UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

¨

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  x 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 ST (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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes  ¨ No  x

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 May 12, 2014

Common Stock ($0.01 par value)

  

348,775,493 shares

 

 

 

 

 


 

INDEX

 

Cautionary Note Regarding Forward-Looking Information

3

 

PART I: FINANCIAL INFORMATION

4

Item 1. 

Condensed Consolidated Financial Statements

4

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4. 

Controls and Procedures

57

 

PART II: OTHER INFORMATION

59

Item 1. 

Legal Proceedings

59

Item 1A. 

Risk Factors

59

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 3.  

Defaults upon Senior Securities

73

Item 4.  

Mine Safety Disclosures

73

Item 5.  

Other Information

73

Item 6. 

Exhibits

74

SIGNATURES

75

EXHIBITS

 

 

 

 

2


 

Unless otherwise specified or the context otherwise requires, the use herein of the terms “ we,” “our,” “us,” “SCUSA,” 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 our 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 we believe 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 our control. For additional discussion of these risks, refer to Part II, Item 1A—Risk Factors. Among the factors that could cause our financial performance to differ materially from that suggested by the forward-looking statements are:

adverse economic conditions in the United States and worldwide may negatively impact our results;

our business could suffer if our access to funding is reduced;

we face significant risks implementing our growth strategy, some of which are outside our control;

our agreement with Chrysler Group LLC (“Chrysler”) may not result in currently anticipated levels of growth and is subject to certain performance conditions that could result in termination of the agreement;

our business could suffer if we are unsuccessful in developing and maintaining relationships with automobile dealerships;

our financial condition, liquidity, and results of operations depend on the credit performance of our loans;

loss of our key management or other personnel, or an inability to attract such management and personnel, could negatively impact our business;

future changes in our relationship with Banco Santander, S.A. (“Santander”) could adversely affect our operations; and

we operate in a highly regulated industry and continually changing federal, state, and local laws and regulations could materially adversely affect our business.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, its actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements. Therefore, we caution not to place undue reliance on any forward-looking information or statements. The effect of these factors is difficult to predict. Factors other than these also could adversely affect our results, and the reader should not consider these factors to be a complete set of all potential risks or uncertainties. New factors emerge from time to time, and management cannot assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Any forward-looking statements only speak as of the date of this document, and we undertake no obligation to update any forward-looking information or statements, whether written or oral, to reflect any change, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

 

 

 

3


 

PART I: FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited at March 31, 2014)

 

 

March 31,

 

 

December 31,

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

112,835

 

 

$

10,531

 

Receivables held for sale

 

171,466

 

 

 

82,503

 

Retail installment contracts held for investment, net

 

21,087,173

 

 

 

20,219,609

 

Unsecured consumer loans, net

 

1,000,545

 

 

 

954,189

 

Restricted cash

 

1,830,392

 

 

 

1,563,613

 

Receivables from dealers, held for investment, net

 

108,200

 

 

 

94,745

 

Accrued interest receivable

 

312,040

 

 

 

319,157

 

Leased vehicles, net

 

2,956,910

 

 

 

2,023,433

 

Furniture and equipment, net of accumulated depreciation of $56,059

   and $58,117, respectively

 

30,315

 

 

 

25,712

 

Federal, state and other income taxes receivable

 

304,032

 

 

 

372,338

 

Deferred tax asset

 

232,185

 

 

 

197,041

 

Goodwill

 

74,056

 

 

 

74,056

 

Intangible assets

 

54,391

 

 

 

54,664

 

Other assets

 

521,693

 

 

 

410,305

 

Total assets

$

28,796,233

 

 

$

26,401,896

 

Liabilities and Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Notes payable — credit facilities, $4,365,000 and $3,650,000 to affiliates, respectively

$

9,573,726

 

 

$

8,099,773

 

Notes payable — secured structured financings

 

15,783,587

 

 

 

15,195,887

 

Accrued interest payable — $10,457 and $11,563 to affiliates, respectively

 

26,784

 

 

 

26,512

 

Accounts payable and accrued expenses — $41,788 and $39,772 to affiliates, respectively

 

390,845

 

 

 

283,106

 

Federal, state and other income taxes payable

 

15,502

 

 

 

7,623

 

Other liabilities

 

97,771

 

 

 

102,163

 

Total liabilities

 

25,888,215

 

 

 

23,715,064

 

Commitments and contingencies (Notes 5 and 10)

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value — 1,100,000,000 shares authorized;

 

 

 

 

 

 

 

348,770,333 and 346,763,261 shares issued and 348,767,179 and 346,760,107 shares outstanding, respectively

 

3,488

 

 

 

3,468

 

Additional paid-in capital

 

1,547,075

 

 

 

1,409,463

 

Accumulated other comprehensive loss

 

(765

)

 

 

(2,853

)

Retained earnings

 

1,358,220

 

 

 

1,276,754

 

Total stockholders’ equity

 

2,908,018

 

 

 

2,686,832

 

Total liabilities and equity

$

28,796,233

 

 

$

26,401,896

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

4


 

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,

 

 

2014

 

 

2013

 

Interest on finance receivables and loans

$

1,140,329

 

 

$

811,907

 

Leased vehicle income

 

147,123

 

 

 

 

Other finance and interest income

 

250

 

 

 

2,685

 

Total finance and other interest income

 

1,287,702

 

 

 

814,592

 

Interest expense — Including $34,243 and $11,512 to affiliates, respectively

 

124,446

 

 

 

82,997

 

Leased vehicle expense

 

120,069

 

 

 

 

Net finance and other interest income

 

1,043,187

 

 

 

731,595

 

Provision for loan losses

 

698,594

 

 

 

217,193

 

Net finance and other interest income after provision for loan losses

 

344,593

 

 

 

514,402

 

Profit sharing

 

32,161

 

 

 

 

Net finance and other interest income after provision for loan losses and profit sharing

 

312,432

 

 

 

514,402

 

 

 

 

 

 

 

 

 

Gain on sale of receivables

 

35,814

 

 

 

 

Servicing fee income

 

10,405

 

 

 

7,271

 

Fees, commissions, and other

 

89,304

 

 

 

68,858

 

Total other income

 

135,523

 

 

 

76,129

 

 

 

 

 

 

 

 

 

Salary and benefits expense

 

201,915

 

 

 

62,547

 

Repossession expense

 

48,431

 

 

 

36,158

 

Other operating costs

 

68,102

 

 

 

50,169

 

Total operating expenses

 

318,448

 

 

 

148,874

 

Income before income taxes

 

129,507

 

 

 

441,657

 

Income tax expense

 

48,041

 

 

 

152,798

 

Net income

 

81,466

 

 

 

288,859

 

Noncontrolling interests

 

 

 

 

1,543

 

Net income attributable to Santander Consumer USA Holdings Inc.

$

81,466

 

 

$

290,402

 

Net income

$

81,466

 

 

$

288,859

 

Other comprehensive income:

 

 

 

 

 

 

 

Change in unrealized gains (losses) on cash flow hedges, net of tax of $1,230 and $1,706

 

2,088

 

 

 

2,834

 

Change in unrealized gains on investments available for sale, net of tax of zero and $943

 

 

 

 

(1,456

)

Other comprehensive income, net

 

2,088

 

 

 

1,378

 

Comprehensive income

$

83,554

 

 

$

290,237

 

Comprehensive loss attributable to noncontrolling interests

 

 

 

 

991

 

Comprehensive income attributable to Santander Consumer USA Holdings Inc.

$

83,554

 

 

$

291,228

 

Net income per common share (basic and diluted)

$

0.23

 

 

$

0.84

 

Dividends declared per common share

$

 

 

$

 

Weighted average common shares (basic)

 

348,101,891

 

 

 

346,164,763

 

Weighted average common shares (diluted)

 

356,325,036

 

 

 

346,164,763

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

5


 

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited) (In thousands)

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

Noncontrolling

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Interests

 

 

Equity

 

Balance — January 1, 2013

 

346,165

 

 

$

3,462

 

 

$

1,335,572

 

 

$

(9,164

)

 

$

869,664

 

 

$

39,932

 

 

$

2,239,466

 

Repayment of employee loans

 

 

 

 

 

 

 

519

 

 

 

 

 

 

 

 

 

 

 

 

519

 

Stock issued in connection with employee

   incentive compensation plans

 

4

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

 

 

 

69

 

Capital contribution received from

   shareholder

 

 

 

 

 

 

 

48,275

 

 

 

 

 

 

 

 

 

 

 

 

48,275

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

290,402

 

 

 

(1,543

)

 

 

288,859

 

Other comprehensive income, net

   of taxes

 

 

 

 

 

 

 

 

 

 

1,378

 

 

 

 

 

 

 

 

 

1,378

 

Balance — March 31, 2013

 

346,169

 

 

$

3,462

 

 

$

1,384,435

 

 

$

(7,786

)

 

$

1,160,066

 

 

$

38,389

 

 

$

2,578,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2014

 

346,760

 

 

$

3,468

 

 

$

1,409,463

 

 

$

(2,853

)

 

$

1,276,754

 

 

$

 

 

$

2,686,832

 

Stock issued in connection with employee

   incentive compensation plans

 

2,007

 

 

 

20

 

 

 

16,390

 

 

 

 

 

 

 

 

 

 

 

 

16,410

 

Stock based compensation expense

 

 

 

 

 

 

 

121,222

 

 

 

 

 

 

 

 

 

 

 

 

121,222

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

81,466

 

 

 

 

 

 

81,466

 

Other comprehensive income, net

   of taxes

 

 

 

 

 

 

 

 

 

 

2,088

 

 

 

 

 

 

 

 

 

2,088

 

Balance — March 31, 2014

 

348,767

 

 

$

3,488

 

 

$

1,547,075

 

 

$

(765

)

 

$

1,358,220

 

 

$

 

 

$

2,908,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

6


 

SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (Dollars in thousands)

 

 

For the Three Months Ended
March 31,

 

 

2014

 

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

81,466

 

 

$

288,859

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Derivative mark to market

 

(5,058

)

 

 

(6,618

)

Provision for credit losses

 

698,594

 

 

 

217,193

 

Depreciation and amortization

 

139,158

 

 

 

26,114

 

Accretion of discount and capitalized origination costs, net

 

(197,943

)

 

 

(97,249

)

Originations and purchases of receivables held for sale

 

(1,267,304

)

 

 

 

Proceeds from sales of and repayments on receivables held for sale

 

1,187,745

 

 

 

 

Gain on sale of receivables

 

(35,814

)

 

 

 

Stock-based compensation

 

121,222

 

 

 

231

 

Deferred tax benefit

 

(27,128

)

 

 

(32,041

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accrued interest receivable

 

2,176

 

 

 

10,609

 

Accounts receivable

 

(22,193

)

 

 

210

 

Federal income tax and other taxes

 

76,185

 

 

 

153,587

 

Other assets

 

(26,738

)

 

 

(5,075

)

Accrued interest payable

 

272

 

 

 

839

 

Other liabilities

 

126,702

 

 

 

69,051

 

Net cash provided by operating activities

 

851,342

 

 

 

625,710

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Retail installment contracts originated or purchased from dealers

 

(4,239,359

)

 

 

(2,541,431

)

Collections on retail installment contracts

 

2,246,851

 

 

 

2,019,293

 

Proceeds from sale of loans held for investment

 

554,060

 

 

 

 

Leased vehicles purchased

 

(1,212,312

)

 

 

 

Manufacturer incentives received

 

217,457

 

 

 

 

Proceeds from termination of leased vehicles

 

11,089

 

 

 

 

Change in revolving unsecured consumer loans

 

13,493

 

 

 

 

Unsecured consumer term loans purchased

 

(107,902

)

 

 

 

Collections on unsecured consumer term loans

 

17,110

 

 

 

 

Disbursements for receivables from lenders held for investment

 

(14,288

)

 

 

(83,080

)

Collections on receivables from lenders held for investment

 

887

 

 

 

 

Collections on investments available for sale

 

 

 

 

17,872

 

Purchases of furniture and equipment

 

(7,443

)

 

 

(2,956

)

Sales of furniture and equipment

 

714

 

 

 

758

 

Change in restricted cash

 

(266,779

)

 

 

(446,938

)

Other investing activities

 

(4,391

)

 

 

(1,859

)

Net cash used in investing activities

 

(2,790,813

)

 

 

(1,038,341

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from notes payable related to secured structured financings — net

      of debt issuance costs

 

2,734,093

 

 

 

2,444,579

 

Payments on notes payable related to secured structured financings

 

(2,149,907

)

 

 

(1,863,146

)

Proceeds from unsecured notes payable

 

1,740,000

 

 

 

195,000

 

Payments on unsecured notes payable

 

(1,325,000

)

 

 

(188,302

)

Proceeds from notes payable

 

6,721,716

 

 

 

3,945,517

 

Payments on notes payable

 

(5,662,762

)

 

 

(4,236,675

)

Proceeds from stock option exercises, gross

 

13,071

 

 

 

 

Repurchase of stock - employee tax withholding

 

(5,908

)

 

 

 

Repayment of employee notes

 

 

 

 

519

 

Capital contribution from shareholder

 

 

 

 

48,275

 

Cash collateral posted on derivatives

 

(23,528

)

 

 

 

Net cash provided by financing activities

 

2,041,775

 

 

 

345,767

 

Net increase (decrease) in cash and cash equivalents

 

102,304

 

 

 

(66,864

)

Cash — Beginning of period

 

10,531

 

 

 

70,887

 

Cash — End of period

$

112,835

 

 

$

4,023

 

See notes to unaudited condensed consolidated financial statements.

 

 

 

7


 

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 Changes in Significant Accounting Policies and Practices

Santander Consumer USA Holdings Inc., a Delaware Corporation (“SCUSA Delaware” or, together with its subsidiaries, “SCUSA” or “the Company”), is the holding company for Santander Consumer USA Inc., an Illinois corporation (“SCUSA Illinois”), and subsidiaries, a specialized consumer finance company focused on vehicle finance and unsecured consumer lending products.

The Company is owned approximately 60.5% by Santander Holdings USA, Inc. (“SHUSA”), a subsidiary of Banco Santander, S.A. (“Santander”), approximately 4.1% by Sponsor Auto Finance Holdings Series LP (“Auto Finance Holdings”), approximately 10.0% by DDFS LLC, an entity affiliated with Thomas G. Dundon, the Company’s Chairman and Chief Executive Officer (“CEO”), approximately 25.3% by public shareholders and approximately 0.1% by other holders, primarily members of senior management.

The Company’s primary business is the indirect origination 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 with Chrysler Group (the “Chrysler Agreement”) that became effective May 1, 2013, the Company offers a full spectrum of auto financing products and services to Chrysler 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, in 2013 the Company began originating and acquiring unsecured consumer loans.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including certain special purpose financing trusts utilized in financing transactions (“Trusts”), which are considered variable interest entities (“VIEs”). The Company consolidates other VIEs for which it was deemed the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements as of March 31, 2014 and December 31, 2013, and for the three months ended March 31, 2014 and 2013, have been prepared in accordance with United States (U.S.) generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly 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.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions which 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 loan loss allowance, discount accretion, impairment, 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 motorcycles, RVs, and watercraft. It also includes the Company’s unsecured personal loan and point-of-sale financing operations.

8


 

Accounting Policies

The Company has identified the following critical accounting policies and estimates used by management in the preparation of the Company’s financial statements: retail installment contracts, unsecured consumer loans, receivables from dealers, provision for loan losses, leased vehicles, income taxes, and earnings per share. As of March 31, 2014, there have been no significant changes to the Company's accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU 2013-11, Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU provides guidance on the presentation of unrecognized tax benefits, particularly the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This guidance became effective for the Company January 1, 2014 and implementation did not have a significant impact on the Company’s financial position, results of operations, or cash flows.

 

2.

Finance Receivables

Finance receivables held for investment at March 31, 2014 and December 31, 2013, were comprised as follows:

 

 

March 31, 2014

 

 

Retail Installment Contracts Held for Investment

 

 

 

 

 

 

 

 

 

 

Loans
Acquired
Individually

 

 

Purchased
Receivables
Portfolios

 

 

Total

 

 

Receivables from
Dealers Held
for Investment

 

 

Unsecured
Consumer
Loans

 

Unpaid principal balance

$

22,826,639

 

 

$

1,566,897

 

 

$

24,393,536

 

 

$

109,105

 

 

$

1,217,755

 

Loan loss allowance (Note 3)

 

(2,444,552

)

 

 

(206,170

)

 

 

(2,650,722

)

 

 

(1,035

)

 

 

(203,190

)

Discount

 

(649,416

)

 

 

(41,311

)

 

 

(690,727

)

 

 

 

 

 

(14,866

)

Capitalized origination costs and fees

 

35,086

 

 

 

 

 

 

35,086

 

 

 

130

 

 

 

846

 

Net carrying balance

$

19,767,757

 

 

$

1,319,416

 

 

$

21,087,173

 

 

$

108,200

 

 

$

1,000,545

 

 

 

December 31, 2013

 

 

Retail Installment Contracts Held for Investment

 

 

 

 

 

 

 

 

 

 

Loans
Acquired
Individually

 

 

Purchased
Receivables
Portfolios

 

 

Total

 

 

Receivables from
Dealers Held
for Investment

 

 

Unsecured
Consumer
Loans

 

Unpaid principal balance

$

21,238,281

 

 

$

1,961,060

 

 

$

23,199,341

 

 

$

95,835

 

 

$

1,165,778

 

Loan loss allowance (Note 3)

 

(2,132,634

)

 

 

(226,356

)

 

 

(2,358,990

)

 

 

(1,090

)

 

 

(179,350

)

Discount

 

(573,462

)

 

 

(81,216

)

 

 

(654,678

)

 

 

 

 

 

(32,831

)

Capitalized origination costs

 

33,936

 

 

 

 

 

 

33,936

 

 

 

 

 

 

592

 

Net carrying balance

$

18,566,121

 

 

$

1,653,488

 

 

$

20,219,609

 

 

$

94,745

 

 

$

954,189

 

 

As of March 31, 2014, retail installment contracts and receivables from dealers held for sale totaled $144,772 and $26,694, respectively. As of December 31, 2013, retail installment contracts and receivables from dealers held for sale totaled $56,066 and $26,437, respectively. Sales of retail installment contracts for the three months ended March 31, 2014 included principal balance amounts of approximately $1,685,723. No receivables from dealers were sold during the three months ended March 31, 2014.

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 facilities or securitization bonds (Note 6). Most of the creditors on the Company’s retail installment contracts are retail consumers; however, approximately $477,062 and $345,177 of the unpaid principal balance represented fleet contracts with commercial consumers as of March 31, 2014 and December 31, 2013, respectively.

Borrowers on the Company’s retail installment contracts held for investment are located in Texas (17%), Florida (10%), California (8%), Georgia (5%), North Carolina (5%), and other states each individually representing less than 5% of the Company’s total.

9


 

Receivables from dealers held for investment includes a term loan, which was previously a residual warehouse credit facility, with a third-party vehicle dealer and lender that operates in multiple states. The loan allowed committed borrowings of $50,000 at March 31, 2014 and December 31, 2013, and the facility balance was $50,000 at each of those dates.

Borrowers on the Company’s remaining receivables from dealers held for investment, all of which are Chrysler-affiliated, are located in Texas (29%), Ohio (18%), New York (13%), New Jersey (12%), California (8%), Tennessee (8%), Louisiana (5%) and other states each individually representing less than 5% of the Company’s total.

Borrowers on the Company’s unsecured consumer loans are located in California (9%), New York (8%), Texas (8%), Florida (6%), Pennsylvania (5%) and other states each individually representing less than 5% of the Company’s total.

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, 2014

 

 

March 31, 2013

 

Balance — beginning of period

$

403,400

 

 

$

816,854

 

Additions (loans acquired during the period)

 

 

 

 

 

Accretion of accretable yield

 

(65,046

)

 

 

(135,199

)

Reclassifications from nonaccretable difference

 

24,469

 

 

 

61,693

 

Balance — end of period

$

362,823

 

 

$

743,348

 

 

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 during the three months ended March 31, 2014 and 2013. Interest receivable on purchased receivables portfolios totaled $12,446 and $16,950 at March 31, 2014 and December 31, 2013, respectively.

 

3.

Loan Loss Allowance and Credit Quality

Loan Loss Allowance

The Company estimates loan losses on individually acquired retail installment contracts and unsecured consumer loans held for investment based on delinquency status, historical loss experience, estimated values of underlying collateral, when applicable, and various economic factors. The Company maintains a general loan loss allowance for receivables from dealers based on risk ratings, and individually evaluates the loans for specific impairment as necessary. The activity in the loan loss allowance for individually acquired loans for the three months ended March 31, 2014 and 2013 was as follows:

 

 

Three Months Ended March 31, 2014

 

 

Retail Installment
Contracts
Acquired
Individually

 

 

Receivables
from Dealers Held
for Investment

 

 

Unsecured
Consumer Loans

 

Balance — beginning of period

$

2,132,634

 

 

$

1,090

 

 

$

179,350

 

Provision for loan losses

 

656,706

 

 

 

(55

)

 

 

62,129

 

Charge-offs

 

(752,565

)

 

 

 

 

 

(40,948

)

Recoveries

 

407,777

 

 

 

 

 

 

2,659

 

Balance — end of period

$

2,444,552

 

 

$

1,035

 

 

$

203,190

 

 

The loan loss allowance for receivables from dealers is comprised entirely of general allowances as none of these receivables have been determined to be individually impaired.

 

 

Three Months Ended March 31, 2013

 

 

Retail Installment
Contracts
Acquired
Individually

 

 

Receivables
from Dealers Held
for Investment

 

 

Unsecured
Consumer Loans

 

Balance — beginning of period

$

1,555,362

 

 

$

 

 

$

 

Provision for loan losses

 

251,641

 

 

 

 

 

 

 

Charge-offs

 

(384,726

)

 

 

 

 

 

 

Recoveries

 

238,335

 

 

 

 

 

 

 

Balance — end of period

$

1,660,612

 

 

$

 

 

$

 

10


 

 

The activity in the loan loss allowance related to purchased receivables portfolios for the three months ended March 31, 2014 and 2013 was as follows:

 

 

Three Months Ended

 

 

March 31,

 

 

2014

 

 

2013

 

Balance — beginning of period

$

226,356

 

 

$

218,640

 

Incremental provisions for purchased receivable portfolios

 

1,325

 

 

 

21,662

 

Incremental reversal of provisions for purchased receivable portfolios

 

(21,511

)

 

 

(56,110

)

Balance — end of period

$

206,170

 

 

$

184,192

 

 

Delinquencies

Retail installment contracts and unsecured consumer amortizing term loans  are classified as non-performing when they are greater than 60 days past due as to principal or interest. At the time a loan is placed on non-accrual status, previously accrued and uncollected interest is reversed against interest income. When an account is returned to a performing status of 60 days or less past due, the Company returns to accruing interest on the contract. The accrual of interest on receivables from dealers and revolving unsecured consumer loans continues until the loan is charged off. A summary of delinquencies as of March 31, 2014 and December 31, 2013 is as follows:

 

 

March 31, 2014

 

 

Retail Installment Contracts Held for Investment

 

 

Receivables
from Dealers Held
for Investment

 

 

Unsecured
Consumer
Loans

 

 

Loans
Acquired
Individually

 

 

Purchased
Receivables
Portfolios

 

 

Total

 

 

Principal, current

$

20,933,262

 

 

$

1,247,506

 

 

$

22,180,768

 

 

$

109,105

 

 

$

1,088,013

 

Principal, 31-60 days past due

 

1,290,394

 

 

 

210,344

 

 

 

1,500,738

 

 

 

 

 

 

39,639

 

Delinquent principal over 60 days

 

602,983

 

 

 

109,047

 

 

 

712,030

 

 

 

 

 

 

90,103

 

Total principal

$

22,826,639

 

 

$

1,566,897

 

 

$

24,393,536

 

 

$

109,105

 

 

$

1,217,755

 

 

 

 

December 31, 2013

 

 

Retail Installment Contracts Held for Investment

 

 

Receivables
from Dealers Held
for Investment

 

 

Unsecured
Consumer
Loans

 

 

Loans
Acquired
Individually

 

 

Purchased
Receivables
Portfolios

 

 

Total

 

 

 

Principal, current

$

18,653,827

 

 

$

1,457,813

 

 

$

20,111,640

 

 

$

95,835

 

 

$

1,072,316

 

Principal, 31-60 days past due

 

1,729,139

 

 

 

321,549

 

 

 

2,050,688

 

 

 

 

 

 

28,102

 

Delinquent principal over 60 days

 

855,315

 

 

 

181,698

 

 

 

1,037,013

 

 

 

 

 

 

65,360

 

Total principal

$

21,238,281

 

 

$

1,961,060

 

 

$

23,199,341

 

 

$

95,835

 

 

$

1,165,778

 

 

As of March 31, 2014 and December 31, 2013, there were no receivables held for sale that were non-performing.

FICO® Distribution — A summary of the credit risk profile of the Company’s consumer loans by Fair Isaac Corporation (FICO®) distribution, determined at origination, as of March 31, 2014 and December 31, 2013 was as follows:

 

March 31, 2014

 

 

 

Retail Installment

 

 

Unsecured

 

 

 

Contracts Held

 

 

Consumer

 

FICO Band

 

for Investment

 

 

Loans

 

<540

 

 

27.0%

 

 

 

3.6%

 

540-599

 

 

32.2%

 

 

 

27.7%

 

600-659

 

 

26.2%

 

 

 

43.8%

 

>660

 

 

14.6%

 

 

 

24.9%

 

 

 

11


 

 

December 31, 2013

 

 

 

Retail Installment

 

 

Unsecured

 

 

 

Contracts Held

 

 

Consumer

 

FICO Band