017.
Impact from Hurricanes
During the three months ended September 30, 2017, the Company's operations were impacted by Hurricanes Harvey and Irma. As a result of the hurricanes, the Company incurred costs to repair damaged assets and facilities, suffered losses under itsretail installment contracts and incurred costs to clean up and recover its operations. At the time of the hurricanes, the Company had insurance that provided coverage for, among other things, property damage and business interruption impact on net profitability. The Company has yet to submit or recover any losses under its insurance program and accordingly, no insurance recoveries were recorded in the condensed consolidated financial statements as of and during the period ended September 30, 2017. The Company has considered the impact of both Hurricanes in its allowance for credit losses recorded as of September 30, 2017.
Personal Lending
As a result of the strategic evaluation of its personal lending portfolio, in the third quarter of 2015, the Company began reviewing strategic alternatives for exiting the personal loan portfolios. On February 1, 2016, the Company completed the sale of substantially all LendingClub loans to a third-party buyer at an immaterial premium to par value. On April 14, 2017, the Company sold the remaining portfolio comprised of personal installment loans to a third-party buyer.
The Company's other significant personal lending relationship is with Bluestem. The Company continues to perform in accordance with the terms and operative provisions of agreements under which it is obligated to purchase personal revolving loans originated by Bluestem for a term ending in 2020, or 2022 if extended at Bluestem's option. The Bluestem portfolio is carried as held for sale in the Company's condensed consolidated financial statements. Accordingly, the Company has recorded $238 million million year-to-date in lower of cost or market adjustments on this portfolio, and there may be further such adjustments required in future periods' financial statements. The Company is currently evaluating alternatives for sale of the Bluestem portfolio, which had a carrying value of $930 million at September 30, 2017.
Securitizations
On March 29, 2017, the Company entered into a Master Securities Purchase Agreement (MSPA) with Santander, whereby the Company has the option to sell a contractually determined amount of eligible prime loans to Santander, through the SPAIN securitization platform, for a term ending in December 2018. The Company provides servicing on all loans originated under this arrangement. For the nine months ended September 30, 2017, the Company sold $1.2 billion of loans under this agreement. Under a separate securities purchase agreement, the Company sold $1.3 billion of prime loans to Santander during the three months ended September 30, 2017. The Company provides servicing of these loans sold.
Dividends
The Company was restricted from declaring or paying any future dividends, or making any capital distribution, until such time as the FRBB issues a written non-objection to a revised capital plan submitted by SHUSA or the FRBB otherwise issues its written non-objection to the payment of a dividend by the Company. In June 2017, SHUSA announced that the FRBB did not
object to the planned capital actions described in SHUSA’s 2017 Capital Plan that was submitted as part of the annual Comprehensive Capital Analysis and Review (CCAR). Included in SHUSA’s capital actions were proposed dividend payments for the Company’s stockholders.
On October 25, 2017, the Company declared a cash dividend of $0.03 per share, to be paid November 17, 2017 to shareholders of record as of close of business on November 7, 2017. The Company's capital action plan also includes dividend payments for the Company’s stockholders of $0.05 per share in the first and second quarters of 2018.
Volume
The Company's originations of individually acquired loans and leases, including
net balance increases on revolving loans, average APR, and
dealer discount
during(net of dealer participation) for the three
and nine months ended
September 30, 2017March 31, 2021 and
20162020 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | | | | | | | |
| March 31, 2021 | | March 31, 2020 | | | | | | | | | | |
| (Dollar amounts in thousands) | | | | |
| Retained Originations | | | | | |
| Retail installment contracts | $ | 4,383,146 | | $ | 3,846,226 | | | | | | | | | | |
| Average APR | 15.0 | % | | 15.3 | % | | | | | | | | | | |
| Average FICO® (a) | 606 | | 607 | | | | | | | | | | |
| Discount/(premium) | (1.6) | % | | (0.8) | % | | | | | | | | | | |
| | | | | | | | | | | | | |
| Personal loans (b) | $ | — | | $ | 270,835 | | | | | | | | | | |
| Average APR | — | % | | 29.8 | % | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Leased vehicles | $ | 2,154,506 | | $ | 2,020,721 | | | | | | | | | | |
| | | | | | | | | | | | | |
| Finance lease | $ | 2,796 | | $ | 3,002 | | | | | | | | | | |
| Total originations retained | $ | 6,540,448 | | $ | 6,140,784 | | | | | | | | | | |
| | | | | | | | | | | | | |
| Sold Originations | | | | | | | | | | | | | |
| Retail installment contracts | $ | 95,738 | | $ | — | | | | | | | | | | |
| Average APR | 9.5 | % | | — | % | | | | | | | | | | |
| Average FICO® (c) | 688 | | — | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Personal Loans (d) | $ | 292,709 | | $ | — | | | | | | | | | | | |
| Average APR | 29.7 | % | | — | % | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total Originations Sold | $ | 388,447 | | $ | — | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total originations (excluding SBNA Originations Program) | $ | 6,928,895 | | $ | 6,140,784 | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | (Dollar amounts in thousands) |
| Retained Originations | | | | | | | |
| Retail installment contracts | $ | 2,570,228 |
| | $ | 3,281,112 |
| | $ | 8,619,961 |
| | $ | 10,545,592 |
|
| Average APR | 16.1 | % | | 14.7 | % | | 17.2 | % | | 15.1 | % |
| Average FICO® (a) | 605 |
| | 612 |
| | 591 |
| | 606 |
|
| Discount | 1.2 | % | | 0.1 | % | | 0.8 | % | | 0.4 | % |
| | | | | | | | |
| Personal loans | $ | — |
| | $ | — |
| | $ | 5,660 |
| | $ | 9,281 |
|
| Average APR | — |
| | — |
| | 25.7 | % | | 25.0 | % |
| | | | | | | | |
| Leased vehicles | $ | 1,665,776 |
| | $ | 1,300,375 |
| | $ | 4,693,392 |
| | $ | 4,612,284 |
|
| | | | | | | | |
| Capital lease | $ | 2,477 |
| | $ | 2,319 |
| | $ | 4,655 |
| | $ | 5,977 |
|
| Total originations retained | $ | 4,238,481 |
| | $ | 4,583,806 |
| | $ | 13,323,668 |
| | $ | 15,173,134 |
|
| | | | | | | | |
| Sold Originations | | | | | | | |
| Retail installment contracts | $ | 757,720 |
| | $ | 580,242 |
| | $ | 2,550,065 |
| | $ | 2,201,659 |
|
| Average APR | 6.0 | % | | 3.2 | % | | 6.2 | % | | 3.0 | % |
| Average FICO® (b) | 729 |
| | 760 |
| | 727 |
| | 759 |
|
| | | | | | | | |
| Total originations | $ | 4,996,201 |
| | $ | 5,164,048 |
| | $ | 15,873,733 |
| | $ | 17,374,793 |
|
| |
(a) | Unpaid principal balance excluded from the weighted average FICO score is $311 million and $492 million for the three months ended September 30, 2017 and 2016, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $37 million and $74 million, respectively, were commercial loans. Unpaid principal balance excluded from the weighted average FICO score is $1.2 billion and $1.8 billion for the nine months ended September 30, 2017 and 2016, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $95 million and $370 million, respectively, were commercial loans. |
| |
(b) | Unpaid principal balance excluded from the weighted average FICO score is $93 million and $59 million for the three months ended September 30, 2017 and 2016, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $26 million and zero, respectively, were commercial loans. Unpaid principal balance excluded from the weighted average FICO score is $319 million and $263 million for the nine months ended September 30, 2017 and 2016, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, $102 million and zero, respectively, were commercial loans. |
(b) Included in the total origination volume is $21 million for the three months ended March 31, 2020 related to newly opened accounts.
(c) Unpaid principal balance excluded from the weighted average FICO score is $2 million and zero for the three months ended March 31, 2021 and 2020, respectively, as the borrowers on these loans did not have FICO scores at origination. Of these amounts, zero were commercial loans for the three months ended March 31, 2021 and 2020, respectively.
(d) Included in the total origination volume is $25 million for the three months ended March 31, 2021 related to newly opened accounts.
Total auto originations decreased $1.5(excluding SBNA Origination Program) increased $1.1 billion, or 9%18.0%, from the ninethree months ended September 30, 2016March 31, 2020 to the ninethree months ended September 30, 2017.March 31, 2021. The decrease was primarily attributableCompany's initiatives to the continued high competitionimprove our pricing, as well as, our dealer and customer experience have increased our competitive position in the auto loan originations market, particularly the prime environment.market. The Company continues to focus on optimizing the loan quality of its portfolio with an appropriate balance of volume and risk. Chrysler CapitalCCAP volume and penetration rates are influenced by strategies implemented by FCA,Stellantis N.V. and the Company, including product mix and incentives.
Beginning in 2018, the Company agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchase of retail auto loans, primarily from Stellantis N.V. dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. During the three months ended March 31, 2021 and 2020 the Company facilitated the purchase of $2.0 billion and $1.1 billion of retail installment contacts, respectively.
The Company'sCompany’s originations of individually acquired retail installment contracts and leases by vehicle type during the three and nine months ended September 30, 2017March 31, 2021 and 20162020 were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | (Dollars amounts in thousands) |
| Retail installment contracts | | | | | | | | | | | |
| Car | $ | 1,265,729 |
| 38.0 | % | | $ | 1,599,590 |
| 41.4 | % | | $ | 4,657,357 |
| 41.7 | % | | $ | 5,356,793 |
| 42.0 | % |
| Truck and utility | 1,727,628 |
| 51.9 | % | | 1,938,720 |
| 50.2 | % | | 5,582,482 |
| 50.0 | % | | 6,402,820 |
| 50.2 | % |
| Van and other (a) | 334,591 |
| 10.1 | % | | 323,044 |
| 8.4 | % | | 930,187 |
| 8.3 | % | | 987,638 |
| 7.7 | % |
| | $ | 3,327,948 |
| 100.0 | % | | $ | 3,861,354 |
| 100.0 | % | | $ | 11,170,026 |
| 100.0 | % | | $ | 12,747,251 |
| 100.0 | % |
| | | | | | | | | | | | |
| Leased vehicles | | | | | | | | | | | |
| Car | $ | 239,628 |
| 14.4 | % | | $ | 193,759 |
| 14.9 | % | | $ | 875,862 |
| 18.7 | % | | $ | 522,437 |
| 11.3 | % |
| Truck and utility | 1,359,411 |
| 81.6 | % | | 944,137 |
| 72.6 | % | | 3,543,077 |
| 75.5 | % | | 3,588,033 |
| 77.8 | % |
| Van and other (a) | 66,737 |
| 4.0 | % | | 162,479 |
| 12.5 | % | | 274,453 |
| 5.8 | % | | 501,814 |
| 10.9 | % |
| | $ | 1,665,776 |
| 100.0 | % | | $ | 1,300,375 |
| 100.0 | % | | $ | 4,693,392 |
| 100.0 | % | | $ | 4,612,284 |
| 100.0 | % |
| | | | | | | | | | | | |
| Total originations by vehicle type | | | | | | | | | | | |
| Car | $ | 1,505,357 |
| 30.1 | % | | $ | 1,793,349 |
| 34.7 | % | | $ | 5,533,219 |
| 34.9 | % | | $ | 5,879,230 |
| 33.9 | % |
| Truck and utility | 3,087,039 |
| 61.8 | % | | 2,882,857 |
| 55.9 | % | | 9,125,559 |
| 57.5 | % | | 9,990,853 |
| 57.6 | % |
| Van and other (a) | 401,328 |
| 8.0 | % | | 485,523 |
| 9.4 | % | | 1,204,640 |
| 7.6 | % | | 1,489,452 |
| 8.6 | % |
| | $ | 4,993,724 |
| 100.0 | % | | $ | 5,161,729 |
| 100.0 | % | | $ | 15,863,418 |
| 100.0 | % | | $ | 17,359,535 |
| 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | | | | | |
| March 31, 2021 | | March 31, 2020 | | | | | | |
| (Dollar amounts in thousands) |
| Retail installment contracts | | | | | | | |
| Car | $ | 1,475,739 | | 32.9 | % | | $ | 1,229,615 | | 32.0 | % | | | | | | | | | |
| Truck and utility | 2,847,447 | | 63.6 | % | | 2,425,512 | | 63.0 | % | | | | | | | | | |
| Van and other (a) | 155,698 | | 3.5 | % | | 191,099 | | 5.0 | % | | | | | | | | | |
| $ | 4,478,884 | | 100.0 | % | | $ | 3,846,226 | | 100.0 | % | | | | | | | | | |
| | | | | | | | | | | | | | |
| Leased vehicles | | | | | | | | | | | | | | |
| Car | $ | 35,391 | | 1.6 | % | | $ | 70,152 | | 3.5 | % | | | | | | | | | |
| Truck and utility | 2,069,909 | | 96.1 | % | | 1,899,568 | | 94.0 | % | | | | | | | | | |
| Van and other (a) | 49,206 | | 2.3 | % | | 51,001 | | 2.5 | % | | | | | | | | | |
| $ | 2,154,506 | | 100.0 | % | | $ | 2,020,721 | | 100.0 | % | | | | | | | | | |
| | | | | | | | | | | | | | |
| Total originations by vehicle type | | | | | | | | | | | | | | |
| Car | $ | 1,511,130 | | 22.8 | % | | $ | 1,299,767 | | 22.2 | % | | | | | | | | | |
| Truck and utility | 4,917,356 | | 74.1 | % | | 4,325,080 | | 73.7 | % | | | | | | | | | |
| Van and other (a) | 204,904 | | 3.1 | % | | 242,100 | | 4.1 | % | | | | | | | | | |
| $ | 6,633,390 | | 100.0 | % | | $ | 5,866,947 | | 100.0 | % | | | | | | | | | |
| | | | | | | | | | | | | | |
(a) Other primarily consists of commercial vehicles.
The Company's asset sales for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | (Dollar amounts in thousands) |
| Retail installment contracts | $ | 1,482,134 |
| | $ | 793,804 |
| | $ | 2,979,033 |
| | $ | 2,312,983 |
|
| Average APR | 6.2 | % | | 3.0 | % | | 6.2 | % | | 2.9 | % |
| Average FICO® | 716 |
| | 762 |
| | 721 |
| | 762 |
|
| | | | | | | | |
| Personal loans | $ | — |
| | $ | — |
| | $ | — |
| | $ | 869,349 |
|
| Average APR | — |
| | — |
| | — |
| | 17.9 | % |
| Total asset sales | $ | 1,482,134 |
| | $ | 793,804 |
| | $ | 2,979,033 |
| | $ | 3,182,332 |
|
Total assets sales decreased $203 million, or 6% from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The decrease resulted from terminations of the forward flow agreements with CBP and Bank of America during fiscal 2017, partially offset by the two new securitizations executed in 2017, whereby eligible prime loans are sold to Santander.
The Company'sCompany’s portfolio of retail installment contracts held for investment and leases by vehicle type as of September 30, 2017March 31, 2021 and December 31, 20162020 are as follows: |
| | | | | | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (Dollars amounts in thousands) |
| Retail installment contracts | | | | | |
| Car | $ | 14,056,979 |
| 53.3 | % | | $ | 14,835,303 |
| 54.2 | % |
| Truck and utility | 11,023,428 |
| 41.8 | % | | 10,967,816 |
| 40.1 | % |
| Van and other (a) | 1,289,421 |
| 4.9 | % | | 1,555,028 |
| 5.7 | % |
| | $ | 26,369,828 |
| 100.0 | % | | $ | 27,358,147 |
| 100.0 | % |
| | | | | | |
| Leased vehicles | | | | | |
| Car | $ | 1,599,837 |
| 14.5 | % | | $ | 1,213,371 |
| 12.6 | % |
| Truck and utility | 8,502,258 |
| 77.3 | % | | 7,447,718 |
| 77.5 | % |
| Van and other (a) | 899,305 |
| 8.2 | % | | 951,864 |
| 9.9 | % |
| | $ | 11,001,400 |
| 100.0 | % | | $ | 9,612,953 |
| 100.0 | % |
| | | | | | |
| Total by vehicle type | | | | | |
| Car | $ | 15,656,816 |
| 41.9 | % | | 16,048,674 |
| 43.4 | % |
| Truck and utility | 19,525,686 |
| 52.2 | % | | 18,415,534 |
| 49.8 | % |
| Van and other (a) | 2,188,726 |
| 5.9 | % | | 2,506,892 |
| 6.8 | % |
| | $ | 37,371,228 |
| 100.0 | % | | $ | 36,971,100 |
| 100.0 | % |
| | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (Dollar amounts in thousands) |
| Retail installment contracts | | | | | |
| Car | $ | 11,578,356 | | 36.4 | % | | $ | 11,727,343 | | 35.6 | % |
| Truck and utility | 19,026,521 | | 59.8 | % | | 19,939,215 | | 60.5 | % |
| Van and other (a) | 1,208,883 | | 3.8 | % | | 1,270,478 | | 3.9 | % |
| $ | 31,813,760 | | 100.0 | % | | $ | 32,937,036 | | 100.0 | % |
| | | | | |
| Leased vehicles | | | | | |
| Car | $ | 668,821 | | 3.9 | % | | $ | 766,451 | | 4.4 | % |
| Truck and utility | 16,188,643 | | 93.7 | % | | 16,052,162 | | 93.0 | % |
| Van and other (a) | 416,353 | | 2.4 | % | | 440,855 | | 2.6 | % |
| $ | 17,273,817 | | 100.0 | % | | $ | 17,259,468 | | 100.0 | % |
| | | | | |
| Total by vehicle type | | | | | |
| Car | $ | 12,247,177 | | 24.9 | % | | $ | 12,493,794 | | 24.9 | % |
| Truck and utility | 35,215,164 | | 71.8 | % | | 35,991,377 | | 71.7 | % |
| Van and other (a) | 1,625,236 | | 3.3 | % | | 1,711,333 | | 3.4 | % |
| $ | 49,087,577 | | 100.0 | % | | $ | 50,196,504 | | 100.0 | % |
(a) Other primarily consists of commercial vehicles.
The Company's asset sales for the three months ended March 31, 2021 and 2020 were as follows: | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | |
| | | | | |
| March 31, 2021 | | March 31, 2020 | | | | | | |
| (Dollar amounts in thousands) |
| | | | | | | |
| Retail installment contracts | $ | 2,380,785 | | $ | — | | | | | | |
| Average APR | 4.0 | % | | — | % | | | | | | |
| Average FICO® | 740 | | | — | | | | | | | |
| | | | | | | | | |
| Personal Loans | $ | 1,253,476 | | $ | — | | | | | | | |
| Average APR | 29.7 | % | | — | | | | | | |
| | | | | | | | | |
| Total Asset Sales | $ | 3,634,261 | | — | | | | | | |
| | | | | | | | | |
The unpaid principal balance, average APR, and remaining unaccreted dealernet discount of the Company'sCompany’s held for investment portfolio as of September 30, 2017March 31, 2021 and December 31, 20162020 are as follows: | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (Dollar amounts in thousands) |
| Retail installment contracts | $ | 31,813,760 | | $ | 32,937,036 |
| Average APR | 15.9 | % | | 15.2 | % |
| Discount/(premium) | (0.48) | % | | (0.15) | % |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Leased vehicles | $ | 17,273,817 | | $ | 17,259,468 |
| | | |
| Finance leases | $ | 27,199 | | $ | 26,150 |
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| | (Dollar amounts in thousands) |
| Retail installment contracts (a) | $ | 26,369,828 |
| | $ | 27,358,147 |
|
| Average APR | 16.7 | % | | 16.4 | % |
| Discount | 1.6 | % | | 2.3 | % |
| | | | |
| Personal loans | $ | 9,188 |
| | $ | 19,361 |
|
| Average APR | 31.9 | % | | 31.5 | % |
| | | | |
| Receivables from dealers | $ | 16,069 |
| | $ | 69,431 |
|
| Average APR | 4.2 | % | | 4.9 | % |
| | | | |
| Leased vehicles | $ | 11,001,400 |
| | $ | 9,612,953 |
|
| | | | |
| Capital leases | $ | 21,648 |
| | $ | 31,872 |
|
(a) Of this balance as of September 30, 2017, $7.4 billion, $7.4 billion, $6.1 billion, and $2.9 billion was originated during the nine months ended September 30, 2017, and the years ended 2016, 2015, and 2014, respectively.
The Company records interest income from individually acquired retail installment contracts personal loans, and receivables from dealers in accordance with the terms of the loans, generally discontinuing and reversing accrued income once a loan becomes more than 60 days past due, except in the case of revolving personal loans, for which the Company continues to accrue interest until charge-off, in the month in which the loan becomes 180 days past due, and receivables from dealers, for which the Company continues to accrue interest until the loan becomes more than 90 days past due.
The Company generally does not acquire receivables from dealers and term personal loans at a discount. The Company amortizes discounts, subvention payments from manufacturers, and origination costs as adjustments to income from individually acquired retail
installment contracts using the effective yield method. The Company estimates future principal prepayments specific to pools of homogenoushomogeneous loans which are based on the vintage, credit quality at origination and term of the loan. Prepayments in our portfolio are sensitive to credit quality, with higher credit quality loans generally experiencing higher voluntary prepayment rates than lower credit quality loans. The impact of defaults is not considered in the prepayment rate, and the prepayment rate only considers voluntary prepayments. The resulting prepayment rate specific to each pool is based on historical experience, and is used as an input in the calculation of the constant effective yield. Our estimated weighted average prepayment rates ranged from 9.9% to 16.1% as of March 31, 2021, and 5.0% to 11.0% as of March 31, 2020.
The Company amortizes the discount, if applicable, on revolving personal loans straight-line over the estimated period over which the receivables are expected to be outstanding. For individually acquired retail installment contracts, personal loans, capital leases, and receivables from dealers, the Company also establishes a credit loss allowance for the estimated losses inherent in the portfolio. The Company estimates probable losses based on contractual delinquency status, historical loss experience, expected recovery rates from sale of repossessed collateral, bankruptcy trends, and general economic conditions. For loans within these portfolios that are classified as TDRs, impairment is generally measured based on the present value of expected future cash flows discounted at the original effective interest rate. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell.
The Company classifies most of its vehicle leases as operating leases. The Company records the net capitalized cost of each lease as an asset, which is depreciated straight-line over the contractual term of the lease to the expected residual value. Lease payments due from customers are recorded as income until and unless a customer becomes more than 60 days delinquent, at which time the accrual of revenue is discontinued and reversed. The Company resumes and reinstates the accrual if a delinquent account subsequently becomes 60 days or less past due. The Company amortizes subvention payments from the manufacturer, down payments from the customer, and initial direct costs incurred in connection with originating the lease straight-line over the contractual term of the lease.
Historically, the Company'sCompany’s primary means of acquiring retail installment contracts has been through individual acquisitions immediately after origination by a dealer. The Company also periodically purchases pools of receivables and had significant volumes of these purchases during the credit crisis. While the Company continues to pursue such opportunities when available, it did not purchase any pools during the nine months ended September 30, 2017 and 2016. However, during
During the three months ended September 30, 2016,March 31, 2021 and 2020 the Company recognized certain retail installment contracts with an unpaid principal balance of $135,772 (nil for the three months ended September 30, 2017),zero and for the nine months ended September 30, 2017 and 2016, the Company recognized certain retail installment contracts with an unpaid principal balance of $226,613 and $327,443,$76,878, respectively, held by non-consolidated securitization Trusts under optional clean-up calls. Following the initial recognition of these loans at fair value, the performing loans in the portfolio will be carried at amortized cost, net of allowance for credit losses.ACL. The Company elected the fair value option for all non-performing loans acquired (more than 60 days delinquent as of re-recognition date), for which it was probable that not all contractually required payments would be collected. All of the retail installment contracts acquired during these periods were acquired individually. For the Company'sCompany’s existing purchased receivables portfolios - credit deteriorated, which were acquired at a discount partially attributable to credit deterioration since origination, the Company estimates the expected yield on each portfolio at acquisition and recordrecords monthly accretion income based on this expectation. The Company periodically re-evaluates performance expectations and may increase the accretion rate if a pool is performing better than expected. If a pool is performing worse than expected, the Company is required to continue to record accretion income at the previously established rate and to record impairment to account for the worsening performance.
Selected Financial Data
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Income Statement Data | (Dollar amounts in thousands, except per share data) |
| Interest on individually acquired retail installment contracts | $ | 1,095,554 |
| | $ | 1,148,669 |
| | $ | 3,332,339 |
| | $ | 3,485,106 |
|
| Interest on purchased receivables portfolios | 5,223 |
| | 17,830 |
| | 26,670 |
| | 58,774 |
|
| Interest on receivables from dealers | 808 |
| | 1,176 |
| | 2,696 |
| | 2,822 |
|
| Interest on personal loans | 83,474 |
| | 78,711 |
| | 264,792 |
| | 257,620 |
|
| Interest on finance receivables and loans | 1,185,059 |
| | 1,246,386 |
| | 3,626,497 |
| | 3,804,322 |
|
| Net leased vehicle income | 118,351 |
| | 135,771 |
| | 377,453 |
| | 369,421 |
|
| Other finance and interest income | 6,385 |
| | 3,638 |
| | 15,415 |
| | 11,440 |
|
| Interest expense | 250,674 |
| | 207,175 |
| | 711,134 |
| | 590,504 |
|
| Net finance and other interest income | 1,059,121 |
| | 1,178,620 |
| | 3,308,231 |
| | 3,594,679 |
|
| Provision for credit losses on individually acquired retail installment contracts | 535,427 |
| | 609,396 |
| | 1,682,894 |
| | 1,787,277 |
|
| Increase (decrease) in impairment related to purchased receivables portfolios | — |
| | 804 |
| | — |
| | (2,986 | ) |
| Provision for credit losses on receivables from dealers | (546 | ) | | (189 | ) | | (557 | ) | | (133 | ) |
| Provision for credit losses on personal loans | 1,134 |
| | — |
| | 10,275 |
| | — |
|
| Provision for credit losses on capital leases | 432 |
| | 387 |
| | (597 | ) | | (1,669 | ) |
| Provision for credit losses | 536,447 |
| | 610,398 |
| | 1,692,015 |
| | 1,782,489 |
|
| Profit sharing | 5,945 |
| | 6,400 |
| | 22,333 |
| | 35,640 |
|
| Other income | 58,947 |
| | 26,682 |
| | 138,822 |
| | 141,542 |
|
| Operating expenses | 297,903 |
| | 284,484 |
| | 885,396 |
| | 847,567 |
|
| Income before tax expense | 277,773 |
| | 304,020 |
| | 847,309 |
| | 1,070,525 |
|
| Income tax expense | 78,385 |
| | 90,473 |
| | 239,819 |
| | 365,334 |
|
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
| Share Data | | | | | | | |
| Weighted-average common shares outstanding | | | | | | | |
| Basic | 359,619,083 |
| | 358,343,781 |
| | 359,397,063 |
| | 358,179,618 |
|
| Diluted | 360,460,353 |
| | 360,087,749 |
| | 360,069,449 |
| | 359,635,034 |
|
| Earnings per share | | | | | | | |
| Basic | $ | 0.55 |
| | $ | 0.60 |
| | $ | 1.69 |
| | $ | 1.97 |
|
| Diluted | $ | 0.55 |
| | $ | 0.59 |
| | $ | 1.69 |
| | $ | 1.96 |
|
| Balance Sheet Data | | | | | | | |
| Finance receivables held for investment, net | $ | 22,667,203 |
| | $ | 23,686,391 |
| | $ | 22,667,203 |
| | $ | 23,686,391 |
|
| Finance receivables held for sale, net | 1,775,459 |
| | 2,572,429 |
| | 1,775,459 |
| | 2,572,429 |
|
| Goodwill and intangible assets | 105,590 |
| | 107,084 |
| | 105,590 |
| | 107,084 |
|
| Total assets | 38,765,557 |
| | 38,771,636 |
| | 38,765,557 |
| | 38,771,636 |
|
| Total borrowings | 30,594,101 |
| | 31,799,895 |
| | 30,594,101 |
| | 31,799,895 |
|
| Total liabilities | 32,880,323 |
| | 33,653,979 |
| | 32,880,323 |
| | 33,653,979 |
|
| Total equity | 5,885,234 |
| | 5,117,657 |
| | 5,885,234 |
| | 5,117,657 |
|
| Allowance for credit losses | 3,380,763 |
| | 3,412,977 |
| | 3,380,763 |
| | 3,412,977 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Other Information | (Dollar amounts in thousands) |
| Charge-offs, net of recoveries, on individually acquired retail installment contracts | $ | 611,130 |
| | $ | 630,847 |
| | $ | 1,722,684 |
| | $ | 1,583,406 |
|
| Charge-offs, net of recoveries, on purchased receivables portfolios | 769 |
| | 254 |
| | 1,541 |
| | (807 | ) |
| Charge-offs, net of recoveries, on receivables from dealers | — |
| | — |
| | — |
| | 135 |
|
| Charge-offs, net of recoveries, on personal loans | 1,771 |
| | — |
| | 6,550 |
| | — |
|
| Charge-offs, net of recoveries, on capital leases | 1,193 |
| | 2,095 |
| | 3,785 |
| | 7,165 |
|
| Total charge-offs, net of recoveries | 614,863 |
| | 633,196 |
| | 1,734,560 |
| | 1,589,899 |
|
| End of period delinquent principal over 60 days, individually acquired retail installment contracts held for investment | 1,338,635 |
| | 1,260,255 |
| | 1,338,635 |
| | 1,260,255 |
|
| End of period personal loans delinquent principal over 60 days | 183,919 |
| | 179,443 |
| | 183,919 |
| | 179,443 |
|
| End of period delinquent principal over 60 days, loans held for investment | 1,342,335 |
| | 1,267,950 |
| | 1,342,335 |
| | 1,267,950 |
|
| End of period assets covered by allowance for credit losses | 26,367,894 |
| | 27,490,290 |
| | 26,367,894 |
| | 27,490,290 |
|
| End of period gross individually acquired retail installment contracts held for investment | 26,320,989 |
| | 27,370,995 |
| | 26,320,989 |
| | 27,370,995 |
|
| End of period gross personal loans | 1,337,114 |
| | 1,337,692 |
| | 1,337,114 |
| | 1,337,692 |
|
| End of period gross finance receivables and loans held for investment | 26,395,085 |
| | 27,706,307 |
| | 26,395,085 |
| | 27,706,307 |
|
| End of period gross finance receivables, loans, and leases held for investment | 37,418,133 |
| | 37,295,993 |
| | 37,418,133 |
| | 37,295,993 |
|
| Average gross individually acquired retail installment contracts held for investment | 26,762,472 |
| | 27,075,151 |
| | 26,976,810 |
| | 27,276,903 |
|
| Average gross personal loans held for investment | 10,549 |
| | 6,937 |
| | 13,935 |
| | 6,869 |
|
| Average gross individually acquired retail installment contracts | 28,144,133 |
| | 28,970,039 |
| | 28,182,386 |
| | 28,710,402 |
|
| Average gross purchased receivables portfolios | 120,245 |
| | 266,749 |
| | 176,792 |
| | 301,026 |
|
| Average gross receivables from dealers | 53,715 |
| | 70,392 |
| | 63,401 |
| | 72,735 |
|
| Average gross personal loans | 1,367,445 |
| | 1,343,099 |
| | 1,419,223 |
| | 1,572,297 |
|
| Average gross capital leases | 22,544 |
| | 39,974 |
| | 26,415 |
| | 49,625 |
|
| Average gross finance receivables and loans | 29,708,082 |
| | 30,690,253 |
| | 29,868,217 |
| | 30,706,085 |
|
| Average gross finance receivables, loans, and leases | 40,419,023 |
| | 40,037,873 |
| | 40,125,969 |
| | 39,299,213 |
|
| Average managed assets | 49,998,111 |
| | 52,675,379 |
| | 50,555,068 |
| | 52,983,740 |
|
| Average total assets | 39,496,278 |
| | 38,473,832 |
| | 39,192,434 |
| | 37,844,330 |
|
| Average debt | 31,554,026 |
| | 31,671,237 |
| | 31,538,355 |
| | 31,343,204 |
|
| Average total equity | 5,764,119 |
| | 4,994,511 |
| | 5,542,255 |
| | 4,736,826 |
|
| Ratios | | | | | | | |
| Yield on individually acquired retail installment contracts | 15.6 | % | | 15.9 | % | | 15.8 | % | | 16.2 | % |
| Yield on purchased receivables portfolios | 17.4 | % | | 26.7 | % | | 20.1 | % | | 26.0 | % |
| Yield on receivables from dealers | 6.0 | % | | 6.7 | % | | 5.7 | % | | 5.2 | % |
| Yield on personal loans (1) | 24.4 | % | | 23.4 | % | | 24.9 | % | | 21.8 | % |
| Yield on earning assets (2) | 13.0 | % | | 13.8 | % | | 13.4 | % | | 14.2 | % |
| Cost of debt (3) | 3.2 | % | | 2.6 | % | | 3.0 | % | | 2.5 | % |
| Net interest margin (4) | 10.5 | % | | 11.8 | % | | 11.0 | % | | 12.2 | % |
| Expense ratio (5) | 2.4 | % | | 2.2 | % | | 2.3 | % | | 2.1 | % |
| Return on average assets (6) | 2.0 | % | | 2.2 | % | | 2.1 | % | | 2.5 | % |
| Return on average equity (7) | 13.8 | % | | 17.1 | % | | 14.6 | % | | 19.8 | % |
| Net charge-off ratio on individually acquired retail installment contracts (8) | 9.1 | % | | 9.3 | % | | 8.5 | % | | 7.7 | % |
| Net charge-off ratio on purchased receivables portfolios (8) | 2.6 | % | | 0.4 | % | | 1.2 | % | | (0.4 | )% |
| Net charge-off ratio on receivables from dealers (8) | — |
| | — |
| | — |
| | 0.2 | % |
| Net charge-off ratio on personal loans (8) | 67.2 | % | | — |
| | 62.7 | % | | — |
|
| Net charge-off ratio (8) | 9.1 | % | | 9.2 | % | | 8.5 | % | | 7.7 | % |
| Delinquency ratio on individually acquired retail installment contracts held for investment, end of period (9) | 5.1 | % | | 4.6 | % | | 5.1 | % | | 4.6 | % |
| Delinquency ratio on personal loans, end of period (9) | 13.8 | % | | 13.4 | % | | 13.8 | % | | 13.4 | % |
| Delinquency ratio on loans held for investment, end of period (9) | 5.1 | % | | 4.6 | % | | 5.1 | % | | 4.6 | % |
| Equity to assets ratio (10) | 15.2 | % | | 13.2 | % | | 15.2 | % | | 13.2 | % |
| Tangible common equity to tangible assets (10) | 14.9 | % | | 13.0 | % | | 14.9 | % | | 13.0 | % |
| Allowance ratio (11) | 12.8 | % | | 12.4 | % | | 12.8 | % | | 12.4 | % |
| Common Equity Tier 1 capital ratio (12) | 15.0 | % | | 13.1 | % | | 15.0 | % | | 13.1 | % |
| |
(1) | Includes finance and other interest income; excludes fees |
| |
(2) | “Yield on earning assets” is defined as the ratio of annualized Total finance and other interest income, net of Leased vehicle expense, to Average gross finance receivables, loans and leases |
| |
(3) | “Cost of debt” is defined as the ratio of annualized Interest expense to Average debt |
| |
(4) | “Net interest margin” is defined as the ratio of annualized Net finance and other interest income to Average gross finance receivables, loans and leases |
| |
(5) | "Expense ratio" is defined as the ratio of annualized Operating expenses to Average managed assets |
| |
(6) | “Return on average assets” is defined as the ratio of annualized Net income to Average total assets |
| |
(7) | “Return on average equity” is defined as the ratio of annualized Net income to Average total equity |
| |
(8) | “Net charge-off ratio” is defined as the ratio of annualized Charge-offs on a recorded investment basis, net of recoveries, to average unpaid principal balance of the respective held-for-investment portfolio. Effective as of September 30, 2016, the Company records the charge-off activity for certain personal loans within the provision for credit losses due to the reclassification of these loans from held for sale to held for investment. |
| |
(9) | “Delinquency ratio” is defined as the ratio of End of period Delinquent principal over 60 days to End of period gross balance of the respective portfolio, excludes capital leases |
| |
(10) | “Tangible common equity to tangible assets” is defined as the ratio of Total equity, excluding Goodwill and intangible assets, to Total assets, excluding Goodwill and intangible assets. Management believes this non-GAAP financial measure is useful to assess and monitor the adequacy of the Company's capitalization. This additional information is not meant to be considered in isolation or as a substitute for the numbers prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures used by other financial institutions. A reconciliation from GAAP to this non-GAAP measure for the periods ended September 30, 2017 and 2016 is as follows: |
|
| | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
| | (Dollar amounts in thousands) |
| Total equity | $ | 5,885,234 |
| | $ | 5,117,657 |
|
| Deduct: Goodwill and intangibles | 105,590 |
| | 107,084 |
|
| Tangible common equity | $ | 5,779,644 |
| | $ | 5,010,573 |
|
| | | | |
| Total assets | $ | 38,765,557 |
| | $ | 38,771,636 |
|
| Deduct: Goodwill and intangibles | 105,590 |
| | 107,084 |
|
| Tangible assets | $ | 38,659,967 |
| | $ | 38,664,552 |
|
| | | | |
| Equity to assets ratio | 15.2 | % | | 13.2 | % |
| Tangible common equity to tangible assets | 14.9 | % | | 13.0 | % |
| |
(11) | “Allowance ratio” is defined as the ratio of Allowance for credit losses, which excludes impairment on purchased receivables portfolios, to End of period assets covered by allowance for credit losses. |
| |
(12) | "Common Equity Tier 1 Capital ratio" is defined as the ratio of Total Common Equity Tier 1 Capital (CET1) to Total risk-weighted assets. |
|
| | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
| Total equity | $ | 5,885,234 |
| | $ | 5,117,657 |
|
| Deduct: Goodwill, intangibles, and other assets, net of deferred tax liabilities | 172,502 |
| | 191,850 |
|
| Deduct: Accumulated other comprehensive income (loss), net | 27,481 |
| | (26,598 | ) |
| Tier 1 common capital | $ | 5,685,251 |
| | $ | 4,952,405 |
|
| Risk weighted assets (a) | $ | 37,828,130 |
| | $ | 37,828,982 |
|
| Common Equity Tier 1 capital ratio (b) | 15.0 | % | | 13.1 | % |
| |
(a) | Under the banking agencies' risk-based capital guidelines, assets and credit equivalent amounts of derivatives and off-balance sheet exposures are assigned to broad risk categories. The aggregate dollar amount in each risk category is multiplied by the associated risk weight of the category. The resulting weighted values are added together with the measure for market risk, resulting in the Company's total Risk weighted assets. |
| |
(b) | CET1 is calculated under Basel III regulations required as of January 1, 2015. The fully phased-in capital ratios are non-GAAP financial measures. |
The following tables presentCompany classifies most of its vehicle leases as operating leases. The Company records the net capitalized cost of each lease as an analysisasset, which is depreciated on a straight-line basis over the contractual term of net yieldthe lease to the expected residual value. The Company records lease payments due from customers as income until and unless a customer becomes more than 60 days delinquent, at which time the accrual of revenue is discontinued and reversed. The Company resumes and reinstates the accrual of revenue if a delinquent account subsequently becomes 60 days or less past due. The Company amortizes subvention payments from the manufacturer, down payments from the customer, and initial direct costs incurred in connection with originating the lease on interest earning assets:a straight-line basis over the contractual term of the lease.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
| | (Dollar amounts in thousands) |
| | Average Balances | | Interest Income/Interest Expense | | Yield/Rate | | Average Balances | | Interest Income/Interest Expense | | Yield/Rate |
| Assets | | | | | | | | | | | |
| Retail installment contracts acquired individually | $ | 28,144,133 |
| | $ | 1,095,554 |
| | 15.6 | % | | $ | 28,970,039 |
| | $ | 1,148,669 |
| | 15.9 | % |
| Purchased receivables | 120,245 |
| | 5,223 |
| | 17.4 | % | | 266,749 |
| | 17,830 |
| | 26.7 | % |
| Receivables from dealers | 53,715 |
| | 808 |
| | 6.0 | % | | 70,392 |
| | 1,176 |
| | 6.7 | % |
| Personal loans | 1,367,445 |
| | 83,474 |
| | 24.4 | % | | 1,343,099 |
| | 78,711 |
| | 23.4 | % |
| Capital lease receivables | 22,544 |
| | 775 |
| | 13.8 | % | | 39,974 |
| | 2,062 |
| | 20.6 | % |
| Finance receivables held for investment, net | 29,708,082 |
| | 1,185,834 |
| | 16.0 | % | | 30,690,253 |
| | 1,248,448 |
| | 16.3 | % |
| Leased vehicles, net | 10,710,941 |
| | 118,351 |
| | 4.4 | % | | 9,347,620 |
| | 135,771 |
| | 5.8 | % |
| Other assets | 2,516,253 |
| | 5,610 |
| | 0.9 | % | | 1,866,410 |
| | 1,576 |
| | 0.3 | % |
| Allowance for credit losses | (3,438,998 | ) | | — |
| | — |
| | (3,430,451 | ) | | — |
| | — |
|
| Total assets | $ | 39,496,278 |
| | $ | 1,309,795 |
| | | | $ | 38,473,832 |
| | $ | 1,385,795 |
| | |
| Liabilities and equity | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
| Notes payable | $ | 31,554,026 |
| | $ | 250,674 |
| | 3.2 | % | | $ | 31,671,237 |
| | $ | 207,175 |
| | 2.6 | % |
| Other liabilities | 2,178,133 |
| | — |
| | — |
| | 1,808,084 |
| | — |
| | — |
|
| Total liabilities | 33,732,159 |
| | 250,674 |
| | | | 33,479,321 |
| | 207,175 |
| | |
| | | | | | | | | | | | |
| Total stockholders' equity | 5,764,119 |
| | — |
| | | | 4,994,511 |
| | — |
| | |
| Total liabilities and equity | $ | 39,496,278 |
| | $ | 250,674 |
| | | | $ | 38,473,832 |
| | $ | 207,175 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | (Dollar amounts in thousands) |
| | Average Balances | | Interest Income/Interest Expense | | Yield/Rate | | Average Balances | | Interest Income/Interest Expense | | Yield/Rate |
| Assets | | | | | | | | | | | |
| Retail installment contracts acquired individually | $ | 28,182,386 |
| | $ | 3,332,339 |
| | 15.8 | % | | $ | 28,710,402 |
| | $ | 3,485,106 |
| | 16.2 | % |
| Purchased receivables | 176,792 |
| | 26,670 |
| | 20.1 | % | | 301,026 |
| | 58,774 |
| | 26.0 | % |
| Receivables from dealers | 63,401 |
| | 2,696 |
| | 5.7 | % | | 72,735 |
| | 2,822 |
| | 5.2 | % |
| Personal loans | 1,419,223 |
| | 264,792 |
| | 24.9 | % | | 1,572,297 |
| | 257,620 |
| | 21.8 | % |
| Capital lease receivables | 26,415 |
| | 3,302 |
| | 16.7 | % | | 49,625 |
| | 7,093 |
| | 19.1 | % |
| Finance receivables held for investment, net | 29,868,217 |
| | 3,629,799 |
| | 16.2 | % | | 30,706,085 |
| | 3,811,415 |
| | 16.6 | % |
| Leased vehicles, net | 10,257,752 |
| | 377,453 |
| | 4.9 | % | | 8,593,128 |
| | 369,421 |
| | 5.7 | % |
| Other assets | 2,504,968 |
| | 12,113 |
| | 0.6 | % | | 1,953,562 |
| | 4,347 |
| | 0.3 | % |
| Allowance for credit losses | (3,438,503 | ) | | — |
| | — |
| | (3,408,445 | ) | | — |
| | — |
|
| Total assets | $ | 39,192,434 |
| | $ | 4,019,365 |
| | | | $ | 37,844,330 |
| | $ | 4,185,183 |
| | |
| Liabilities and equity | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
| Notes payable | $ | 31,538,355 |
| | $ | 711,134 |
| | 3.0 | % | | $ | 31,343,204 |
| | $ | 590,504 |
| | 2.5 | % |
| Other liabilities | 2,111,824 |
| | — |
| | — |
| | 1,764,300 |
| | — |
| | — |
|
| Total liabilities | 33,650,179 |
| | 711,134 |
| | | | 33,107,504 |
| | 590,504 |
| | |
| | | | | | | | | | | | |
| Total stockholders' equity | 5,542,255 |
| | — |
| | | | 4,736,826 |
| | — |
| | |
| Total liabilities and equity | $ | 39,192,434 |
| | $ | 711,134 |
| | | | $ | 37,844,330 |
| | $ | 590,504 |
| | |
Results of Operations
The following table presents the Company's results of operations for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (Dollar amounts in thousands) | | | | |
| Interest on finance receivables and loans | $ | 1,185,059 |
| | $ | 1,246,386 |
| | $ | 3,626,497 |
| | $ | 3,804,322 |
|
| Leased vehicle income | 457,932 |
| | 388,501 |
| | 1,305,429 |
| | 1,086,651 |
|
| Other finance and interest income | 6,385 |
| | 3,638 |
| | 15,415 |
| | 11,440 |
|
| Total finance and other interest income | 1,649,376 |
| | 1,638,525 |
| | 4,947,341 |
| | 4,902,413 |
|
| Interest expense | 250,674 |
| | 207,175 |
| | 711,134 |
| | 590,504 |
|
| Leased vehicle expense | 339,581 |
| | 252,730 |
| | 927,976 |
| | 717,230 |
|
| Net finance and other interest income | 1,059,121 |
| | 1,178,620 |
| | 3,308,231 |
| | 3,594,679 |
|
| Provision for credit losses | 536,447 |
| | 610,398 |
| | 1,692,015 |
| | 1,782,489 |
|
| Net finance and other interest income after provision for credit losses | 522,674 |
| | 568,222 |
| | 1,616,216 |
| | 1,812,190 |
|
| Profit sharing | 5,945 |
| | 6,400 |
| | 22,333 |
| | 35,640 |
|
| Net finance and other interest income after provision for credit losses and profit sharing | 516,729 |
| | 561,822 |
| | 1,593,883 |
| | 1,776,550 |
|
| Total other income | 58,947 |
| | 26,682 |
| | 138,822 |
| | 141,542 |
|
| Total operating expenses | 297,903 |
| | 284,484 |
| | 885,396 |
| | 847,567 |
|
| Income before income taxes | 277,773 |
| | 304,020 |
| | 847,309 |
| | 1,070,525 |
|
| Income tax expense | 78,385 |
| | 90,473 |
| | 239,819 |
| | 365,334 |
|
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
| | | | | | | | |
| Net income | $ | 199,388 |
| | $ | 213,547 |
| | $ | 607,490 |
| | $ | 705,191 |
|
| Change in unrealized gains (losses) on cash flow hedges, net of tax | (379 | ) | | 24,168 |
| | (778 | ) | | (28,723 | ) |
| Comprehensive income | $ | 199,009 |
| | $ | 237,715 |
| | $ | 606,712 |
| | $ | 676,468 |
|
Three and Nine Months Ended September 30, 2017March 31, 2021 Compared to Three and Nine Months Ended September 30, 2016March 31, 2020
Interest on Finance Receivables and Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Income from retail installment contracts | $ | 1,215,905 | | | $ | 1,179,436 | | | $ | 36,469 | | | 3 | % | | | | | | | | |
| Income from purchased receivables portfolios - credit deteriorated | 486 | | | 788 | | | (302) | | | (38) | % | | | | | | | | |
| Income from receivables from dealers | — | | | 54 | | | (54) | | | (100) | % | | | | | | | | |
| Income from personal loans | 88,260 | | | 93,541 | | | (5,281) | | | (6) | % | | | | | | | | |
| Total interest on finance receivables and loans | $ | 1,304,651 | | | $ | 1,273,819 | | | $ | 30,832 | | | 2 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Income from individually acquired retail installment contracts | $ | 1,095,554 |
| | $ | 1,148,669 |
| | $ | (53,115 | ) | | (5 | )% | | $ | 3,332,339 |
| | $ | 3,485,106 |
| | $ | (152,767 | ) | | (4 | )% |
| Income from purchased receivables portfolios | 5,223 |
| | 17,830 |
| | (12,607 | ) | | (71 | )% | | 26,670 |
| | 58,774 |
| | (32,104 | ) | | (55 | )% |
| Income from receivables from dealers | 808 |
| | 1,176 |
| | (368 | ) | | (31 | )% | | 2,696 |
| | 2,822 |
| | (126 | ) | | (4 | )% |
| Income from personal loans | 83,474 |
| | 78,711 |
| | 4,763 |
| | 6 | % | | 264,792 |
| | 257,620 |
| | 7,172 |
| | 3 | % |
| Total interest on finance receivables and loans | $ | 1,185,059 |
| | $ | 1,246,386 |
| | $ | (61,327 | ) | | (5 | )% | | $ | 3,626,497 |
| | $ | 3,804,322 |
| | $ | (177,825 | ) | | (5 | )% |
Income from individually acquired retail installment contracts decreased $53increased $36 million or 5%, from3% from the thirdfirst quarter of 20162021 to the thirdfirst quarter of 2017, and decreased $153 million, or 4%, from the nine months ended September 30, 20162020primarily due to the nine months ended September 30, 2017, greater than the 2.9% and 1.8% decline respectively,increase in the average outstanding balance of the Company's portfolio, primarily due to lower interest income accruals for specific categories of loans classified as TDRs.
Income from purchased receivables portfolios decreased $13 million, or 71%, from the third quarter of 2016 to the third quarter of 2017, and decreased $32 million, or 55%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017, due to theoffset by sale of a majority of the purchased receivablesgross retail installment contracts to SHUSA during the quarter and the continued runoff of the portfolios, as the Company has made no portfolio acquisitions accounted for under ASC 310-30 since 2012. The average balance of the portfolio decreased from $267 millionthird party investors in the third quarter of 2016, to $120 million in the third quarter of 2017, and decreased from $301 million from the nine months ended September 30, 2016 to $177 million for the nine months ended September 30, 2017.off-balance sheet securitizations.
Income from personal loans increaseddecreased $5 million or 6%, from the thirdfirst quarter of 20162021 to the thirdfirst quarter of 2017, and increased $7 million, or 3%, from 2020 primarily due to 28% decrease in average outstanding balance of the nine months ended September 30, 2016 toCompany's portfolio. On March 31, 2021, the nine months ended September 30, 2017, asCompany completed the sale of the entire LendingClub$1.3 billion Bluestem personal loanlending portfolio left only higher-yielding revolving loan portfolio.BB Allium LLC. Refer to Note 1 – “Description of Business, Basis of Presentation, and Accounting Principles” to the condensed consolidated financial statements, for additional information regarding the sale.
Leased Vehicle Income and Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Leased vehicle income | $ | 740,884 | | | $ | 747,979 | | | $ | (7,095) | | | (1) | % | | | | | | | | |
| Leased vehicle expense | 423,795 | | | 552,912 | | | (129,117) | | | (23) | % | | | | | | | | |
| Leased vehicle income, net | $ | 317,089 | | | $ | 195,067 | | | $ | 122,022 | | | 63 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Leased vehicle income | $ | 457,932 |
| | $ | 388,501 |
| | $ | 69,431 |
| | 18 | % | | $ | 1,305,429 |
| | $ | 1,086,651 |
| | $ | 218,778 |
| | 20 | % |
| Leased vehicle expense | 339,581 |
| | 252,730 |
| | 86,851 |
| | 34 | % | | 927,976 |
| | 717,230 |
| | 210,746 |
| | 29 | % |
| Leased vehicle income, net | $ | 118,351 |
| | $ | 135,771 |
| | $ | (17,420 | ) | | (13 | )% | | $ | 377,453 |
| | $ | 369,421 |
| | $ | 8,032 |
| | 2 | % |
LeasedLeased vehicle income, and expense net increased $122 million or 63% in the three and nine months ended September 30, 2017 whenfirst quarter of 2021 compared to the same periodsfirst quarter of 2020 primarily driven by an increase in 2016, dueliquidated units. Through the MPLFA, the Company receives manufacturer incentives on new leases originated under the program in the form of lease subvention payments, which are amortized over the term of the lease and reduce depreciation expense within leased vehicle expense.
Interest Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Interest expense on notes payable | $ | 246,426 | | | $ | 318,714 | | | $ | (72,288) | | | (23) | % | | | | | | | | |
| Interest expense on derivatives | 7,111 | | | 10,120 | | | (3,009) | | | (30) | % | | | | | | | | |
| Total interest expense | $ | 253,537 | | | $ | 328,834 | | | $ | (75,297) | | | (23) | % | | | | | | | | |
Total interest expense decreased $75 million or 23% from the first quarter of 2021 to the continual growth in the portfolio since the Company launched Chrysler Capital in 2013.
Interest Expense
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Interest expense on notes payable | $ | 253,478 |
| | $ | 194,602 |
| | $ | 58,876 |
| | 30 | % | | $ | 709,001 |
| | $ | 547,160 |
| | $ | 161,841 |
| | 30 | % |
| Interest expense on derivatives | (2,804 | ) | | 12,573 |
| | (15,377 | ) | | (122 | )% | | 2,133 |
| | 43,344 |
| | (41,211 | ) | | (95 | )% |
| Total interest expense | $ | 250,674 |
| | $ | 207,175 |
| | $ | 43,499 |
| | 21 | % | | $ | 711,134 |
| | $ | 590,504 |
| | $ | 120,630 |
| | 20 | % |
Interest expense on notes payable increased $59 million, or 30%, from the thirdfirst quarter of 2016 to the third quarter of 2017, and increased $162 million, or 30%, from the nine months ended September 30, 2016 to the nine months ended September 30,
2017, primarily due to the increased cost of funds resulting from higher market rates and wider spreads. The average balance of the portfolio also increased slightly from $31.3 billion from the nine months ended September 30, 2016 to $31.5 billion for the nine months ended September 30, 2017.
Interest expense on derivatives decreased $15 million, or 122%, from the third quarter of 2016 to the third quarter of 2017, and decreased $41 million, or 95%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 primarily due to a favorable mark-to-market based on interest rate changes in 2017.
Provision for Credit Losses
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Provision for credit losses on individually acquired retail installment contracts | $ | 535,427 |
| | $ | 609,396 |
| | $ | (73,969 | ) | | (12 | )% | | $ | 1,682,894 |
| | $ | 1,787,277 |
| | $ | (104,383 | ) | | (6 | )% |
| Incremental increase (decrease) in impairment related to purchased receivables portfolios | — |
| | 804 |
| | (804 | ) | | (100 | )% | | — |
| | (2,986 | ) | | 2,986 |
| | (100 | )% |
| Provision for credit losses on receivables from dealers | (546 | ) | | (189 | ) | | (357 | ) | | 189 | % | | (557 | ) | | (133 | ) | | (424 | ) | | 319 | % |
| Provision for credit losses on personal loans | 1,134 |
| | — |
| | 1,134 |
| | 100 | % | | 10,275 |
| | — |
| | 10,275 |
| | 100 | % |
| Provision for credit losses on capital leases | 432 |
| | 387 |
| | 45 |
| | 12 | % | | (597 | ) | | (1,669 | ) | | 1,072 |
| | (64 | )% |
| Provision for credit losses | $ | 536,447 |
| | $ | 610,398 |
| | $ | (73,951 | ) | | (12 | )% | | $ | 1,692,015 |
| | $ | 1,782,489 |
| | $ | (90,474 | ) | | (5 | )% |
Provision for credit losses on individually acquired retail installment contracts decreased $104 million, or 6%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017, 2020, primarily due to a lower buildinterest rate environment and lower debt balances.
Credit Loss Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Credit loss expense | $ | 136,209 | | | $ | 907,888 | | | $ | (771,679) | | | (85) | % | | | | | | | | |
Credit loss expensedecreased $772 million or 85% in the first quarter of the allowance for credit losses as a result of the decline in originations during the nine months ended September 30, 2017,2021 as compared to the same period in 2016, improved credit performance, and stabilizing recovery rates. This is partially offsetfirst quarter of 2020, primarily driven by the lower benefit from bankruptcy salesadditional reserve to address credit risk associated with the COVID-19 outbreak and to a lesser extent,associated economic recession during the additional allowance for credit losses recorded for customers affected by Hurricanes Harvey and Irma.
Provision for credit losses on personal loans was recorded during fiscal 2017 due to the reclassification of personal loans from held for sale to held for investment effective as of the end on the thirdfirst quarter of 2016.2020, and decrease in charge-offs in 2021.
Profit Sharing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Profit sharing | $ | 67,326 | | | $ | 14,295 | | | $ | 53,031 | | | 371 | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Profit sharing | $ | 5,945 |
| | $ | 6,400 |
| | $ | (455 | ) | | (7 | )% | | $ | 22,333 |
| | $ | 35,640 |
| | $ | (13,307 | ) | | (37 | )% |
Profit sharing expense consists of revenue sharing related to the Chrysler AgreementMPLFA and profit sharing on personal loans originated pursuant to the agreements with Bluestem. Profit sharing with Bluestem decreasedexpense increased in the three and nine months ended September 30, 2017first quarter of 2021 as compared to the same periods in 2016,first quarter of 2020, primarily due to amendments to the agreement governing the profit sharing calculation, including an increase in the percentage of profit retained bylease portfolio, and an improvement in Bluestem results during the Company. This effect was partially offset by an increase in Chrysler Capital revenue sharing due to continued growth in the portfolio.
Other Income
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Investment losses, net | $ | (52,592 | ) | | $ | (106,050 | ) | | $ | (53,458 | ) | | (50 | )% | | $ | (228,513 | ) | | $ | (276,415 | ) | | $ | (47,902 | ) | | (17 | )% |
| Servicing fee income | 28,673 |
| | 36,447 |
| | (7,774 | ) | | (21 | )% | | 92,310 |
| | 123,929 |
| | (31,619 | ) | | (26 | )% |
| Fees, commissions, and other | 82,866 |
| | 96,285 |
| | (13,419 | ) | | (14 | )% | | 275,025 |
| | 294,028 |
| | (19,003 | ) | | (6 | )% |
| Total other income | $ | 58,947 |
| | $ | 26,682 |
| | $ | 32,265 |
| | 121 | % | | $ | 138,822 |
| | $ | 141,542 |
| | $ | (2,720 | ) | | (2 | )% |
| Average serviced for others portfolio | $ | 9,579,089 |
| | $ | 12,622,328 |
| | $ | (3,043,239 | ) | | (24 | )% | | $ | 10,426,323 |
| | $ | 13,674,454 |
| | $ | (3,248,131 | ) | | (24 | )% |
Investment losses, net for the three and nine months ended September 30, 2017 and 2016, were as follows: |
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Gain (loss) on sale of loans and leases | $ | 29,974 |
| | $ | (3,765 | ) | | $ | 16,913 |
| | $ | (1,418 | ) |
| Lower of cost or market adjustments | (84,718 | ) | | (97,532 | ) | | (246,522 | ) | | (266,506 | ) |
| Other gains, losses and impairments, net | 2,152 |
| | (4,753 | ) | 4 |
| 1,096 |
| | (8,491 | ) |
| | $ | (52,592 | ) | | $ | (106,050 | ) | | $ | (228,513 | ) | | $ | (276,415 | ) |
Gain (loss) on sale of loans and leases changed from a $3.8 million loss during thirdfirst quarter of 2016,2021, prior to a gain of $30.0 million for the third quarter of 2017, and changed from a $1.4 million loss during the nine months ended September 30, 2016, to a gain of $16.9 million as of September 30, 2017. These changes were driven primarily by the $36 million gain recognized upon the sale of receivables previously acquired with deteriorated credit quality to SBNA during the quarter. The gain is partially offset by losses recognized from off-balance sheet securitizations and flow agreements.
The change in lower of cost or market adjustments relates to customer default activity and net changes in the unpaid principal balance on the personal lending portfolio moston March 31, 2021. Refer to Note 1 – “Description of which has been classifiedBusiness, Basis of Presentation, and Accounting Principles” to the accompanying condensed consolidated financial statements , for additional information regarding the sale.
Other Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Investment losses, net | $ | (14,712) | | | $ | (63,426) | | | $ | 48,714 | | | (77) | % | | | | | | | | |
| Servicing fee income | 18,694 | | | 19,103 | | | (409) | | | (2) | % | | | | | | | | |
| Fees, commissions, and other | 100,528 | | | 95,130 | | | 5,398 | | | 6 | % | | | | | | | | |
| Total other income | $ | 104,510 | | | $ | 50,807 | | | $ | 53,703 | | | 106 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| Average serviced for others portfolio | $ | 12,584,573 | | | $ | 10,227,948 | | | $ | 2,356,625 | | | 23 | % | | | | | | | | |
Investment losses, net decreased in the first quarter of 2021 as held forcompared to the first quarter of 2020, primarily due to the sale since September 30, 2015.of the personal lending portfolio.
Servicing fee income remained flat in the first quarter of 2021 as compared to the first quarter of 2020.The Company records servicing fee income on loans that it services but does not own and does not report on its balance sheet. Servicing fee income decreased $8 million, or 21%, from the third quarter of 2016 to the third quarter of 2017, and decreased $32 million, or 26%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 due to the decline in the Company's serviced portfolio. The serviced for others portfolio as of September 30, 2017March 31, 2021 and 20162020 was as follows: | | | | | | | | | | | |
| March 31, |
| 2021 | | 2020 |
| (Dollar amounts in thousands) |
| SBNA and Santander retail installment contracts | $ | 10,586,778 | | | $ | 8,760,998 | |
| SBNA leases | — | | | 131 | |
| Total serviced for related parties | $ | 10,586,778 | | | $ | 8,761,129 | |
| CCAP securitizations | 63,188 | | | 152,950 | |
| SCART securitizations | 2,623,575 | | | — | |
| Other third parties | 942,918 | | | 1,417,358 | |
| Total serviced for third parties | $ | 3,629,681 | | | $ | 1,570,308 | |
| Total serviced for others portfolio | $ | 14,216,459 | | | $ | 10,331,437 | |
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| | (Dollar amounts in thousands) |
| SBNA and Santander retail installment contracts | $ | 2,822,102 |
| | $ | 566,088 |
|
| SBNA leases | 459,524 |
| | 1,502,518 |
|
| Total serviced for related parties | 3,281,626 |
| | 2,068,606 |
|
| Chrysler Capital securitizations | 1,690,729 |
| | 1,840,684 |
|
| Other third parties | 4,984,251 |
| | 8,247,402 |
|
| Total serviced for third parties | 6,674,980 |
| | 10,088,086 |
|
| Total serviced for others portfolio | $ | 9,956,606 |
| | $ | 12,156,692 |
|
Total Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Compensation expense | $ | 134,169 |
| | $ | 128,056 |
| | $ | 6,113 |
| | 5 | % | | $ | 398,325 |
| | $ | 371,242 |
| | $ | 27,083 |
| | 7 | % |
| Repossession expense | 66,877 |
| | 75,920 |
| | (9,043 | ) | | (12 | )% | | 205,445 |
| | 217,816 |
| | (12,371 | ) | | (6 | )% |
| Other operating costs | 96,857 |
| | 80,508 |
| | 16,349 |
| | 20 | % | | 281,626 |
| | 258,509 |
| | 23,117 |
| | 9 | % |
| Total operating expenses | $ | 297,903 |
| | $ | 284,484 |
| | $ | 13,419 |
| | 5 | % | | $ | 885,396 |
| | $ | 847,567 |
| | $ | 37,829 |
| | 4 | % |
Compensation expense increased $6 million, or 5%, from the third quarter of 2016 to the third quarter of 2017,Fees, commissions, and other primarily includes late fees, miscellaneous, and other income and increased $27 million, or 7%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017, primarily due to thegrowth in lease portfolio and increase in severance expenses relatedcustomer payments of late fees in the first quarter of 2021 as compared to management changes and efficiency efforts and continued investment in compliance and control functions.the first quarter of 2020.
Repossession expense decreased $9Total Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Compensation expense | $ | 153,895 | | | $ | 133,326 | | | $ | 20,569 | | | 15 | % | | | | | | | | |
| Repossession expense | 45,346 | | | 57,662 | | | (12,316) | | | (21) | % | | | | | | | | |
| Other operating costs | 95,251 | | | 91,685 | | | 3,566 | | | 4 | % | | | | | | | | |
| Total operating expenses | $ | 294,492 | | | $ | 282,673 | | | $ | 11,819 | | | 4 | % | | | | | | | | |
Compensation expensesincreased $21 million or 12% from15% in the thirdfirst quarter of 20162021 as compared to the thirdfirst quarter of 2017,2020, primarily due to an increase of 227 employees and an increase in medical claims reserve.
Repossession expense decreased $12 million or 6%, from21% in the nine months ended September 30, 2016first quarter of 2021 as compared to the nine months ended September 30, 2017,first quarter of 2020, primarily due to continued lower volume of involuntary repossessions nationwide as a decrease in repossessions related to repossessions held due toresult of the impact of Hurricanes Harvey and Irma.COVID-19 outbreak.
Other operating costs expense increased $16 million, or 20% from the third quarter of 2016 to the third quarter of 2017, and increased $23 million, or 9%, from the nine months ended September 30, 2016 to the nine months ended September 30, 2017, primarily due to the loss recorded for certain contingencies.
Income Tax Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| Income tax expense | $ | 234,457 | | | $ | (2,458) | | $ | 236,915 | | | (9,639)% | | | | | | | | |
| Income before income taxes | 976,112 | | | (6,445) | | 982,557 | | | (15,245)% | | | | | | | | |
| Effective tax rate | 24.0 | % | | 38.1 | % | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Income tax expense | $ | 78,385 |
| | $ | 90,473 |
| | $ | (12,088 | ) | | (13 | )% | | $ | 239,819 |
| | $ | 365,334 |
| | $ | (125,515 | ) | | (34 | )% |
| Income before income taxes | 277,773 |
| | 304,020 |
| | (26,247 | ) | | (9 | )% | | 847,309 |
| | 1,070,525 |
| | (223,216 | ) | | (21 | )% |
| Effective tax rate | 28.2 | % | | 29.8 | % | | | | | | 28.3 | % | | 34.1 | % | | | | |
The effective tax rate decreased from 29.8%38.1% in the thirdfirst quarter of 20162020 to 28.2%24.0% in the thirdfirst quarter of 2017, and decreased from 34.1% for2021, primarily
due to pre-tax income in the nine month period ended September 30, 2016first quarter of 2021 compared to 28.3% for the nine month period ended September 30, 2017. The decreases were primarily due todiscrete tax adjustments that increased the tax benefit recognized uponrecorded on the assertion that undistributed net earnings of the Company’s Puerto Rico subsidiary would be indefinitely reinvested outside the United Statespre-tax loss in the current year offset by the releasefirst quarter of the valuation allowance on capital losses in the prior year.2020.
Other Comprehensive Income (Loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended | | |
| March 31, | | Increase (Decrease) | | | | |
| 2021 | | 2020 | | Amount | | Percent | | | | | | | | |
| (Dollar amounts in thousands) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Change in unrealized gains (losses) on cash flow hedges and available-for-sale securities, net of tax | $ | 8,748 | | | $ | (36,962) | | | $ | 45,710 | | | (124) | % | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | Increase (Decrease) | | September 30, | | Increase (Decrease) |
| | 2017 | | 2016 | | Amount | | Percent | | 2017 | | 2016 | | Amount | | Percent |
| | (Dollar amounts in thousands) |
| Change in unrealized gains (losses) on cash flow hedges, net of tax | $ | (379 | ) | | $ | 24,168 |
| | $ | (24,547 | ) | | 102 | % | | $ | (778 | ) | | $ | (28,723 | ) | | $ | 27,945 |
| | 97 | % |
The change in unrealized gains (losses) on cash flow hedges forin the nine months ended September 30, 2017first quarter of 2020 as compared to the nine months ended September 30, 2016first quarter of 2021, was primarily driven by more favorable interest rate movementsan increase in 2017 thancash flow hedge portfolio related to mark-to-market valuation, as shown in 2016.
Note 9 “Derivative Financial Instruments” to the accompanying condensed consolidated financial statements.
Credit Quality
Loans and Other Finance Receivables
NonprimeAllowance for Credit losses
Non-prime loans comprise 84%79% of the Company'sCompany’s portfolio as of September 30, 2017.March 31, 2021. The Company records an allowance forACL at a level considered adequate to cover current expected credit losses to coverin the estimate of inherent losses on individually acquiredCompany’s retail installment contracts and other loans and receivables held for investment. The Company'sinvestment, based upon a holistic assessment including both quantitative and qualitative considerations. Refer to Note 2 - "Finance Receivables" and Note 3 - "Credit Loss Allowance and Credit Quality"to the accompanying condensed consolidated financial statements for the details on the Company’s held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans was comprisedas of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020. |
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Retail Installment Contracts
Acquired
Individually (a) | | Receivables from
Dealers | | Personal Loans |
| | Non-TDR | | TDR | | |
| Unpaid principal balance | $ | 20,044,330 |
| | $ | 6,276,659 |
| | $ | 16,069 |
| | $ | 9,188 |
|
| Credit loss allowance - specific | — |
| | (1,782,114 | ) | | — |
| | — |
|
| Credit loss allowance - collective | (1,589,151 | ) | | — |
| | (167 | ) | | (3,725 | ) |
| Discount | (331,179 | ) | | (84,588 | ) | | — |
| | (16 | ) |
| Capitalized origination costs and fees | 59,295 |
| | 5,909 |
| | — |
| | 176 |
|
| Net carrying balance | $ | 18,183,295 |
| | $ | 4,415,866 |
| | $ | 15,902 |
| | $ | 5,623 |
|
| Allowance as a percentage of unpaid principal balance | 7.9 | % | | 28.4 | % | | 1.0 | % | | 40.5 | % |
| Allowance and discount as a percentage of unpaid principal balance | 9.6 | % | | 29.7 | % | | 1.0 | % | | 40.7 | % |
(a) As of September 30, 2017, used car financing represented 61% of our outstanding retail installment contracts acquired individually. 88% of this
used car financing consisted of nonprime auto loans.
|
| | | | | | | | | | | | | | | |
| | December 31, 2016 |
| | Retail Installment Contracts
Acquired
Individually | | Receivables from
Dealers | | Personal Loans |
| | Non-TDR | | TDR | | |
| Unpaid principal balance | $ | 21,528,406 |
| | $ | 5,599,567 |
| | $ | 69,431 |
| | $ | 19,361 |
|
| Credit loss allowance - specific | — |
| | (1,611,295 | ) | | — |
| | — |
|
| Credit loss allowance - collective | (1,799,760 | ) | | — |
| | (724 | ) | | — |
|
| Discount | (467,757 | ) | | (91,359 | ) | | — |
| | (7,721 | ) |
| Capitalized origination costs and fees | 56,704 |
| | 5,218 |
| | — |
| | 632 |
|
| Net carrying balance | $ | 19,317,593 |
| | $ | 3,902,131 |
| | $ | 68,707 |
| | $ | 12,272 |
|
| Allowance as a percentage of unpaid principal balance | 8.4 | % | | 28.8 | % | | 1.0 | % | | — |
|
| Allowance and discount as a percentage of unpaid principal balance | 10.5 | % | | 30.4 | % | | 1.0 | % | | 39.9 | % |
For most retail installment contracts that the Company acquired in pools at a discount due to credit deterioration subsequent to their origination, the Company anticipates the expected credit losses at purchase and records income thereafter based on the expected effective yield, recording impairment if performance is worse than expected at purchase. The balances of these purchased receivables portfolios were as follows at September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30,
2017 | | December 31, 2016 |
| | (Dollar amounts in thousands) |
| Outstanding balance | $ | 49,089 |
| | $ | 231,360 |
|
| Outstanding recorded investment, net of impairment | $ | 30,646 |
| | $ | 159,451 |
|
A summary of the credit risk profile of the Company's consumer loansCompany’s retail installment contracts held for investment, by FICO® score, number of trade lines (represents number of approved credit accounts reported to credit reporting agencies), and length of credit history, each as determined at origination, as of September 30, 2017March 31, 2021 and December 31, 20162020 was as follows (dollar amounts in
billions, totals may not foot due to rounding): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 |
| Trade Lines | | 1 | | 2 | | 3 | | 4+ | | Total |
| FICO | Months History | | $ | % | | $ | % | | $ | % | | $ | % | | $ | % |
| No-FICO (a) | <36 | | $3.1 | 97 | % | | $0.1 | 3 | % | | $0.0 | — | % | | $0.0 | — | % | | $3.2 | 10 | % |
| 36+ | | 0.3 | 38 | % | | 0.2 | 25 | % | | 0.1 | 13 | % | | 0.2 | 25 | % | | 0.8 | 2 | % |
| <540 | <36 | | 0.1 | 33 | % | | 0.1 | 33 | % | | 0.0 | — | % | | 0.1 | 33 | % | | 0.3 | 1 | % |
| 36+ | | 0.1 | 2 | % | | 0.2 | 4 | % | | 0.2 | 4 | % | | 4.3 | 90 | % | | 4.8 | 15 | % |
| 540-599 | <36 | | 0.3 | 33 | % | | 0.2 | 22 | % | | 0.1 | 11 | % | | 0.3 | 33 | % | | 0.9 | 4 | % |
| 36+ | | 0.2 | 2 | % | | 0.3 | 3 | % | | 0.3 | 3 | % | | 9.2 | 93 | % | | 9.9 | 30 | % |
| 600-639 | <36 | | 0.4 | 44 | % | | 0.2 | 22 | % | | 0.1 | 11 | % | | 0.2 | 22 | % | | 0.9 | 3 | % |
| 36+ | | 0.1 | 2 | % | | 0.1 | 2 | % | | 0.1 | 2 | % | | 5.1 | 94 | % | | 5.4 | 17 | % |
| >=640 (b) | <36 | | 0.9 | 64 | % | | 0.2 | 14 | % | | 0.1 | 7 | % | | 0.2 | 14 | % | | 1.4 | 4 | % |
| 36+ | | 0.1 | 2 | % | | 0.1 | 2 | % | | 0.1 | 2 | % | | 4.2 | 93 | % | | 4.5 | 14 | % |
| Total (c) | | $5.6 | 17 | % | | $1.7 | 5 | % | | $1.1 | 3 | % | | $23.8 | 74 | % | | $32.1 | 100 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Trade Lines | | 1 | | 2 | | 3 | | 4+ | | Total |
| FICO | Months History | | $ | % | | $ | % | | $ | % | | $ | % | | $ | % |
| No-FICO (a) | <36 | | $3.0 | 97 | % | | $ | 0.1 | | 3 | % | | $ | 0.0 | | — | % | | $ | 0.0 | | — | % | | $ | 3.1 | | 9 | % |
| 36+ | | 0.3 | 38 | % | | 0.2 | | 25 | % | | 0.1 | | 13 | % | | 0.2 | | 25 | % | | 0.8 | | 2 | % |
| <540 | <36 | | 0.0 | — | % | | — | | — | % | | 0.1 | | 50 | % | | 0.1 | | 50 | % | | 0.2 | | 1 | % |
| 36+ | | 0.1 | 2 | % | | 0.2 | | 4 | % | | 0.2 | | 4 | % | | 4.3 | | 90 | % | | 4.8 | | 15 | % |
| 540-599 | <36 | | 0.3 | 38 | % | | 0.2 | | 25 | % | | 0.1 | | 13 | % | | 0.2 | | 25 | % | | 0.8 | | 3 | % |
| 36+ | | 0.2 | 2 | % | | 0.2 | | 2 | % | | 0.3 | | 3 | % | | 9.0 | | 93 | % | | 9.7 | | 28 | % |
| 600-639 | <36 | | 0.4 | 44 | % | | 0.2 | | 22 | % | | 0.1 | | 11 | % | | 0.2 | | 22 | % | | 0.9 | | 3 | % |
| 36+ | | 0.1 | 2 | % | | 0.1 | | 2 | % | | 0.1 | | 2 | % | | 5.0 | | 94 | % | | 5.3 | | 16 | % |
| >640 (b) | <36 | | 1.0 | 59 | % | | 0.3 | | 18 | % | | 0.2 | | 12 | % | | 0.2 | | 12 | % | | 1.7 | | 5 | % |
| 36+ | | 0.1 | 2 | % | | 0.1 | | 2 | % | | 0.1 | | 2 | % | | 5.5 | | 95 | % | | 5.8 | | 18 | % |
| Total (c) | | $ | 5.5 | | 17 | % | | $ | 1.6 | | 5 | % | | $ | 1.3 | | 4 | % | | $ | 24.7 | | 75 | % | | $ | 33.1 | | 100 | % |
| | | | | | | | | | | | | | | | |
(a) Includes commercial loans
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Trade Lines | | 1 | | 2 | | 3 | | 4+ | | Total |
| FICO | Months History | | $ | % | | $ | % | | $ | % | | $ | % | | $ | % |
| No-FICO | <36 | | $ | 2.3 |
| 96 | % | | $ | 0.1 |
| 4 | % | | $ | — |
| — |
| | $ | — |
| — |
| | $ | 2.4 |
| 9 | % |
| 36+ | | 0.4 |
| 40 | % | | 0.2 |
| 20 | % | | 0.1 |
| 10 | % | | 0.3 |
| 30 | % | | 1.0 |
| 4 | % |
| <540 | <36 | | 0.2 |
| 40 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.5 |
| 2 | % |
| 36+ | | 0.2 |
| 4 | % | | 0.3 |
| 5 | % | | 0.3 |
| 5 | % | | 4.7 |
| 85 | % | | 5.5 |
| 21 | % |
| 540-599 | <36 | | 0.3 |
| 38 | % | | 0.2 |
| 25 | % | | 0.1 |
| 13 | % | | 0.2 |
| 25 | % | | 0.8 |
| 3 | % |
| 36+ | | 0.2 |
| 3 | % | | 0.3 |
| 4 | % | | 0.3 |
| 4 | % | | 7.0 |
| 90 | % | | 7.8 |
| 29 | % |
| 600-639 | <36 | | 0.2 |
| 33 | % | | 0.1 |
| 17 | % | | 0.1 |
| 17 | % | | 0.2 |
| 33 | % | | 0.6 |
| 2 | % |
| 36+ | | 0.1 |
| 2 | % | | 0.1 |
| 2 | % | | 0.1 |
| 2 | % | | 3.8 |
| 93 | % | | 4.1 |
| 16 | % |
| >640 | <36 | | 0.2 |
| 40 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.5 |
| 2 | % |
| 36+ | | — |
| — |
| | 0.1 |
| 3 | % | | 0.1 |
| 3 | % | | 3.0 |
| 94 | % | | 3.2 |
| 12 | % |
| Total | | $ | 4.1 |
| 16 | % | | $ | 1.6 |
| 6 | % | | $ | 1.3 |
| 5 | % | | $ | 19.4 |
| 73 | % | | $ | 26.4 |
| 100 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Trade Lines | | 1 | | 2 | | 3 | | 4+ | | Total |
| FICO | Months History | | $ | % | | $ | % | | $ | % | | $ | % | | $ | % |
| No-FICO | <36 | | $ | 2.8 |
| 97 | % | | $ | 0.1 |
| 3 | % | | $ | — |
| — |
| | $ | — |
| — |
| | $ | 2.9 |
| 11 | % |
| 36+ | | 0.5 |
| 42 | % | | 0.2 |
| 17 | % | | 0.1 |
| 8 | % | | 0.4 |
| 33 | % | | 1.2 |
| 4 | % |
| <540 | <36 | | 0.2 |
| 40 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.5 |
| 2 | % |
| 36+ | | 0.2 |
| 4 | % | | 0.3 |
| 5 | % | | 0.3 |
| 5 | % | | 4.7 |
| 85 | % | | 5.5 |
| 20 | % |
| 540-599 | <36 | | 0.3 |
| 38 | % | | 0.2 |
| 25 | % | | 0.1 |
| 13 | % | | 0.2 |
| 25 | % | | 0.8 |
| 3 | % |
| 36+ | | 0.2 |
| 3 | % | | 0.3 |
| 4 | % | | 0.3 |
| 4 | % | | 7.0 |
| 90 | % | | 7.8 |
| 28 | % |
| 600-639 | <36 | | 0.2 |
| 40 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.1 |
| 20 | % | | 0.5 |
| 2 | % |
| 36+ | | 0.1 |
| 2 | % | | 0.1 |
| 2 | % | | 0.1 |
| 2 | % | | 4.0 |
| 93 | % | | 4.3 |
| 16 | % |
| >640 | <36 | | 0.3 |
| 50 | % | | 0.1 |
| 17 | % | | 0.1 |
| 17 | % | | 0.1 |
| 17 | % | | 0.6 |
| 2 | % |
| 36+ | | — |
| — |
| | 0.1 |
| 3.0 | % | | 0.1 |
| 3.0 | % | | 3.1 |
| 94 | % | | 3.3 |
| 12 | % |
| Total | | $ | 4.8 |
| 18 | % | | $ | 1.6 |
| 6 | % | | $ | 1.3 |
| 5 | % | | $ | 19.7 |
| 72 | % | | $ | 27.4 |
| 100 | % |
Delinquency
Delinquencies
The Company considers an account delinquent when an obligor fails to pay the required minimum portionsubstantially all (defined as 90%) of the scheduled payment by the due date. With respect to receivables originated by the Company prior to January 1, 2017 and through its “Chrysler Capital” channel, the required minimum payment is 90% of the scheduled payment. With respect to all other receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator prior to January 1, 2017, the required minimum payment is 50% of the scheduled payment. With respect to receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator on or after January 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of which channel the receivable was originated through.
In each case, the period of delinquency is based on the number of days payments are contractually past due. Delinquencies may vary from period to period based upon the average age or seasoning of the portfolio, seasonality within the calendar year, and economic factors. Historically, the Company'sCompany’s delinquencies have been highest in the period from November through January due to consumers’ holiday spending. For the three months ended March 31, 2021, delinquency rates have been positively impacted (lower) due to the benefits of government stimulus payments and tax refunds provided to customers.
As of September 30, 2017
Refer to Note 3 - "Credit Loss Allowance and December 31, 2016, a summary of delinquenciesCredit Quality" to the accompanying condensed consolidated financial statements for the details on the retail installment contracts held for investment that were as follows:
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Dollars (in thousands) | | Percent (a) | | Dollars (in thousands) | | Percent (a) |
| Principal 30-59 days past due | $ | 2,580,226 |
| | 9.8 | % | | $ | 2,925,503 |
| | 10.7 | % |
| Delinquent principal over 59 days (b) | 1,464,543 |
| | 5.6 | % | | 1,526,743 |
| | 5.6 | % |
| Total delinquent principal | $ | 4,044,769 |
| | 15.4 | % | | $ | 4,452,246 |
| | 16.3 | % |
(a) Percent of unpaid principal balance.
(b) Interest is accrued until 60 days past due in accordance with the Company's accounting policy for retail installment contracts. The Company's delinquency ratio continues to be calculated using the end of period delinquent principal over 60 days.
All of the Company's receivables from dealers were currentplaced on nonaccrual status, as of September 30, 2017March 31, 2021 and December 31, 2016.2020.
Credit Loss Experience
The following is a summary of net losses and repossession activity on finance receivablesretail installment contracts held for investment for the ninethree months ended September 30, 2017March 31, 2021 and 2016.2020. | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
| |
| | (Dollar amounts in thousands) |
| Principal outstanding at period end | $ | 31,813,760 | | $ | 30,741,144 |
| Average principal outstanding during the period | $ | 32,569,618 | | $ | 30,718,119 |
| Number of receivables outstanding at period end | 1,891,136 | | 1,921,789 |
| Average number of receivables outstanding during the period | 1,920,459 | | 1,839,800 |
| Number of repossessions (a) | 47,523 | | 65,710 |
| Number of repossessions as a percent of average number of receivables outstanding | 9.9 | % | | 14.3 % |
| Net losses | $ | 244,075 | | $ | 593,046 |
| Net losses as a percent of average principal amount outstanding (b) | 3.0 | % | | 7.7 % |
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Retail Installment Contracts | | Retail Installment Contracts |
| | (Dollar amounts in thousands) |
| Principal outstanding at period end | $ | 26,369,828 |
| | $ | 27,624,259 |
|
| Average principal outstanding during the period | $ | 27,153,602 |
| | $ | 27,577,929 |
|
| Number of receivables outstanding at period end | 1,714,785 |
| | 1,656,786 |
|
| Average number of receivables outstanding during the period | 1,727,313 |
| | 1,669,992 |
|
| Number of repossessions (1) | 225,393 |
| | 221,298 |
|
| Number of repossessions as a percent of average number of receivables outstanding (2) | 17.4 | % | | 17.7 | % |
| Net losses | $ | 1,724,225 |
| | $ | 1,582,599 |
|
| Net losses as a percent of average principal amount outstanding (2) | 8.5 | % | | 7.7 | % |
(1)(a) Repossessions are net of redemptions. The number of repossessions includes repossessions from the outstanding portfolio and from accounts already charged off. The Company temporarily suspended involuntary repossession activities nationwide during the onset of COVID-19 and restarted these activities during Q3 2020.
(2) Annualized; not necessarily indicative(b) Decrease is due to reduction in number of a full year's actual results.repossessions (refer to note (a) above), and increase in number of deferrals (explained in detail under "Deferrals and Troubled Debt Restructurings" below) as it relates to COVID-19.
There were no charge-offs on the Company's receivables from dealers during 2017. There were charge-offs of zero and $135 on the Company'sCompany’s receivables from dealers for the three and nine months ended September 30, 2016,March 31, 2021 and 2020. Net charge-offs on the finance lease receivables portfolio, totaled $(1,101) and $569 for the three months ended March 31, 2021 and 2020, respectively.
Deferrals and Troubled Debt Restructurings
In accordance with the Company'sCompany’s policies and guidelines, the Company from time to time,may offer extensions (deferrals) to consumerscustomers on its retail installment contracts, whereby the consumercustomer is allowed to movedefer a maximum of three payments per event to the end of the loan. More than 90% of deferrals granted are for two months. The Company'sCompany’s policies and guidelines limit the frequency of each new deferral that may be granted to one deferral every six months, regardless of the length of any prior deferral. TheFurther, the maximum number of lifetime months extended for all automobile retail installment contracts is eight, while some marine and recreational vehicle contracts have a maximum of twelve months extended to reflect their longer term. Additionally, the Company generally limits the granting of deferrals on new accounts until a requisite number of payments has been received.months have passed since origination. During the deferral period, the Company continues to accrue and collect interest on the loan in accordance with the terms of the deferral agreement.
In March 2020, the Company began actively working with its borrowers impacted by COVID-19 and provided loan modification programs to mitigate the adverse effects of COVID-19. These programs temporarily revised the practices noted above during 2020. As of March 31, 2021 the Company has generally returned to these servicing practices, with the exception of an increased limit on total months of extensions allowed. The Company's predominant program offering is a two-month deferral of payments to the end of the loan term and waiver of late charges.
At the implementation of the COVID-19 programs in March 2020, we experienced an increase in requests for extensions related to COVID-19 and over 1 million COVID-19 loan extensions have been granted. As of March 31, 2021, over one third (or $12 billion in balances) of our customers have received a COVID-19 deferral. At March 31, 2021 and December 31, 2020, the Company had $184 million and $1.1 billion of loans in active deferral, representing 0.6% and 3.2% of the portfolio, respectively. In the first quarter of 2021 the number of COVID-19 deferrals has moderated and as of March 2021, the overall extension volumes are consistent with volumes experienced before the COVID-19 pandemic, and the Company has generally returned to its historic servicing practices with the exception of an increased limit on the total months of extensions allowed.
The following is a summary of all deferrals (amortized cost) on the Company’s retail installment contracts held for investment as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | (Dollar amounts in thousands) |
| Never deferred | $ | 20,997,437 | | | 65.5 | % | | $ | 20,824,336 | | | 63.0 | % |
| Deferred once | 4,504,374 | | | 14.0 | % | | 5,245,471 | | | 15.8 | % |
| Deferred twice | 2,698,556 | | | 8.4 | % | | 3,083,542 | | | 9.3 | % |
| Deferred 3 - 4 times | 2,693,759 | | | 8.4 | % | | 2,842,870 | | | 8.6 | % |
| Deferred greater than 4 times | 1,177,502 | | | 3.7 | % | | 1,104,369 | | | 3.3 | % |
| | | | | | | |
| Total (a) | $ | 32,071,628 | | | | | $ | 33,100,588 | | | |
(a) The amount of accrued interest excluded from the disclosed amortized cost as of March 31, 2021 and December 31, 2020 is $346 million and $416 million, respectively.
At the time a deferral is granted, all delinquent amounts may be deferred or paid, resultingpaid. This may result in the classification of the loan as current and therefore not considered a delinquent account. Thereafter,However, there are other instances when a deferral is granted but the loan is not brought completely current, such as when the account days past due is greater than the deferment period granted. Such accounts are aged based on the timely payment of future installments in the same manner as any other account.
A Historically, the majority of deferrals are approved for borrowers who are either 31-60 or 61-90 days delinquent and these borrowers are typically reported as current after deferral. If a customer receives two or more deferrals over the life of the loan, that has been classified asthe loan would generally advance to a TDR remains so untildesignation.
In March 2020, the loan is liquidated through payoff or charge-off. TDRs are placedfederal bank regulatory agencies issued an “Interagency Statement on nonaccrual status whenLoan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Company believes repayment underCoronavirus.” This guidance encouraged financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the revised terms is not reasonably assuredeffects of COVID-19 and at the latest when the account becomesconcludes that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were impacted by COVID-19 and who were less than 30 days past due more than 60 days, and considered for return to accrual when a sustained period of repayment performance has been achieved.
The following is a summary of deferrals on the retail installment contracts held for investment as of the dates indicated:
|
| | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (Dollar amounts in thousands) |
| Never deferred | $ | 17,047,199 |
| | 64.6 | % | | $ | 18,624,208 |
| | 68.1 | % |
| Deferred once | 4,430,862 |
| | 16.8 | % | | 4,428,467 |
| | 16.2 | % |
| Deferred twice | 2,209,958 |
| | 8.4 | % | | 2,110,758 |
| | 7.7 | % |
| Deferred 3 - 4 times | 2,612,620 |
| | 9.9 | % | | 2,130,140 |
| | 7.8 | % |
| Deferred greater than 4 times | 69,189 |
| | 0.3 | % | | 64,574 |
| | 0.2 | % |
| Total | $ | 26,369,828 |
| | | | $ | 27,358,147 |
| | |
The Company evaluates the results of deferral strategies based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, the Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
Changes in deferral levels do not have a direct impact on the ultimate amount of consumer finance receivables charged off. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods,expected life of the loan and cash flow forecasts for loans classified as TDRs used in the determination of the adequacy of the Company's allowance for credit lossesCompany’s ACL are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the allowance for credit losses and related provision for credit losses. Changes in these ratios and periods are considered in determining the appropriate level of allowance for credit losses and related provision for credit losses, including the allowance and provision for loans that are not classified as TDRs. For loans that are classified as TDRs, the Company generally compares the present value of expected cash flows to the outstanding recorded investment of TDRs to determine the amount of TDR impairment and related provision for credit losses that should be recorded. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell.
The Company also may agree, or be required by operation of law or by a bankruptcy court, to grant a modification involving one or a combination of the following: a reduction in interest rate, a reduction in loan principal balance, a temporary reduction of monthly payment, or an extension of the maturity date. The servicer of the Company'sCompany’s revolving personal loans also may grant modifications in the form of principal or interest rate reductions or payment plans. Similar to deferrals, the Company believes modifications are an effective portfolio management technique. Not all modifications are classified as TDRs as the loan may not meet the scope of the applicable guidance or the modification may have been granted for a reason other than the borrower'sborrower’s financial difficulties.
A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. TDRs are generally placed on nonaccrual status when the account becomes past due more than 60 days. For loans on nonaccrual status, interest income is recognized on a cash basis and the accrual of interest is resumed and reinstated if a delinquent account subsequently becomes 60 days or less past due.
The following is a summary of the principalamortized cost (including accrued interest) balance as of September 30, 2017March 31, 2021 and December 31, 20162020 of loans that have received these modifications and concessions:
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Retail Installment Contracts | | Retail Installment Contracts |
| | (Dollar amounts in thousands) |
| Temporary reduction of monthly payment | $ | 2,860,010 |
| | $ | 2,472,432 |
|
| Bankruptcy-related accounts | 85,114 |
| | 109,494 |
|
| Extension of maturity date | 23,843 |
| | 24,032 |
|
| Interest rate reduction | 57,410 |
| | 64,180 |
|
| Max buy rate (a) | 2,783,465 |
| | 1,308,506 |
|
| Other | 124,356 |
| | 79,554 |
|
| Total modified loans | $ | 5,934,198 |
| | $ | 4,058,198 |
|
| | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | Retail Installment Contracts |
| | (Dollar amounts in thousands) |
| Temporary reduction of monthly payment (a) | $ | 443,709 | | | $ | 579,187 | |
| Bankruptcy-related accounts | 19,543 | | | 23,865 | |
| Extension of maturity date | 84,515 | | | 69,613 | |
| Interest rate reduction | 77,773 | | | 76,786 | |
| Max buy rate and fair lending (b) | 7,718,368 | | | 7,459,761 | |
| Other (c) | 436,745 | | | 391,424 | |
| Total modified loans | $ | 8,780,653 | | | $ | 8,600,636 | |
(a) Amount comprises ofReduces a customer’s payment for a temporary time period (no more than six months)
(b) Max buy rate modifications comprise loans modified by the Company to adjust the interest rate quoted in a dealer-arranged financing. Beginning in the third quarter of 2016, in conjunction with consumer practices, theThe Company reassesses the contracted APR when changes in the deal structure are made (e.g., higher down payment and lower vehicle price, etc.)price). If any of the changes result in a lower APR, the contracted rate is reduced. Substantially all deal structure changes occur within seven days of the date the contract is signed. These deal structure changes are made primarily to give the consumer the benefit of a lower rate due to an improved contracted deal structure compared to the deal structure that was approved during the underwriting process. Fair Lending modifications comprises loans modified by the Company related to possible “disparate impact” credit discrimination in indirect vehicle finance. These modifications are not considered a TDR event asbecause they do not relate to a concession provided to a customer experiencing financial difficulty.
A(c) Includes various other types of modifications and concessions, such as hardship modifications that are considered a TDR event.
Refer to Note 3 - "Credit Loss Allowance and Credit Quality" to the accompanying condensed consolidated financial statements for the details on the Company’s amortized cost (including accrued interest) in TDRs and a summary of the Company's recorded investment in TDRs as of the dates indicated is as follows:
|
| | | | | | | |
| | September 30, 2017 | | December 31,
2016 |
| | Retail Installment Contracts |
| | (Dollar amounts in thousands) |
| Outstanding recorded investment (a) | $ | 6,330,331 |
| | $ | 5,637,792 |
|
| Impairment | (1,782,114 | ) | | (1,611,295 | ) |
| Outstanding recorded investment, net of impairment | $ | 4,548,217 |
| | $ | 4,026,497 |
|
(a) As of September 30, 2017, the outstanding recorded investment excludes $50.7 million of collateral-dependent bankruptcy TDRs that has been written down by $23.7 million to fair value less cost to sell.
A summary of the principal balance on the Company's delinquent TDRs, as of the dates indicated is as follows:
|
| | | | | | | |
| | September 30, 2017 | | December 31,
2016 |
| | Retail Installment Contracts |
| | (Dollar amounts in thousands) |
| Principal 30-59 days past due | $ | 1,184,804 |
| | $ | 1,253,848 |
|
| Delinquent principal over 59 days | 753,606 |
| | 736,691 |
|
| Total delinquent TDRs | $ | 1,938,410 |
| | $ | 1,990,539 |
|
(a) Interest is accrued until 60 days past due in accordance with the Company's accounting policy for retail installment contracts. The Company's delinquency ratio continues to be calculated using the end of period delinquent principal over 60 days.
As of September 30, 2017March 31, 2021 and December 31, 2016, the Company did not have any dealer loans classified as TDRs and had not granted deferrals or modifications on any of these loans.2020.
The following table shows the components of the changes in the recorded investmentamortized cost (including accrued interest) in retail installment contract TDRs duringfor the three and nine months ended September 30, 2017March 31, 2021 and 2016:2020: | | | | | | | | | | | | | | | |
| | | | | |
| | | Three Months Ended |
| | | | | March 31, 2021 | | March 31, 2020 |
| Balance — beginning of period | | | | | $ | 4,011,780 | | | $ | 3,828,892 | |
| New TDRs | | | | | 1,022,154 | | | 185,767 | |
| Charge-offs | | | | | (202,461) | | | (289,567) | |
| Paydowns (a) | | | | | (351,405) | | | (288,339) | |
| Others | | | | | (49,556) | | | — | |
| Balance — end of period (b) | | | | | $ | 4,430,512 | | | $ | 3,436,753 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| Balance — beginning of period | $ | 5,929,392 |
| | $ | 5,061,608 |
| | $ | 5,637,792 |
| | $ | 4,601,502 |
|
| New TDRs | 1,122,450 |
| | 932,472 |
| | 2,776,006 |
| | 2,478,035 |
|
| Charge-offs | (488,646 | ) | | (448,418 | ) | | (1,420,073 | ) | | (1,119,730 | ) |
| Paydowns | (210,299 | ) | | (180,396 | ) | | (644,190 | ) | | (594,695 | ) |
| Other transfers | 4,400 |
| | (610 | ) | | 7,762 |
| | (456 | ) |
| Balance — end of period | $ | 6,357,297 |
| | $ | 5,364,656 |
| | $ | 6,357,297 |
| | $ | 5,364,656 |
|
For loans not classified as TDRs, the Company generally estimates an appropriate allowance for credit losses based on delinquency status, the Company’s historical loss experience, estimated values of underlying collateral, and various economic factors. Once a loan has been classified as a TDR, it is generally assessed for impairment based on the present value of expected future cash flows discounted at the loan's original effective interest rate considering all available evidence. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. Due to this key distinction(a) Includes net discount accreted in allowance calculations, the coverage ratio is higher for TDRs in comparison to non-TDRs. The table below presents the Company’s allowance ratio for TDR and non-TDR individually acquired retail installment contracts as of September 30, 2017 and December 31, 2016:
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (Dollar amounts in thousands) |
| TDR - Unpaid principal balance | $ | 6,276,659 |
| | $ | 5,599,567 |
|
| TDR - Impairment | 1,782,114 |
| | 1,611,295 |
|
| TDR allowance ratio | 28.4 | % | | 28.8 | % |
| | | | |
| Non-TDR - Unpaid principal balance | $ | 20,044,330 |
| | $ | 21,528,406 |
|
| Non-TDR - Allowance | 1,589,151 |
| | 1,799,760 |
|
| Non-TDR allowance ratio | 7.9 | % | | 8.4 | % |
| | | | |
| Total - Unpaid principal balance | $ | 26,320,989 |
| | $ | 27,127,973 |
|
| Total - Allowance | 3,371,265 |
| | 3,411,055 |
|
| Total allowance ratio | 12.8 | % | | 12.6 | % |
The allowance ratio for both TDR and non-TDR retail installment contracts decreased from December 31, 2016 to September 30, 2017. The decrease in the TDR allowance ratio is primarily driven by the non-accrual of interest income for certain TDR loans which is offset in the impairment as it reduces the carrying value of TDR loans. The allowance ratio for the non-TDR is driven by a combination of improved credit performance and stabilizing recovery rates. The total allowance on retail installment contracts however, increased from December 31, 2016 to September 30, 2017 due to an increase in the proportion of assets classified as TDRs.period.
(b) excluding collateral-dependent bankruptcy TDRs
Liquidity Management, Funding and Capital Resources
Source of Funding
The Company requires a significant amount of liquidity to originate and acquire loans and leases and to service debt. The Company funds its operations through its lending relationships withwith 13 third-party banks, Santander and SHUSA, and Santander, as well as through securitizations in the ABS market and large flow agreements. The Company seeks to issue debt that appropriately matches the cash flows of the assets that it originates. The Company has more than $5.8$6.2 billion ofof stockholders’ equity that supports its access to the securitization markets, credit facilities, and flow agreements.
During the ninethree months ended September 30, 2017,March 31, 2021, the Company completed on-balance sheet funding transactions totaling approximately $12.3$3.5 billion, including:
three securitizations•securitization on the Company'sCompany’s SDART platform for $3.1 billion;approximately $1.9 billion;
issuance of two retained bonds•lease securitization on the Company's SDARTour SRT platform for $155 million;
four securitizations on the Company's DRIVE, deeper subprime platform, for $4.1 billion;
issuance of a retained bond on the Company's DRIVE platform for $113 million;
four private amortizing lease facilities forapproximately $1.6 billion; and
seven top-ups and two re-levers of private amortizing loan and lease facilities for $3.2 billion.
The Company also completed $3.0approximately $2.4 billion in asset sales which consists of $0.3 billion recurring monthly sales with itsto third party flow partners, $2.6 billion in salesparties.
Refer to Santander and $0.1 billion in salesNote 7 - "Debt" to SBNA.the accompanying condensed consolidated financial statements for the details on the Company’s total debt.
As of September 30, 2017 and December 31, 2016, the Company's debt consisted of the following:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Third party revolving credit facilities | $ | 4,965,888 |
| | $ | 6,739,817 |
|
| Related party revolving credit facilities | 2,369,850 |
| | 2,975,000 |
|
| Total revolving credit facilities | 7,335,738 |
| | 9,714,817 |
|
| | | | |
| Public securitizations | 14,927,738 |
| | 13,436,482 |
|
| Privately issued amortizing notes | 8,330,625 |
| | 8,172,407 |
|
| Total secured structured financings | 23,258,363 |
| | 21,608,889 |
|
| Total debt | $ | 30,594,101 |
| | $ | 31,323,706 |
|
Credit Facilities
Third-party Revolving Credit Facilities
Warehouse Lines
The Company has twoone credit facilitiesfacility with eight banks providing an aggregate commitment of $3.9$3.5 billion for the exclusive use of providing short-term liquidity needs to support Chrysler Capital retail financing. As of September 30, 2017 and December 31, 2016, there was an outstanding balance of $2.8 billion and $3.7 billion, respectively, on these facilities in aggregate. One of the facilities can be used exclusively for loan financing and the other forFinance lease financing. Both facilities requireThe facility requires reduced advance ratesAdvance Rates in the event of delinquency, credit loss, or residual loss ratios, as well as other metrics exceeding specified thresholds.
The Company has eight credit facilities with eleven banks providing an aggregate commitment of $8.3 billion for the exclusive use of providing short-term liquidity needs to support Core and CCAP Loan financing. As of March 31, 2021 there was an outstanding balance of approximately $2.3 billion on these facilities in aggregate. These facilities reduced Advance Rates in the event of delinquency, credit loss, as well as various other metrics exceeding specific thresholds.
Repurchase FacilitiesAgreements
The Company obtains financing through four investment management or repurchase agreements whereby the Company pledges retained subordinate bonds on its own securitizations as collateral for repurchase agreements with various borrowers and at renewable terms ranging up to one year. As of September 30, 2017 and DecemberMarch 31, 2016,2021 there was anis no outstanding balance under any repurchase agreements.
Lines of $658 million and $743 million, respectively, under these repurchase facilities.
FacilitiesCredit with Santander and Related Subsidiaries
Santander and certain of its subsidiaries, such as SHUSA, historically have provided, and continuescontinue to provide, the Company with significant funding support in the form of committed credit facilities.The Company'sfacilities. The Company’s debt with these affiliated entities consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 (amounts in thousands) |
| Counterparty | | Utilized Balance | | Committed Amount | | Average Outstanding Balance | | Maximum Outstanding Balance |
| Promissory Note | SHUSA | | $ | 250,000 | | | $ | 250,000 | | | $ | 250,000 | | | $ | 250,000 | |
| Promissory Note | SHUSA | | 250,000 | | | 250,000 | | | 250,000 | | | 250,000 | |
| Promissory Note | SHUSA | | 250,000 | | | 250,000 | | | 250,000 | | | 250,000 | |
| Promissory Note | SHUSA | | 250,000 | | | 250,000 | | | 250,000 | | | 250,000 | |
| Promissory Note | SHUSA | | 250,000 | | | 250,000 | | | 250,000 | | | 250,000 | |
| Promissory Note | SHUSA | | 350,000 | | | 350,000 | | | 350,000 | | | 350,000 | |
| Promissory Note | SHUSA | | 400,000 | | | 400,000 | | | 400,000 | | | 400,000 | |
| Promissory Note | SHUSA | | 450,000 | | | 450,000 | | | 450,000 | | | 450,000 | |
| Promissory Note | SHUSA | | 500,000 | | | 500,000 | | | 500,000 | | | 500,000 | |
| Promissory Note | SHUSA | | 500,000 | | | 500,000 | | | 500,000 | | | 500,000 | |
| Promissory Note | SHUSA | | 650,000 | | | 650,000 | | | 650,000 | | | 650,000 | |
| Promissory Note | SHUSA | | 650,000 | | | 650,000 | | | 650,000 | | | 650,000 | |
| Promissory Note | SHUSA | | 750,000 | | | 750,000 | | | 750,000 | | | 750,000 | |
| Promissory Note | SHUSA | | 1,000,000 | | | 1,000,000 | | | 1,000,000 | | | 1,000,000 | |
| Promissory Note | Santander | | 2,000,000 | | | 2,000,000 | | | 2,000,000 | | | 2,000,000 | |
| Promissory Note | Santander | | 2,000,000 | | | 2,000,000 | | | 2,000,000 | | | 2,000,000 | |
| Line of Credit | SHUSA | | — | | | 500,000 | | | 96,444 | | | 450,000 | |
| Line of Credit | SHUSA | | — | | | 2,500,000 | | | — | | | — | |
| | | $ | 10,500,000 | | | $ | 13,500,000 | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2017 (amounts in thousands) |
| | Counterparty | | Utilized Balance | | Committed Amount | | Average Outstanding Balance | | Maximum Outstanding Balance |
| Line of credit | Santander-NY | | $ | — |
| | $ | 2,000,000 |
| | $ | 1,407,335 |
| | $ | 2,000,000 |
|
| Line of credit | Santander-NY | | 265,400 |
| | 750,000 |
| | 57,845 |
| | 435,900 |
|
| Line of credit | SHUSA | | — |
| | 3,000,000 |
| | 139,973 |
| | 750,000 |
|
| Promissory Note | SHUSA | | 300,000 |
| | 300,000 |
| | 228,832 |
| | 300,000 |
|
| Promissory Note | SHUSA | | 650,000 |
| | 650,000 |
| | 436,496 |
| | 650,000 |
|
| Promissory Note | SHUSA | | 650,000 |
| | 650,000 |
| | 257,383 |
| | 650,000 |
|
| Promissory Note | SHUSA | | 500,000 |
| | 500,000 |
| | 305,556 |
| | 500,000 |
|
| | | | $ | 2,365,400 |
| | $ | 7,850,000 |
| |
| |
|
|
| | | | | | | | | | | | | | | | | |
| | As of September 30, 2016 (amounts in thousands) |
| | Counterparty | | Utilized Balance | | Committed Amount | | Average Outstanding Balance | | Maximum Outstanding Balance |
| Line of credit | Santander-NY | | $ | 2,050,000 |
| | $ | 3,000,000 |
| | $ | 2,500,000 |
| | $ | 3,000,000 |
|
| Line of credit | SHUSA | | — |
| | 1,500,000 |
| | 10,200 |
| | 200,000 |
|
| Line of credit | SHUSA | | 300,000 |
| | 300,000 |
| | 300,000 |
| | 300,000 |
|
| | | | $ | 2,350,000 |
| | $ | 4,800,000 |
| | | | |
Through SHUSA Santander provides the CompanyCompany with $3.0$0.5 billion of committed revolving credit and $2.5 billion of contingent liquidity that can be drawn on an unsecured basis. Santander, through its New York branch,SHUSA also provides the Company with $2.8 billion of long-term committed revolving credit facilities. The facilities offered through the New York branch are structured as three- and five-year floating rate facilities, with current maturity dates of December 31, 2017 and 2018. These facilities currently permit unsecured borrowing and can also be collateralized by auto retail installment contracts and auto leases as well as securitization notes payables and residuals of the Company. Any balances outstanding under these facilities at the time of their commitment termination date will amortize to match the maturities and expected cash flows of the corresponding collateral.
SHUSA provides the Company with $2.1$6.5 billion of term promissory notes with maturities
ranging from March 2019May 2021 to March 2022.
In August 2015,May 2025. Santander provides the Company began incurring a feewith $4 billion of 12.5 basis points (per annum) on certain warehouse facilities, as they renew, for which Santander provides a guarantee of the Company's servicing obligations. For revolving commitments, the guarantee fee will be paid on the total committed amountunsecured promissory notes with maturities ranging from June 2022 and for amortizing commitments, the guarantee fee will be paid against each month's ending balance. The guarantee fee will be applicable only for additional facilities upon the execution of the counter-guaranty agreement related to a new facility or if reaffirmation is required on existing revolving or amortizing commitments as evidenced by an executed counter-guaranty agreement. The Company recognized guarantee fee expense of $4.6 million and $4.8 million for the nine months ended September 30, 2017 and 2016, respectively.2022.
The Company also has derivative financial instruments with Santander and affiliates as counterparty with outstanding notional amounts of $4.4 billion and $7.3 billion at September 30, 2017 and December 31, 2016, respectively. The Company had a collateral overage on derivative liabilities with Santander and affiliates of $9 million and $15 million at September 30, 2017 and December 31, 2016, respectively. Interest expense on these agreements includes amounts totaling $1 million and $16 million for the nine months ended September 30, 2017 and 2016, respectively.
Secured Structured Financings
The Company'sCompany’s secured structured financings primarily consist of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and privately issueissues amortizing notes. The Company has completed eleven securitizations year-to-date in 2017 and currently has 37on-balance sheet securitizations outstanding in the market with a cumulative ABS balance of approximately $15approximately $26 billion.
Deficiency and Debt Forward Flow AgreementsAgreement
In addition to the Company'sCompany’s credit facilities and secured structured financings, the Company has a flow agreement in place with a third party for charged off assets. Previously, the Company also had flow agreements with Bank of America and CBP. However, those agreements were terminated effective January 31 and May 1, 2017, respectively.
Loans and leases sold under these flow agreements are not on the Company'sCompany’s balance sheet but provide a stable stream of servicing fee income and may also provide a gain or loss on sale. The Company continues to actively seek additional such flow agreements.
Off-Balance Sheet Financing
Beginning in March 2017, the Company hashad the option to sell a contractually determined amount of eligible prime loans to Santander, through securitization platforms. As all of the notes and residual interests in the securitizations arewere issued to Santander, the Company recorded these transactions as true sales of the retail installment contracts securitized, and removed the sold assets from the Company's condensedCompany’s consolidated balance sheets. Beginning in 2018, this program has been replaced with a new program with SBNA, whereby the Company has agreed to provide SBNA with origination support services in connection with the processing, underwriting and purchasing of retail loans, primarily from Stellantis N.V. dealers, all of which are serviced by the Company.
The Company also continues to periodically execute Chrysler Capital-branded securitizations under Rule 144A of the Securities Act. Upon transferringAfter retaining the required credit risk retention via a 5% vertical interest, the Company transfers all of theremaining notes and residual interests in these securitizations to third parties, theparties. The Company subsequently records these transactions as true sales of the retail installment contracts securitized, and removes the sold assets from the Company's condensed consolidated balance sheet.
Use of Funds
The Company believes that the liquidity and capital resources from U.S. operations are adequate to fund its U.S. operations and corporate activities. The Company has asserted indefinite reinvestment of earnings from its Puerto Rico operations as determined by management’s judgment about its intentions concerning the future operations of the Company. The Company does not believe that the amounts reinvested will have a material impact on liquidity.
The Company uses liquidity to service its debt, repay borrowings, as well as for funding loan commitments and to pay dividends to shareholders.
Cash Flow Comparison
The Company continues to producehas historically produced positive net cash from operating activities. The Company'sCompany’s investing activities primarily consist of originations, acquisitions, and acquisitions of finance receivables and leased vehicles. Thecollections from retail installment contracts. SC’s financing activities primarily consist of borrowing, and repayments of debt.
|
| | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | (Dollar amounts in thousands) |
| Net cash provided by operating activities | $ | 3,666,086 |
| | $ | 2,676,133 |
|
| Net cash used in investing activities | (2,690,709 | ) | | (4,026,681 | ) |
| Net cash provided by (used in) financing activities | (738,246 | ) | | 1,407,528 |
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | | | |
| | (Dollar amounts in thousands) | | |
| As Restated - Note 1 | | | | | | | | |
| Net cash provided by operating activities | $ | 3,152,898 | | | $ | 1,395,116 | | | | | | | |
| Net cash provided by (used in) investing activities | 306,651 | | | (1,542,427) | | | | | | | |
| Net cash provided by (used in) financing activities | (2,750,162) | | | 474,816 | | | | | | | |
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased by $990 million$1.8 billion from the ninethree months ended September 30, 2016March 31, 2020 to the ninethree months ended September 30, 2017, mainlyMarch 31, 2021, primarily due to the decreasesale of the personal loan portfolio and an increase in outflows of $245 million for originations of assets held for sale and the higher proceeds of $572 million from assets
on receivables held for sale.
Net Cash Used inProvided by Investing Activities
Net cash provided by investing activities increased by $1.8 billion from the three months ended March 31, 2020 to the three months ended March 31, 2021, primarily due to $1.8 billion increase in proceeds from sales of retail installment contracts held for sale, originated as held for investment.
Net Cash Used in Financing Activities
Net cash used in investingfinancing activities decreasedincreased by $1.3$3.2 billion from the ninethree months ended September 30, 2016March 31, 2020 to the ninethree months ended September 30, 2017, primarily due by the decrease of $1.3 billion in originations held for investment.
Net Cash Provided by Financing Activities
Net cash provided by (used in) financing activities decreased by $2.1 billion from the nine months ended September 30, 2016 to the nine months ended September 30, 2017,March 31, 2021, primarily due to the higherdecrease in payments for notes payable of $3.6 billion; offset by $0.5 billion increase of shares repurchased primarily due to tender offer program, which expired on borrowings.February 27, 2020.
Contingencies and Off-Balance Sheet Arrangements
For information regarding the Company'sCompany’s contingencies and off-balance sheet arrangements, refer to Note 106 - "Variable Interest Entities" and Note 14 - "Commitments and ContingenciesContingencies" in the accompanying condensed consolidated financial statements.
Contractual Obligations
The Company leases its headquarters in Dallas, Texas, its servicing centers in Texas, Colorado, Arizona, and Puerto Rico, and an operations facilities in California, Texas and Colorado under non-cancelable operating leases that expire at various dates throughthrough 2027. TheThe Company also has various debt obligations entered into in the normal course of business as a source of funds.
The following table summarizes the Company'sCompany’s contractual obligations as of September 30, 2017:March 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 1 year | | 1-3
years | | 3-5
years | | More than
5 years | | Total |
| (In thousands) |
| Operating lease obligations | $ | 12,547 | | | $ | 28,976 | | | $ | 25,466 | | | $ | 6,926 | | | $ | 73,915 | |
| Notes payable - credit facilities and related party | 2,872,345 | | | 8,476,200 | | | 1,500,000 | | | — | | | 12,848,545 | |
| Notes payable - secured structured financings (a) | 307,580 | | | 9,300,314 | | | 11,484,335 | | | 4,676,250 | | | 25,768,479 | |
| Contractual interest on debt | 756,255 | | | 735,698 | | | 182,934 | | | 58,002 | | | 1,732,889 | |
| Total | $ | 3,948,727 | | | $ | 18,541,188 | | | $ | 13,192,735 | | | $ | 4,741,178 | | | $ | 40,423,828 | |
(a)Adjusted for unamortized costs of $76 million.
|
| | | | | | | | | | | | | | | | | | | |
| | Less than 1 year | | 1-3
years | | 3-5
years | | More than
5 years | | Total |
| | (In thousands) |
| Operating lease obligations | $ | 12,518 |
|
| $ | 25,785 |
|
| $ | 25,275 |
|
| $ | 47,571 |
|
| $ | 111,149 |
|
| Notes payable - revolving facilities | 3,971,054 |
|
| 2,060,234 |
|
| 1,300,000 |
|
| — |
|
| 7,331,288 |
|
| Notes payable - secured structured financings | 1,619,104 |
|
| 5,219,206 |
|
| 12,065,609 |
|
| 4,406,565 |
|
| 23,310,484 |
|
| Contractual interest on debt | 690,654 |
|
| 697,847 |
|
| 215,708 |
|
| 34,562 |
|
| 1,638,771 |
|
| | $ | 6,293,330 |
|
| $ | 8,003,072 |
|
| $ | 13,606,592 |
|
| $ | 4,488,698 |
|
| $ | 32,391,692 |
|
Risk Management Framework
The Company'sCompany’s risk management framework is overseen by its board of directors, its Risk Committee (RC),Board, the RC, its management committees, its executive management team, an independent risk management function, an internal audit function and all of its associates. The RC, along with the Company'sCompany’s full board of directors,Board, is responsible for establishing the governance over the risk management process, providing oversight in managing the aggregate risk position and reporting on the comprehensive portfolio of risk categories and the potential impact these risks can have on the Company'sCompany’s risk profile. The Company'sCompany’s primary risks include, but are not limited to, credit risk, market risk, liquidity risk, operational risk and model risk. For more information regarding the Company'sCompany’s risk management framework, please refer to the Risk Management Framework section of the Company's 20162020 Annual Report on Form 10-K.
Credit Risk
The risk inherent in the Company's loan and lease portfolios is driven by credit quality and is affected by borrower-specific and economy-wide factors such as changes in employment. The Company manages this risk through its underwriting and credit approval guidelines and servicing policies and practices, as well as geographic and manufacturer concentration limits.
The Company's automated originations process reflects a disciplined approach to credit risk management. The Company's robust historical data on both organically originated and acquired loans provides the Company with the ability to perform advanced loss forecasting. Each applicant is automatically assigned a proprietary loss forecasting score (LFS) using information such as FICO®, debt-to-income ratio, loan-to-value ratio, and over 30 other predictive factors, placing the applicant in one of 100 pricing tiers. The pricing in each tier is continuously monitored and adjusted to reflect market and risk trends. In addition to the automated process, the Company maintains a team of underwriters for manual review, consideration of exceptions, and review of deal structures with dealers. The Company generally tightens its underwriting requirements in times of greater economic uncertainty (including during the recent financial crisis) to compete in the market at loss and approval rates acceptable for meeting the Company's required returns. The Company's underwriting policy has also been adjusted to meet the requirements of the Company's contracts such as the Chrysler Agreement. In both cases, the Company has accomplished this by adjusting risk-based pricing, the material components of which include interest rate, down payment, and loan-to-value.
The Company monitors early payment defaultsapplies a qualitative framework to exercise judgment about matters that are inherently uncertain and that are not considered by the quantitative framework. These adjustments are documented and reviewed through the Company’s risk management processes. Furthermore, management reviews, updates, and validates its process and loss assumptions on a periodic basis. This process involves an analysis of data integrity, review of loss and credit trends, a retrospective evaluation of actual loss information to loss forecasts, and other potential indicators of dealer or customer fraudanalyses.
ACL levels are collectively reviewed for adequacy and usesapproved quarterly. Required actions resulting from the monitoring resultsCompany's analysis, if necessary, are governed by its Allowance for Credit Losses Committee.The ACL levels are approved by the Board level committees quarterly.
Part II, Item 8 – Financial Statements and Supplementary Data (Note 1) in the 2020 Annual Report on Form 10-K described the methodology used to identify dealers who will be subject to more extensive stipulations when presenting customer applications, as well as dealers with whomdetermine the Company will not do business at all.ACL and reserve for unfunded lending commitments in the Consolidated Balance Sheets.
Market Risk
Interest Rate Risk
The Company measures and monitors interest rate risk on at least a monthly basis. The Company borrows money from a variety of market participants in to provide loans and leases to the Company'sCompany’s customers. The Company'sCompany’s gross interest rate spread, which is the difference between the income earned through the interest and finance charges on the Company'sCompany’s finance receivables and lease contracts and the interest paid on the Company'sCompany’s funding, will be negatively affected if the expense incurred on the Company'sCompany’s borrowings increases at a faster pace than the income generated by the Company'sCompany’s assets.
The Company's Interest Rate Risk policy isCompany has policies in place designed to measure, monitor and manage the potential volatility in earnings stemming from changes in interest rates. The Company generates finance receivables which are predominantly fixed rate and borrow with a mix of fixed and variable rate funding. To the extent that the Company'sCompany’s asset and liability re-pricing
characteristics are not effectively matched, the Company may utilize interest rate derivatives, such as interest rate swap agreements, to manage its desired outcome.mitigate against interest rate risk. As of September 30, 2017,March 31, 2021, the notional value of the Company'sCompany’s interest rate swap agreements was $6.5 billion.$2.4 billion. The Company also enters into Interest Rate Cap agreements as required under certain lending agreements. In order to mitigate any interest rate risk assumed in the Cap agreement required under the lending agreement, the Company may enter into a second interest rate cap (Back-to-Back). As of September 30, 2017March 31, 2021 the notional value of the Company’s interest rate cap agreements was $11.9$18.7 billion, under which, all notional was executed Back-to-Back.
The Company monitors its interest rate exposure by conducting interest rate sensitivity analysis. For purposes of reflecting a possible impact to earnings, the twelve-month net interest income impact of an instantaneous 100 basis point parallel shift in prevailing interest rates is measured. As of September 30, 2017,March 31, 2021, the twelve-month impact of a 100 basis point parallel increase in the interest rate curve would decrease the Company'sCompany’s net interest income by $22$2 million. In addition to the sensitivity analysis on net interest income, the Company also measures Market Value of Equity (MVE) to view the interest rate risk position. MVE measures the change in value of Balance Sheet instruments in response to an instantaneous 100 basis point parallel increase, including and beyond the net interest income twelve-month horizon. As of September 30, 2017,March 31, 2021, the impact of a 100 basis point parallel increase in the interest rate curve would decrease the Company'sCompany’s MVE by $81$64 million.
Collateral Risk and FCA Residual Risk Sharing Agreement
The Company'sCompany’s lease portfolio presents an inherent risk that residual values recognized upon lease termination will be lower than those used to price the contracts at inception. Although the Company has elected not to purchase residual value insurance at the present time, the Company'sCompany’s residual risk is somewhat mitigated by the Company's residual risk-sharing agreement with FCA.The mechanics ofStellantis N.V.. Under the agreement, hold the Company is responsible for incurring the first portion of any residual value gains or losses up to the first 8%. The Company and FCAStellantis N.V. then equally share the next 4% of any residual value gains or losses (i.e., those gains or losses that exceed 8% but are less than 12%). Finally, FCAStellantis N.V. is responsible for residual value gains or losses over 12%, capped at a certain limit, after which SCthe Company incurs any remaining gains or losses. From the inception of the agreement with FCAStellantis N.V. through the thirdfirst quarter of 2017, approximately 87% of full term2021, approximately 90% of full-term leases have not exceeded the first and second portions of any residual losses under the agreement. The Company also utilizes industry data, including the ALG benchmark for residual values, and employemploys a team of individuals experienced in forecasting residual values.
Similarly, lower used vehicle prices also reduce the amount that can be recovered when remarketing repossessed vehicles that serve as collateral underlying loans. The Company manages this risk through loan-to-value limits on originations, monitoring of new and used vehicle values using standard industry guides, and active, targeted management of the repossession process.
The Company does not currently have material exposure to currency fluctuations or inflation.
Liquidity Risk
The Company views liquidity as integral to other key elements such as capital adequacy, asset quality and profitability. Because the Company's debt is nearly entirely serviced by collections on consumer receivables, the Company'sThe Company’s primary liquidity risk relates to the ability to fund originations.finance new originations through the Bank and ABS securitization markets. The Company has a robust liquidity policy in placethat is intended to manage this risk. The liquidity risk policy establishes the following guidelines:
•that the Company maintain at leastleast eight external credit providers (as of September 30, 2017,March 31, 2021, it had fourteen)thirteen);
•that the Company relies on Santander and affiliates for no more than 30% of its funding (as of September 30, 2017,March 31, 2021, Santander and affiliates provided 8%27% of its funding);
•that no single lender'slender’s commitment should comprise more than 33% of the overall committed external lines (as of September 30, 2017,March 31, 2021, the highest single lender'slender’s commitment was 21%15% (not including repo)); and
•that no more than 35% and 65% of the Company's debtCompany’s warehouse facilities mature in the next six months and no more than 65% of the Company's debt mature in the next twelve months respectively (as of September 30, 2017, 15% and 55%March 31, 2021, one of the Company's debt isCompany’s warehouse facilities are scheduled to mature in the next six andor twelve months, respectively); andmonths).
that the Company maintain unused capacity of at least $6.0 billion, including flow agreements, in excess of the Company's expected peak usage over the following twelve months (as of September 30, 2017, the Company had twelve-month rolling unused capacity of $12.2 billion).
The Company'sCompany’s liquidity risk policy also requires that the Company'sCompany’s Asset Liability Committee monitor many indicators, both market-wide and company-specific, to determine if action may be necessary to maintain the Company'sCompany’s liquidity position. The Company'sCompany’s liquidity management tools include daily, monthly and twelve-month rolling cash requirements forecasts, long term strategic planning forecasts, monthly funding usage and availability reports, daily sources and uses reporting, structural liquidity risk exercises, key risk indicators, and the establishment
of liquidity contingency plans. The Company also performs quarterlymonthly stress tests in which it forecasts the impact of various negative scenarios (alone and in combination), including reduced credit availability, higher funding costs, lower advance rates, lower customer interest rates,Advance Rates, lending covenant breaches, lower dealer discount rates, and higher credit losses.
The Company generally looks forseeks funding first from structured secured financings, secondthe most efficient and cost-effective source of liquidity from the ABS markets, third-party credit facilities, and last from Santander. The Company believes this strategy helps avoid being overly reliant on Santander for funding.and SHUSA. Additionally, the Company can reduce originations to significantly lower levels, if necessary, during times of limited liquidity.
The Company hashad established a qualified like-kind exchange program in order to defer tax liability on gains on sale of vehicle assets at lease termination. If the Company does not meet the safe harbor requirements of IRS Revenue Procedure 2003-39, the Company may be subject to large, unexpected tax liabilities, thereby generating immediate liquidity needs. The Company believes that its compliance monitoring policies and procedures are adequate to enable the Company to remain in compliance with the program requirements. The Tax Cuts and Jobs Act permanently eliminated the ability to exchange personal property after January 1, 2018, which resulted in the like-kind exchange program being discontinued in 2018.
Operational Risk
The Company is exposed to operational risk loss arising from failures in the execution of itsour business activities. These relate to failures arising from inadequate or failed processes, failures in its people or systems, or from external events. The Company'sCompany’s operational risk management program encompassesincludes Third Party Risk Management, Business Continuity Management, Information Risk Management, Fraud Risk Management, and Operational Risk Management, with key program elements covering Loss Event, Issue Management, Risk Reporting and Monitoring, and Risk Control Self-Assessment (RCSA).
To mitigate operational risk, the Company maintains an extensive compliance, internal control, and monitoring framework, which includes the gathering of corporate control performance threshold indicators, Sarbanes-Oxley testing, monthly quality control tests, ongoing compliance monitoring of compliance with all applicable regulations, internal control documentation and review of processes, and internal audits. The Company also utilizes internal and external legal counsel for expertise when needed. Upon hire and annually, all associates receive comprehensive mandatory regulatory compliance training. In addition, the Board receives annual regulatory and compliance training. The Company uses industry-leading call mining and other software solutions that assistassists the Company in analyzing potential breaches of regulatory requirements and customer service. The Company's call mining software analyzes all customer service calls, converting speech to text and mining for specific words and phrases that may indicate inappropriate comments by a representative. The software also detects escalated voice volume, enabling a supervisor to intervene if necessary. This tool enables the Company to effectively manage and identify training opportunities for associates, as well as track and resolve customer complaints through a robust quality assurance program.
Model Risk
The Company mitigates model risk through a robust model validation process, which includes committee governance and a series of tests and controls. The Company utilizes SHUSA'sSHUSA’s Model Risk Management group for all model validation to verify models are performing as expected and in line with their design objectives and business uses.
Critical Accounting Estimates
Accounting policies are integral to understanding the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations. The preparation of financial statements in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company reviews its accounting policies, assumptions, estimates and judgments to ensure that its financial statements are presented fairly and in accordance with U.S. GAAP. There have been no material changes in the Company's critical accounting estimates from those disclosed in Item 7 of the 2016 Annual Report on Form 10-K.
Recent Accounting Pronouncements
Information concerning the Company's implementation and impact of new accounting standards issued by the Financial Accounting Standards Board (FASB) is discussed in Note 1 to the Consolidated Financial Statements under "Recently Issued Accounting Pronouncements."
Other Information
Further information on risk factors can be found under Part II, Item 1A - “Risk Factors.”
|
| | | | |
ItemITEM 3. | Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Incorporated by reference from Part I, Item 2 -– “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Risk—Risk Management Framework” above.
|
| |
Item 4. | Controls and Procedures |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (CEO)CEO and Chief Financial Officer (CFO),CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e)13a-15(e) and 15d- 15(e)15d-15(e) under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. March 31, 2021 (the “Evaluation Date”).Based on suchthis evaluation, our CEO and CFO have concluded that as of September 30, 2017, we did not maintain effective disclosure controls and procedures because ofthe Evaluation Date, due to the material weaknessesweakness in internal control over financial reporting described below. below, the Company’s disclosure controls and procedures were not effective
to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.In light of thesethis material weaknesses,weakness, management completed additional procedures and analysesanalysis to validate the accuracy and completeness of the reported financial results impacted bywithin the control deficiencies including the validationCondensed Consolidated Statement of data underlying key financial models and the addition of substantive logic inspection, fluctuation analysis and testing procedures. Cash Flows (“SCF”).In addition, management engaged the Audit Committee directly, in detail, to discuss the procedures and analysis performed to ensure the reliability of the Company’s financial reporting. As a result,Based on the additional analysis and other procedures performed, management concluded that the condensed consolidated financial statementsCondensed Consolidated Financial Statements, included in this reportQuarterly Report on Form 10-Q/A present fairly, present, in all material respects our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with U.S. GAAP.generally accepted accounting principles (“GAAP”).
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.
Based on the assessment, management determined that the Company did not maintain effective internal control over financial reporting as of September 30, 2017, asManagement identified a result of material weaknessesweakness in the following areas:
1. Control Environment, Risk Assessment, Control Activities and Monitoring
We did not maintain effectiveour internal control over financial reporting related to the following areas: control environment, risk assessment, control activities and monitoring:
Management did not effectively execute a strategy to hire and retain a sufficient complement of personnel with an appropriate level of knowledge, experience, and training in certain areas important to financial reporting.
The tone at the top was insufficient to ensure there were adequate mechanisms and oversight to ensure accountability for the performance of internal control over financial reporting responsibilities and to ensure corrective actions were appropriately prioritized and implemented in a timely manner.
There was not adequate management oversight of accounting and financial reporting activities in implementing certain accounting practices to conform to the Company’s policies and U.S. GAAP.
There was not an adequate assessment of changes in risks by management that could significantly impact internal control over financial reporting or an adequate determination and prioritization of how those risks should be managed.
There was not adequate management oversight and identification of models, spreadsheets and completeness and accuracy of data material to financial reporting.
There were insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action.
There was a lack of appropriate tone atdesigning and maintaining effective controls to verify the top in establishing an effective control owner risk and controls self-assessment process which contributed to a lackproper classification of clarity about ownership of risks assessments and control design and effectiveness. There was insufficient governance, oversight and monitoring of the credit loss allowance and accretion processes and a lack of defined roles and responsibilities in monitoring functions.
This material weakness in control environment contributes to each of the following identified material weaknesses:
2. Application of Effective Interest Method for Accretion
The Company’s policies and controlsloan activities related to the methodology usedfinance receivables held for applying the effective interest rate method in accordance with U.S. GAAP, specifically as it relates the review of key assumptions over prepayment curves, pool segmentationsale and presentation in financial statements either were not designed appropriately or failed to operate effectively. Additionally the resources dedicated to the reviews were not sufficient to identify all relevant instances of non-compliance with policies and U.S. GAAP and did not sufficiently review supporting methodologies and practices to identify variances from the Company’s policy and U.S. GAAP.
This resulted in errors in the Company’s application of the effective interest method for accreting discounts, which include discounts upon origination of the loan, subvention payments from manufacturers, and other origination costs on individually acquired retail installment contracts.
This material weakness relates to the following financial statement line items: finance receivables held for investment net, within the SCF. This material weakness resulted in material misstatements to the classification of cash flows associated with finance receivables held for sale net, interest on finance receivables and loans, provision for credit losses, investment gains and losses, net, and the related disclosures within Note 2 - Finance Receivables, Note 4 - Credit Loss Allowance and Credit Quality and Note 16 - Investment Gains (Losses), Net.
3. Methodology to Estimate Credit Loss Allowance
The Company’s policies and controls related to the methodology used for estimating the credit loss allowance in accordance with U.S. GAAP, specifically as it relates to the calculation of impairment for TDRs separately from the general allowance on loans not classified as TDRs, the consideration of net discounts and the calculation of selling costs when estimating the allowance either were not designed appropriately or failed to operate effectively. Additionally the resources dedicated to the reviews were not sufficient to identify all relevant instances of non-compliance with policies and U.S. GAAP and did not sufficiently review supporting methodologies and practices to identify variances from the Company’s policy and U.S. GAAP.
This resulted in errors in the Company’s methodology for determining the credit loss allowance, specifically not calculating impairment for TDRs separately from a general allowance on loans not classified as TDRs, inappropriately omitting the consideration of net discounts when estimating the allowance and recording charge-offs, and calculating appropriate selling costs for inclusion in the analysis.
This material weakness relates to the following financial statement line items: the credit loss allowance, provision for credit losses, and the related disclosures within Note 2 - Finance Receivables and Note 4 - Credit Loss Allowance and Credit Quality.
4. Loans Modified as TDRs
The following controls over the identification of TDRs and inputs used to estimate TDR impairment did not operate effectively:
Review controls of the TDR footnote disclosures and supporting information did not effectively identify that parameters used to query the loan data were incorrect.
A review of inputs used to estimate the expected and present value of cash flows of loans modified in TDRs did not identify errors in types of cash flows included and in the assumed timing and amount of defaults and did not identify that the discount rate was incorrect.
As a result, management determined that it had incorrectly identified the population of loans that should be classified as TDRs and, separately, had incorrectly estimated the impairment on these loans due to model input errors.
This material weakness relates to the following financial statement line items: the credit loss allowance and provision for credit losses, specifically for TDR loans, and the related disclosures within Note 2 - Finance Receivables and Note 4 - Credit Loss Allowance and Credit Quality.
5. Development, Approval, and Monitoring of Models Used to Estimate the Credit Loss Allowance
Various deficiencies were identified in the credit loss allowance process related to review, monitoring and approval processes over models and model changes that aggregated to a material weakness. The following controls did not operate effectively:
Review controls over completeness and accuracy of data, inputs and assumptions in models and spreadsheets used for estimating credit loss allowance and related model changes were not effective and management did not adequately challenge significant assumptions.
Review and approval controls over the development of new models to estimate credit loss allowance and related model changes were ineffective.
Adequate and comprehensive performance monitoring over related model output results was not performed and we did not maintain adequate model documentation.
This material weakness relates to the following financial statement line items: the credit loss allowance, provision for credit losses, and the related disclosures within Note 2 - Finance Receivables and Note 4 - Credit Loss Allowance and Credit Quality.
6. Identification, Governance, and Monitoring of Models Used to Estimate Accretion
Various deficiencies were identified in the accretion process related to review, monitoring and approval processes over models and model changes that aggregated to a material weakness. The following controls did not operate effectively:
Review controls over completeness and accuracy of data, inputs, calculation and assumptions in models and spreadsheets used for estimating accretion were not effective and management did not adequately challenge significant assumptions.
Review and approval controls over the development of new models to estimate accretion and related model changes were ineffective.
Adequate and comprehensive performance monitoring over related model output results was not performed and we did not maintain adequate model documentation.
This material weakness relates to the following financial statement line items: finance receivables held for investment net, within the SCF, which resulted in the restatement of the Condensed Consolidated Financial Statements as of and for the period ending March 31, 2021. Additionally, this material weakness could result in further misstatements of the classification of cash flows for finance receivables held for sale net, interest on and finance receivables held for investment that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan
Our remediation plan includes enhancing the documentation and review process around identification and tracking of the classification of loans provision for credit losses, investment gainsat origination; and losses, net,enhancing the review controls, and the related disclosures within Note 2 - Finance Receivables, Note 4 - Credit Loss Allowance and Credit Quality and Note 16 - Investment Gains (Losses), Net.
7. Review of New, Unusual or Significant Transactions
Management identified an error in the accounting treatment of certain transactionssupporting documentation related to separation agreements with the former Chairmannature and classification of the Boardfinance receivables held for sale and CEO of the Company. Specifically, controls over the review of new, unusual or significant transactions related to application of the appropriate accounting and tax treatment to this transaction in accordance with U.S. GAAP did not operate effectively in that management failed to detect as part of the review procedures that regulatory approval was a prerequisite to recording the transaction and that approval had not been obtained prior to recording the transaction and therefore should have not been recorded.
This material weakness relates to the following financial statement line items: compensation expense, other liabilities, deferred tax liabilities, net, and additional paid in capital and the related disclosures within Note 15 - Shareholders' Equity.
8. Review of Financial Statement Disclosures
Management identified errors relating to financial statement disclosures. Specifically, the Company's controls over both the preparation and review and over the completeness and accuracy of financial statement disclosures did not operate effectively to ensure complete, accurate, and proper presentation of the financial statement disclosures in accordance with U.S. GAAP.
This material weakness relates to various disclosures in the financial statements.
9. Preparation and Review of Consolidated Statement of Cash Flows
The controls over the review of the impact of significant and unusual transactions on the classification and presentation of the Consolidated Statement of Cash Flows (SCF) did not operate effectively, which led to the misclassification offinance receivables held for investment cash flows between operating activities and investing activities in the preliminary SCF for certain proceeds from loan sales. The misclassification was corrected prior to the issuance of our Quarterly Report on Form 10-Q for the period ended June 30, 2015 and had no impact to previously issued interim or annual financial statements of the Company.SCF.
These control deficiencies could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that these control deficiencies constitutes material weaknesses.
Remediation Status of Reported Material Weaknesses
The Company is currently working to remediate the material weaknesses described above, including assessing the need for additional remediation steps and implementing additional measures to remediate the underlying causes that gave rise to the material weaknesses. The Company is committed to maintaining a strong internal control environment and to ensure that a proper, consistent tone is communicated throughout the organization, including the expectation that previously existing deficiencies will be remediated through implementation of processes and controls to ensure strict compliance with U.S. GAAP.
To address the material weakness in the Control Environment, Risk Assessment, Control Activities and Monitoring (Material Weakness 1, noted above), the Company has taken the following measures:
Appointed an additional independent director to the Audit Committee of the Board with extensive experience as a financial expert in our industry to provide further experience on the committee.
Established regular working group meetings, with appropriate oversight by management of both the Company and its parent to strengthen accountability for performance of internal control over financial reporting responsibilities and prioritization of corrective actions.
Hired a Chief Accounting Officer and other key personnel with significant public-company financial reporting experience and the requisite skillsets in areas important to financial reporting.
Developed and implemented a plan to enhance its risk assessment processes, control procedures and documentation.
Reallocated additional Company resources to improve the oversight for certain financial models.
Increased accounting resources with qualified permanent resources to ensure sufficient staffing to conduct enhanced financial reporting procedures and to begin the remediation efforts.
Improved management documentation, review controls and oversight of accounting and financial reporting activities to ensure accounting practices conform to the Company’s policies and U.S. GAAP.
Increased accounting participation in critical governance activities to ensure an adequate assessment of risk activities which may impact financial reporting or the related internal controls.
Completed a comprehensive review and update of all accounting policies, process descriptions and control activities.
Developed and implemented additional documentation, controls and governance for the credit loss allowance and accretion processes.
To address the material weaknesses related to the Application of Effective Interest Method for Accretion (Material Weakness 2, noted above) and the Identification, Governance and Monitoring of Models Used to Estimate Accretion (Material Weakness 6, noted above), the Company is in process of strengthening its processes and controls as follows:
Enhanced its accounting documentation and review procedures of key assumptions to ensure the Company’s accretion methodology conforms to Company policy and U.S. GAAP.
Automated the process for the application of the effective interest rate method for accreting discounts, subvention payments from manufacturers and other origination costs on individually acquired retail installment contracts.
Implemented a comprehensive review controls over data, inputs and assumptions used in the models.
Strengthened review controls and change management procedures over the models used to estimate accretion.
Increased accounting resources with qualified, permanent resources to ensure an adequate level of review and execution of control activities.
Developed a comprehensive accretion model documentation manual and implemented on-going performance monitoring to ensure compliance with required standards.
To address the material weaknesses related to theMethodology to Estimate Credit Loss Allowance (Material Weakness 3, noted above), Loans Modified as TDRs (Material Weakness 4, noted above), and Development, Approval, and Monitoring of Models Used to Estimate the Credit Loss Allowance (Material Weakness 5, noted above), the Company has taken the following measures:
Conducted a comprehensive design effectiveness review and augmentation of the controls to ensure all critical risks are addressed.
Enhanced its accounting documentation and review procedures relating to credit loss allowance and TDRs to demonstrate how the Company’s policies and procedures align with U.S. GAAP and produce a repeatable process.
Implemented enhanced review controls over financial statement disclosures for credit loss allowance and TDR’s to ensure compliance with the Company’s polices and U. S. GAAP.
Implemented a more comprehensive monitoring plan for credit loss allowance and TDRs with a specific focus on model inputs, changes in model assumptions and model outputs to ensure an effective execution of the Company’s risk strategy.
Enhanced the Company’s communication on related issues with its senior leadership team and the Board, including the Risk Committee and the Audit Committee.
Increased resources dedicated to the analysis, review and documentation to ensure compliance with U.S. GAAP and the Company’s policy.
To address the material weaknesses in the Review of New, Unusual or Significant Transactions (Material Weakness 7, noted above), Review of Financial Statement Disclosures (Material Weakness 8, noted above) and Preparation and Review of Consolidated Statement of Cash Flows (Material Weakness 9, noted above), the Company is in the process of strengthening its processes and controls as follows:
Increased the documentation, analysis and governance over new, significant and unusual transactions to ensure that these transactions are recorded in accordance with Company’s policies and U.S. GAAP.
Improved the review controls over financial statements and the related disclosures to include a more comprehensive disclosure checklist and improved review procedures from certain members of the management.
Strengthened the review controls, reconciliations and supporting documentation related to the classification of cash flows between operating activities and investing activities in the Statement of Cash Flows.
While progress has been made to remediate all of these areas, as of September 30, 2017, we are still in the process of developing and implementing the enhanced processes and procedures and testing the operating effectiveness of these improved controls. We believe our actions will be effective in remediating the material weaknesses, and we continue to devote significant time and attention to these efforts. In addition, the material weaknesses will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. Accordingly, the material weaknesses are not remediated as of September 30, 2017.
Changes in Internal Control over Financial Reporting
There were no changes in ourthe Company's internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Actthat occurred during the quarter ended September 30, 2017period covered by this Quarterly Report on Form 10-Q/A that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.
PART II: OTHER INFORMATION
Reference should be made to Note 1014 – “Commitments and Contingencies” to the Condensed Consolidated Financial Statements,accompanying condensed consolidated financial statements, which is incorporated herein by reference, for information regarding legal proceedingsproceedings in which the Company is involved, which supplements the discussion of legal proceedings set forth in Note 15– “Related-Party Transactions” to the accompanying condensed consolidated financial statements included in Note 11 to the Condensed Consolidated Financial Statements of the 20162020 Annual Report on Form 10-K.
The Company is subject to a number of risks potentially impacting its business, financial condition, results of operations and cash flow. There have been no material changes infrom the Company's risk factors from those disclosed inset forth under Part I, Item 1A “Risk Factors”– Risk Factors, in the 20162020 Annual Report on Form 10-K.10-K.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
There were no unregistered sales of the Company’s common stock during the period covered by this Quarterly Report on Form 10-Q.
The following table presents information regarding repurchases of the Company’s common stock as part of publicly announced plans or programs during the quarter ended March 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased | | Average Price paid per Share | | Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs | | Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs |
| | | | | | | $ | 547,825 | |
| January 1 - January 31 | — | | | $ | — | | | — | | | 547,825 | |
| February 1 - February 28 | — | | | — | | | — | | | 547,825 | |
| March 1 - March 31 | 357,747 | | | $ | 26.46 | | | 357,747 | | | 538,359 | |
| Total | 357,747 | | | $ | 26.46 | | | 357,747 | | | |
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Refer to Note 8 of the accompanying condensed consolidated financial statements for additional details on share repurchases.
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| Item 3. | Defaults upon Senior Securities |
None.
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| Item 4. | Mine Safety Disclosures |
Not applicable.
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
(Amounts presented as actuals)
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) to the Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”), an issuer is required to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with individuals or entities designated pursuant to certain Executive Orders. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law.
The following activities are disclosed in response to Section 13(r) with respect to affiliates of Santander UK within Santander.the Group and its affiliates. During the period covered by this report:
•Santander UK holds twofive blocked accounts for three customers, with the first customer holding one GBP savings accountsaccount and one GBP current account, forthe second customer holding one GBP savings account and the third customer holding two GBP current accounts. All three customers, who are resident in the UK, who are currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions program.programme. Revenues and profits generated by Santander UK on these accounts forin the nine months during 2017first quarter of 2021 were negligible relative to the overall revenues and profits of Santander.Banco Santander S.A.
•Santander UK holds two frozen current accounts for two UK nationals who are designated by the US under the Specially Designated Global Terrorist (SDGT)SDGT sanctions program.programme. The accounts held by eachone customer have been frozen since theirwere fully inaccessible at the time of the US designation and were blocked at the time of the account going into a debit balance. The accounts held by the second customer were blocked immediately following the US designation and have remained frozen throughthroughout the nine monthsfirst quarter of 2017.2021. These accounts are frozen in order to comply with Articles 2, 3 and 7 of Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the Al-Qaeda network, by virtue of Commission Implementing Regulation (EU) 2015/1815. The accounts are in arrears (£1,8441,844.73 in debit combined) and are currently being managed by Santander UK Collections & Recoveries department. No revenues or profits were generated by Santander UK on this account duringthese accounts in the nine monthsfirst quarter of 2017.2021.
•Santander Consumer Finance, S.A. holds through its Belgian branch seven blocked correspondent accounts for Bank Melli. Three USD accounts and four EUR accounts. The accounts have been blocked since 2008. Bank Melli is currently designated by the US under the Specially Designated Global Terrorist (SDGT) sanctions programme. No revenues or profits were generated by Santander Consumer Bank, S.A. on these accounts in the first quarter of 2021
•The Group also has certain legacy performance guarantees for the benefit of Bank Sepah and Bank Mellat (stand-by letters of credit to guarantee the obligations -– either under tender documents or under contracting agreements -– of contractors who participated in public bids in Iran) that were in place prior to April 27, 2007.
In the aggregate, all of the transactions described above resulted in gross revenues and net profits in the period ended September 30, 2017,first quarter of 2021 which were negligible relative to the overall revenues and profits of Santander.Banco Santander, S.A. The Group has undertaken significant steps to withdraw from the Iranian market such as closing its representative office in Iran and ceasing all banking activities therein,
including correspondent relationships, deposit taking from Iranian entities and issuing export letters of credit, except for the legacy transactions described above. SantanderThe Group is not contractually permitted to cancel these arrangements without either (i) paying the guaranteed amount (in the case of the performance guarantees), or (ii) forfeiting the outstanding amounts due to it (in the case of the export credits). As such, Santanderthe Group intends to continue to provide the guarantees and hold these assets in accordance with company policy and applicable laws.
The following exhibits are included herein:
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Exhibit
Number | | Description |
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Exhibit
Number
| | Description |
10.1 | | Waiver and Release of Claims Agreement, effective September 7, 2017, executed by Jason A. Kulas in favor of Santander Consumer USA Holdings Inc., Santander Holdings USA Inc., Santander Consumer USA, Inc., Santander Consumer USA Inc. Foundation, Santander Bank, N.A., and Banco Santander, S.A. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on September 13, 2017). |
10.2 | | |
10.3 | | |
10.4 | | |
31.1* | | |
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| 31.1* | | |
| 31.2* | | |
| 32.1* | | |
| 32.2* | | |
| 101.INS* | |
Inline XBRL Instance Document - this instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document |
| 101.SCH* | |
Inline XBRL Taxonomy Extension Schema |
| 101.CAL* | |
Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF* | |
Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB* | |
Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE* | |
Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104* | | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
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| * | Filed herewith. |
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* | Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | Santander Consumer USA Holdings Inc. (Registrant) |
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| By: | | /s/ Scott PowellMahesh Aditya |
| | Name: Scott PowellMahesh Aditya |
| | Title: President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
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| Signature | | Title | | Date |
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Signature/s/Mahesh Aditya | | Title | | Date |
/s/ Scott Powell
| | President and Chief Executive Officer | | November 2, 2017March 3, 2022 |
Scott PowellMahesh Aditya | | (Principal Executive Officer) | | |
/s/ Juan Carlos Alvarez de Soto Fahmi Karam | | Chief Financial Officer | | November 2, 2017March 3, 2022 |
Juan Carlos Alvarez de SotoFahmi Karam | | (Principal Financial and Accounting Officer) | | |
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