Company Quick10K Filing
Quick10K
Santander Consumer USA Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$21.30 352 $7,490
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-11 Shareholder Vote
8-K 2019-05-24 Other Events, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-09-14 Officers, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-11 Enter Agreement, Exhibits
8-K 2018-06-28 Other Events, Exhibits
8-K 2018-06-12 Shareholder Vote
8-K 2018-06-01 Regulation FD, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-04-19 Officers
8-K 2018-01-31 Earnings, Exhibits
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QUOT Quotient Technology 959
SGH Smart Global Holdings 472
EVGN Evogene 47
JCS Communications Systems 27
BUKS Butler National 0
DSGT DSG Global 0
FMCB Farmers & Merchants Bancorp 0
SC 2019-03-31
Part I: Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a2019q1exhibit311.htm
EX-31.2 a2019q1exhibit312.htm
EX-32.1 a2019q1exhibit321.htm
EX-32.2 a2019q1exhibit322.htm

Santander Consumer USA Holdings Earnings 2019-03-31

SC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q110-q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-36270
SANTANDER CONSUMER USA HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
32-0414408
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1601 Elm Street, Suite 800, 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)
 
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 every Interactive Data File required to be submitted 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 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):
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
Emerging growth company
 
¨
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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at April 29, 2019
Common Stock ($0.01 par value)
 
351,781,864 shares





INDEX
 

 
 
 
Item 1. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2. 
Item 3. 
Item 4. 
Item 1. 
Item 1A. 
Item 2. 
Item 3.
Item 4.
Item 5.
Item 6. 
 


2



Unless otherwise specified or the context otherwise requires, the use herein of the terms “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-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company’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’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 2018 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’s actual results to differ materially from those suggested by the forward-looking statements are:

the Company operates in a highly regulated industry and continually changing federal, state, and local laws and regulations could materially adversely affect its business;
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’s results;
the business could suffer if access to funding is reduced or if there is a change in the Company’s funding costs or ability to execute securitizations;
the Company faces significant risks implementing its growth strategy, some of which are outside of its control;
the Company may not realize the anticipated benefits from, and may incur unexpected costs and delays in connection with, exiting its personal lending business;
the Company’s agreement with FCA may not result in currently anticipated levels of growth and is subject to performance conditions that could result in termination of the agreement, and is subject to an option giving FCA the right to acquire an equity participation in the Chrysler Capital portion of the Company’s business;
the business could suffer if the Company is unsuccessful in developing and maintaining relationships with automobile dealerships;
the Company’s financial condition, liquidity, and results of operations depend on the credit performance of its loans;
loss of the Company’s key management or other personnel, or an inability to attract such management and personnel, could negatively impact its business;
the Company is directly and indirectly, through its relationship with SHUSA, subject to certain banking and financial services regulations, including oversight by the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), the European Central Bank, and the Federal Reserve Bank of Boston (FRBB); such oversight and regulation may limit certain of the Company’s activities, including the timing and amount of dividends and other limitations on the Company’s business; and
future changes in the Company’s ownership by, or relationship with, SHUSA or Santander could adversely affect its operations.

If one or more of the factors affecting the Company’s forward-looking information and statements renders forward-looking information or statements incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information or 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’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. Management 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. Any forward-looking statements only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking information or

3



statements, whether written or oral, to reflect any change, except as required by law. All forward-looking information and 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.
2018 Annual Report on Form 10-K
Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 26, 2019.
ABS
Asset-backed securities
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.
ALG
Automotive Lease Guide
APR
Annual Percentage Rate
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bluestem
Bluestem Brands, Inc., an online retailer for whose customers SC provides financing
Board
SC’s Board of Directors
CBP
Citizens Bank of Pennsylvania
CCART
Chrysler Capital Auto Receivables Trust, a securitization platform
CEO
Chief Executive Officer
CFPB
Consumer Financial Protection Bureau
CFO
Chief Financial Officer
Chrysler Agreement
Ten-year master 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
Commission
U.S. Securities and Exchange Commission
Credit Enhancement
A method such as overcollateralization, insurance, or a third-party guarantee, whereby a borrower reduces default risk
DCF
Discounted Cash Flow Analysis
Dealer Loan
A 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
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FCA
FCA 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
GAP
Guaranteed Auto Protection
GAAP
U.S. Generally Accepted Accounting Principles

4



IPO
SC’s Initial Public Offering
ISDA
International Swaps and Derivative Association
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
Nonaccretable Difference
The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows of a portfolio acquired with deteriorated credit quality
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-label
Financing branded in the name of the product manufacturer rather than in the name of the finance provider
RC
The Risk Committee of the Board
Remarketing
The controlled disposal of vehicles at the end of the 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
Retail installment contracts acquired individually
Includes purchased non-credit impaired finance receivables
RSU
Restricted stock unit
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
SCI
Santander Consumer International Puerto Rico, LLC , a wholly-owned subsidiary of SC Illinois
SC Illinois
Santander Consumer USA Inc., an Illinois corporation 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
SHUSA
Santander Holdings USA, Inc., a wholly-owned subsidiary of Santander and the majority stockholder of SC
SPAIN
Santander Prime Auto Issuing Note Trust, a securitization platform
SRT
Santander Retail Auto Lease Trust, a lease securitization platform
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
Troubled Debt Restructuring
Trusts
Special purpose financing trusts utilized in SC’s financing transactions
VIE
Variable Interest Entity
Warehouse Line
A revolving line of credit generally used to fund finance receivable originations


5



PART I: FINANCIAL INFORMATION
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,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents - $38,200 and $101,334 held at affiliates, respectively
$
76,272

 
$
148,436

Finance receivables held for sale, net
974,017

 
1,068,757

Finance receivables held for investment, net
25,598,716

 
25,117,454

Restricted cash and cash equivalents - $0 and $341 held at affiliates, respectively
2,414,653

 
2,102,048

Accrued interest receivable
272,014

 
303,686

Leased vehicles, net
14,388,657

 
13,978,855

Furniture and equipment, net of accumulated depreciation of $77,036 and $72,345, respectively
61,856

 
61,280

Federal, state and other income taxes receivable
80,567

 
97,087

Related party taxes receivable
2,594

 
734

Goodwill
74,056

 
74,056

Intangible assets, net of amortization of $47,438 and $45,324, respectively
41,200

 
35,195

Due from affiliates
6,685

 
8,920

Other assets
1,054,619

 
963,347

Total assets
$
45,045,906

 
$
43,959,855

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Notes payable — credit facilities
$
5,063,786

 
$
4,478,214

Notes payable — secured structured financings
27,080,312

 
26,901,530

Notes payable — related party
3,503,055

 
3,503,293

Accrued interest payable
54,655

 
49,370

Accounts payable and accrued expenses
399,792

 
422,951

Deferred tax liabilities, net
1,230,531

 
1,155,883

Due to affiliates
70,526

 
63,219

Other liabilities
484,719

 
367,037

Total liabilities
37,887,376

 
36,941,497

Commitments and contingencies (Notes 5 and 10)

 

Equity:
 
 
 
Common stock, $0.01 par value — 1,100,000,000 shares authorized;
 
 
 
362,419,860 and 362,028,916 shares issued and 351,728,473 and 352,302,759 shares outstanding, respectively
3,517

 
3,523

Additional paid-in capital
1,499,092

 
1,515,572

Accumulated other comprehensive income, net
12,938

 
33,515

Retained earnings
5,642,983

 
5,465,748

Total stockholders’ equity
7,158,530

 
7,018,358

Total liabilities and equity
$
45,045,906

 
$
43,959,855


See notes to unaudited condensed consolidated financial statements.





6



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands)

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,
2019
 
December 31,
2018
Assets
 
 
 
Restricted cash and cash equivalents
$
1,830,617

 
$
1,582,158

Finance receivables held for investment, net
24,889,257

 
24,151,971

Leased vehicles, net
14,388,657

 
13,978,855

Various other assets
667,368

 
685,383

Total assets
$
41,775,899

 
$
40,398,367

Liabilities
 
 
 
Notes payable
$
32,810,785

 
$
31,949,839

Various other liabilities
109,388

 
122,010

Total liabilities
$
32,920,173

 
$
32,071,849


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.


7



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,
 
 
2019
 
2018
Interest on finance receivables and loans
 
$
1,253,580

 
$
1,168,540

Leased vehicle income
 
649,560

 
504,278

Other finance and interest income
 
10,247

 
7,137

Total finance and other interest income
 
1,913,387

 
1,679,955

Interest expense — Including $44,873 and $42,033 to affiliates, respectively
 
334,382

 
241,028

Leased vehicle expense
 
444,019

 
358,683

Net finance and other interest income
 
1,134,986

 
1,080,244

Provision for credit losses
 
550,879

 
510,341

Net finance and other interest income after provision for credit losses
 
584,107

 
569,903

Profit sharing
 
6,968

 
4,377

Net finance and other interest income after provision for credit losses and profit sharing
 
577,139

 
565,526

Investment losses, net — Including $0 and $(16,903) from affiliates, respectively
 
(67,097
)
 
(86,520
)
Servicing fee income — Including $12,995 and $7,811 from affiliates, respectively
 
23,806

 
26,182

Fees, commissions, and other — Including $6,781 and $225 from affiliates, respectively
 
94,376

 
85,391

Total other income
 
51,085

 
25,053

Compensation expense
 
127,894

 
122,005

Repossession expense
 
70,860

 
72,081

Other operating costs — Including $933 and $1,161 to affiliates, respectively
 
92,203

 
93,826

Total operating expenses
 
290,957

 
287,912

Income before income taxes
 
337,267

 
302,667

Income tax expense
 
89,764

 
58,052

Net income
 
$
247,503

 
$
244,615

 
 
 
 
 
Net income
 
$
247,503

 
$
244,615

Other comprehensive income (loss):
 
 
 
 
Change in unrealized gains (losses) on cash flow hedges, net of tax of $6,794 and $2,903, respectively
 
(21,039
)
 
12,800

Unrealized gains (losses) on available-for-sale debt securities net of tax of ($149), and zero, respectively
 
462

 

Comprehensive income
 
$
226,926

 
$
257,415

Net income per common share (basic)
 
$
0.70

 
$
0.68

Net income per common share (diluted)
 
$
0.70

 
$
0.68

Weighted average common shares (basic)
 
351,515,464

 
360,703,234

Weighted average common shares (diluted)
 
352,051,887

 
361,616,732



See notes to unaudited condensed consolidated financial statements.

8



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited) (In thousands)
 
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Income (Loss)
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance — January 1, 2018
360,527

 
$
3,605

 
$
1,681,558

 
$
44,262

 
$
4,736,277

 
$
6,465,702

Cumulative-effect adjustment upon adoption of ASU 2018-02

 

 

 
6,149

 
(6,149
)
 

Stock issued in connection with employee incentive compensation plans
481

 
5

 
464

 

 

 
469

Stock-based compensation expense

 

 
4,208

 

 

 
4,208

 Dividends ($0.05 per share)

 

 

 

 
(18,028
)
 
(18,028
)
Tax sharing with affiliate

 

 
3,766

 

 

 
3,766

Net income

 

 

 

 
244,615

 
244,615

Other comprehensive income (loss), net of taxes

 

 

 
12,800

 

 
12,800

Balance — March 31, 2018
361,008

 
$
3,610

 
$
1,689,996

 
$
63,211

 
$
4,956,715

 
$
6,713,532

 
 
 
 
 
 
 
 
 
 
 
 
Balance — January 1, 2019
352,303

 
$
3,523

 
$
1,515,572

 
$
33,515

 
$
5,465,748

 
$
7,018,358

Stock issued in connection with employee incentive compensation plans
391

 
4

 
(1,715
)
 

 

 
(1,711
)
 Stock-based compensation expense

 

 
5,987

 

 

 
5,987

 Stock repurchase/Treasury stock
(965
)
 
(10
)
 
(17,770
)
 

 

 
(17,780
)
 Dividends paid ($0.20 per share)

 

 

 

 
(70,268
)
 
(70,268
)
 Tax sharing with affiliate

 

 
(2,982
)
 

 

 
(2,982
)
 Available-for-sale securities, net of taxes

 

 

 
462

 

 
462

 Net income

 

 

 

 
247,503

 
247,503

Other comprehensive income (loss), net of taxes

 

 

 
(21,039
)
 

 
(21,039
)
Balance — March 31, 2019
351,729

 
$
3,517

 
$
1,499,092

 
$
12,938

 
$
5,642,983

 
$
7,158,530

 
See notes to unaudited condensed consolidated financial statements.

9



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars in thousands)
 
For the Three Months Ended 
 
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
247,503

 
$
244,615

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Derivative mark to market
5,162

 
(7,164
)
Provision for credit losses
550,879

 
510,341

Depreciation and amortization
472,886

 
392,847

Accretion of discount
(26,708
)
 
(48,075
)
Originations and purchases of receivables held for sale

 
(1,019,425
)
Proceeds from sales of and collections on receivables held for sale
36,710

 
1,551,109

Change in revolving personal loans, net
6,523

 
5,722

Investment losses, net
67,097

 
86,520

Stock-based compensation
5,987

 
4,208

Deferred tax expense
81,062

 
64,789

Changes in assets and liabilities:
 
 
 
Accrued interest receivable
16,019

 
31,832

Accounts receivable
(6,926
)
 
11,760

Federal income tax and other taxes
11,911

 
(4,215
)
Other assets
(75,445
)
 
(46,923
)
Accrued interest payable
4,051

 
(2,529
)
Other liabilities
69,756

 
113,090

Due to/from affiliates
9,816

 
(4,150
)
Net cash provided by operating activities
1,476,283

 
1,884,352

Cash flows from investing activities:
 
 
 
Originations of and disbursements on finance receivables held for investment
(4,041,377
)
 
(3,253,263
)
Purchases of portfolios of finance receivables held for investment

 
(43,177
)
Collections on finance receivables held for investment
3,008,780

 
2,624,311

Leased vehicles purchased
(1,975,326
)
 
(2,118,545
)
Manufacturer incentives received
227,757

 
215,113

Proceeds from sale of leased vehicles
875,002

 
957,863

Change in revolving personal loans, net
36,520

 
45,184

Purchases of available-for-sale securities
(31,410
)
 

Purchases of furniture and equipment
(5,634
)
 
(1,012
)
Sales of furniture and equipment
58

 
57

Other investing activities
(1,335
)
 
(3,705
)
Net cash used in investing activities
(1,906,965
)
 
(1,577,174
)
Cash flows from financing activities:
 
 
 
Proceeds from notes payable related to secured structured financings — net of debt issuance costs
3,979,924

 
3,687,932

Payments on notes payable related to secured structured financings
(3,807,357
)
 
(3,386,999
)
Proceeds from unsecured notes payable
1,195,000

 

Payments on unsecured notes payable
(1,195,000
)
 

Proceeds from notes payable
4,572,550

 
7,795,002

Payments on notes payable
(3,986,978
)
 
(7,954,759
)
Proceeds from stock option exercises, gross
1,032

 
2,391

Dividends paid
(70,268
)
 
(18,028
)
Shares repurchased
(17,780
)
 

Net cash provided by financing activities
671,123

 
125,539










10



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited) (Dollars in thousands)

 
For the Three Months Ended 
 
March 31,
 
2019
 
2018
Net increase in cash and cash equivalents and restricted cash and cash equivalents
240,441

 
432,717

Cash and cash equivalent and restricted cash and cash equivalents— Beginning of period
2,250,484

 
3,081,707

Cash and cash equivalents and restricted cash and cash equivalents — End of period
$
2,490,925

 
$
3,514,424

Supplemental cash flow information:
 
 
 
      Cash and cash equivalents
76,272

 
618,809

      Restricted cash and cash equivalents
2,414,653

 
2,895,615

     Total cash and cash equivalents and restricted cash and cash equivalents
$
2,490,925

 
$
3,514,424


See notes to unaudited condensed consolidated financial statements.

11



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)

1.     Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices
SC, or the Company, is the holding company for SC Illinois, and its subsidiaries, a specialized consumer finance company focused on vehicle finance and third-party servicing. The Company’s primary business is the indirect origination and securitization of retail installment contracts, principally, through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers.
Since May 2013, under the Chrysler Agreement with FCA, the Company has been FCA’s preferred provider for consumer loans and leases and Dealer Loans. Under 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. 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 as well as Dealer Loans.

In June 2018, the Company announced that it was in exploratory discussions with FCA regarding the future of FCA’s U.S. finance operations. FCA announced its intention to establish a captive U.S. auto finance unit and indicated that acquiring Chrysler Capital is one option it would consider. Under the Chrysler Agreement, FCA has the option to acquire, for fair market value, an equity participation in the business offering and providing the financial services contemplated by the Chrysler Agreement. The likelihood, timing and structure of any such transaction, and the likelihood that the Chrysler Agreement will terminate, cannot be reasonably determined. In July 2018, FCA and the Company entered into a tolling agreement pursuant to which the parties agreed to preserve their respective rights, claims and defenses under the Chrysler Agreement as they existed on April 30, 2018.
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 other relationships through which it provides personal loans, private-label revolving lines of credit and other consumer finance products.
As of March 31, 2019, the Company was owned approximately 69.8% by SHUSA, a subsidiary of Santander, and approximately 30.2% by other shareholders.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including certain Trusts, which are considered VIEs. The Company also consolidates other VIEs for which it was deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements as of March 31, 2019 and December 31, 2018, and for the three months ended March 31, 2019 and 2018, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions 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. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the periods indicated. 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 2018 Annual Report on Form 10-K.
The preparation of 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 of the financial statements and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. These estimates include the determination of credit loss allowance, discount accretion, impairment, fair value, expected end-of-term

12



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.
Corrections to Previously Reported Amounts
As mentioned in Note 1- “ Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices” in 2018 Annual Report on Form 10-K, the Company identified and corrected two immaterial errors. The Company has revised its comparative condensed consolidated financial statements as of March 31, 2018 included within.

The following tables summarize the impacts of the corrections on the condensed consolidated financial statements of income and comprehensive income:
 
 
Three months ended March 31, 2018
 
 
Reported
 
Corrections
 
Revised
Interest on finance receivable and loans
 
$
1,114,137

 
$
54,403

 
$
1,168,540

Provision for credit losses
 
458,995

 
51,346

 
510,341

Income (loss) before income taxes
 
299,610

 
3,057

 
302,667

Income tax expense
 
57,311

 
741

 
58,052

Net income (loss)
 
242,299

 
2,316

 
244,615

 
 
 
 
 
 
 
Net income (loss) per common share (basic)
 
$
0.67

 
$
0.01

 
$
0.68

Net income (loss) per common share (diluted)
 
$
0.67

 
$
0.01

 
$
0.68


The following tables summarize the impacts of the corrections on the condensed consolidated statement of cash flows:
 
 
Three months ended March 31, 2018
 
 
Reported
 
Corrections
 
Revised
Net cash provided by operating activities
 
$
1,835,235

 
$
49,117

 
$
1,884,352

Net cash used in investing activities
 
(1,528,057
)
 
(49,117
)
 
(1,577,174
)

In addition to the revision of the Company’s condensed consolidated financial statements, information within the footnotes to the condensed consolidated financial statements has been revised to reflect the correction of the errors discussed above. The following table summarizes the impacts of the corrections of those items, including table disclosures in Note 4-“Credit Loss Allowance and Credit Quality”:
 
 
March 31, 2018
 
 
Reported
 
Corrections
 
Revised
TDR - Unpaid principal balance
 
$
5,998,768

 
$
97,110

 
$
6,095,878

TDR - Impairment
 
1,595,465

 
120,667

 
1,716,132

TDR allowance ratio
 
26.6
%
 
1.6
%
 
28.2
%
 
 
 
 
 
 

Nonaccrual loans TDRs
 
1,346,148

 
(781,215
)
 
564,933

 
 
 
 
 
 
 
Delinquencies for our retail installment contracts held for investment:
 
 
 
 
 

Principal, 30-59 days past due
 
2,238,425

 
95,020

 
2,333,445

Delinquent principal over 59 days
 
1,089,648

 
72,663

 
1,162,311

Total delinquent principal
 
3,328,073

 
167,683

 
3,495,756


Business Segment Information
The Company has one reportable 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 recreational vehicles, and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.


13



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 2018 Annual Report on Form 10-K.
Recently Adopted Accounting Standards
Since January 1, 2019, the Company adopted the following FASB ASUs:
In February 2016, the FASB issued ASU 2016-02, Leases. The primary effect of the ASU is to replace the existing accounting requirements for operating leases for lessees. Lessee accounting requirements for finance leases and lessor accounting requirements for operating leases and sales type and direct financing leases (sales-type and direct financing leases were both previously referred to as capital leases) are largely unchanged. The Company adopted this standard using the modified retrospective method and utilized the optional transition method under which we continue to apply the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative period presented.
For all our operating leases (primarily our office space/facility leases), where the Company is a lessee, adoption of the new standard resulted in recognizing on our balance sheet, a right-of-use (“ROU”) asset of $67,300, a reduction of accounts payable and accrued expenses of $24,100 relating to straight-line rent accruals and unamortized tenant improvement allowances, and a lease liability of $91,400. The right-of-use-asset and lease liability will be derecognized in a manner that effectively yields a straight-line lease expense over the lease term. In addition, the Company will no longer capitalize certain initial direct costs in connection with lease originations where it is the lessor.
Further, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We elected not to (a) use the hindsight practical expedient to determine the lease term for existing leases; and (b) recognize a lease liability and associated ROU asset for short term leases if such lease meet the definition under ASC 842. We chose not to elect the practical expedient to not separate non-lease components from lease components. The standard did not have a material impact on our condensed consolidated statement of income or condensed consolidated statement of cash flows.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard effective January 1, 2019 and it did not have a material impact on the Company’s business, financial position or results of operations.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815), Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits use of the OIS rate based on SOFR as an eligible benchmark interest rate for purposes of applying hedge accounting under Topic 815. The adoption of this standard did not have any impact on the Company’s business, financial position or results of operations.
The adoption of the following ASUs did not have a material impact on the Company’s business, financial position or results of operations.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
ASU 2018-09, Codification Improvements
Recently Issued Accounting Pronouncements

14




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 a material increase in the Company’s credit and capital reserves and related decrease in capital ratios.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance will be effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures.

In addition to those described in detail above, the Company is also in the process of evaluating the following ASUs and does not expect them to have a material impact on the Company’s business, financial position, results of operations or disclosures:
ASU 2018-17, Consolidation (Topic 10): Targeted Improvements to Related Party Guidance for Variable Interest Entities

2.
Finance Receivables
Held For Investment
Finance receivables held for investment, net is comprised of the following at March 31, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31,
2018
Retail installment contracts acquired individually (a)
$
25,548,985

 
$
25,065,511

Purchased receivables-Credit Impaired
17,903

 
19,235

Receivables from dealers
13,032

 
14,557

Personal loans
1,485

 
2,014

Finance lease receivables (Note 3)
17,311

 
16,137

Finance receivables held for investment, net
$
25,598,716

 
$
25,117,454

(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net. As of March 31, 2019 and December 31, 2018, $11,195 and $13,509 of loans were recorded at fair value (Note 13).
The Company’s held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans is comprised of the following at March 31, 2019 and December 31, 2018:

15




March 31, 2019

Retail Installment Contracts
Acquired
Individually

Receivables from
Dealers

Personal Loans

Non-TDR

TDR


Unpaid principal balance
$
23,905,478


$
4,916,251


$
13,169


$
1,952

Credit loss allowance - specific


(1,280,649
)




Credit loss allowance - collective
(1,891,351
)



(137
)

(605
)
Discount
(151,909
)

(32,519
)




Capitalized origination costs and fees
79,841


3,843




138

Net carrying balance
$
21,942,059


$
3,606,926


$
13,032


$
1,485


December 31, 2018

Retail Installment Contracts
Acquired
Individually

Receivables from
Dealers

Personal Loans

Non-TDR

TDR


Unpaid principal balance
$
23,054,157


$
5,378,603


$
14,710


$
2,637

Credit loss allowance - specific


(1,416,743
)




Credit loss allowance - collective
(1,819,360
)



(153
)

(761
)
Discount
(172,659
)

(40,333
)




Capitalized origination costs and fees
77,398


4,448




138

Net carrying balance
$
21,139,536


$
3,925,975


$
14,557


$
2,014

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). Most of the borrowers on the Company’s retail installment contracts held for investment are retail consumers; however, $553,495 and $537,922 of the unpaid principal balance represented fleet contracts with commercial borrowers as of March 31, 2019 and December 31, 2018, respectively.
During the three months ended March 31, 2019 and 2018, the Company originated $2,442,582 and $1,962,180, respectively, in Chrysler Capital loans which represented 61% and 46%, respectively, of the total retail installment contract originations (unpaid principal balance). As of March 31, 2019 and December 31, 2018, the Company’s carrying value of auto retail installment contract portfolio consisted of $9,192,748 and $8,977,284, respectively, of Chrysler Capital loans which represents 36% and 36%, respectively, of the Company’s carrying value of auto retail installment contract portfolio.
As of March 31, 2019, borrowers on the Company’s retail installment contracts held for investment are located in Texas (17%), Florida (11%), California (9%), Georgia (6%) and other states each individually representing less than 5% of the Company’s total portfolio.
Purchased receivables - Credit impaired

Purchased receivables portfolios, which were acquired with deteriorated credit quality, is comprised of the following at March 31, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31, 2018
Outstanding balance
$
28,153

 
$
30,631

Outstanding recorded investment, net of impairment
18,030

 
19,390


16



Changes in accretable yield on the Company’s purchased receivables portfolios-credit impaired for the periods indicated were as follows:
 
For the Three Months Ended 
 
March 31,
 
2019
 
2018
Balance — beginning of period
$
18,145

 
$
19,464

Accretion of accretable yield
(1,413
)
 
(2,840
)
Reclassifications from (to) nonaccretable difference (a)
1,160

 
1,822

Balance — end of period
$
17,892

 
$
18,446

(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 March 31, 2019 and 2018, 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, during the three months ended March 31, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of zero and $42,996, respectively, held by non-consolidated securitization Trusts, under optional clean-up 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).
Receivable from Dealers
The receivables from dealers held for investment are all Chrysler Agreement-related. As of March 31, 2019, borrowers on these dealer receivables are located in Virginia (70%) and New York (30%).
Held For Sale
The carrying value of the Company’s finance receivables held for sale, net is comprised of the following at March 31, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31, 2018
Personal loans
$
974,017

 
$
1,068,757

Sales of retail installment contracts and proceeds from sales of charged-off assets for the three months ended March 31, 2019 and 2018 were as follows:
 
For the Three Months Ended 
 
March 31,
 
2019
 
2018
Sale of retail installment contracts to affiliates
$

 
$
1,475,253

Proceeds from sales of charged-off assets to third parties
20,225

 
18,237



3.
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.
Operating Leases
Leased vehicles, net, which is comprised of leases originated under the Chrysler Agreement, consisted of the following as of March 31, 2019 and December 31, 2018:

17



 
March 31,
2019
 
December 31,
2018
Leased vehicles
$
19,136,180

 
$
18,737,338

Less: accumulated depreciation
(3,529,738
)
 
(3,518,025
)
Depreciated net capitalized cost
15,606,442

 
15,219,313

Manufacturer subvention payments, net of accretion
(1,287,017
)
 
(1,307,424
)
Origination fees and other costs
69,232

 
66,966

Net book value
$
14,388,657

 
$
13,978,855


The following summarizes the maturity analysis of lease payments due to the Company as lessor under operating leases as of March 31, 2019:
 
 
Remainder of 2019
$
1,848,447

2020
1,894,782

2021
838,398

2022
68,060

2023
535

Thereafter

Total
$
4,650,222

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, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31,
2018
Gross investment in finance leases
$
25,524

 
$
23,809

Origination fees and other
150

 
152

Less: unearned income
(4,855
)
 
(4,465
)
   Net investment in finance leases before allowance
20,819

 
19,496

Less: allowance for lease losses
(3,508
)
 
(3,359
)
   Net investment in finance leases
$
17,311

 
$
16,137


The following summarizes the maturity analysis of lease payments due to the Company as lessor under finance leases as of March 31, 2019:
 
 
Remainder of 2019
$
5,734

2020
7,087

2021
5,954

2022
4,354

2023
2,282

Thereafter
113

Total
$
25,524



4.
Credit Loss Allowance and Credit Quality
Credit Loss Allowance
The Company estimates the allowance for credit losses on individually acquired retail installment contracts (including loans acquired from third party lenders that are considered to have no credit deterioration at acquisition) and personal loans held for investment, not classified as TDRs, based on delinquency status, historical loss experience, estimated

18



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. 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. The Company uses a transition based Markov model for estimating the allowance for credit losses on individually acquired retail installment contracts. This model utilizes the recently observed loan transition rates from various loan statuses, including delinquency and accounting statuses from performing to charge off, to forecast future losses.
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.
The Company maintains a general credit loss allowance for receivables from dealers based on risk ratings and individually evaluates loans for specific impairment as necessary. As of March 31, 2019 and 2018, the credit loss allowance for receivables from dealers is comprised entirely of general allowance as none of these receivables have been determined to be individually impaired.
The activity in the credit loss allowance for individually acquired retail installment contracts and Dealer Loans for the three months ended March 31, 2019 and 2018 was as follows:
 
Three Months Ended March 31, 2019
 
Retail Installment Contracts Acquired Individually

Receivables from Dealers

Personal Loans
 
Non-TDR

TDR


 
Balance — beginning of period
$
1,819,360


$
1,416,743

 
$
153


$
761

Provision for credit losses
446,488


104,613

 
(16
)

83

Charge-offs (a)
(927,457
)

(466,637
)
 


(346
)
Recoveries
552,960


225,930

 


107

Balance — end of period
$
1,891,351


$
1,280,649

 
$
137


$
605

(a) For the three months ended March 31, 2019, charge-offs for retail installment contracts acquired individually includes approximately $4 million for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. There is no additional credit loss allowance on these loans.
 
Three Months Ended March 31, 2018
 
Retail Installment Contracts Acquired Individually

Receivables from Dealers

Personal Loans
 
Non-TDR

TDR


 
Balance — beginning of period
$
1,540,315


$
1,804,132


$
164

 
$
2,565

Provision for credit losses
286,451


223,574


(3
)
 
(102
)
Charge-offs (a)
(655,169
)

(547,343
)



 
(1,068
)
Recoveries
425,460


235,769




 
319

Balance — end of period
$
1,597,057


$
1,716,132


$
161


$
1,714

(a) For the three months ended March 31, 2018, charge-offs for retail installment contracts acquired individually includes approximately $7 million for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received. There is no additional credit loss allowance on these loans.
The Company estimates lease losses on the finance 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 finance leases for the three months ended March 31, 2019 and 2018 was as follows:

19



 
Three Months Ended 
 
March 31,
 
2019
 
2018
Balance — beginning of period
$
3,359

 
$
5,642

Provision for lease losses
321

 
421

Charge-offs
(659
)
 
(1,381
)
Recoveries
487

 
1,075

Balance — end of period
$
3,508

 
$
5,757


There was no impairment activity noted for purchased receivable-credit impaired portfolio for the three months ended March 31, 2019 and March 31, 2018.

Delinquencies

Retail installment contracts and personal amortizing term loans are classified as non-performing (or nonaccrual) when they are greater than 60 days past due as to contractual principal or interest payments. 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 loan.

The Company considers an account delinquent when an obligor fails to pay substantially all (defined as 90%) of the scheduled payment by the due date. In each case, the period of delinquency is based on the number of days payments are contractually past due.

The accrual of interest on revolving personal loans continues until the loan is charged off. The unpaid principal balance on revolving personal loans 90 days past due and still accruing totaled $112,317 and $129,227 as of March 31, 2019 and December 31, 2018, respectively.

A summary of delinquencies as of March 31, 2019 and December 31, 2018 is as follows:
 
March 31, 2019
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 30-59 days past due
$
2,417,300

 
$
2,341

 
$
2,419,641

Delinquent principal over 59 days (a)
1,224,289

 
1,518

 
1,225,807

Total delinquent principal
$
3,641,589

 
$
3,859

 
$
3,645,448

 
December 31, 2018
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 30-59 days past due
$
3,118,869

 
$
2,926

 
$
3,121,795

Delinquent principal over 59 days (a)
1,712,243

 
1,532

 
1,713,775

Total delinquent principal
$
4,831,112

 
$
4,458

 
$
4,835,570

(a) Interest is generally accrued until 60 days past due in accordance with the Company’s accounting policy for retail installment contracts.

The retail installment contracts acquired individually held for investment that were placed on nonaccrual status, as of March 31, 2019 and December 31, 2018:


20



 
March 31, 2019
 
December 31, 2018
 
Amount
 
Percent (a)
 
Amount
 
Percent (a)
Non-TDR
$
724,025

 
2.5
%
 
$
834,921

 
2.9
%
TDR
537,259

 
1.9
%
 
733,218

 
2.6
%
Total nonaccrual principal
$
1,261,284

 
4.4
%
 
$
1,568,139

 
5.5
%
(a) Percent of unpaid principal balance of total retail installment contracts individually held for investment.

The balances in the above tables reflect total unpaid principal balance rather than recorded investment before allowance.

As of March 31, 2019 and December 31, 2018, there were no receivables from dealers that were 30 days or more delinquent.
Credit Quality Indicators
FICO® Distribution — A summary of the credit risk profile of the Company’s retail installment contracts held for investment by FICO® distribution, determined at origination, as of March 31, 2019 and December 31, 2018 was as follows:
FICO® Band
 
March 31, 2019 (b)
 
December 31, 2018 (b)
Commercial (a)
 
1.9%
 
1.9%
No-FICOs
 
10.9%
 
11.0%
<540
 
19.4%
 
19.8%
540-599
 
33.0%
 
32.9%
600-639
 
18.4%
 
18.2%
>640
 
16.4%
 
16.2%

(a)No FICO score is obtained on loans to commercial borrowers.
(b)Percentages are based on unpaid principal balance.

Commercial Lending — The Company’s risk department performs a credit analysis and classifies certain loans over an internal threshold based on the commercial lending classifications described in Part II, Item 8 - Financial Statements and Supplementary Data (Note 4) in the 2018 Annual Report on Form 10-K.
All the receivables from dealers, as of March 31, 2019 and December 31, 2018 were classified as “Pass.”

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 impaired, operating and finance leases, and loans held for sale, including personal loans, are excluded from the scope of the applicable guidance. The Company’s TDR balance as of March 31, 2019 and December 31, 2018 primarily consisted of loans that had been deferred or modified to receive a temporary reduction in monthly payment. As of March 31, 2019 and December 31, 2018, there were no receivables from dealers classified as a TDR.
A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. 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 recognition of interest income on TDR loans reflects management’s best estimate of the amount that is reasonably assured of collection and is consistent with the estimate of future cash flows used in the impairment measurement. Any accrued but unpaid interest

21



is fully reserved for through the recognition of additional impairment on the recorded investment, if not expected to be collected.
The table below presents the Company’s TDRs as of March 31, 2019 and December 31, 2018:
 
March 31,
2019
 
December 31, 2018
 
Retail Installment Contracts
Outstanding recorded investment (a)
$
4,891,375

 
$
5,365,477

Impairment
(1,280,649
)
 
(1,416,743
)
Outstanding recorded investment, net of impairment
$
3,610,726

 
$
3,948,734

(a) As of March 31, 2019, the outstanding recorded investment excludes $91.0 million of collateral-dependent bankruptcy TDRs that have been written down by $38.3 million to fair value less cost to sell. As of December 31, 2018, the outstanding recorded investment excludes $90.1 million of collateral-dependent bankruptcy TDRs that have been written down by $36.4 million to fair value less cost to sell.

A summary of the Company’s delinquent TDRs at March 31, 2019 and December 31, 2018, is as follows:
 
March 31,
2019
 
December 31, 2018
 
Retail Installment Contracts (a)
Principal, 30-59 days past due
$
978,359

 
$
1,265,946

Delinquent principal over 59 days
549,692

 
810,589

Total delinquent TDR principal
$
1,528,051

 
$
2,076,535

(a) The balances in the above table reflects total unpaid principal balance rather than net recorded investment before allowance.

Average recorded investment and interest income recognized on TDR loans are as follows:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Retail Installment Contracts
Average outstanding recorded investment in TDRs
$
5,181,657

 
$
6,194,844

Interest income recognized
$
235,688

 
$
293,787

The following table summarizes the financial effects, excluding impacts related to credit loss allowance and impairment, of TDRs (including collateral-dependent bankruptcy TDRs) that occurred for the three months ended March 31, 2019 and 2018:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Retail Installment Contracts
Outstanding recorded investment before TDR
$
332,010

 
$
584,448

Outstanding recorded investment after TDR
$
332,630

 
$
582,664

Number of contracts (not in thousands)
19,873

 
34,374

Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three months ended March 31, 2019 and 2018 are summarized in the following table:
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Retail Installment Contracts
Recorded investment in TDRs that subsequently defaulted (a)
$
126,238

 
$
195,265

Number of contracts (not in thousands)
7,572

 
11,540

(a) For TDR modifications and TDR modifications that subsequently defaults, the allowance methodology remains unchanged; however, the transition rates of the TDR loans are adjusted to reflect the respective risks.


22



5.    Debt
Revolving Credit Facilities
The following table presents information regarding credit facilities as of March 31, 2019 and December 31, 2018:
 
March 31, 2019
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Facilities with third parties:
 
 
 
 
 
 
 
 
 
 
 
Warehouse line
August 2019
 
$
37,484

 
$
500,000

 
8.60%
 
$
54,475

 
$

Warehouse line
Various (a)
 
355,345

 
1,250,000

 
5.16%
 
511,875

 

Warehouse line (b)
August 2020
 
2,515,243

 
4,400,000

 
4.09%
 
3,311,763

 
4,274

Warehouse line
October 2020
 
775,177

 
2,050,000

 
5.16%
 
1,158,396

 
37

Repurchase facility (c)
May 2019
 
167,748

 
167,748

 
3.80%
 
235,540

 

Repurchase facility (c)
May 2019
 
119,169

 
119,169

 
3.04%
 
151,932

 

Warehouse line
November 2020
 
751,400

 
1,000,000

 
3.68%
 
1,088,648

 

Warehouse line
November 2020
 
261,620

 
500,000

 
3.57%
 
289,933

 
505

Warehouse line
October 2019
 
80,600

 
350,000

 
5.74%
 
89,781

 
581

Total facilities with third parties
 
 
5,063,786

 
10,336,917

 
 
 
6,892,343

 
5,397

Facilities with Santander and related subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
Promissory Note
December 2022
 
250,000

 
250,000

 
3.95%
 

 

Promissory Note
December 2021
 
250,000

 
250,000

 
3.70%
 

 

Promissory Note
December 2023
 
250,000

 
250,000

 
5.25%
 

 

Promissory Note
December 2022
 
250,000

 
250,000

 
5.00%
 

 

Promissory Note
March 2021
 
300,000

 
300,000

 
3.95%
 
 
 
 
Promissory Note
October 2020
 
400,000

 
400,000

 
3.10%
 

 

Promissory Note
May 2020
 
500,000

 
500,000

 
3.49%
 

 

Promissory Note (d)
March 2022
 
650,000

 
650,000

 
4.20%
 

 

Promissory Note
August 2021
 
650,000

 
650,000

 
3.44%
 

 

Line of credit
July 2021
 

 
500,000

 
5.85%
 

 

Line of credit
March 2022
 

 
3,000,000

 
5.69%
 

 

Total facilities with Santander and related subsidiaries
 
 
3,500,000

 
7,000,000

 
 
 

 

Total revolving credit facilities
 
 
$
8,563,786

 
$
17,336,917

 
 
 
$
6,892,343

 
$
5,397


(a) One-half of the outstanding balance on this facility matures in May 2019 and remaining balance matures in March 2020.
(b) This line is held exclusively for financing of Chrysler Capital leases.
(c) The repurchase facilities are collateralized by securitization notes payable retained by the Company. As the borrower, we are exposed to liquidity risk due to changes in the market value of the retained securities pledged. In some instances, we place or receive cash collateral with counterparties under collateral arrangements associated with our repurchase agreements.
(d)
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, 2019 and December 31, 2018 was $3.1 million and $3.2 million, respectively, the amortization of which will reduce interest expense over the remaining life of the fixed rate debt.
       


23



 
December 31, 2018
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Facilities with third parties:
 
 
 
 
 
 
 
 
 
 
 
Warehouse line
August 2019
 
$
53,584

 
$
500,000

 
8.34%
 
$
78,790

 
$

Warehouse line
Various
 
314,845

 
1,250,000

 
4.83%
 
458,390

 

Warehouse line
August 2020
 
2,154,243

 
4,400,000

 
3.79%
 
2,859,113

 
4,831

Warehouse line
October 2020
 
242,377

 
2,050,000

 
5.94%
 
345,599

 
120

Repurchase facility
April 2019
 
167,118

 
167,118

 
3.84%
 
235,540

 

Repurchase facility
March 2019
 
131,827

 
131,827

 
3.54%
 
166,308

 

Warehouse line
November 2020
 
1,000,000

 
1,000,000

 
3.32%
 
1,430,524

 
6

Warehouse line
November 2020
 
317,020

 
500,000

 
3.53%
 
359,214

 
525

Warehouse line
October 2019
 
97,200

 
350,000

 
4.35%
 
108,418

 
328

Total facilities with third parties
 
 
4,478,214

 
10,348,945

 
 
 
6,041,896

 
5,810

Facilities with Santander and related subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
Promissory Note
December 2022
 
250,000

 
250,000

 
3.95%
 

 

Promissory Note
December 2021
 
250,000

 
250,000

 
3.70%
 

 

Promissory Note
December 2023
 
250,000

 
250,000

 
5.25%
 

 

Promissory Note
December 2022
 
250,000

 
250,000

 
5.00%
 

 

Promissory Note
March 2019
 
300,000

 
300,000

 
4.09%
 

 

Promissory Note
October 2020
 
400,000

 
400,000

 
3.10%
 

 

Promissory Note
May 2020
 
500,000

 
500,000

 
3.49%
 

 

Promissory Note
March 2022
 
650,000

 
650,000

 
4.20%
 

 

Promissory Note
August 2021
 
650,000

 
650,000

 
3.38%
 

 

Line of credit
July 2021
 

 
500,000

 
4.34%
 

 

Line of credit
March 2019
 

 
3,000,000

 
4.97%
 

 

Total facilities with Santander and related subsidiaries
 
 
3,500,000

 
7,000,000

 
 
 

 

Total revolving credit facilities
 
 
$
7,978,214

 
$
17,348,945

 
 
 
$
6,041,896

 
$
5,810

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), securitization notes payables and residuals retained by the Company.
Facilities with Santander and Related Subsidiaries
Lines of Credit
SHUSA provides the Company with $3,500,000 of committed revolving credit that can be drawn on an unsecured basis.
Promissory Notes
SHUSA provides the Company with $3,500,000 of unsecured promissory notes.

Secured Structured Financings
 
The following table presents information regarding secured structured financings as of March 31, 2019 and December 31, 2018:

24



 
March 31, 2019
 
Estimated Maturity Date(s)
 
Balance
 
Initial Note Amounts Issued (d)
 
Initial Weighted Average Interest Rate
 
Collateral (b)
 
Restricted Cash
2014 Securitizations
January 2022 - April 2022
 
$
210,870

 
$
2,291,020

 
1.16%-1.27%
 
$
276,026

 
$
65,769

2015 Securitizations
April 2021 - January 2023
 
1,400,803

 
9,054,732

 
1.33%-2.29%
 
1,673,187

 
296,972

2016 Securitizations
April 2022- March 2024
 
1,913,327

 
7,462,790

 
1.63%-2.8%
 
2,482,363

 
295,114

2017 Securitizations
July 2022 - September 2024
 
3,787,585

 
9,296,570

 
1.35%-2.52%
 
5,321,553

 
385,897

2018 Securitizations
May 2022 - April 2026
 
8,292,523

 
12,039,840

 
2.41%-3.42%
 
10,749,495

 
602,036

2019 Securitizations
June 2025-June 2026
 
2,884,535

 
2,990,260

 
3.1%-3.34%
 
3,555,396

 
144,790

Public Securitizations (a)
 
 
18,489,643

 
43,135,212

 
 
 
24,058,020

 
1,790,578