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
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 and delivering superior service to dealers and customers across the full credit spectrum. The Company’s primary business is the indirect origination and servicing of retail installment contracts and leases, principally, through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers. Additionally, the Company sells 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 brand, and is available as a finance option for automotive dealers across the United States. Since May 2013, under the Chrysler Agreement with FCA, the Company has operated as FCA’s preferred provider for consumer loans, leases and dealer loans and provides services to FCA customers and dealers under the CCAP 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.
On June 28, 2019, the Company entered into an Amendment to the Chrysler Agreement with FCA, which modified the Chrysler Agreement to, among other things, adjust certain performance metrics, exclusivity commitments and payment provisions. The Amendment also terminated the previously disclosed tolling agreement, dated July 11, 2018, between the Company and FCA.
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 other consumer finance products.
As of September 30, 2019, the Company was owned approximately 71.6% by SHUSA, a subsidiary of Santander, and approximately 28.4% 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 September 30, 2019 and December 31, 2018, and for the three and nine months ended September 30, 2019 and 2018, have been prepared in accordance with 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 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 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 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 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.
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:
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•
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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.
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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.
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•
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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.
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•
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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.
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The adoption of the following ASUs did not have a material impact on the Company’s business, financial position or results of operations.
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•
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ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
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•
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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
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•
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ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
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•
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ASU 2018-09, Codification Improvements
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Recently Issued Accounting Pronouncements
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In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This guidance significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The amendment introduces a new credit reserving framework known as Current Expected Credit Loss (“CECL”), which replaces the incurred loss impairment framework in current GAAP with one that reflects expected credit losses over the full remaining life of financial assets and commitments and requires consideration of a broader range of reasonable and supportable information, including estimation of future expected changes in macroeconomic conditions. For AFS debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the OTTI framework. The standard also simplifies the accounting framework for purchased credit-impaired debt securities and loans. The Company will adopt the new guidance on January 1, 2020.
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The Company established a cross-functional working group for implementation of this standard. Our implementation process includes (i) data sourcing and validation, (ii) development and validation of loss forecasting methodologies and models, including determining the length of the reasonable and supportable forecast period and selecting macroeconomic forecasting methodologies to comply with the new guidance, (iii) updating the design of our established governance, financial reporting, and internal control framework, (iv) updating accounting policies and procedures, and (v) determining future expanded disclosures on aspects such as credit quality. The status of our implementation is periodically presented to the Audit Committee and the Risk Committee. The Company continues to test and refine its current expected credit loss models to satisfy the requirements of the new standard. Oversight and testing, as well as efforts to meet expanded disclosure requirements, will extend through the remainder of 2019.
The Company currently expects an increase in the allowance for credit losses for finance receivables in the range of 55% to 70% and a decrease (net of tax) in our regulatory capital amounts and ratios. The Company expects to leverage relief provided by federal banking regulatory agencies for an initial capital decrease by phasing in the adoption over four years on a straight-line basis in its calculation of regulatory capital amounts and ratios. The Company does not expect a material impact on its other financial instruments.
The increase in allowance for credit losses will be reflected as a decrease to opening retained earnings, net of income taxes, at January 1, 2020. The estimated increase will take into account forecasts of expected future economic conditions and is primarily driven by the fact that the allowance will cover expected credit losses over the full expected life of the loan portfolios. This estimate is subject to further refinement based on continuing reviews and approvals of models, methodologies and judgments. The impact at January 1, 2020 will depend upon the nature and characteristics of our financial instruments at the adoption date, the macroeconomic conditions and forecasts at that date, and other management judgments.
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•
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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.
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In addition to those described in detail above, the Company is also in the process of evaluating the ASU 2018-17, Consolidation (Topic 10): Targeted Improvements to Related Party Guidance for Variable Interest Entities, but
does not expect it to have a material impact on the Company’s business, financial position, results of operations or disclosures.
Held For Investment
Finance receivables held for investment, net is comprised of the following at September 30, 2019 and December 31, 2018:
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September 30, 2019
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December 31, 2018
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Retail installment contracts acquired individually (a)
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$
|
26,452,517
|
|
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$
|
25,065,511
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|
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Purchased receivables-Credit Impaired
|
13,620
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|
|
19,235
|
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Receivables from dealers
|
12,707
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|
14,557
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|
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Personal loans (b)
|
—
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|
|
2,014
|
|
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Finance lease receivables (Note 3)
|
21,515
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|
|
16,137
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|
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Finance receivables held for investment, net
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$
|
26,500,359
|
|
|
$
|
25,117,454
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(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net. As of September 30, 2019 and December 31, 2018, $6,288 and $13,509 of loans were recorded at fair value (Note 13).
(b) The remaining balance of personal loans, held for investment, was charged off during the quarter ended June 30, 2019.
The Company’s held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans is comprised of the following at September 30, 2019 and December 31, 2018:
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September 30, 2019
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Retail Installment Contracts
Acquired
Individually
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Receivables from
Dealers
|
|
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Non-TDR
|
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TDR
|
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Unpaid principal balance
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$
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25,353,223
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$
|
4,221,473
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|
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$
|
12,841
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|
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Credit loss allowance - specific
|
—
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|
|
(1,060,612
|
)
|
|
—
|
|
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Credit loss allowance - collective
|
(2,051,792
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)
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—
|
|
|
(134
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)
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Discount
|
(75,202
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)
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|
(21,922
|
)
|
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—
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|
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Capitalized origination costs and fees
|
84,062
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|
|
3,286
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|
|
—
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Net carrying balance
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$
|
23,310,291
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$
|
3,142,225
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|
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$
|
12,707
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December 31, 2018
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Retail Installment Contracts
Acquired
Individually
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Receivables from
Dealers
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Personal Loans
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Non-TDR
|
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TDR
|
|
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Unpaid principal balance
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$
|
23,054,157
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$
|
5,378,603
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|
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$
|
14,710
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|
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$
|
2,637
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|
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Credit loss allowance - specific
|
—
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(1,416,743
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)
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—
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|
|
—
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Credit loss allowance - collective
|
(1,819,360
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)
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|
—
|
|
|
(153
|
)
|
|
(761
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)
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Discount
|
(172,659
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)
|
|
(40,333
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)
|
|
—
|
|
|
—
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|
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Capitalized origination costs and fees
|
77,398
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|
|
4,448
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|
|
—
|
|
|
138
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|
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Net carrying balance
|
$
|
21,139,536
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|
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$
|
3,925,975
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|
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$
|
14,557
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|
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$
|
2,014
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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, $663,342 and $537,922 of the unpaid principal balance represented fleet contracts with commercial borrowers as of September 30, 2019 and December 31, 2018, respectively.
During the nine months ended September 30, 2019 and 2018, the Company originated (including the SBNA originations program) $9,514,939 and $6,452,924, respectively, in CCAP loans which represented 56% and 48%, respectively, of the total retail installment contract originations (including the SBNA originations program). As of September 30, 2019 and December 31, 2018, the Company’s carrying value of auto retail installment contract portfolio consisted of $9,942,534 and $8,977,284, respectively, of CCAP loans which represents 38% and 36%, respectively, of the Company’s carrying value of auto retail installment contract portfolio.
As of September 30, 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 September 30, 2019 and December 31, 2018:
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|
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|
|
|
|
|
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|
September 30, 2019
|
|
December 31, 2018
|
|
Outstanding balance
|
$
|
23,300
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|
|
$
|
30,631
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Outstanding recorded investment, net of impairment
|
13,719
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|
19,390
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Changes in accretable yield on the Company’s purchased receivables portfolios-credit impaired for the periods indicated were as follows:
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|
|
|
|
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Three Months Ended
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
September 30, 2019
|
|
September 30, 2018
|
|
Balance — beginning of period
|
$
|
13,758
|
|
|
$
|
18,368
|
|
$
|
18,145
|
|
|
$
|
19,464
|
|
|
Accretion of accretable yield
|
(852
|
)
|
|
(1,974
|
)
|
(3,204
|
)
|
|
(7,059
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)
|
|
Reclassifications from (to) nonaccretable difference (a)
|
2,265
|
|
|
2,111
|
|
230
|
|
|
6,100
|
|
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Balance — end of period
|
$
|
15,171
|
|
|
$
|
18,505
|
|
$
|
15,171
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|
|
$
|
18,505
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(a) Reclassifications from (to) nonaccretable difference represents the increases (decreases) in accretable yield resulting from higher (lower) estimated undiscounted cash flows.
During the three and nine months ended September 30, 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 September 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of zero, and for the nine months ended September 30, 2019 and 2018, the Company recognized certain retail installment contracts with an unpaid principal balance of $74,718 and $115,959, 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 September 30, 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 September 30, 2019 and December 31, 2018:
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|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Personal loans
|
$
|
925,611
|
|
|
$
|
1,068,757
|
|
Sales of retail installment contracts and proceeds from sales of charged-off assets for the three and nine months ended September 30, 2019 and 2018 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Sales of retail installment contracts to affiliates
|
$
|
—
|
|
|
$
|
274,609
|
|
|
$
|
—
|
|
|
$
|
2,905,922
|
|
|
Proceeds from sales of charged-off assets to third parties
|
28,847
|
|
|
3,845
|
|
|
55,220
|
|
|
38,720
|
|
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 September 30, 2019 and December 31, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Leased vehicles
|
$
|
21,067,104
|
|
|
$
|
18,737,338
|
|
|
Less: accumulated depreciation
|
(3,851,631
|
)
|
|
(3,518,025
|
)
|
|
Depreciated net capitalized cost
|
17,215,473
|
|
|
15,219,313
|
|
|
Manufacturer subvention payments, net of accretion
|
(1,258,407
|
)
|
|
(1,307,424
|
)
|
|
Origination fees and other costs
|
80,751
|
|
|
66,966
|
|
|
Net book value
|
$
|
16,037,817
|
|
|
$
|
13,978,855
|
|
The following summarizes the maturity analysis of lease payments due to the Company as lessor under operating leases as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
$
|
727,355
|
|
|
2020
|
2,493,461
|
|
|
2021
|
1,463,152
|
|
|
2022
|
364,066
|
|
|
2023
|
18,874
|
|
|
Thereafter
|
—
|
|
|
Total
|
$
|
5,066,908
|
|
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 September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Gross investment in finance leases
|
$
|
31,632
|
|
|
$
|
23,809
|
|
|
Origination fees and other
|
222
|
|
|
152
|
|
|
Less: unearned income
|
(6,197
|
)
|
|
(4,465
|
)
|
|
Net investment in finance leases before allowance
|
25,657
|
|
|
19,496
|
|
|
Less: allowance for lease losses
|
(4,142
|
)
|
|
(3,359
|
)
|
|
Net investment in finance leases
|
$
|
21,515
|
|
|
$
|
16,137
|
|
The following summarizes the maturity analysis of lease payments due to the Company as lessor under finance leases as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
$
|
2,288
|
|
|
2020
|
9,100
|
|
|
2021
|
8,050
|
|
|
2022
|
6,532
|
|
|
2023
|
4,329
|
|
|
Thereafter
|
1,333
|
|
|
Total
|
$
|
31,632
|
|
|
|
|
|
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 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 September 30, 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 and nine months ended September 30, 2019 and 2018 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended September 30, 2018
|
|
|
Retail Installment Contracts Acquired Individually
|
|
Receivables from Dealers
|
|
Personal Loans
|
|
Retail Installment Contracts Acquired Individually
|
|
Receivables from Dealers
|
|
Personal Loans
|
|
|
Non-TDR
|
|
TDR
|
|
|
|
Non-TDR
|
|
TDR
|
|
|
|
|
|
|
Balance — beginning of period
|
$
|
1,961,893
|
|
|
$
|
1,156,303
|
|
|
$
|
135
|
|
|
$
|
—
|
|
|
$
|
1,651,714
|
|
|
$
|
1,664,222
|
|
|
$
|
158
|
|
|
$
|
1,116
|
|
|
Provision for credit losses *
|
484,626
|
|
|
102,494
|
|
|
(1
|
)
|
|
(34
|
)
|
|
380,496
|
|
|
217,447
|
|
|
(3
|
)
|
|
(135
|
)
|
|
Charge-offs (a)
|
(962,573
|
)
|
|
(381,490
|
)
|
|
—
|
|
|
—
|
|
|
(701,393
|
)
|
|
(524,429
|
)
|
|
—
|
|
|
(414
|
)
|
|
Recoveries
|
567,846
|
|
|
183,305
|
|
|
—
|
|
|
34
|
|
|
410,045
|
|
|
202,568
|
|
|
—
|
|
|
330
|
|
|
Balance — end of period
|
$
|
2,051,792
|
|
|
$
|
1,060,612
|
|
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
1,740,862
|
|
|
$
|
1,559,808
|
|
|
$
|
155
|
|
|
$
|
897
|
|
* Includes impact for individually acquired retail installment contracts transferred back from held for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2019
|
|
Nine months ended September 30, 2018
|
|
|
Retail Installment Contracts Acquired Individually
|
|
Receivables from Dealers
|
|
Personal Loans
|
|
Retail Installment Contracts Acquired Individually
|
|
Receivables
from Dealers
|
|
Personal Loans
|
|
|
Non-TDR
|
|
TDR
|
|
|
|
Non-TDR
|
|
TDR
|
|
|
|
|
|
|
|
|
|
Balance — beginning of period
|
$
|
1,819,360
|
|
|
$
|
1,416,743
|
|
|
$
|
153
|
|
|
$
|
761
|
|
|
$
|
1,540,315
|
|
|
$
|
1,804,132
|
|
|
$
|
164
|
|
|
$
|
2,565
|
|
|
Provision for credit losses
|
1,279,931
|
|
|
266,913
|
|
|
(19
|
)
|
|
1,119
|
|
|
930,595
|
|
|
585,771
|
|
|
(9
|
)
|
|
(320
|
)
|
|
Charge-offs (a)
|
(2,685,931
|
)
|
|
(1,217,650
|
)
|
|
—
|
|
|
(2,107
|
)
|
|
(1,962,220
|
)
|
|
(1,484,482
|
)
|
|
—
|
|
|
(2,177
|
)
|
|
Recoveries
|
1,638,432
|
|
|
594,606
|
|
|
—
|
|
|
227
|
|
|
1,232,172
|
|
|
654,387
|
|
|
—
|
|
|
829
|
|
|
Balance — end of period
|
$
|
2,051,792
|
|
|
$
|
1,060,612
|
|
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
1,740,862
|
|
|
$
|
1,559,808
|
|
|
$
|
155
|
|
|
$
|
897
|
|
(a) Charge-offs for retail installment contracts acquired individually 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 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 and nine months ended September 30, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Balance — beginning of period
|
$
|
3,928
|
|
|
$
|
3,582
|
|
|
$
|
3,359
|
|
|
$
|
5,642
|
|
|
Provision for lease losses
|
229
|
|
|
109
|
|
|
1,145
|
|
|
(1,239
|
)
|
|
Charge-offs
|
(1,289
|
)
|
|
(1,614
|
)
|
|
(3,078
|
)
|
|
(4,755
|
)
|
|
Recoveries
|
1,274
|
|
|
1,387
|
|
|
2,716
|
|
|
3,816
|
|
|
Balance — end of period
|
$
|
4,142
|
|
|
$
|
3,464
|
|
|
$
|
4,142
|
|
|
$
|
3,464
|
|
There was no impairment activity noted for purchased receivable-credit impaired portfolio for the three and nine months ended September 30, 2019 and September 30, 2018.
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. 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 $126,283 and $129,227 as of September 30, 2019 and December 31, 2018, respectively.
A summary of delinquencies as of September 30, 2019 and December 31, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Retail Installment Contracts Held for Investment
|
|
|
Loans Acquired Individually
|
|
Purchased Receivables Portfolios
|
|
Total
|
|
Principal, 30-59 days past due
|
$
|
2,806,640
|
|
|
$
|
1,734
|
|
|
$
|
2,808,374
|
|
|
Delinquent principal over 59 days (a)
|
1,392,955
|
|
|
1,119
|
|
|
1,394,074
|
|
|
Total delinquent principal
|
$
|
4,199,595
|
|
|
$
|
2,853
|
|
|
$
|
4,202,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Amount
|
|
Percent (a)
|
|
Amount
|
|
Percent (a)
|
|
Non-TDR
|
$
|
927,027
|
|
|
3.1
|
%
|
|
$
|
834,921
|
|
|
2.9
|
%
|
|
TDR
|
511,990
|
|
|
1.7
|
%
|
|
733,218
|
|
|
2.6
|
%
|
|
Total nonaccrual principal
|
$
|
1,439,017
|
|
|
4.8
|
%
|
|
$
|
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 September 30, 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 September 30, 2019 and December 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
FICO® Band
|
|
September 30, 2019 (b)
|
|
December 31, 2018 (b)
|
|
Commercial (a)
|
|
2.2%
|
|
1.9%
|
|
No-FICOs
|
|
10.6%
|
|
11.0%
|
|
<540
|
|
17.9%
|
|
19.8%
|
|
540-599
|
|
32.9%
|
|
32.9%
|
|
600-639
|
|
19.0%
|
|
18.2%
|
|
>640
|
|
17.3%
|
|
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 September 30, 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 September 30, 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 September 30, 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 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 September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Outstanding recorded investment (a)
|
$
|
4,191,540
|
|
|
$
|
5,365,477
|
|
|
Impairment
|
(1,060,612
|
)
|
|
(1,416,743
|
)
|
|
Outstanding recorded investment, net of impairment
|
$
|
3,130,928
|
|
|
$
|
3,948,734
|
|
(a) As of September 30, 2019, the outstanding recorded investment excludes $96.9 million of collateral-dependent bankruptcy TDRs that have been written down by $38.0 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 September 30, 2019 and December 31, 2018, is as follows (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Principal, 30-59 days past due
|
$
|
950,716
|
|
|
$
|
1,265,946
|
|
|
Delinquent principal over 59 days
|
518,046
|
|
|
810,589
|
|
|
Total delinquent TDR principal
|
$
|
1,468,762
|
|
|
$
|
2,076,535
|
|
(a) The balances in the above table reflect 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
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Average outstanding recorded investment in TDRs
|
$
|
4,399,099
|
|
|
$
|
5,968,689
|
|
|
$
|
4,790,378
|
|
|
$
|
6,167,812
|
|
|
Interest income recognized
|
$
|
188,331
|
|
|
$
|
257,168
|
|
|
$
|
623,324
|
|
|
$
|
808,230
|
|
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 and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Outstanding recorded investment before TDR
|
$
|
376,206
|
|
|
$
|
471,482
|
|
|
$
|
1,003,755
|
|
|
$
|
1,779,855
|
|
|
Outstanding recorded investment after TDR
|
$
|
377,750
|
|
|
$
|
472,392
|
|
|
$
|
1,006,637
|
|
|
$
|
1,780,494
|
|
|
Number of contracts (not in thousands)
|
21,575
|
|
|
28,004
|
|
|
58,783
|
|
|
105,643
|
|
Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2019 and 2018 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Recorded investment in TDRs that subsequently defaulted (a)
|
$
|
83,254
|
|
|
$
|
163,483
|
|
|
$
|
299,619
|
|
|
$
|
503,309
|
|
|
Number of contracts (not in thousands)
|
5,190
|
|
|
9,924
|
|
|
18,097
|
|
|
30,171
|
|
(a) For TDR modifications and TDR modifications that subsequently default, the allowance methodology remains unchanged; however, the transition rates of the TDR loans are adjusted to reflect the respective risks.
5. Debt
Revolving Credit Facilities
The following table presents information regarding the Company’s credit facilities as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Maturity Date(s)
|
|
Utilized Balance
|
|
Committed Amount
|
|
Effective Rate
|
|
Assets Pledged
|
|
Restricted Cash Pledged
|
|
Facilities with third parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse line
|
June 2021
|
|
$
|
290,384
|
|
|
$
|
500,000
|
|
|
3.22%
|
|
$
|
421,304
|
|
|
$
|
—
|
|
|
Warehouse line
|
March 2021
|
|
547,945
|
|
|
1,250,000
|
|
|
3.49%
|
|
794,643
|
|
|
—
|
|
|
Warehouse line (a)
|
August 2020
|
|
1,728,842
|
|
|
4,400,000
|
|
|
3.70%
|
|
2,760,820
|
|
|
2,473
|
|
|
Warehouse line
|
July 2021
|
|
484,700
|
|
|
500,000
|
|
|
3.30%
|
|
650,051
|
|
|
—
|
|
|
Warehouse line
|
October 2020
|
|
1,062,977
|
|
|
2,050,000
|
|
|
3.83%
|
|
1,480,296
|
|
|
1,207
|
|
|
Repurchase facility (b)
|
January 2020
|
|
332,388
|
|
|
332,388
|
|
|
3.80%
|
|
452,740
|
|
|
—
|
|
|
Repurchase facility (b)
|
October 2019
|
|
95,901
|
|
|
95,901
|
|
|
3.04%
|
|
153,680
|
|
|
—
|
|
|
Repurchase facility (b)
|
December 2019
|
|
47,824
|
|
|
47,824
|
|
|
3.30%
|
|
69,945
|
|
|
—
|
|
|
Warehouse line
|
November 2020
|
|
481,300
|
|
|
1,000,000
|
|
|
3.27%
|
|
700,767
|
|
|
—
|
|
|
Warehouse line
|
November 2020
|
|
322,420
|
|
|
500,000
|
|
|
2.98%
|
|
356,093
|
|
|
352
|
|
|
Warehouse line
|
June 2021
|
|
65,900
|
|
|
350,000
|
|
|
5.61%
|
|
77,355
|
|
|
149
|
|
|
Total facilities with third parties
|
|
|
5,460,581
|
|
|
11,026,113
|
|
|
|
|
7,917,694
|
|
|
4,181
|
|
|
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
|
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
|
June 2022
|
|
500,000
|
|
|
500,000
|
|
|
3.30%
|
|
—
|
|
|
—
|
|
|
Promissory Note
|
July 2024
|
|
500,000
|
|
|
500,000
|
|
|
3.90%
|
|
—
|
|
|
—
|
|
|
Promissory Note (c)
|
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%
|
|
—
|
|
|
—
|
|
|
Line of credit
|
July 2021
|
|
—
|
|
|
500,000
|
|
|
4.27%
|
|
—
|
|
|
—
|
|
|
Line of credit
|
March 2022
|
|
—
|
|
|
3,000,000
|
|
|
5.60%
|
|
—
|
|
|
—
|
|
|
Total facilities with Santander and related subsidiaries
|
|
|
5,250,000
|
|
|
8,750,000
|
|
|
|
|
—
|
|
|
—
|
|
|
Total revolving credit facilities
|
|
|
$
|
10,710,581
|
|
|
$
|
19,776,113
|
|
|
|
|
$
|
7,917,694
|
|
|
$
|
4,181
|
|
(a) This line is held exclusively for financing of Chrysler Capital leases.
(b) 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. The maturity date for the repurchase facility trade that expires in October 2019 was extended to January 2020.
|
|
|
|
(c)
|
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 September 30, 2019 and December 31, 2018 was $2.6 million and $3.2 million, respectively, the amortization of which will reduce interest expense over the remaining life of the fixed rate debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $5,250,000 of unsecured promissory notes.
Secured Structured Financings
The following table presents information regarding secured structured financings as of September 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Estimated Maturity Date(s)
|
|
Balance
|
|
Initial Note Amounts Issued (d)
|
|
Initial Weighted Average Interest Rate
|
|
Collateral (b)
|
|
Restricted Cash
|
|
2015 Securitizations
|
April 2021 - January 2023
|
|
$
|
818,382
|
|
|
$
|
7,092,352
|
|
|
1.33%-2.29%
|
|
$
|
978,813
|
|
|
$
|
210,657
|
|
|
2016 Securitizations
|
April 2022- March 2024
|
|
1,373,328
|
|
|
7,462,790
|
|
|
1.63%-2.8%
|
|
1,831,577
|
|
|
255,808
|
|
|
2017 Securitizations
|
July 2022 - September 2024
|
|
2,691,272
|
|
|
9,296,570
|
|
|
1.35%-2.52%
|
|
3,958,439
|
|
|
313,056
|
|
|
2018 Securitizations
|
May 2022 - April 2026
|
|
6,241,641
|
|
|
12,039,840
|
|
|
2.41%-3.42%
|
|
8,266,097
|
|
|
505,552
|
|
|
2019 Securitizations
|
May 2024-February 2027
|
|
8,445,226
|
|
|
9,852,390
|
|
|
2.36%-3.34%
|
|
10,467,623
|
|
|
400,704
|
|
|
Public Securitizations (a)
|
|
|
19,569,849
|
|
|
45,743,942
|
|
|
|
|
25,502,549
|
|
|
1,685,777
|
|
|
2013 Private issuances
|
July 2024- September 2024
|
|
1,642,719
|
|
|
1,537,025
|
|
|
1.28%
|
|
2,647,768
|
|
|
1
|
|
|
2015 Private issuances
|
July 2019
|
|
54,373
|
|
|
500,000
|
|
|
1.05%
|
|
97,954
|
|
|
207
|
|
|
2016 Private issuances
|
September 2024
|
|
43,654
|
|
|
300,000
|
|
|
2.35%
|
|
107,817
|
|
|
—
|
|
|
2017 Private issuances
|
June 2021 - September 2021
|
|
99,095
|
|
|
1,350,000
|
|
|
1.85%-2.44%
|
|
341,062
|
|
|
309
|
|
|
2018 Private issuance
|
June 2022-April 2024
|
|
4,087,929
|
|
|
4,536,002
|
|
|
2.42%-3.53%
|
|
5,629,294
|
|
|
11,260
|
|
|
2019 Private issuance
|
September 2022-August 2024
|
|
1,421,871
|
|
|
1,526,766
|
|
|
3.34%-3.9%
|
|
1,830,553
|
|
|
948
|
|
|
Privately issued amortizing notes (c)
|
|
|
7,349,641
|
|
|
9,749,793
|
|
|
|
|
10,654,448
|
|
|
12,725
|
|
|
Total secured structured financings
|
|
|
$
|
26,919,490
|
|
|
$
|
55,493,735
|
|
|
|
|
$
|
36,156,997
|
|
|
$
|
1,698,502
|
|
(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 were paid in full.
(d)Excludes securitizations which no longer have outstanding debt and excludes any incremental borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Estimated Maturity Date(s)
|
|
Balance
|
|
Initial Note Amounts Issued
|
|
Initial Weighted Average Interest Rate
|
|
Collateral
|
|
Restricted Cash
|
|
2014 Securitizations
|
January 2022 - April 2022
|
|
$
|
246,989
|
|
|
$
|
2,291,020
|
|
|
1.16% - 1.27%
|
|
$
|
334,888
|
|
|
$
|
65,028
|
|
|
2015 Securitizations
|
April 2021 - January 2023
|
|
1,651,411
|
|
|
9,054,732
|
|
|
1.33% - 2.29%
|
|
1,979,942
|
|
|
288,654
|
|
|
2016 Securitizations
|
April 2022 - March 2024
|
|
2,233,720
|
|
|
7,462,790
|
|
|
1.63% - 2.80%
|
|
2,876,141
|
|
|
285,300
|
|
|
2017 Securitizations
|
July 2022 - September 2024
|
|
4,385,029
|
|
|
9,296,570
|
|
|
1.35% - 2.52%
|
|
6,090,150
|
|
|
352,833
|
|
|
2018 Securitizations
|
May 2022 -April 2026
|
|
10,708,030
|
|
|
13,275,840
|
|
|
2.41% - 3.53%
|
|
13,631,783
|
|
|
549,899
|
|
|
Public Securitizations
|
|
|
19,225,179
|
|
|
41,380,952
|
|
|
|
|
24,912,904
|
|
|
1,541,714
|
|
|
2013 Private issuance
|
November 2020 - September 2024
|
|
1,507,241
|
|
|
2,044,054
|
|
|
1.28% - 1.38%
|
|
2,896,344
|
|
|
3,021
|
|
|
2015 Private issuances
|
June 2019 -September 2021
|
|
1,043,723
|
|
|
1,811,312
|
|
|
0.88% - 2.80%
|
|
350,212
|
|
|
2,215
|
|
|
2016 Private issuances
|
August 2020 - September 2024
|
|
454,280
|
|
|
2,550,000
|
|
|
1.93% - 2.86%
|
|
901,641
|
|
|
1,661
|
|
|
2017 Private issuances
|
April 2021 -September 2021
|
|
689,152
|
|
|
1,600,000
|
|
|
1.85% - 2.44%
|
|
1,037,263
|
|
|
5,716
|
|
|
2018 Private issuances
|
June 2022 - April 2024
|
|
3,981,955
|
|
|
3,300,002
|
|
|
2.42% - 3.17%
|
|
5,197,806
|
|
|
22,588
|
|
|
Privately issued amortizing notes
|
|
|
7,676,351
|
|
|
11,305,368
|
|
|
|
|
10,383,266
|
|
|
35,201
|
|
|
Total secured structured financings
|
|
|
$
|
26,901,530
|
|
|
$
|
52,686,320
|
|
|
|
|
$
|
35,296,170
|
|
|
$
|
1,576,915
|
|
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 securitizations and private issuances are collateralized by vehicle retail installment contracts and loans or leases. As of September 30, 2019 and December 31, 2018, the Company had private issuances of notes backed by vehicle leases totaling $8,979,429 and $7,847,071, respectively.
Unamortized debt issuance costs are amortized as interest expense over the terms of the related notes payable using the effective interest method and are classified as a discount to the related recorded debt balance. Amortized debt issuance costs were $11,591 and $11,015 for the three months ended September 30, 2019 and 2018, respectively, and $29,361 and $27,515 for the nine months ended September 30, 2019 and 2018, 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 notes payable is also included in interest expense using the effective interest method over the estimated remaining life of the notes. Total interest expense on secured structured financings for the three months ended September 30, 2019 and 2018 was $217,544 and $198,184, respectively. Total interest expense on secured structured financings for the nine months ended September 30, 2019 and 2018 was $671,770 and $521,775, respectively.
|
|
|
|
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 2018 Annual Report on Form 10-K.
On-balance sheet variable interest entities
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 September 30, 2019 and December 31, 2018, the Company was servicing $28,196,046 and $27,193,924, respectively, of gross retail installment contracts that have 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 and nine months ended September 30, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Assets securitized
|
$
|
5,498,705
|
|
|
$
|
5,414,393
|
|
|
$
|
15,340,428
|
|
|
$
|
19,167,290
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from new securitizations (a)
|
$
|
4,475,722
|
|
|
$
|
4,014,928
|
|
|
$
|
12,232,777
|
|
|
$
|
12,073,124
|
|
|
Net proceeds from retained bonds
|
2,414
|
|
|
203,704
|
|
|
119,719
|
|
|
797,336
|
|
|
Cash received for servicing fees (b)
|
242,801
|
|
|
229,520
|
|
|
740,760
|
|
|
659,210
|
|
|
Net distributions from Trusts (b)
|
1,018,301
|
|
|
860,024
|
|
|
2,689,735
|
|
|
2,186,010
|
|
|
Total cash received from Trusts
|
$
|
5,739,238
|
|
|
$
|
5,308,176
|
|
|
$
|
15,782,991
|
|
|
$
|
15,715,680
|
|
|
|
|
|
(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 and nine months ended September 30, 2018 the Company sold $274,609 and $2,905,922, respectively, of gross retail installment contracts to Santander in off-balance sheet securitizations for a loss (excluding lower of cost or market adjustments, if any) of $656 and $20,736, respectively. The losses were recorded in investment losses, net, in the accompanying consolidated statements of income. There were no sales during the three and nine months ended September 30, 2019.
As of September 30, 2019 and December 31, 2018, the Company was servicing $2,755,242 and $4,072,843, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
SPAIN
|
$
|
2,445,116
|
|
|
$
|
3,461,793
|
|
|
Total serviced for related parties
|
2,445,116
|
|
|
3,461,793
|
|
|
Chrysler Capital securitizations
|
310,126
|
|
|
611,050
|
|
|
Total serviced for third parties
|
310,126
|
|
|
611,050
|
|
|
Total serviced for others portfolio
|
$
|
2,755,242
|
|
|
$
|
4,072,843
|
|
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 and nine months ended September 30, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
September 30, 2019
|
|
September 30, 2018
|
|
Receivables securitized (a)
|
$
|
—
|
|
|
$
|
274,609
|
|
$
|
—
|
|
|
$
|
2,905,922
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from new securitizations
|
$
|
—
|
|
|
$
|
274,855
|
|
$
|
—
|
|
|
$
|
2,909,794
|
|
|
Cash received for servicing fees
|
7,859
|
|
|
11,896
|
|
27,467
|
|
|
32,590
|
|
|
Total cash received from securitization trusts
|
$
|
7,859
|
|
|
$
|
286,751
|
|
$
|
27,467
|
|
|
$
|
2,942,384
|
|
(a) Represents the unpaid principal balance at the time of original securitization.
|
|
|
|
7.
|
Derivative Financial Instruments
|
The Company uses derivative 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’s exposure to changing interest rates. The Company uses both derivatives that qualify for hedge accounting treatment and economic hedges.
The underlying notional amounts and aggregate fair values of these derivatives financial instruments at September 30, 2019 and December 31, 2018, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Notional
|
|
Fair Value
|
|
Asset
|
|
Liability
|
|
Interest rate swap agreements designated as cash flow hedges
|
$
|
3,650,000
|
|
|
$
|
(42,063
|
)
|
|
$
|
5,886
|
|
|
$
|
(47,949
|
)
|
|
Interest rate swap agreements not designated as hedges
|
2,110,000
|
|
|
(11,612
|
)
|
|
1,232
|
|
|
(12,844
|
)
|
|
Interest rate cap agreements
|
9,063,716
|
|
|
60,301
|
|
|
60,301
|
|
|
—
|
|
|
Options for interest rate cap agreements
|
9,063,716
|
|
|
(60,301
|
)
|
|
—
|
|
|
(60,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Notional
|
|
Fair Value
|
|
Asset
|
|
Liability
|
|
Interest rate swap agreements designated as cash flow hedges
|
$
|
3,933,500
|
|
|
$
|
36,489
|
|
|
$
|
43,967
|
|
|
$
|
(7,478
|
)
|
|
Interest rate swap agreements not designated as hedges
|
2,270,200
|
|
|
9,423
|
|
|
11,553
|
|
|
(2,130
|
)
|
|
Interest rate cap agreements
|
7,741,765
|
|
|
128,377
|
|
|
128,377
|
|
|
—
|
|
|
Options for interest rate cap agreements
|
7,741,765
|
|
|
(128,377
|
)
|
|
—
|
|
|
(128,377
|
)
|
See Note 13 for disclosure of fair value and balance sheet location of the Company’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 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, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Condensed Consolidated Balance Sheet
|
|
|
Assets Presented
in the
Condensed Consolidated
Balance Sheet
|
|
Collateral
Received (a)
|
|
|
Net
Amount
|
|
September 30, 2019
|
|
|
|
|
|
|
|
Interest rate swaps - third party (b)
|
$
|
7,118
|
|
|
$
|
—
|
|
|
|
$
|
7,118
|
|
|
Interest rate caps - Santander and affiliates
|
10,515
|
|
|
(990
|
)
|
|
|
9,525
|
|
|
Interest rate caps - third party
|
49,786
|
|
|
(33,158
|
)
|
|
|
16,628
|
|
|
Total derivatives subject to a master netting arrangement or similar arrangement
|
67,419
|
|
|
(34,148
|
)
|
|
|
33,271
|
|
|
Total derivatives not subject to a master netting arrangement or similar arrangement
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Total derivative assets
|
$
|
67,419
|
|
|
$
|
(34,148
|
)
|
|
|
$
|
33,271
|
|
|
Total financial assets
|
$
|
67,419
|
|
|
$
|
(34,148
|
)
|
|
|
$
|
33,271
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Interest rate swaps - third party (b)
|
$
|
55,520
|
|
|
$
|
(23,929
|
)
|
|
|
$
|
31,591
|
|
|
Interest rate caps - third party
|
128,377
|
|
|
(72,830
|
)
|
|
|
55,547
|
|
|
Total derivatives subject to a master netting arrangement or similar arrangement
|
183,897
|
|
|
(96,759
|
)
|
|
|
87,138
|
|
|
Total derivatives not subject to a master netting arrangement or similar arrangement
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Total derivative assets
|
$
|
183,897
|
|
|
$
|
(96,759
|
)
|
|
|
$
|
87,138
|
|
|
Total financial assets
|
$
|
183,897
|
|
|
$
|
(96,759
|
)
|
|
|
$
|
87,138
|
|
(a) Collateral received includes cash, cash equivalents, 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 consolidated balance sheet since the Company does not control or have the ability of rehypothecation of these instruments.
(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
|
|
Collateral
Pledged (a)
|
|
|
Net
Amount
|
|
September 30, 2019
|
|
|
|
|
|
|
|
Interest rate swaps - third party (b)
|
$
|
60,793
|
|
|
$
|
(60,793
|
)
|
|
|
$
|
—
|
|
|
Interest rate caps - Santander and affiliates
|
10,515
|
|
|
(10,515
|
)
|
|
|
—
|
|
|
Interest rate caps - third party
|
49,786
|
|
|
(49,786
|
)
|
|
|
—
|
|
|
Total derivatives subject to a master netting arrangement or similar arrangement
|
121,094
|
|
|
(121,094
|
)
|
|
|
—
|
|
|
Total derivatives not subject to a master netting arrangement or similar arrangement
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Total derivative liabilities
|
$
|
121,094
|
|
|
$
|
(121,094
|
)
|
|
|
$
|
—
|
|
|
Total financial liabilities
|
$
|
121,094
|
|
|
$
|
(121,094
|
)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Interest rate swaps - third party
|
$
|
9,608
|
|
|
$
|
(9,608
|
)
|
|
|
$
|
—
|
|
|
Interest rate caps - third party
|
128,377
|
|
|
(128,377
|
)
|
|
|
—
|
|
|
Total derivatives subject to a master netting arrangement or similar arrangement
|
137,985
|
|
|
(137,985
|
)
|
|
|
—
|
|
|
Total derivatives not subject to a master netting arrangement or similar arrangement
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Total derivative liabilities
|
$
|
137,985
|
|
|
$
|
(137,985
|
)
|
|
|
$
|
—
|
|
|
Total financial liabilities
|
$
|
137,985
|
|
|
$
|
(137,985
|
)
|
|
|
$
|
—
|
|
(a) Collateral pledged includes cash, cash equivalents, 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.
The gross gains (losses) reclassified from accumulated other comprehensive income (loss) to 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, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
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
|
$
|
—
|
|
|
$
|
(6,485
|
)
|
|
$
|
8,283
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedges
|
|
|
|
|
|
|
Losses (Gains) recognized in interest expenses
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
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
|
$
|
—
|
|
|
$
|
3,244
|
|
|
$
|
11,170
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedges
|
|
|
|
|
|
|
Losses (Gains) recognized in interest expenses
|
(2,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
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
|
$
|
—
|
|
|
$
|
(52,292
|
)
|
|
$
|
35,224
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedges
|
|
|
|
|
|
|
Losses (Gains) recognized in interest expenses
|
14,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
Recognized in Earnings
|
|
Gross Gains 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
|
$
|
—
|
|
|
$
|
38,085
|
|
|
$
|
24,843
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated as hedges
|
|
|
|
|
|
|
Losses (Gains) recognized in interest expenses
|
(12,305
|
)
|
|
|
|
|
The Company estimates that approximately $4,129 of unrealized losses included in accumulated other comprehensive income (loss) will be reclassified to interest expense within the next twelve months.
8. Other Assets
Other assets were comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
Vehicles (a)
|
$
|
315,802
|
|
|
$
|
342,097
|
|
|
Manufacturer subvention payments receivable (b)
|
92,204
|
|
|
106,313
|
|
|
Upfront fee (b)
|
106,403
|
|
|
65,000
|
|
|
Derivative assets (third party) at fair value (c)
|
56,904
|
|
|
183,897
|
|
|
Derivative - collateral
|
157,127
|
|
|
150,783
|
|
|
Operating leases (Right-of-use-assets)
|
60,391
|
|
|
—
|
|
|
Available-for-sale debt securities
|
91,961
|
|
|
—
|
|
|
Prepaids
|
41,790
|
|
|
29,080
|
|
|
Accounts receivable
|
29,888
|
|
|
28,511
|
|
|
Other
|
26,743
|
|
|
57,666
|
|
|
Other assets
|
$
|
979,213
|
|
|
$
|
963,347
|
|
|
|
|
|
(a)
|
Includes vehicles recovered through repossession as well as vehicles recovered 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 Chrysler Agreement. 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 the sixth amendment to the Chrysler Agreement, the Company paid $60,000 upfront fee to FCA. This fee is being amortized into finance and other interest income over the remaining term of the Chrysler Agreement.
|
|
|
|
|
(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.
|
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. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.
Most of our real estate leases include one or more options to renew, with renewal terms that can extend the lease term from one to 15 years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Supplemental information relating to these operating leases is as follows:
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
Operating leases-right of use assets
|
$
|
60,391
|
|
|
Other liabilities
|
82,373
|
|
|
Weighted average lease term
|
6.4 years
|
|
|
Weighted average discount rate
|
3.40
|
%
|
Lease expense incurred totaled $3,402 and $2,571 for the three months ended September 30, 2019 and 2018, respectively, and $10,316 and $7,661 for the nine months ended September 30, 2019 and 2018, 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 $12,677 during the nine months ended September 30, 2019.
The maturity of lease liabilities at September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
2019
|
$
|
4,111
|
|
|
2020
|
16,716
|
|
|
2021
|
13,201
|
|
|
2022
|
12,555
|
|
|
2023
|
12,678
|
|
|
Thereafter
|
32,391
|
|
|
Total
|
$
|
91,652
|
|
|
Less: Interest
|
(9,279
|
)
|
|
Present value of lease liabilities
|
$
|
82,373
|
|
Available-for-sale debt securities
Debt securities expected to be held for an indefinite period of time are classified as available-for-sale (“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.
Realized gains and losses on sales of investment securities are recognized on the trade date and are determined using specific identification method and is 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 AFS as of September 30, 2019:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Amortized cost (before unrealized gains / losses)
|
|
Gross Unrealized gain
|
|
Gross Unrealized loss
|
|
Fair value
|
|
Available-for-sale debt securities (US Treasury securities)
|
$
|
90,785
|
|
|
$
|
1,176
|
|
|
$
|
—
|
|
|
$
|
91,961
|
|
Contractual Maturities
The contractual maturities of available-for-sale debt instruments are summarized in the following table.
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Amortized cost
|
|
Fair value
|
|
Due within one year
|
$
|
—
|
|
|
$
|
—
|
|
|
Due after one year but within 5 years
|
90,785
|
|
|
91,961
|
|
|
Total
|
$
|
90,785
|
|
|
$
|
91,961
|
|
The Company did not record any other-than-temporary impairment related to its AFS securities for the nine months ended September 30, 2019.
The Company recorded income tax expense of $82,156 (26.1% effective tax rate) and $64,874 (21.9% effective tax rate) during the three months ended September 30, 2019 and 2018, respectively. The Company recorded income tax expense of $283,684 (25.1% effective tax rate) and $237,047 (22.6% effective tax rate) during the nine months ended September 30, 2019 and 2018, respectively.
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 $4,732 and $734 at September 30,
2019 and December 31, 2018, 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 December 31, 2018 and September 30, 2019, 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.
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10.
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Commitments and Contingencies
|
The following table summarizes liabilities recorded for commitments and contingencies as of September 30, 2019 and December 31, 2018, all of which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets:
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|
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|
Agreement or Legal Matter
|
|
Commitment or Contingency
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Chrysler Agreement
|
|
Revenue-sharing and gain/(loss), net-sharing payments
|
|
$
|
22,560
|
|
|
$
|
7,001
|
|
|
Agreement with Bank of America
|
|
Servicer performance fee
|
|
4,068
|
|
|
6,353
|
|
|
Agreement with CBP
|
|
Loss-sharing payments
|
|
1,866
|
|
|
3,708
|
|
|
Other Contingencies
|
|
Consumer arrangements
|
|
2,138
|
|
|
2,138
|
|
|
Legal and regulatory proceedings
|
|
Aggregate legal and regulatory liabilities
|
|
126,000
|
|
|
97,700
|
|
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 also must share with FCA when residual gains/(losses) on leased vehicles exceed a specified threshold. The Company had accrued $22,560 and $7,001 at September 30, 2019 and December 31, 2018, respectively, related to these obligations. The Chrysler Agreement also requires that Santander maintain at least $5.0 billion in funding available for Floorplan Loans 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.
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 $4,068 and $6,353 at September 30, 2019 and December 31, 2018, 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 $1,866 and $3,708 at September 30, 2019 and December 31, 2018, 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 $2,138 and $2,138 at September 30, 2019 and December 31, 2018, 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. 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 condition 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, 2019, the Company has accrued aggregate legal and regulatory liabilities of $126,000. 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 $32,000 as of September 30, 2019. 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
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|
|
|
•
|
Deka Lawsuit: The Company is a defendant in a purported securities class action lawsuit (the Deka Lawsuit) in the United States District Court, Northern District of Texas, captioned Deka Investment GmbH et al. v. Santander Consumer USA Holdings Inc. et al., No. 3:15-cv-2129-K. The Deka Lawsuit, which was filed in August 26, 2014, 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. The complaint alleges, among other things, that our IPO registration statement and prospectus and certain subsequent public disclosures violated federal securities laws by containing misleading statements concerning the Company’s ability to pay dividends and the adequacy of the Company’s compliance systems and oversight. In December 2015, the Company and the individual defendants moved to dismiss the lawsuit, which was denied. In December 2016, the plaintiffs moved to certify the proposed classes. In July 2017, the court entered 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). In October 2018, the court vacated the order staying the Deka Lawsuit and ordered that merits discovery in the Deka Lawsuit be stayed until the court ruled on the issue of class certification.
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•
|
Feldman Lawsuit: In October 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, certain of its 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 nonprime vehicle lending practices, resulting in harm to the Company. The complaint seeks unspecified damages and equitable relief. In December 2015, the Feldman Lawsuit was stayed pending the resolution of the Deka Lawsuit.
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|
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•
|
Jackie888 Lawsuit: In September 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. In April 2017, the Jackie888 Lawsuit was stayed pending the resolution of the Deka Lawsuit.
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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:
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|
|
|
•
|
The Company received 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 vehicle loans. The Company has responded to these requests within the deadlines specified in the subpoena and has otherwise cooperated with the DOJ with respect to this matter.
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|
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•
|
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 serve as an executive committee on behalf of a group of 33 state Attorneys General (and the District of Columbia). 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 vehicle loans. The Company has responded to these requests within the deadlines specified in the CIDs and has otherwise cooperated with the Attorneys General with respect to this matter.
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|
|
|
|
•
|
In August 2017, the Company received a CID from the CFPB. The stated purpose of the CID is to determine whether the Company has complied with the Fair Credit Reporting Act and related regulations. The Company has responded to these requests within the deadlines specified in the CIDs and has otherwise cooperated with the CFPB with respect to this matter.
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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.
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|
|
|
•
|
2017 Written Agreement with the Federal Reserve: In March 2017, the Company and SHUSA entered into a written agreement with the FRBB. Under the terms of the 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 the Company’s management and operations.
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|
|
|
|
•
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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. In March 2017, the Company filed motions to dismiss the lawsuit and the parties are proceeding with discovery.
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|
|
|
|
•
|
SCRA Consent Order: In February 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.
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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 accounts with new advances, originated by Bluestem for an initial term ending in April 2020 and renewable through April 2022 at Bluestem’s option. As of September 30, 2019 and December 31, 2018, the total unused credit available to customers was $2.9 billion and $3.1 billion, respectively. In 2019, the Company purchased $0.8 billion of receivables, out of the $3.1 billion unused credit available to customers as of December 31, 2018. In 2018, the Company purchased $1.2 billion of receivables, out of the $3.9 billion unused credit available to customers as of December 31, 2017. In addition, the Company purchased $137,821 of receivables related to newly opened customer accounts during the nine months ended September 30, 2019.
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, 2019 and December 31, 2018, the Company was obligated to purchase $10,112 and $15,356, respectively, in receivables that had been originated by Bluestem but not yet purchased by the Company. The Company also is required to make a profit-sharing payment to Bluestem each month if performance exceeds a specified return threshold. The agreement, among other provisions, gives Bluestem the right to repurchase up to 9.99% of the existing portfolio at any time during the term of the agreement, and, provides that if the repurchase right is exercised, Bluestem has the right to retain up to 20.00% of new accounts subsequently originated.
•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 the Company 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 September 30, 2019, 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 September 30, 2019 and December 31, 2018, not subject to market price check was $39,787 and $63,975, respectively.
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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 of credit for the three and nine months ended September 30, 2019 and 2018, was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Lines of credit agreement with Santander - New York Branch (a)
|
$
|
—
|
|
|
$
|
1,512
|
|
|
$
|
—
|
|
|
$
|
11,620
|
|
|
Debt facilities with SHUSA (Note 5)
|
54,963
|
|
|
38,460
|
|
|
145,840
|
|
|
110,868
|
|
(a) Through its New York branch, Santander provided the Company with revolving credit facilities. During the year ended December 31, 2018 these facilities were terminated.
Accrued interest for affiliate lines of credit at September 30, 2019 and December 31, 2018, was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Debt facilities with SHUSA (Note 5)
|
$
|
26,104
|
|
|
$
|
19,928
|
|
In 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 $0 and $384 for the three and nine months ended September 30, 2019, respectively, and $1,129 and $4,747 for the three and nine months ended September 30, 2018, respectively. As of September 30, 2019 and December 31, 2018, the Company had $0 and $1,922 of related fees payable to Santander, respectively.
Derivatives
The Company has derivative financial instruments with Santander and affiliates with outstanding notional amounts of
$919,920 and zero as of September 30, 2019 and December 31, 2018, respectively (Note 7). The Company had a collateral overage on derivative liabilities with Santander and affiliates of $2,315 and zero as of September 30, 2019 and December 31, 2018, respectively.
Interest and mark-to-market adjustments on these derivative financial instruments totaled $243 and $234 for the three months ended September 30, 2019 and 2018, respectively, and $722 and $694 for the nine months ended September 30, 2019 and 2018, 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 $377 and $684 for the three months ended September 30, 2019 and 2018, respectively, and $1,154 and $2,479 for the nine months ended September 30, 2019 and 2018, respectively. Other information on the serviced auto loan and retail installment contract portfolios for SBNA as of September 30, 2019 and December 31, 2018 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Total serviced portfolio
|
$
|
301,494
|
|
|
$
|
383,246
|
|
|
Cash collections due to owner
|
16,159
|
|
|
14,920
|
|
|
Servicing fees receivable
|
1,183
|
|
|
601
|
|
Dealer Lending
Under the Company’s agreement with SBNA, 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 an origination fee and an annual renewal fee for each loan originated under the agreement. 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. 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, 2019 and December 31, 2018 for such advances.
Other information related to the above transactions with SBNA is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Origination and renewal fee income from SBNA (a)
|
$
|
1,291
|
|
|
$
|
871
|
|
|
$
|
4,218
|
|
|
$
|
2,943
|
|
|
Servicing fees expenses charged by SBNA (b)
|
52
|
|
|
19
|
|
|
113
|
|
|
59
|
|
(a) As of September 30, 2019 and December 31, 2018, the Company had origination and renewal fees receivable from SBNA of $600 and $385, respectively.
(b) As of September 30, 2019 and December 31, 2018, the Company had $5 and $19 of servicing fees payable to SBNA, respectively.
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 $6,233 and $5,908 related to such originations as of September 30, 2019 and December 31, 2018, respectively.
The Company received a $9,000 referral fee in connection with 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 September 30, 2019 and December 31, 2018, the unamortized fee balance was $3,375 and $4,050, respectively. The Company recognized $225 and $675 of income related to the referral fee for the three and nine months ended September 30, 2019 and 2018, 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 FCA dealers. In addition, the Company agreed to perform the servicing for any loans originated on SBNA’s behalf. During the three and nine months ended September 30, 2019, the Company facilitated the purchase of $2.1 billion and $5 billion of retail installment contacts, respectively. During the three and nine months ended September 30, 2018, the Company facilitated the purchase of $685 million and $738 million of retail installment contacts, respectively. The Company recognized origination/referral fee and servicing fee income of $19,892 and $45,716 for the three and nine months ended September 30, 2019, respectively, of which $8,114 is receivable as of September 30, 2019. The Company recognized origination/referral fee and servicing fee income of $4,564 and $4,952, respectively, for the three and nine months ended September 30, 2018 of which $5,247 is receivable as of September 30, 2018.
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.
Other information relating to SPAIN securitization platform for the nine months ended September 30, 2019 and September 30, 2018 is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Servicing fee income
|
$
|
4,743
|
|
|
$
|
9,972
|
|
|
$
|
20,885
|
|
|
$
|
25,793
|
|
|
Loss (Gain) on sale, excluding lower of cost or market adjustments (if any)
|
—
|
|
|
4,218
|
|
|
—
|
|
|
24,298
|
|
Servicing fee receivable as of September 30, 2019 and December 31, 2018 was $2,125 and $2,983 respectively. The Company had $17,889 and $15,968 of collections due to Santander as of September 30, 2019 and December 31, 2018, respectively.
Santander Investment Securities Inc. (SIS), an affiliated entity, serves as joint bookrunner and co-manager on certain of the Company’s securitizations. Amounts paid to SIS as co-manager for the three months ended September 30, 2019 and 2018, totaled $929 and $139, respectively, and totaled $1,894 and $997 for the nine months ended September 30, 2019 and 2018, respectively, and are included in debt issuance costs in the accompanying condensed consolidated financial statements.
CEO and other employee compensation
Scott Powell is President and CEO of the Company, and the President and CEO of SHUSA. During the nine months ended September 30, 2019, the Company accrued $2,990 as its share of compensation expense based on time allocation between his services to the Company and SHUSA.
In addition, certain employees of the Company and SHUSA, provide services to each other. For the nine months ended September 30, 2019, the Company owed SHUSA approximately $8,895 and SHUSA owed the Company approximately $2,265 for such services.
Other related-party transactions
|
|
|
|
•
|
The Company subleases approximately 13,000 square feet of its corporate office space to SBNA. For the three months ended September 30, 2019 and 2018, the Company recorded $44 and $40 respectively, in sublease revenue on this property. For the nine months ended September 30, 2019 and 2018, the Company recorded $132 and $122 respectively, in sublease revenue on this property.
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|
|
|
|
•
|
The Company’s wholly-owned subsidiary, Santander Consumer International Puerto Rico, LLC (SCI), has deposit accounts with Banco Santander Puerto Rico, an affiliated entity. As of September 30, 2019 and December 31, 2018, SCI had cash of $5,128 and $8,862, respectively, on deposit with Banco Santander Puerto Rico.
|
|
|
|
|
•
|
The Company has certain deposit and checking accounts with SBNA, an affiliated entity. As of September 30, 2019 and December 31, 2018, the Company had a balance of $32,886 and $92,774, respectively, in these accounts.
|
|
|
|
|
•
|
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 generates rebates based on purchases made. As of September 30, 2019, the activities associated with the program were insignificant.
|
|
|
|
|
•
|
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 or serviced by the Company and the costs associated with modifying the Advanced Teller platform to the payments. The Company incurred expenses of $49 and $86 for
|
these services during the three months ended September 30, 2019 and 2018, respectively, and $182 and $427 for the nine months ended September 30, 2019 and 2018, respectively.
|
|
|
|
•
|
Effective 2017, the Company contracted Aquanima, a Santander affiliate, to provide procurement services. Expenses incurred totaled $765 and $378 for the three months ended September 30, 2019 and 2018, respectively, and $1,780 and $1,136 for the nine months ended September 30, 2019 and 2018, respectively.
|
|
|
|
|
•
|
Santander Global Tech, (formerly known as 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 $71 and zero for the three months ended September 30, 2019 and 2018, respectively, and $300 and zero for the nine months ended September 30, 2019 and 2018, respectively.
|
|
|
|
|
•
|
The Company partners with SHUSA to place Cyber Liability Insurance in which participating national entities share $150 million aggregate limits. The Company repays SHUSA for the Company’s equitably allocated portion of insurance premiums and fees. Expenses incurred totaled $108 and $92 for the three months ended September 30, 2019 and 2018, respectively, and $324 and $277 for the nine months ended September 30, 2019 and 2018, respectively. In addition the Company partners with SHUSA for various other insurance products. Expenses incurred totaled $183 and $195 for the three months ended September 30, 2019 and 2018, respectively, and $571 and $520 for the nine months ended September 30, 2019 and 2018, respectively.
|
|
|
|
|
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 are considered to be participating securities because holders of such shares 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 of the following securities that would be anti-dilutive:
(a) Employee stock options of zero, 114,124, 24,507, and 178,062 for the three and nine months ended September 30, 2019 and 2018, respectively; and
(b) RSUs of zero for the three and nine months ended September 30, 2019 and September 30, 2018.
The following table represents EPS numbers for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Net income
|
$
|
232,538
|
|
|
$
|
231,948
|
|
|
$
|
848,308
|
|
|
$
|
811,588
|
|
|
Weighted average number of common shares outstanding before restricted participating shares (in thousands)
|
345,470
|
|
|
360,725
|
|
|
349,342
|
|
|
360,899
|
|
|
Weighted average number of participating restricted common shares outstanding (in thousands)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Weighted average number of common shares outstanding (in thousands)
|
345,470
|
|
|
360,725
|
|
|
349,342
|
|
|
360,899
|
|
|
Earnings per common share
|
$
|
0.67
|
|
|
$
|
0.64
|
|
|
$
|
2.43
|
|
|
$
|
2.25
|
|
|
Earnings per common share - assuming dilution
|
|
|
|
|
|
|
|
|
Net income
|
$
|
232,538
|
|
|
$
|
231,948
|
|
|
$
|
848,308
|
|
|
$
|
811,588
|
|
|
Weighted average number of common shares outstanding (in thousands)
|
345,470
|
|
|
360,725
|
|
|
349,342
|
|
|
360,899
|
|
|
Effect of employee stock-based awards (in thousands)
|
486
|
|
|
720
|
|
|
514
|
|
|
815
|
|
|
Weighted average number of common shares outstanding - assuming dilution (in thousands)
|
345,956
|
|
|
361,445
|
|
|
349,856
|
|
|
361,714
|
|
|
Earnings per common share - assuming dilution
|
$
|
0.67
|
|
|
$
|
0.64
|
|
|
$
|
2.42
|
|
|
$
|
2.24
|
|
|
|
|
|
13.
|
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 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 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, 2019 and December 31, 2018, and the level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
$
|
38,589
|
|
|
$
|
38,589
|
|
|
$
|
38,589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Finance receivables held for investment, net (b)
|
26,296,342
|
|
|
27,082,039
|
|
|
—
|
|
|
—
|
|
|
27,082,039
|
|
|
Restricted cash and cash equivalents (a)
|
2,245,526
|
|
|
2,245,526
|
|
|
2,245,526
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
28,580,457
|
|
|
$
|
29,366,154
|
|
|
$
|
2,284,115
|
|
|
$
|
—
|
|
|
$
|
27,082,039
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes payable — credit facilities (c)
|
$
|
5,460,581
|
|
|
$
|
5,460,581
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,460,581
|
|
|
Notes payable — secured structured financings (d)
|
26,919,490
|
|
|
27,173,770
|
|
|
—
|
|
|
19,602,088
|
|
|
7,571,682
|
|
|
Notes payable — related party (e)
|
5,252,571
|
|
|
5,320,329
|
|
|
—
|
|
|
—
|
|
|
5,320,329
|
|
|
Total
|
$
|
37,632,642
|
|
|
$
|
37,954,680
|
|
|
$
|
—
|
|
|
$
|
19,602,088
|
|
|
$
|
18,352,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
$
|
148,436
|
|
|
$
|
148,436
|
|
|
$
|
148,436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Finance receivables held for investment, net (b)
|
24,914,833
|
|
|
26,037,559
|
|
|
—
|
|
|
—
|
|
|
26,037,559
|
|
|
Restricted cash and cash equivalents (a)
|
2,102,048
|
|
|
2,102,048
|
|
|
2,102,048
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
27,165,317
|
|
|
$
|
28,288,043
|
|
|
$
|
2,250,484
|
|
|
$
|
—
|
|
|
$
|
26,037,559
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes payable — credit facilities (c)
|
$
|
4,478,214
|
|
|
$
|
4,478,214
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,478,214
|
|
|
Notes payable — secured structured financings (d)
|
26,901,530
|
|
|
26,994,912
|
|
|
—
|
|
|
17,924,867
|
|
|
9,070,045
|
|
|
Notes payable — related party (e)
|
3,503,293
|
|
|
3,438,543
|
|
|
—
|
|
|
—
|
|
|
3,438,543
|
|
|
Total
|
$
|
34,883,037
|
|
|
$
|
34,911,669
|
|
|
$
|
—
|
|
|
$
|
17,924,867
|
|
|
$
|
16,986,802
|
|
|
|
|
|
(a)
|
Cash and cash equivalents and restricted cash and cash equivalents — The carrying amount of cash and cash equivalents, including restricted cash and cash equivalents, 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 are determined as follows:
|
|
|
|
•
|
Retail installment contracts held for investment and purchased receivables — 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.
|
|
|
|
|
•
|
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.
|
|
|
|
|
•
|
Receivables from dealers and personal loans held for investment — Receivables from dealers and personal loans held for investment are carried at amortized cost, net of credit loss allowance. 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 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, including historical default rates, 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 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.
|
Financial Instruments Measured At Fair Value On 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, 2019 and December 31, 2018, and the level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2019
|
|
|
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)
|
$
|
49,786
|
|
|
$
|
—
|
|
|
$
|
49,786
|
|
|
$
|
—
|
|
|
Due from affiliates — trading interest rate caps (a)
|
10,515
|
|
|
—
|
|
|
10,515
|
|
|
—
|
|
|
Other assets — cash flow hedging interest rate swaps (a)
|
5,886
|
|
|
—
|
|
|
5,886
|
|
|
—
|
|
|
Other assets — trading interest rate swaps (a)
|
1,232
|
|
|
—
|
|
|
1,232
|
|
|
—
|
|
|
Other assets — available-for-sale-debt securities (b)
|
91,961
|
|
|
—
|
|
|
91,961
|
|
|
—
|
|
|
Other liabilities — trading options for interest rate caps (a)
|
49,786
|
|
|
—
|
|
|
49,786
|
|
|
—
|
|
|
Other liabilities — cash flow hedging interest rate swaps (a)
|
47,949
|
|
|
—
|
|
|
47,949
|
|
|
—
|
|
|
Due to affiliates — trading options for interest rate caps (a)
|
10,515
|
|
|
—
|
|
|
10,515
|
|
|
—
|
|
|
Other liabilities — trading interest rate swaps (a)
|
12,844
|
|
|
—
|
|
|
12,844
|
|
|
—
|
|
|
Retail installment contracts acquired individually (c)
|
6,288
|
|
|
—
|
|
|
—
|
|
|
6,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
|
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)
|
$
|
128,377
|
|
|
$
|
—
|
|
|
$
|
128,377
|
|
|
$
|
—
|
|
|
Other assets — cash flow hedging interest rate swaps (a)
|
43,967
|
|
|
—
|
|
|
43,967
|
|
|
—
|
|
|
Other assets — trading interest rate swaps (a)
|
11,553
|
|
|
—
|
|
|
11,553
|
|
|
—
|
|
|
Other liabilities — trading options for interest rate caps (a)
|
128,377
|
|
|
—
|
|
|
128,377
|
|
|
—
|
|
|
Other liabilities — cash flow hedging interest rate swaps (a)
|
7,478
|
|
|
—
|
|
|
7,478
|
|
|
—
|
|
|
Other liabilities — trading interest rate swaps (a)
|
2,130
|
|
|
—
|
|
|
2,130
|
|
|
—
|
|
|
Retail installment contracts acquired individually (c)
|
13,509
|
|
|
—
|
|
|
—
|
|
|
13,509
|
|
|
|
|
|
(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 Company's available-for-sale 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 therefore, classified as Level 2.
|
|
|
|
|
(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, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Balance — beginning of period
|
$
|
8,832
|
|
|
$
|
17,182
|
|
|
$
|
13,509
|
|
|
$
|
22,124
|
|
|
Additions / issuances
|
—
|
|
|
—
|
|
|
2,079
|
|
|
3,276
|
|
|
Net collection activities
|
(3,176
|
)
|
|
(3,245
|
)
|
|
(10,242
|
)
|
|
(12,775
|
)
|
|
Gains recognized in earnings
|
632
|
|
|
201
|
|
|
942
|
|
|
1,513
|
|
|
Balance — end of period
|
$
|
6,288
|
|
|
$
|
14,138
|
|
|
$
|
6,288
|
|
|
$
|
14,138
|
|
The Company did not have any transfers between Levels 1 and 2 during the three and nine months ended September 30, 2019 and 2018. There were no amounts transferred into or out of Level 3 during the three and nine months ended September 30, 2019 and 2018.
Financial Instruments Measured At Fair Value On 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, 2019 and December 31, 2018, and are categorized using the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2019
|
|
|
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, 2019
|
|
Other assets — vehicles (a)
|
$
|
315,802
|
|
|
$
|
—
|
|
|
$
|
315,802
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Personal loans held for sale (b)
|
925,611
|
|
|
—
|
|
|
—
|
|
|
925,611
|
|
|
239,167
|
|
|
Auto loans impaired due to bankruptcy (c)
|
197,729
|
|
|
—
|
|
|
197,729
|
|
|
—
|
|
|
9,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
|
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, 2018
|
|
Other assets — vehicles (a)
|
$
|
342,097
|
|
|
$
|
—
|
|
|
$
|
342,097
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Personal loans held for sale (b)
|
1,068,757
|
|
|
—
|
|
|
—
|
|
|
1,068,757
|
|
|
367,219
|
|
|
Retail installment contracts held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,098
|
|
|
Auto loans impaired due to bankruptcy (c)
|
189,114
|
|
|
—
|
|
|
189,114
|
|
|
—
|
|
|
18,083
|
|
(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) 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, including historical default rates and adjustments to reflect prepayment rates (principal and interest), 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) 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, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Fair Value at September 30, 2019
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
|
|
|
Financial Assets:
|
|
|
Retail installment contracts held for investment
|
|
$
|
6,288
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
8%-10%
|
|
|
Default Rate
|
15%-20%
|
|
|
Prepayment Rate
|
6%-8%
|
|
|
Loss Severity Rate
|
50%-60%
|
|
|
Personal loans held for sale
|
|
$
|
925,611
|
|
|
Lower of Market or Income Approach
|
|
Market Approach
|
|
|
|
|
Market Participant View
|
70%-80%
|
|
|
Income Approach
|
|
|
|
Discount Rate
|
15%-25%
|
|
|
|
|
Default Rate
|
30%-40%
|
|
|
Net Principal & Interest Payment Rate
|
70%-85%
|
|
|
Loss Severity Rate
|
90%-95%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
|
|
Fair Value at December 31, 2018
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
|
|
|
Financial Assets:
|
|
|
Retail installment contracts held for investment
|
|
$
|
13,509
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
8%-10%
|
|
|
Default Rate
|
15%-20%
|
|
|
Prepayment Rate
|
6%-8%
|
|
|
Loss Severity Rate
|
50%-60%
|
|
|
Personal loans held for sale
|
|
$
|
1,068,757
|
|
|
Lower of Market or Income Approach
|
|
Market Approach
|
|
|
|
|
Market Participant View
|
70%-80%
|
|
|
Income Approach
|
|
|
|
Discount Rate
|
15%-25%
|
|
|
|
|
Default Rate
|
30%-40%
|
|
|
Net Principal & Interest Payment Rate
|
70%-85%
|
|
|
Loss Severity Rate
|
90%-95%
|
14. 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 MEP), which enabled the Company to make 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 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’s common stock up to a total of 5,192,641 common shares. The 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 expense over the vesting period as time and performance vesting conditions are met.
Compensation expense related to the 583,890 shares of restricted stock that the Company has issued to certain executives is recognized over a five-year vesting period, with zero recorded for the three and nine months ended September 30, 2019 and 2018. The Company recognized $7,973 and $6,892 related to stock options and restricted stock units within compensation expense for the nine months ended September 30, 2019 and 2018, respectively. In addition, the Company recognizes forfeitures of awards as they occur.
A summary of the Company’s stock options and related activity as of and for the nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at January 1, 2019
|
645,376
|
|
|
$
|
13.15
|
|
|
4.0
|
|
|
$
|
3,682
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
(347,712
|
)
|
|
12.77
|
|
|
—
|
|
|
4,145
|
|
|
Expired
|
(1,480
|
)
|
|
9.21
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(15,456
|
)
|
|
24.36
|
|
|
—
|
|
|
—
|
|
|
Other (a)
|
1,480
|
|
|
9.21
|
|
|
—
|
|
|
—
|
|
|
Options outstanding at September 30, 2019
|
282,208
|
|
|
13.00
|
|
|
3.3
|
|
|
3,536
|
|
|
Options exercisable at September 30, 2019
|
252,257
|
|
|
$
|
12.50
|
|
|
3.0
|
|
|
$
|
3,288
|
|
(a) Represents stock options that were reinstated.
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’ and employees’ variable compensation to be paid in the form of equity, the Company periodically grants RSUs. Under the Plan, a portion of these RSUs vest immediately upon grant, and a portion vest annually over the following three or five years and subject to the achievement of certain performance conditions as applicable. 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 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.
A summary of the Company’s RSUs and performance stock units and related activity as of and for the nine months ended September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date Fair Value
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of January 1, 2019
|
698,799
|
|
|
$
|
14.53
|
|
|
1.1
|
|
|
$
|
12,292
|
|
|
Granted
|
473,325
|
|
|
20.83
|
|
|
—
|
|
|
—
|
|
|
Vested
|
(557,253
|
)
|
|
16.72
|
|
|
—
|
|
|
11,726
|
|
|
Forfeited/canceled
|
(46,401
|
)
|
|
16.13
|
|
|
—
|
|
|
—
|
|
|
Unvested as of September 30, 2019
|
568,470
|
|
|
$
|
17.60
|
|
|
1.3
|
|
|
$
|
14,502
|
|
Share Repurchases and Treasury Stock
In May 2019, the Board approved a share repurchase program of up to $400 million in share repurchase of its outstanding common stock through the end of the second quarter of 2019, which concluded with the repurchase of $86.8 million of the Company’s common stock.
In June 2019, the Company announced that the Board had authorized purchases by the Company of up to $1.1 billion, excluding commissions, of its outstanding common stock effective from the third quarter of 2019 through the end of the second quarter of 2020.
The following table presents information regarding the shares we repurchased as part of publicly announced plans or programs during the three and nine months ended September 30, 2019 ($ and shares in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2019
|
|
Total cost of shares repurchased (includes commission)
|
$
|
141,019
|
|
|
$
|
245,663
|
|
|
Average price per share
|
$
|
25.71
|
|
|
$
|
24.08
|
|
|
Number of shares repurchased
|
5,479,650
|
|
|
10,194,772
|
|
Refer to Part II “Unregistered Sales of Equity Securities and Use of Proceeds” section for additional details on share repurchases.
The Company had 19,920,729 and 9,725,957 shares of treasury stock outstanding, with a cost of $433,593 and $187,930 as of September 30, 2019, and December 31, 2018, respectively. No shares were withheld to cover income taxes related to stock issued in connection with employee incentive compensation plans for the three months ended September 30, 2019. The value of the 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 three and nine months ended September 30, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
September 30, 2019
|
|
September 30, 2018
|
|
Beginning balance, unrealized gains (losses)
|
$
|
(20,567
|
)
|
|
$
|
62,449
|
|
$
|
33,515
|
|
|
$
|
44,262
|
|
|
Other comprehensive income (loss) before reclassifications (gross)
|
(5,018
|
)
|
|
1,814
|
|
(38,696
|
)
|
|
31,749
|
|
|
Amounts (gross) reclassified out of accumulated other comprehensive income (loss)
|
(6,251
|
)
|
|
(7,662
|
)
|
(26,655
|
)
|
|
(19,410
|
)
|
|
Ending balance, unrealized gains (losses)
|
$
|
(31,836
|
)
|
|
$
|
56,601
|
|
$
|
(31,836
|
)
|
|
$
|
56,601
|
|
Amounts (gross) reclassified out of accumulated other comprehensive income (loss) during the three and nine months ended September 30, 2019 and 2018 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended September 30, 2018
|
|
Reclassification
|
Amount reclassified
|
|
Income statement line item
|
|
Amount reclassified
|
|
Income statement line item
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$
|
(8,283
|
)
|
|
Interest expense
|
|
$
|
(11,170
|
)
|
|
Interest expense
|
|
Available for sale-debt securities
|
—
|
|
|
Investment gain/loss
|
|
—
|
|
|
Investment gain/loss
|
|
Tax expense (benefit)
|
2,032
|
|
|
|
|
3,508
|
|
|
|
|
Net of tax
|
$
|
(6,251
|
)
|
|
|
|
$
|
(7,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2018
|
|
Reclassification
|
Amount reclassified
|
|
Income statement line item
|
|
Amount reclassified
|
|
Income statement line item
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$
|
(35,224
|
)
|
|
Interest expense
|
|
$
|
(24,843
|
)
|
|
Interest expense
|
|
Available for sale-debt securities
|
—
|
|
|
Investment gain/loss
|
|
—
|
|
|
Investment gain/loss
|
|
Tax expense (benefit)
|
8,569
|
|
|
|
|
5,433
|
|
|
|
|
Net of tax
|
$
|
(26,655
|
)
|
|
|
|
$
|
(19,410
|
)
|
|
|
Dividends
The Company paid a cash dividend of $0.22 per share in August 2019. Further, the Company has declared a cash dividend of $0.22 per share, to be paid on November 22, 2019, to shareholders of record as of the close of business on November 12, 2019.
|
|
|
|
16.
|
Investment Losses, Net
|
When the Company sells retail installment contracts acquired individually, 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 recorded investment 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 and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Gain (loss) on sale of loans and leases
|
$
|
—
|
|
|
$
|
(1,918
|
)
|
|
$
|
—
|
|
|
$
|
(20,710
|
)
|
|
Lower of cost or market adjustments
|
(87,454
|
)
|
|
(86,847
|
)
|
|
(239,166
|
)
|
|
(236,561
|
)
|
|
Other gains, (losses and impairments), net
|
1,057
|
|
|
2,445
|
|
|
885
|
|
|
1,797
|
|
|
|
$
|
(86,397
|
)
|
|
$
|
(86,320
|
)
|
|
$
|
(238,281
|
)
|
|
$
|
(255,474
|
)
|
The lower of cost or market adjustments for the three and nine months ended September 30, 2019 and 2018 included $102,478, $308,899, $100,324, and $295,629 in customer default activity, respectively, and net favorable adjustments of $15,023, $69,732, $13,495, and $59,068, respectively, primarily related to net changes in the unpaid principal balance on the personal lending portfolio, all of which is classified as held for sale.