10-Q 1 santander2017q110-q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2017
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-36270
SANTANDER CONSUMER USA HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
32-0414408
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
1601 Elm Street, Suite 800, Dallas, Texas
 
75201
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (214) 634-1110
Not Applicable
(Former name, former address, and formal fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
Emerging growth company
 
¨

 
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
 
¨
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨ No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 




Class
 
Outstanding at April 30, 2017
Common Stock ($0.01 par value)
 
359,421,742 shares





INDEX
 

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


2



Unless otherwise specified or the context otherwise requires, the use herein of the terms “ we,” “our,” “us,” “SC,” and the “Company” refer to Santander Consumer USA Holdings Inc. and its consolidated subsidiaries.
Cautionary Note Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements about the Company's expectations, beliefs, plans, predictions, forecasts, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends,” and similar words or phrases. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of future performance and involve risks and uncertainties which are subject to change based on various important factors, some of which are beyond the Company's control. For more information regarding these risks and uncertainties as well as certain additional risks that the Company faces, refer to the Risk Factors detailed in Item 1A of Part I of the 2016 Annual Report on Form 10-K, as well as factors more fully described in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, including the exhibits hereto, and subsequent reports and registration statements filed from time to time with the SEC. Among the factors that could cause the Company's actual results to differ materially from those suggested by the forward-looking statements are:

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

If one or more of the factors affecting the Company's forward-looking statements proves incorrect, its actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Therefore, the Company cautions the reader not to place undue reliance on any forward-looking statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect the Company's results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties as new factors emerge from time to time. Any forward-looking statements only speak as of the date of this document, and the Company undertakes no obligation to update any forward-looking statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

Glossary

The following is a list of abbreviations, acronyms, and commonly used terms used in this Quarterly Report on Form 10-Q.

3



2016 Annual Report on Form 10-K

Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 28, 2017 and Amendment No. 1 on Form 10-K/A filed with the SEC on March 2, 2017

ABS
Asset-backed securities
Advance Rate
The maximum percentage of collateral that a lender is willing to lend.
ALG
Automotive Lease Guide
APR
Annual Percentage Rate
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Auto Finance Holdings
Sponsor Auto Finance Holdings Series LP, a former investor in SC
Bluestem
Bluestem Brands, Inc., an online retailer for whose customers SC provides financing
Board
SC’s Board of Directors
CBP
Citizens Bank of Pennsylvania
CCART
Chrysler Capital Auto Receivables Trust, a securitization platform
CEO
Chief Executive Officer
CFPB
Consumer Financial Protection Bureau
CFO
Chief Financial Officer
Chrysler Agreement
Ten-year private-label financing agreement with FCA
Clean-up Call
The early redemption of a debt instrument by the issuer, generally when the underlying portfolio has amortized to 10% of its original balance
Commission
U.S. Securities and Exchange Commission
Credit Enhancement
A method such as overcollateralization, insurance, or a third-party guarantee, whereby a borrower reduces default risk
DCF
Discounted Cash Flow Analysis
DDFS
Dundon DFS LLC
Dealer Loan
A floorplan line of credit, real estate loan, working capital loan, or other credit extended to an automobile dealer
Dodd-Frank Act
Comprehensive financial regulatory reform legislation enacted by the U.S. Congress on July 21, 2010
DOJ
U.S. Department of Justice
DRIVE
Drive Auto Receivables Trust, a securitization platform
ECOA
Equal Credit Opportunity Act
Employment Agreement
The amended and restated employment agreement, executed as of December 31, 2011, by and among SC, Banco Santander, S.A. and Thomas G. Dundon
Exchange Act
Securities Exchange Act of 1934, as amended
FASB
Financial Accounting Standards Board
FCA
Fiat Chrysler Automobiles US LLC, formerly Chrysler Group LLC
FICO®
A common credit score created by Fair Isaac Corporation that is used on the credit reports that lenders use to assess an applicant’s credit risk. FICO® is computed using mathematical models that take into account five factors: payment history, current level of indebtedness, types of credit used, length of credit history, and new credit
FIRREA
Financial Institutions Reform, Recovery and Enforcement Act of 1989
Floorplan Loan
A revolving line of credit that finances inventory until sold
Federal Reserve
Board of Governors of the Federal Reserve System
FRBB
Federal Reserve Bank of Boston
FTC
Federal Trade Commission
GAP
Guaranteed Auto Protection
IPO
SC's Initial Public Offering
ISDA
International Swaps and Derivative Association
LendingClub
LendingClub Corporation, a peer-to-peer personal lending platform company from which SC acquired loans under terms of flow agreements

4



Managed Assets
Managed assets included assets (a) owned and serviced by the Company; (b) owned by the Company and serviced by others; and (c) serviced for others
MSA
Master Service Agreement
Nonaccretable Difference
The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows of a portfolio acquired with deteriorated credit quality
OCC
Office of the Comptroller of the Currency
Overcollateralization
A credit enhancement method whereby more collateral is posted than is required to obtain financing
OEM
Original equipment manufacturer
Private-label
Financing branded in the name of the product manufacturer rather than in the name of the finance provider
RC
Risk Committee
Remarketing
The controlled disposal of leased vehicles that have been reached the end of their lease term or of financed vehicles obtained through repossession
Residual Value
The future value of a leased asset at the end of its lease term
RSU
Restricted stock unit
Santander
Banco Santander, S.A.
SBNA
Santander Bank, N.A., a wholly-owned subsidiary of SHUSA. Formerly Sovereign Bank, N.A.
SC
Santander Consumer USA Holdings Inc., a Delaware corporation, and its consolidated subsidiaries
SCI
Santander Consumer International Puerto Rico, LLC
SCRA
Servicemembers Civil Relief Act
SDART
Santander Drive Auto Receivables Trust, a securitization platform
SEC
U.S. Securities and Exchange Commission
Separation Agreement
The Separation Agreement dated July 2, 2015 entered into by Thomas G. Dundon with SC, DDFS LLC, SHUSA, Santander Consumer USA Inc. (the wholly owned subsidiary of SC) and Banco Santander, S.A.
Shareholders Agreement

The Shareholders Agreement dated January 28, 2014, by and among the Company, SHUSA, DDFS, Thomas G. Dundon, Sponsor Auto Finance Holdings Series LP, and, for the certain sections set forth therein, Banco Santander, as amended
SHUSA
Santander Holdings USA, Inc., a wholly-owned subsidiary of Santander and the majority owner of SC
SPAIN
Santander Prime Auto Issuing Note Trust, a securitization platform
Subvention
Reimbursement of the finance provider by a manufacturer for the difference between a market loan or lease rate and the below-market rate given to a customer
TDR
Troubled Debt Restructuring
Trusts
Special purpose financing trusts utilized in SC’s financing transactions
U.S. GAAP
U.S. Generally Accepted Accounting Principles
VIE
Variable Interest Entity
Warehouse Line
A revolving line of credit generally used to fund finance receivable originations


5



PART I: FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands, except per share amounts)
 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Cash and cash equivalents - $92,712 and $98,536 held at affiliates, respectively
$
420,826

 
$
160,180

Finance receivables held for sale, net
1,856,019

 
2,123,415

Finance receivables held for investment, net (includes $30,652 and $24,495 of loans recorded at fair value, respectively)
23,444,625

 
23,481,001

Restricted cash - $7,813 and $11,629 held at affiliates, respectively
2,946,736

 
2,757,299

Accrued interest receivable
306,742

 
373,274

Leased vehicles, net
8,927,536

 
8,564,628

Furniture and equipment, net of accumulated depreciation of $51,299 and $47,365, respectively
67,921

 
67,509

Federal, state and other income taxes receivable
93,386

 
87,352

Related party taxes receivable
467

 
1,087

Goodwill
74,056

 
74,056

Intangible assets, net of amortization of $34,602 and $33,652, respectively
32,275

 
32,623

Due from affiliates
29,480

 
31,270

Other assets
861,871

 
785,410

Total assets
$
39,061,940

 
$
38,539,104

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Notes payable — credit facilities
$
4,958,638

 
$
6,739,817

Notes payable — secured structured financings
23,666,666

 
21,608,889

Notes payable — related party
2,850,000

 
2,975,000

Accrued interest payable
37,759

 
33,346

Accounts payable and accrued expenses
414,851

 
379,021

Deferred tax liabilities, net
1,342,055

 
1,278,064

Due to affiliates
90,341

 
50,620

Other liabilities
282,632

 
235,728

Total liabilities
33,642,942

 
33,300,485

Commitments and contingencies (Notes 5 and 10)

 

Equity:
 
 
 
Common stock, $0.01 par value — 1,100,000,000 shares authorized;
 
 
 
359,489,493 and 359,002,145 shares issued and 359,394,898 and 358,907,550 shares outstanding, respectively
3,594

 
3,589

Additional paid-in capital
1,662,200

 
1,657,611

Accumulated other comprehensive income, net
35,504

 
28,259

Retained earnings
3,717,700

 
3,549,160

Total stockholders’ equity
5,418,998

 
5,238,619

Total liabilities and equity
$
39,061,940

 
$
38,539,104


See notes to unaudited condensed consolidated financial statements.




6



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

The assets of consolidated variable interest entities (VIEs), presented based upon the legal transfer of the underlying assets in order to reflect legal ownership, that can be used only to settle obligations of the consolidated VIE and the liabilities of these entities for which creditors (or beneficial interest holders) do not have recourse to the Company's general credit were as follows:

 
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Restricted cash
$
2,437,776

 
$
2,087,177

Finance receivables held for sale, net
859,360

 
1,012,277

Finance receivables held for investment, net
22,957,913

 
22,919,312

Leased vehicles, net
8,927,536

 
8,564,628

Various other assets
705,569

 
686,253

Total assets
$
35,888,154

 
$
35,269,647

Liabilities
 
 
 
Notes payable
$
30,842,051

 
$
31,659,203

Various other liabilities
111,075

 
91,234

Total liabilities
$
30,953,126

 
$
31,750,437


Certain amounts shown above are greater than the amounts shown in the corresponding line items in the accompanying condensed consolidated balance sheets due to intercompany eliminations between the VIEs and other entities consolidated by the Company. For example, for most of its securitizations, the Company retains one or more of the lowest tranches of bonds. Rather than showing investment in bonds as an asset and the associated debt as a liability, these amounts are eliminated in consolidation as required by U.S. GAAP.

See notes to unaudited condensed consolidated financial statements.


7



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited) (Dollars in thousands, except per share amounts)
 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Interest on finance receivables and loans
$
1,209,186

 
$
1,286,195

Leased vehicle income
418,233

 
329,792

Other finance and interest income
3,825

 
3,912

Total finance and other interest income
1,631,244

 
1,619,899

Interest expense — Including $37,724 and $31,686 to affiliates, respectively
227,089

 
184,735

Leased vehicle expense
290,171

 
221,360

Net finance and other interest income
1,113,984

 
1,213,804

Provision for credit losses
635,013

 
660,170

Net finance and other interest income after provision for credit losses
478,971

 
553,634

Profit sharing
7,945

 
11,394

Net finance and other interest income after provision for credit losses and profit sharing
471,026

 
542,240

Investment losses, net — Including $2,719 and zero from affiliates, respectively
(76,399
)
 
(69,056
)
Servicing fee income — Including $3,263 and $4,076 from affiliates, respectively
31,684

 
44,494

Fees, commissions, and other — Including $225 and $225 from affiliates, respectively
100,195

 
102,120

Total other income
55,480

 
77,558

Compensation expense
136,262

 
119,842

Repossession expense
71,299

 
73,545

Other operating costs — Including $21,644 and $4,462 to affiliates, respectively
97,517

 
97,469

Total operating expenses
305,078

 
290,856

Income before income taxes
221,428

 
328,942

Income tax expense
78,001

 
120,643

Net income
$
143,427

 
$
208,299

 
 
 
 
Net income
$
143,427

 
$
208,299

Other comprehensive income (loss):
 
 
 
Change in unrealized gains (losses) on cash flow hedges, net of tax of $4,327 and $22,733, respectively
7,245

 
(38,190
)
Comprehensive income
$
150,672

 
$
170,109

Net income per common share (basic)
$
0.40

 
$
0.58

Net income per common share (diluted)
$
0.40

 
$
0.58

Weighted average common shares (basic)
359,105,050

 
357,974,890

Weighted average common shares (diluted)
360,616,032

 
358,840,322


See notes to unaudited condensed consolidated financial statements.

8



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited) (In thousands)
 
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Income (Loss)
 
Retained Earnings
 
Total
Stockholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance — January 1, 2016
357,946

 
$
3,579

 
$
1,644,151

 
$
2,125

 
$
2,782,694

 
$
4,432,549

Stock issued in connection with employee incentive compensation plans
93

 
1

 
704

 

 

 
705

Stock-based compensation expense

 

 
1,768

 

 

 
1,768

 Tax sharing with affiliate

 

 
(392
)
 

 

 
(392
)
 Net income

 

 

 

 
208,299

 
208,299

Other comprehensive income (loss), net of taxes

 

 

 
(38,190
)
 

 
(38,190
)
Balance — March 31, 2016
358,039

 
$
3,580

 
$
1,646,231

 
$
(36,065
)
 
$
2,990,993

 
$
4,604,739

 
 
 
 
 
 
 
 
 
 
 
 
Balance — January 1, 2017
358,908

 
$
3,589

 
$
1,657,611

 
$
28,259

 
$
3,549,160

 
$
5,238,619

Cumulative-effect adjustment upon adoption of ASU 2016-09 (Note 1)

 

 
1,439

 

 
25,113

 
26,552

Stock issued in connection with employee incentive compensation plans
487

 
5

 
1,085

 

 

 
1,090

 Stock-based compensation expense

 

 
2,067

 

 

 
2,067

 Tax sharing with affiliate

 

 
(2
)
 

 

 
(2
)
 Net income

 

 

 

 
143,427

 
143,427

Other comprehensive income (loss), net of taxes

 

 

 
7,245

 

 
7,245

Balance — March 31, 2017
359,395

 
$
3,594

 
$
1,662,200

 
$
35,504

 
$
3,717,700

 
$
5,418,998

 
See notes to unaudited condensed consolidated financial statements.

9



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars in thousands)
 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
143,427

 
$
208,299

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Derivative mark to market
(760
)
 
6,633

Provision for credit losses
635,013

 
660,170

Depreciation and amortization
317,154

 
245,610

Accretion of discount
(69,945
)
 
(90,806
)
Originations and purchases of receivables held for sale
(818,817
)
 
(1,277,487
)
Proceeds from sales of and collections on receivables held for sale
973,118

 
922,071

Change in revolving personal loans
(5,064
)
 
(129,330
)
Investment losses, net
76,399

 
69,056

Stock-based compensation
2,067

 
1,768

Deferred tax expense
86,218

 
112,054

Changes in assets and liabilities:
 
 
 
Accrued interest receivable
49,650

 
11,272

Accounts receivable
(8,420
)
 
3,157

Federal income tax and other taxes
(5,415
)
 
7,515

Other assets
(10,435
)
 
(57,262
)
Accrued interest payable
1,086

 
3,102

Other liabilities
53,708

 
(22,936
)
Due to/from affiliates
45,026

 
(15,748
)
Net cash provided by operating activities
1,464,010

 
657,138

Cash flows from investing activities:
 
 
 
Originations of and disbursements on finance receivables held for investment
(2,985,822
)
 
(3,836,292
)
Purchases of portfolios of finance receivables held for investment
(152,208
)
 
(95,596
)
Collections on finance receivables held for investment
2,585,103

 
2,598,238

Proceeds from sale of loans held for investment

 
823,877

Leased vehicles purchased
(1,608,151
)
 
(1,622,199
)
Manufacturer incentives received
330,017

 
329,616

Proceeds from sale of leased vehicles
625,628

 
292,369

Change in revolving personal loans
49,236

 
166,890

Purchases of furniture and equipment
(7,551
)
 
(14,500
)
Sales of furniture and equipment
409

 
1,010

Change in restricted cash
(200,582
)
 
(404,457
)
Other investing activities
(1,931
)
 
(2,532
)
Net cash used in investing activities
(1,365,852
)
 
(1,763,576
)
Cash flows from financing activities:
 
 
 
Proceeds from notes payable related to secured structured financings — net of debt issuance costs
5,692,771

 
2,702,004

Payments on notes payable related to secured structured financings
(3,638,774
)
 
(3,175,675
)
Proceeds from unsecured notes payable
4,315,000

 
2,361,144

Payments on unsecured notes payable
(3,887,283
)
 
(2,050,853
)
Proceeds from notes payable
4,772,034

 
6,810,899

Payments on notes payable
(7,094,803
)
 
(5,518,740
)
Proceeds from stock option exercises, gross
3,543

 
813

Net cash provided by financing activities
162,488

 
1,129,592

Net increase in cash and cash equivalents
260,646

 
23,154

Cash — Beginning of period
160,180

 
18,893

Cash — End of period
$
420,826

 
$
42,047

 
 
 
 
Noncash investing and financing transactions:
 
 
 
Transfer of secured notes payable to unsecured notes payable
$
120,748

 
$
138,993


See notes to unaudited condensed consolidated financial statements.

10



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

1.     Description of Business, Basis of Presentation, and Significant Accounting Policies and Practices
Santander Consumer USA Holdings Inc., a Delaware corporation (together with its subsidiaries, SC or the Company), is the holding company for Santander Consumer USA Inc., an Illinois corporation, and its subsidiaries, a specialized consumer finance company focused on vehicle finance and third-party servicing. The Company’s primary business is the indirect origination and securitization of retail installment contracts principally through manufacturer-franchised dealers in connection with their sale of new and used vehicles to retail consumers.
In conjunction with a ten-year private label financing agreement (the Chrysler Agreement) with Fiat Chrysler Automobiles US LLC (FCA) that became effective May 1, 2013, the Company offers a full spectrum of auto financing products and services to FCA customers and dealers under the Chrysler Capital brand. These products and services include consumer retail installment contracts and leases, as well as dealer loans for inventory, construction, real estate, working capital and revolving lines of credit.
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 several relationships through which it provides personal loans, private-label credit cards and other consumer finance products.
As of March 31, 2017, the Company was owned approximately 58.7% by Santander Holdings USA, Inc. (SHUSA), a subsidiary of Banco Santander, S.A. (Santander), approximately 31.5% by public shareholders, approximately 9.7% by DDFS LLC, an entity affiliated with Thomas G. Dundon, the Company’s former Chairman and CEO, and approximately 0.1% by other holders, primarily members of senior management.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including certain Trusts, which are considered variable interest entities (VIEs). The Company also consolidates other VIEs for which it was deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements as of March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016, have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the periods indicated. Results of operations for the periods presented herein are not necessarily indicative of results of operations for the entire year. These financial statements should be read in conjunction with the 2016 Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities, as of the date of the financial statements and the amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. These estimates include the determination of credit loss allowance, discount accretion, impairment, fair value, expected end-of-term 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

11



well as financial products and services related to motorcycles, recreational vehicles, and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.
Accounting Policies
There have been no material changes in the Company's accounting policies from those disclosed in Part II, Item 8 - Financial Statements and Supplementary Data in the 2016 Annual Report on Form 10-K.
Recently Adopted Accounting Standards
Since January 1, 2017, the Company adopted the following Financial Accounting Standards Board ("FASB") Accounting Standards Updates ("ASUs"):
The Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718). This new guidance simplifies certain aspects related to income taxes, the Statement of Cash Flows (SCF), and forfeitures when accounting for share-based payment transactions. ASU 2016-09 eliminates the requirement to recognize excess tax benefits in APIC pools, and instead requires companies to record all excess tax benefits and deficiencies at settlement, vesting or expiration in the income statement as provision for income taxes. At adoption of ASU 2016-09 on January 1, 2017, the cumulative-effect for previously unrecognized excess tax benefits totaled $26,552 net of tax, and was recognized, as an increased, through an adjustment in beginning retained earnings. The Company recorded excess tax benefits, net of tax of $47 in the provision for income taxes rather than as an increase to additional paid-in capital for the three months ended March 31, 2017, on a prospective basis. Therefore, the prior period presented has not been adjusted. All excess tax benefits along with other income tax cash flows will now be classified as an operating activity rather than financing activities in the SCF on a prospective basis.
In addition, the Company changed its accounting policy on forfeitures from previously recognizing forfeitures based on estimating the number of awards expected to be forfeited to electing to recognize forfeiture of awards as they occur to simplify the accounting for forfeitures. This resulted in a cumulative adjustment, as a decrease to, beginning retained earnings of $1,439.
The Company also adopted ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The new guidance clarifies that a change in the counterparties to a derivative contract, i.e., a novation, in and of itself, does not require the de-designation of a hedging relationship. An entity will, however, still need to evaluate whether it is probable that the counterparty will perform under the contract as part of its ongoing effectiveness assessment for hedge accounting. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
The Company also adopted ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. This new guidance clarifies that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis of hybrid financial instruments. In other words, a contingent put or call option embedded in a debt instrument would be evaluated for possible separate accounting as a derivative instrument without regard to the nature of the exercise contingency. However, as required under existing guidance, companies will still need to evaluate other relevant embedded derivative guidance, such as whether the payoff from the contingent put or call option is adjusted based on changes in an index other than interest rates or credit risk, and whether the debt involves a substantial premium or discount. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
The Company also adopted ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323). The new guidance eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Instead, the equity method of accounting should be applied prospectively from the date significant influence is obtained. Investors should add the cost of acquiring the additional interest in the investee (if any) to the current basis of their previously held interest. The new standard also provides specific guidance for available-for-sale securities that become eligible for the equity method of accounting. In those cases, any unrealized gain or loss recorded within accumulated other comprehensive income should be recognized in earnings at the date the investment initially qualifies for the use of the equity method of

12



accounting. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
The Company also adopted ASU 2016-17, Consolidation (Topic 810), Interest Held Through Related Parties That Are Under Common Control, which amends the guidance in U.S. GAAP on related parties that are under common control. Specifically, the new ASU requires that a single decision maker consider indirect interests held by related parties under common control on a proportionate basis in a manner consistent with its evaluation of indirect interests held through other related parties. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. In August 2015, the FASB issued ASU 2015-14, which formalized the deferral of the effective date of the amendment for a period of one year from the original effective date. Following the issuance of ASU 2015-14, the amendment will be effective for the Company for the first annual period beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09, which revises the structure of the indicators to provide indicators of when the entity is the principal or agent in a revenue transaction, and eliminated two of the indicators (“the entity’s consideration is in the form of a commission” and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-12, an amendment to ASU 2014-09, which provided practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on transition, collectability, non-cash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB issued ASU 2016-20, a separate update for technical corrections and improvements to Topic 606 and other Topics amended by Update 2014-09 to increase stakeholders’ awareness of the proposals and to expedite improvements to Update 2014-09. The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption.
Because ASU 2014-09 does not apply to revenue associated with leases and financial instruments (including loans and securities), the Company does not expect the new guidance to have a material impact on the elements of its Consolidated Statements of Operations most closely associated with leases and financial instruments (such as interest income, interest expense and investment gain). The Company expects to adopt this ASU in the first quarter of 2018 with a cumulative-effect adjustment to opening retained earnings. The Company’s ongoing implementation efforts include the identification of other revenue streams that are within the scope of the new guidance and reviewing related contracts with customers to determine the effect on certain non-interest income items presented in the Consolidated Statements of Operations and on the presentation and disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This amendment requires that equity investments, except those accounted for under the equity method of accounting or which result in consolidation of the investee, to be measured at fair value, with changes in the fair value being recorded in net income. However, equity investments that do not have readily determinable fair values will be measured at cost less impairment, if any, plus the effect of changes resulting from observable price transactions in orderly transactions or for the identical or similar investment of the same issuer. The amendment also simplifies the impairment assessment of equity instruments that do not have readily determinable fair values, eliminates the requirement to disclose methods and assumptions used to estimate fair value of instruments measured at their amortized cost on the balance sheet, requires that the disclosed fair values of financial instruments represent "exit price," requires entities to separately present in other

13



comprehensive income the portion of the total change in fair value of a liability resulting from instrument-specific credit risk when the fair value option has been elected for that liability, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes, and clarifies that an entity should evaluate the need for a valuation allowance on its deferred tax asset related to its available-for-sale securities in combination with its other deferred tax assets. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2017, with earlier adoption permitted by public entities on a limited basis. Adoption of the amendment must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for amendments related to equity instruments that do not have readily determinable fair values, for which it should be applied prospectively. While the Company is still in the process of evaluating the impacts of the adoption of this ASU, the Company does not expect the impact to be material to its financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases, which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance will be effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. Once effective, the new guidance must be applied for all periods presented. The Company does not expect the new guidance to have a material impact on the Consolidated Statements of Income or the Consolidated Statements of Shareholders' Equity, since the Company recognizes assets and liabilities for all of its vehicle lease transactions. The Company will continue to evaluate the impact of the new guidance on its operating leases primarily for office space and computer equipment. Upon adoption, the Company will gross up its balance sheet by the present value of future minimum lease payments for these operating leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the criteria under which credit losses are measured. The amendment introduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to establish credit loss estimates. The guidance will be effective for the fiscal year beginning after December 15, 2019, including interim periods within that year. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new CECL model will alter the assumptions used in calculating the Company's credit losses, given the change to estimated losses for the estimated life of the financial asset, and will likely result in material changes to the Company’s credit and capital reserves.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. This update amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the SCF. The ASU’s amendments add or clarify guidance on eight cash flow issues including debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. Early adoption is permitted, including adoption in an interim period, however any adjustments should be reflected as of the beginning of the fiscal year that includes the period of adoption. All of the amended guidance must be adopted in the same period. The Company is in the process of evaluating the impacts of the adoption of this ASU.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This eliminates the current exception for all intra-entity transfers of an asset other than inventory that requires deferral of the tax effects until the asset is sold to a third party or otherwise recovered through use. The guidance will be effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods. Early adoption is permitted at the beginning of an annual reporting period for which annual or interim financial statements have not been issued or made available for issuance. The Company is in the process of evaluating the impacts of the adoption of this ASU.

14



In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (A consensus of the FASB Emerging Issues Task Force), which requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown on the statement of cash flows and that the statement of cash flows explain changes in restricted cash during the period. The guidance will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, however, adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the adoption of this ASU to have an impact on its financial position, results of operations or cash flows and expects the impact to be disclosure only.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance revises the definition of a business, potentially affecting areas of accounting such as acquisitions, disposals, goodwill impairment, and consolidation. Under the new guidance, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the assets acquired (or disposed of) would not represent a business. If this initial screen is met, no further analysis would be required. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create an output. In addition, the amendments narrow the definition of the term “output” so that it is consistent with how outputs are defined in ASC Topic 606, Revenue from Contracts with Customers. This new guidance will be effective for the Company for the first reporting period beginning after December 15, 2017, with earlier adoption permitted. Adoption of the amendments must be applied on a prospective basis. The Company is in the process of evaluating the impacts of the adoption of this ASU.
On January 26, 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill & Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. It removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The new rules state that a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company is in the process of evaluating the impacts of the adoption of this ASU.
2.
Finance Receivables
Held For Investment
Finance receivables held for investment, net is comprised of the following at March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31, 2016
Retail installment contracts acquired individually (a)
$
23,200,111

 
$
23,219,724

Purchased receivables
146,150

 
158,264

Receivables from dealers
69,643

 
68,707

Personal loans
7,499

 
12,272

Capital lease receivables (Note 3)
21,222

 
22,034

Finance receivables held for investment, net
$
23,444,625

 
$
23,481,001

(a) The Company has elected the fair value option for certain retail installment contracts reported in finance receivables held for investment, net. As at March 31, 2017 and December 31, 2016, $30,652 and $24,495 of loans were recorded at fair value (Note 13).
The Company's held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans is comprised of the following at March 31, 2017 and December 31, 2016:

15




March 31, 2017

Retail Installment Contracts
Acquired
Individually

Receivables from
Dealers

Personal Loans

Non-TDR

TDR


Unpaid principal balance
$
21,286,466


$
5,788,390


$
70,377


$
15,412

Credit loss allowance - specific


(1,604,489
)




Credit loss allowance - collective
(1,836,730
)



(734
)

(4,517
)
Discount
(409,142
)

(88,546
)



(3,822
)
Capitalized origination costs and fees
58,791


5,371




426

Net carrying balance
$
19,099,385


$
4,100,726


$
69,643


$
7,499


December 31, 2016

Retail Installment Contracts
Acquired
Individually

Receivables from
Dealers

Personal Loans

Non-TDR

TDR


Unpaid principal balance
$
21,528,406


$
5,599,567


$
69,431


$
19,361

Credit loss allowance - specific


(1,611,295
)




Credit loss allowance - collective
(1,799,760
)



(724
)


Discount
(467,757
)

(91,359
)



(7,721
)
Capitalized origination costs and fees
56,704


5,218




632

Net carrying balance
$
19,317,593


$
3,902,131


$
68,707


$
12,272

Retail installment contracts
Retail installment contracts are collateralized by vehicle titles, and the Company has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. Most of the Company’s retail installment contracts held for investment are pledged against warehouse lines or securitization bonds (Note 5). Most of the borrowers on the Company’s retail installment contracts held for investment are retail consumers; however, $764,611 and $848,918 of the unpaid principal balance represented fleet contracts with commercial borrowers as of March 31, 2017 and December 31, 2016, respectively.
During the three months ended March 31, 2017 and 2016, the Company originated $1,588,506 and $2,549,249, respectively, in Chrysler Capital loans which represented 42% and 49%, respectively, of the total retail installment contract originations. Additionally, during the three months ended March 31, 2017 and 2016, the Company originated $1,600,659 and $1,617,080 in Chrysler Capital leases. As of March 31, 2017 and December 31, 2016, the Company's auto retail installment contract portfolio consisted of $7,147,687 and $7,365,444, respectively, of Chrysler loans which represents 31% and 32%, respectively, of the Company's auto retail installment contract portfolio. Retail installment contracts and vehicle leases entered into with FCA customers, as part of the Chrysler Agreement, represent a significant concentration of those portfolios and there is a risk that the Chrysler Agreement could be terminated prior to its expiration date. Termination of the Chrysler Agreement could result in a decrease in the amount of new retail installment contracts and vehicle leases entered into with FCA customers.
As of March 31, 2017, borrowers on the Company’s retail installment contracts held for investment are located in Texas (16%), Florida (13%), California (9%), Georgia (6%) and other states each individually representing less than 5% of the Company’s total.
Purchased receivables

Purchased receivables portfolios, which were acquired with deteriorated credit quality, is comprised of the following at March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31, 2016
Outstanding balance
$
212,018

 
$
231,360

Outstanding recorded investment, net of impairment
$
147,094

 
$
159,451


16



Changes in accretable yield on the Company’s purchased receivables portfolios for the periods indicated were as follows:
 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Balance — beginning of period
$
107,041

 
$
178,582

Accretion of accretable yield
(11,144
)
 
(21,329
)
Reclassifications from (to) nonaccretable difference
2,049

 
(917
)
Balance — end of period
$
97,946

 
$
156,336

During the three months ended March 31, 2017 and 2016, the Company did not acquire any vehicle loan portfolios for which it was probable at acquisition that not all contractually required payments would be collected. However, during the three months ended March 31, 2017, the Company recognized certain retail installment contracts with an unpaid principal balance of $152,208 held by non-consolidated securitization Trusts, under optional clean-up calls. Following the initial recognition of these loans at fair value, the performing loans in the portfolio 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 re-recognition date), for which it was probable that not all contractually required payments would be collected (Note 13). No such transactions occurred during the three months ended March 31, 2016.
Receivable from Dealers
Receivables from dealers held for investment includes a term loan with a third-party vehicle dealer and lender that operates in multiple states. The loan allowed committed borrowings of $50,000 at March 31, 2017 and December 31, 2016, and the unpaid principal balance of the facility was $50,000 at each of those dates. The term loan will mature on December 31, 2018. The Company had accrued interest on this term loan of $169 and $165 at March 31, 2017 and December 31, 2016, respectively.
The remaining receivables from dealers held for investment are all Chrysler Agreement-related. As of March 31, 2017, borrowers on these dealer receivables are located in Virginia (50%), New York (23%), Mississippi (18%), Missouri (8%) and Wisconsin (1%).
Personal Loans
At December 31, 2015, the Company determined that its intent to sell certain non-performing personal installment loans had changed and now expects to hold these loans through their maturity. The Company recorded a lower of cost or market adjustment through investment gains (losses), net, immediately prior to transferring the loans to finance receivables held for investment at their new recorded investment. The carrying value of these loans was $457 and $539 at March 31, 2017 and December 31, 2016, respectively.
At September 30, 2016, the Company determined that its intent to sell certain personal revolving loans had changed and now expects to hold these loans through their maturity. The Company recorded a lower of cost or market adjustment through investment gains (losses), net, immediately prior to transferring the loans to finance receivables held for investment at their new recorded investment. The carrying value of these loans was $7,042 and $11,733 at March 31, 2017 and December 31, 2016, respectively.
Held For Sale
The carrying value of the Company's finance receivables held for sale, net is comprised of the following at March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31, 2016
Retail installment contracts acquired individually
$
876,916

 
$
1,045,815

Personal loans
979,103

 
1,077,600

Finance receivables held for sale, net
$
1,856,019

 
$
2,123,415


17



Sales of retail installment contracts to third parties and proceeds from sales of charged-off assets for the three months ended March 31, 2017 and 2016 were as follows:
 
For the Three Months Ended 
 March 31,
 
2017
 
2016
Sales of retail installment contracts to third parties
$
230,568

 
$
859,955

Proceeds from sales of charged-off assets
21,343

 
6,230


The Company retains servicing of retail installment contracts and leases sold to third parties. Total contracts sold to unrelated third parties and serviced as of March 31, 2017 and December 31, 2016 were as follows:
 
March 31,
2017
 
December 31, 2016
Serviced balance of retail installment contracts and leases sold to third parties
$
8,926,456

 
$
10,116,788


3.
Leases
The Company has both operating and capital 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 capital leases are included in finance receivables held for investment, net.
Operating Leases
Leased vehicles, net, which is comprised of leases originated under the Chrysler Agreement, consisted of the following as of March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31,
2016
Leased vehicles
$
12,442,141

 
$
11,939,295

Less: accumulated depreciation
(2,394,567
)
 
(2,326,342
)
Depreciated net capitalized cost
10,047,574

 
9,612,953

Manufacturer subvention payments, net of accretion
(1,141,194
)
 
(1,066,531
)
Origination fees and other costs
21,156

 
18,206

Net book value
$
8,927,536

 
$
8,564,628

Periodically, the Company executes bulk sales of Chrysler Capital leases to a third party. The bulk sale agreements include certain provisions whereby the Company agrees to share in residual losses for lease terminations with losses over a specific percentage threshold (Note 10). The Company has retained servicing on the sold leases. During the three months ended March 31, 2017 and 2016, the Company did not execute any bulk sales of leases originated under the Chrysler Capital program.

The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of March 31, 2017:
 
 
Remainder of 2017
$
1,191,931

2018
1,091,466

2019
445,100

2020
28,504

2021
79

Thereafter

Total
$
2,757,080

Capital Leases
Certain leases originated by the Company are accounted for as capital leases, as the contractual residual values are nominal amounts. Capital lease receivables, net consisted of the following as of March 31, 2017 and December 31, 2016:

18



 
March 31,
2017
 
December 31,
2016
Gross investment in capital leases
$
33,657

 
$
39,417

Origination fees and other
68

 
150

Less: unearned income
(5,898
)
 
(7,545
)
   Net investment in capital leases before allowance
27,827

 
32,022

Less: allowance for lease losses
(6,605
)
 
(9,988
)
   Net investment in capital leases
$
21,222

 
$
22,034


The following summarizes the future minimum lease payments due to the Company as lessor under capital leases as of March 31, 2017:
 
 
Remainder of 2017
$
10,365

2018
13,195

2019
6,280

2020
2,495

2021
1,322

Thereafter

Total
$
33,657


4.
Credit Loss Allowance and Credit Quality
Credit Loss Allowance
The Company estimates the allowance for credit losses on individually acquired retail installment contracts and personal loans held for investment not classified as TDRs based on delinquency status, historical loss experience, estimated values of underlying collateral, when applicable, and various economic factors. In developing the allowance, the Company utilizes a loss emergence period assumption, a loss given default assumption applied to recorded investment, and a probability of default assumption based on a loss forecasting model. The loss emergence period assumption represents the average length of time between when a loss event is first estimated to have occurred and when the account is charged-off. The recorded investment represents unpaid principal balance adjusted for unaccreted net discounts, subvention from manufacturers, and origination costs. Under this approach, the resulting allowance represents the expected net losses of recorded investment inherent in the portfolio.
For loans classified as TDRs, impairment is generally measured based on the present value of expected future cash flows discounted at the original effective interest rate. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell. The amount of the allowance is equal to the difference between the loan’s impaired value and the recorded investment.
The Company maintains a general credit loss allowance for receivables from dealers based on risk ratings and individually evaluates loans for specific impairment as necessary. As of March 31, 2017, the credit loss allowance for receivables from dealers is comprised of a general allowance as none of these receivables have been determined to be individually impaired. As of March 31, 2016, the credit loss allowance for receivables from dealers is comprised of a general allowance of $978, plus $425 specific impairment for substandard commercial risk rated receivables from dealers with an unpaid principal balance of $5,965.
The activity in the credit loss allowance for individually acquired and dealer loans for the three months ended March 31, 2017 and 2016 was as follows:

19



 
Three Months Ended March 31, 2017
 
Retail Installment Contracts Acquired Individually
 
Receivables from Dealers
 
Personal Loans
 
 
 
Balance — beginning of period
$
3,411,055

 
$
724

 
$

Provision for credit losses
629,097

 
10

 
7,975

Charge-offs (a)
(1,224,697
)
 

 
(3,632
)
Recoveries
625,764

 

 
174

Balance — end of period
$
3,441,219

 
$
734

 
$
4,517

(a) Charge-offs for retail installment contracts acquired individually includes approximately $24 million for the partial write-down of loans to the collateral value less estimated costs to sell, for which a bankruptcy notice was received.
 
Three Months Ended March 31, 2016
 
Retail Installment Contracts Acquired Individually
 
Receivables
from Dealers
 
 
Balance — beginning of period
$
3,197,414

 
$
916

Provision for credit losses
663,126

 
487

Charge-offs
(1,150,628
)
 

Recoveries
610,315

 

Balance — end of period
$
3,320,227

 
$
1,403

The impairment activity related to purchased receivables portfolios for the three months ended March 31, 2017 and 2016 was as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
Balance — beginning of period
$
169,323

 
$
172,308

Incremental provisions for purchased receivable portfolios

 

Incremental reversal of provisions for purchased receivable portfolios

 
(1,896
)
Balance — end of period
$
169,323

 
$
170,412

The Company estimates lease losses on the capital lease receivable portfolio based on delinquency status and loss experience to date, as well as various economic factors. The activity in the lease loss allowance for capital leases for the three months ended March 31, 2017 and 2016 was as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
Balance — beginning of period
$
9,988

 
$
19,878

Provision for lease losses
(2,069
)
 
(1,547
)
Charge-offs
(3,679
)
 
(12,359
)
Recoveries
2,365

 
9,888

Balance — end of period
$
6,605

 
$
15,860


Delinquencies

Retail installment contracts are generally classified as non-performing when they are greater than 60 days past due as to contractual principal or interest payments. See discussion over TDR loans below. Dealer receivables are classified as non-performing when they are greater than 90 days past due. At the time a loan is placed in non-performing status, previously accrued and uncollected interest is reversed against interest income. If an account is returned to a performing status, the Company returns to accruing interest on the contract.

20




The Company considers an account delinquent when an obligor fails to pay the required minimum portion of the scheduled payment by the due date. With respect to receivables originated by the Company prior to January 1, 2017 and through its “Chrysler Capital” channel, the required minimum payment is 90% of the scheduled payment. With respect to all other receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator prior to January 1, 2017, the required minimum payment is 50% of the scheduled payment. With respect to receivables originated by the Company or acquired by the Company from an unaffiliated third-party originator on or after January 1, 2017, the required minimum payment is 90% of the scheduled payment, regardless of which channel the receivable was originated through. In each case, the period of delinquency is based on the number of days payments are contractually past due.

As of March 31, 2017 and December 31, 2016, a summary of delinquencies on retail installment contracts held for investment portfolio is as follows:
 
March 31, 2017
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 30-59 days past due
$
2,336,113

 
$
9,882

 
$
2,345,995

Delinquent principal over 59 days (a)
1,148,517

 
4,852

 
1,153,369

Total delinquent principal
$
3,484,630

 
$
14,734

 
$
3,499,364

 
December 31, 2016
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 30-59 days past due
$
2,911,800

 
$
13,703

 
$
2,925,503

Delinquent principal over 59 days (a)
1,520,105

 
6,638

 
1,526,743

Total delinquent principal
$
4,431,905

 
$
20,341

 
$
4,452,246

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

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

As of March 31, 2017 and December 31, 2016, there were no receivables from dealers that were 30 days or more delinquent. As of March 31, 2017 and December 31, 2016, there were $27,617 and $33,886, respectively, of retail installment contracts held for sale that were 30 days or more delinquent.
Credit Quality Indicators
FICO® Distribution — A summary of the credit risk profile of the Company’s retail installment contracts held for investment by FICO® distribution, determined at origination, as of March 31, 2017 and December 31, 2016 was as follows:
FICO® Band
 
March 31, 2017
 
December 31, 2016
Commercial (a)
 
2.8%
 
3.1%
No-FICOs
 
12.0%
 
12.2%
<540
 
22.3%
 
22.1%
540-599
 
31.7%
 
31.4%
600-639
 
17.4%
 
17.4%
>640
 
13.8%
 
13.8%

(a)No FICO score is obtained on loans to commercial borrowers.
(b)FICO scores are updated quarterly.


21



Commercial Lending — The Company's risk department performs a commercial analysis and classifies certain loans over an internal threshold based on the commercial lending classifications described in Note 4 of the 2016 Annual Report on Form 10-K. Fleet loan credit quality indicators for retail installment contracts held for investment with commercial borrowers as of March 31, 2017 and December 31, 2016 were as follows:
 
March 31,
2017
 
December 31,
2016
Pass
$
49,752

 
$
17,585

Special Mention
15,282

 
2,790

Substandard
2,696

 
1,488

Doubtful

 

Loss
125

 

Total
$
67,855

 
$
21,863

Commercial loan credit quality indicators for receivables from dealers held for investment as of March 31, 2017 and December 31, 2016 were as follows:
 
March 31,
2017
 
December 31,
2016
Pass
$
68,672

 
$
67,681

Special Mention

 

Substandard
1,705

 
1,750

Doubtful

 

Loss

 

Unpaid principal balance
$
70,377

 
$
69,431


Troubled Debt Restructurings
In certain circumstances, the Company modifies the terms of its finance receivables to troubled borrowers. 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, operating and capital leases, and loans held for sale, including personal loans, are excluded from the scope of the applicable guidance. The Company's TDR balance as of March 31, 2017 and December 31, 2016 primarily consisted of loans that had been deferred or modified to receive a temporary reduction in monthly payment. As of March 31, 2017 and December 31, 2016, there were no receivables from dealers classified as a TDR.
For loans not classified as TDRs, the Company generally estimates an appropriate allowance for credit losses based on delinquency status, the Company’s historical loss experience, estimated values of underlying collateral, and various economic factors. Once a loan has been classified as a TDR, it is generally assessed for impairment based on the present value of expected future cash flows discounted at the loan's original effective interest rate considering all available evidence. For loans that are considered collateral-dependent, such as certain bankruptcy modifications, impairment is measured based on the fair value of the collateral, less its estimated cost to sell.
The table below presents the Company’s TDRs as of March 31, 2017 and December 31, 2016:
 
March 31,
2017
 
December 31, 2016
 
Retail Installment Contracts
Outstanding recorded investment (a)
$
5,785,032

 
$
5,637,792

Impairment
(1,604,489
)
 
(1,611,295
)
Outstanding recorded investment, net of impairment
$
4,180,543

 
$
4,026,497

(a) As of March 31, 2017, the outstanding recorded investment excludes $14.7 million of collateral-dependent bankruptcy TDRs that has been written down by $7.6 million to fair value less cost to sell.

22




A summary of the Company’s delinquent TDRs at March 31, 2017 and December 31, 2016, is as follows:
 
March 31,
2017
 
December 31, 2016
 
Retail Installment Contracts
Principal, 30-59 days past due
$
1,078,637

 
$
1,253,848

Delinquent principal over 59 days
579,262

 
736,691

Total delinquent TDR principal
$
1,657,899

 
$
1,990,539

 
A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. TDRs are placed on nonaccrual status when the Company believes repayment under the revised terms is not reasonably assured and, at the latest when the account becomes past due more than 60 days, and considered for return to accrual when a sustained period of repayment performance has been achieved.

Average recorded investment and income recognized on TDR loans are as follows:
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
 
Retail Installment Contracts
Average outstanding recorded investment in TDRs
$
5,711,412

 
$
4,666,713

Interest income recognized
$
260,352

 
$
174,191


The following table summarizes the financial effects of TDRs that occurred during the three months ended March 31, 2017 and 2016:
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
 
Retail Installment Contracts
Outstanding recorded investment before TDR
$
881,699

 
$
692,928

Outstanding recorded investment after TDR
$
866,278

 
$
699,286

Number of contracts (not in thousands)
49,499

 
39,380

Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three months ended March 31, 2017 and 2016 are summarized in the following table:
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
 
Retail Installment Contracts
Recorded investment in TDRs that subsequently defaulted (a)
$
211,697

 
$
199,862

Number of contracts (not in thousands)
11,894

 
11,402

(a)     For TDR modifications and TDR modifications that subsequently defaults, the allowance methodology remains unchanged.


23



5.    Debt
Revolving Credit Facilities
The following table presents information regarding credit facilities as of March 31, 2017 and December 31, 2016:
 
March 31, 2017
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Facilities with third parties:
 
 
 
 
 
 
 
 
 
 
 
Warehouse line
January 2018
 
$
168,084

 
$
500,000

 
2.84%
 
$
213,200

 
$

Warehouse line
Various (a)
 
232,045

 
1,250,000

 
3.73%
 
326,912

 
11,207

Warehouse line (b)
August 2018
 
216,520

 
780,000

 
3.30%
 
281,270

 
6,946

Warehouse line (c)
August 2018
 
2,018,143

 
3,120,000

 
2.29%
 
3,067,595

 
64,912

Warehouse line
October 2018
 
435,477

 
1,800,000

 
3.31%
 
620,916

 
10,000

Repurchase facility (d)
December 2017
 
328,608

 
328,608

 
3.32%
 

 
14,012

Repurchase facility (d)
April 2017
 
235,509

 
235,509

 
2.04%
 

 

Repurchase facility (d)
March 2018
 
147,182

 
147,182

 
3.31%
 

 

Repurchase facility (d)
April 2017
 
59,202

 
59,202

 
2.09%
 

 

Warehouse line
November 2018
 
301,199

 
1,000,000

 
2.51%
 
451,750

 
7,902

Warehouse line
July 2018
 
235,784

 
250,000

 
3.25%
 
500,095

 
44,377

Warehouse line
October 2018
 
132,365

 
400,000

 
2.91%
 
189,416

 
2,671

Warehouse line
November 2018
 
174,720

 
500,000

 
2.16%
 
186,481

 
4,722

Warehouse line
October 2017
 
273,800

 
300,000

 
2.44%
 
322,183

 
10,803

Total facilities with third parties
 
 
4,958,638

 
10,670,501

 
 
 
6,159,818

 
177,552

Lines of credit with Santander and related subsidiaries (e, f):
 
 
 
 
 
 
 
 
 
 
 
Line of credit
December 2017
 
500,000

 
500,000

 
3.24%
 

 

Line of credit
December 2018
 

 
500,000

 
3.89%
 

 

Line of credit
December 2017
 
1,000,000

 
1,000,000

 
2.83%
 

 

Line of credit
December 2018
 
400,000

 
1,000,000

 
3.36%
 

 

Promissory Note
March 2019
 
300,000

 
300,000

 
2.45%
 

 

Promissory Note
March 2022
 
650,000

 
650,000

 
4.20%
 

 

Line of credit
March 2019
 

 
3,000,000

 
3.94%
 

 

Total facilities with Santander and related subsidiaries
 
 
2,850,000

 
6,950,000

 
 
 

 

Total revolving credit facilities
 
 
$
7,808,638

 
$
17,620,501

 
 
 
$
6,159,818

 
$
177,552


(a)
Half of the outstanding balance on this facility matures in April 2017 and half matures in March 2018. In April 2017, the facilities that matured were extended to March 2019.
(b)
This line is held exclusively for financing of Chrysler Capital loans.
(c)
This line is held exclusively for financing of Chrysler Capital leases.
(d)
These repurchase facilities are collateralized by securitization notes payable retained by the Company. These facilities have rolling maturities of up to one year. In April 2017, the repurchase facilities that matured were extended to May 2017.
(e)
These lines generally are also collateralized by securitization notes payable and residuals retained by the Company. As of March 31, 2017 and December 31, 2016, $1,623,538 and $1,316,568, respectively, of the aggregate outstanding balances on these facilities were unsecured.
(f)
SPAIN Revolving Funding LLC (a subsidiary) established a committed facility of $750 million with the New York branch of Santander on April 3, 2017. Borrowings under this facility bear interest at a rate equal to one-month LIBOR plus a spread (based on the quality of the collateral for the facility) ranging from 0.60% to 0.90%. The current maturity date of the facility is December 31, 2018.


24



 
December 31, 2016
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Facilities with third parties:
 
 
 
 
 
 
 
 
 
 
 
Warehouse line
January 2018
 
$
153,784

 
$
500,000

 
3.17%
 
$
213,578

 
$

Warehouse line
Various
 
462,085

 
1,250,000

 
2.52%
 
653,014

 
14,916

Warehouse line
August 2018
 
534,220

 
780,000

 
1.98%
 
608,025

 
24,520

Warehouse line
August 2018
 
3,119,943

 
3,120,000

 
1.91%
 
4,700,774

 
70,991

Warehouse line
October 2018
 
702,377

 
1,800,000

 
2.51%
 
994,684

 
23,378

Repurchase facility
December 2017
 
507,800

 
507,800

 
2.83%
 

 
22,613

Repurchase facility
April 2017
 
235,509

 
235,509

 
2.04%
 

 

Warehouse line
November 2018
 
578,999

 
1,000,000

 
1.56%
 
850,758

 
17,642

Warehouse line
October 2018
 
202,000

 
400,000

 
2.22%
 
290,867

 
5,435

Warehouse line
November 2018
 

 
500,000

 
2.07%
 

 

Warehouse line
October 2017
 
243,100

 
300,000

 
2.38%
 
295,045

 
9,235

Total facilities with third parties
 
 
6,739,817

 
10,393,309

 
 
 
8,606,745

 
188,730

Lines of credit with Santander and related subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
Line of credit
December 2017
 
500,000

 
500,000

 
3.04%
 

 

Line of credit
December 2018
 
175,000

 
500,000

 
3.87%
 

 

Line of credit
December 2017
 
1,000,000

 
1,000,000

 
2.86%
 

 

Line of credit
December 2018
 
1,000,000

 
1,000,000

 
2.88%
 

 

Line of credit
March 2017
 
300,000

 
300,000

 
2.25%
 

 

Line of credit
March 2019
 

 
3,000,000

 
3.74%
 

 

Total facilities with Santander and related subsidiaries
 
 
2,975,000

 
6,300,000

 
 
 

 

Total revolving credit facilities
 
 
$
9,714,817

 
$
16,693,309

 
 
 
$
8,606,745

 
$
188,730

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.`
Lines of Credit with Santander and Related Subsidiaries
Through SHUSA, Santander provides the Company with $3,000,000 of committed revolving credit that can be drawn on an unsecured basis. Through its New York branch, Santander provides the Company with an additional $3,000,000 of long-term committed revolving credit facilities. The facilities offered through the New York branch are structured as three- and five-year floating rate facilities, with current maturity dates of December 31, 2017 and December 31, 2018, respectively. These facilities currently permit unsecured borrowing but generally are collateralized by retail installment contracts and retained residuals. Any secured balances outstanding under the facilities at the time of their maturity will amortize to match the maturities and expected cash flows of the corresponding collateral.
Santander Consumer ABS Funding 2, LLC (a subsidiary) established a committed facility of $300 million with SHUSA on March 6, 2014. This facility matured on March 6, 2017 and was replaced on the same day with a $300 million term promissory note executed by SC Illinois (a subsidiary) as the borrower and SHUSA as the lender. During the three months ended March 31, 2017, the Company paid zero in principal and zero in interest and fees on this note. Interest accrues on this note at a rate equal to three-month LIBOR plus 1.35%. The note has a maturity date of March 6, 2019.
SC Illinois as borrower executed a $650 million term promissory note with SHUSA as lender on March 31, 2017. During the three months ended March 31, 2017, the Company paid zero in principal and zero in interest and fees on this note. Interest accrues on this note at the rate of 4.20%. The note has a maturity date of March 31, 2022.

Secured Structured Financings
 

25



The following table presents information regarding secured structured financings as of March 31, 2017 and December 31, 2016:
 
March 31, 2017
 
Original Estimated Maturity Date(s)
 
Balance
 
Initial Note Amounts Issued
 
Initial Weighted Average Interest Rate
 
Collateral
 
Restricted Cash
2012 Securitizations
September 2018
 
$
69,677

 
$
1,025,540

 
1.23%
 
$
113,867

 
$
31,277

2013 Securitizations
January 2019 - March 2021
 
992,709

 
6,689,700

 
0.89%-1.59%
 
1,272,176

 
228,108

2014 Securitizations
February 2020 - April 2022
 
1,648,799

 
6,391,020

 
1.16%-1.72%
 
2,071,309

 
257,629

2015 Securitizations
September 2019 - January 2023
 
3,802,864

 
9,264,432

 
1.33%-2.29%
 
5,073,548

 
489,225

2016 Securitizations
April 2022 - March 2024
 
5,266,504

 
7,462,790

 
1.63%-2.80%
 
6,802,736

 
459,748

2017 Securitizations
April 2023 - July 2024
 
3,010,805

 
3,125,430

 
2.01%-2.43%
 
3,764,454

 
175,497

Public securitizations (a)
 
 
14,791,358

 
33,958,912

 
 
 
19,098,090

 
1,641,484

2010 Private issuances
June 2011
 
99,172

 
516,000

 
1.29%
 
198,524

 
7,117

2011 Private issuances
December 2018
 
237,745

 
1,700,000

 
1.46%
 
517,516

 
33,863

2013 Private issuances
September 2018
 
2,988,296

 
2,044,054

 
1.28%-1.38%
 
5,064,575

 
237,078

2014 Private issuances
March 2018 - November 2021
 
264,411

 
1,530,125

 
1.05%-1.40%
 
382,536

 
50,425

2015 Private issuances
December 2016 - July 2019
 
1,984,521

 
2,605,062

 
 0.88%-2.81%
 
1,998,100

 
169,635

2016 Private issuances
May 2020 - September 2024
 
2,262,387

 
3,050,000

 
 1.55%-2.86%
 
3,218,736

 
117,809

2017 Private issuances
April 2021 - September 2021
 
1,038,776

 
1,000,000

 
 1.85%-2.27%
 
1,501,121

 
16,826

Privately issued amortizing notes
 
 
8,875,308

 
12,445,241

 
 
 
12,881,108

 
632,753

Total secured structured financings
 
 
$
23,666,666

 
$
46,404,153

 
 
 
$
31,979,198

 
$
2,274,237

(a)
Securitizations executed under Rule 144A of the Securities Act are included within this balance.


26



 
December 31, 2016
 
Original Estimated Maturity Date(s)
 
Balance
 
Initial Note Amounts Issued
 
Initial Weighted Average Interest Rate
 
Collateral
 
Restricted Cash
2012 Securitizations
September 2018
 
$
197,470

 
$
2,525,540

 
0.92%-1.23%
 
$
312,710

 
$
73,733

2013 Securitizations
January 2019 - January 2021
 
1,172,904

 
6,689,700

 
0.89%-1.59%
 
1,484,014

 
222,187

2014 Securitizations
February 2020 - January 2021
 
1,858,600

 
6,391,020

 
1.16%-1.72%
 
2,360,939

 
250,806

2015 Securitizations
September 2019 - January 2023
 
4,326,292

 
9,317,032

 
1.33%-2.29%
 
5,743,884

 
468,787

2016 Securitizations
April 2022 - March 2024
 
5,881,216

 
7,462,790

 
1.63%-2.46%
 
7,572,977

 
408,086

Securitizations
 
 
13,436,482

 
32,386,082

 
 
 
17,474,524

 
1,423,599

2010 Private issuances
June 2011
 
113,157

 
516,000

 
1.29%
 
213,235

 
6,270

2011 Private issuances
December 2018
 
342,369

 
1,700,000

 
1.46%
 
617,945

 
31,425

2013 Private issuances
September 2018-September 2020
 
2,375,964

 
2,693,754

 
1.13%-1.38%
 
4,122,963

 
164,740

2014 Private issuances
March 2018 - December 2021
 
643,428

 
3,271,175

 
1.05%-1.40%
 
1,129,506

 
68,072

2015 Private issuances
December 2016 - July 2019
 
2,185,166

 
2,855,062

 
 0.88%-2.81%
 
2,384,661

 
140,269

2016 Securitizations
May 2020 - September 2024
 
2,512,323

 
3,050,000

 
1.55%-2.86%
 
3,553,577

 
90,092

Privately issued amortizing notes
 
 
8,172,407

 
14,085,991

 
 
 
12,021,887

 
500,868

Total secured structured financings
 
 
$
21,608,889

 
$
46,472,073

 
 
 
$
29,496,411

 
$
1,924,467


Most of the Company’s secured structured financings are in the form of public, SEC-registered securitizations. The Company also executes private securitizations under Rule 144A of the Securities Act and periodically issues private term amortizing notes, which are structured similarly to securitizations but are acquired by banks and conduits. The Company’s securitizations and private issuances are collateralized by vehicle retail installment contracts and loans or leases. As of March 31, 2017 and December 31, 2016, the Company had private issuances of notes backed by vehicle leases totaling $5,158,859 and $3,862,274, 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 $8,729 and $6,119 for the three months ended March 31, 2017 and 2016, respectively. For securitizations, the term takes into consideration the expected execution of the contractual call option, if applicable. Amortization of premium or accretion of discount on acquired notes payable is also included in interest expense using the effective interest method over the estimated remaining life of the acquired notes. Total interest expense on secured structured financings for the three months ended March 31, 2017 and 2016 was $124,065 and $94,376, respectively.

6.
Variable Interest Entities
The Company transfers retail installment contracts and leased vehicles 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 U.S. 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 Note 7 of the 2016 Annual Report on Form 10-K.
On-balance sheet variable interest entities
The Company retains servicing for receivables transferred to the Trusts and receives a monthly servicing fee on the outstanding principal balance. Supplemental fees, such as late charges, for servicing the receivables are reflected in fees, commissions and other income. As of March 31, 2017 and December 31, 2016, the Company was servicing $27,651,173 and $27,802,971, respectively, of gross retail installment contracts that have been transferred to consolidated Trusts. The remainder of the Company’s retail installment contracts remain unpledged.

27



A summary of the cash flows received from consolidated securitization trusts during the three months ended March 31, 2017 and 2016, is as follows:
 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
Assets securitized
$
7,646,625

 
$
3,657,955

 
 
 
 
Net proceeds from new securitizations (a)
$
5,576,801

 
$
2,702,004

Net proceeds from sale of retained bonds
115,970

 

Cash received for servicing fees (b)
208,923

 
194,365

Net distributions from Trusts (b)
678,229