10-Q



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, 2016
¨
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 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  ý    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
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
 
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  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, 2016
Common Stock ($0.01 par value)
 
358,151,988 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 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 more information regarding these risks and uncertainties as well as certain additional risks that we face, refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2015, 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 our financial performance to differ materially from that suggested by the forward-looking statements are:

we operate in a highly regulated industry and continually changing federal, state, and local laws and regulations could materially adversely affect our business;
our 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 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;
we may incur unexpected costs and delays in connection with exiting our personal lending business;
our agreement with FCA 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;
we are directly and indirectly, through our relationship with Santander Holdings USA, Inc., subject to certain bank regulations, including oversight by the OCC, the CFPB, the European Central Bank, and the Federal Reserve, which oversight and regulation may limit certain of our activities, including the timing and amount of dividends and other limitations on our business; and
future changes in our relationship with Santander could adversely affect our operations.

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.

Glossary

The following is a list of abbreviations, acronyms, and commonly used terms used in this Quarterly Report on Form 10-Q.
ABS
Asset-backed securities
Advance Rate
The maximum percentage of unpaid principal balance that a lender is willing to lend.

3



ALG
Automotive Lease Guide
APR
Annual Percentage Rate
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bluestem
Bluestem Brands, Inc., an online retailer for whose customers SC provides financing
Board
SC’s Board of Directors
Capmark
Capmark Financial Group Inc., an investment company
CBP
Citizens Bank of Pennsylvania
CCAR
Comprehensive Capital Analysis and Review
CCART
Chrysler Capital Auto Receivables Trust, a securitization platform
Centerbridge
Centerbridge Partners, L.P., a private equity firm
CEO
Chief Executive Officer
CFPB
Consumer Financial Protection Bureau
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
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
FRB
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
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

4



Private-label
Financing branded in the name of the product manufacturer rather than in the name of the finance provider
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
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.
SHUSA
Santander Holdings USA, Inc., a wholly-owned subsidiary of Santander and the majority owner of SC
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 Facility
A revolving line of credit generally used to fund finance receivable originations


5



PART I: FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements
SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Dollars in thousands, except per share amounts)
 
March 31,
2016
 
December 31,
2015
Assets
 
 
 
Cash and cash equivalents - $4,120 and zero held for affiliates, respectively
$
42,047

 
$
18,893

Finance receivables held for sale, net
2,324,190

 
2,868,603

Finance receivables held for investment, net
24,082,180

 
23,479,680

Restricted cash - $31,898 and $39,436 held for affiliates, respectively
2,636,216

 
2,236,329

Accrued interest receivable
369,656

 
405,464

Leased vehicles, net
7,298,521

 
6,516,030

Furniture and equipment, net of accumulated depreciation of $55,098 and $50,409, respectively
61,543

 
58,007

Federal, state and other income taxes receivable
260,687

 
267,686

Related party taxes receivable
85

 

Goodwill
74,056

 
74,056

Intangible assets, net of amortization of $30,053 and $28,422, respectively
33,915

 
53,316

Due from affiliates
65,062

 
42,665

Other assets
656,449

 
549,644

Total assets
$
37,904,607

 
$
36,570,373

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Notes payable — credit facilities
$
8,389,269

 
$
6,902,779

Notes payable — secured structured financings
20,340,959

 
20,872,900

Notes payable — related party
2,775,000

 
2,600,000

Accrued interest payable
25,632

 
22,544

Accounts payable and accrued expenses
374,843

 
413,269

Federal, state and other income taxes payable
3,088

 
2,449

Deferred tax liabilities, net
994,024

 
908,252

Related party taxes payable

 
342

Due to affiliates
177,061

 
145,013

Other liabilities
235,184

 
277,862

Total liabilities
33,315,060

 
32,145,410

Commitments and contingencies (Notes 5 and 10)

 

Equity:
 
 
 
Common stock, $0.01 par value — 1,100,000,000 shares authorized;
 
 
 
358,108,351 and 358,014,870 shares issued and 358,039,346 and 357,945,865 shares outstanding, respectively
3,580

 
3,579

Additional paid-in capital
1,567,936

 
1,565,856

Accumulated other comprehensive income (loss), net
(36,065
)
 
2,125

Retained earnings
3,054,096

 
2,853,403

Total stockholders’ equity
4,589,547

 
4,424,963

Total liabilities and equity
$
37,904,607

 
$
36,570,373


See notes to unaudited condensed consolidated financial statements.

6



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,
 
2016
 
2015
 
 
 
(As Restated - Note 1)
Interest on finance receivables and loans
$
1,341,763

 
$
1,230,002

Leased vehicle income
329,792

 
231,616

Other finance and interest income
3,912

 
7,341

Total finance and other interest income
1,675,467

 
1,468,959

Interest expense — Including $31,686 and $44,016 to affiliates, respectively
184,735

 
148,856

Leased vehicle expense
218,779

 
171,734

Net finance and other interest income
1,271,953

 
1,148,369

Provision for credit losses
706,574

 
674,687

Net finance and other interest income after provision for credit losses
565,379

 
473,682

Profit sharing
11,394

 
13,516

Net finance and other interest income after provision for credit losses and profit sharing
553,985

 
460,166

Investment gains (losses), net
(73,151
)
 
21,247

Servicing fee income — Including $4,936 and $5,024 from affiliates, respectively
44,494

 
24,803

Fees, commissions, and other — Including $225 and $5,849 from affiliates, respectively
101,335

 
101,133

Total other income
72,678

 
147,183

Compensation expense
119,842

 
100,540

Repossession expense
73,545

 
58,826

Other operating costs — Including $4,813 and $371 to affiliates, respectively
116,454

 
86,013

Total operating expenses
309,841

 
245,379

Income before income taxes
316,822

 
361,970

Income tax expense
116,129

 
115,688

Net income
$
200,693

 
$
246,282

 
 
 
 
Net income
$
200,693

 
$
246,282

Other comprehensive income (loss):
 
 
 
Change in unrealized gains (losses) on cash flow hedges, net of tax of $22,733 and $7,622, respectively
(38,190
)
 
(12,843
)
Comprehensive income
$
162,503

 
$
233,439

Net income per common share (basic)
$
0.56

 
$
0.70

Net income per common share (diluted)
$
0.56

 
$
0.69

Weighted average common shares (basic)
357,974,890

 
349,421,960

Weighted average common shares (diluted)
360,228,272

 
356,654,466


See notes to unaudited condensed consolidated financial statements.

7



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited) (In thousands)
 
 
Common Stock
 
Additional
Paid-In
 
Accumulated
Other
Comprehensive
 
Retained
 
Total
Stockholders’
 
Shares
 
Amount
 
Capital
 
Income (Loss)
 
Earnings
 
Equity
Balance — January 1, 2015, as restated (Note 1)
348,978

 
$
3,490

 
$
1,560,519

 
$
3,553

 
$
2,026,110

 
$
3,593,672

Stock issued in connection with employee incentive compensation plans
980

 
10

 
11,640

 

 

 
11,650

Stock-based compensation expense

 

 
4,075

 

 

 
4,075

Net income, as restated (Note 1)

 

 

 

 
246,282

 
246,282

Other comprehensive income (loss), net of taxes

 

 

 
(12,843
)
 

 
(12,843
)
Balance — March 31, 2015, as restated (Note 1)
349,958

 
$
3,500

 
$
1,576,234

 
$
(9,290
)
 
$
2,272,392

 
$
3,842,836

 
 
 
 
 
 
 
 
 
 
 
 
Balance — January 1, 2016
357,946

 
$
3,579

 
$
1,565,856

 
$
2,125

 
$
2,853,403

 
$
4,424,963

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

 

 

 

 
200,693

 
200,693

Other comprehensive income (loss), net of taxes

 

 

 
(38,190
)
 

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

 
$
3,580

 
$
1,567,936

 
$
(36,065
)
 
$
3,054,096

 
$
4,589,547

 
See notes to unaudited condensed consolidated financial statements.

8



SANTANDER CONSUMER USA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Dollars in thousands)
 
For the Three Months Ended 
 March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
(As Restated - Note 1)
Net income
$
200,693

 
$
246,282

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Derivative mark to market
5,317

 
2,429

Provision for credit losses
706,574

 
674,687

Depreciation and amortization
265,077

 
196,191

Accretion of discount
(151,045
)
 
(132,725
)
Originations and purchases of receivables held for sale
(1,277,487
)
 
(720,145
)
Proceeds from sales of and collections on receivables held for sale
922,071

 
537,462

Change in revolving personal loans
(129,330
)
 

Investment losses (gains), net
73,151

 
(21,247
)
Stock-based compensation
1,768

 
4,075

Deferred tax expense (benefit)
107,540

 
(1,275
)
Changes in assets and liabilities:
 
 
 
Accrued interest receivable
11,272

 
6,512

Accounts receivable
3,157

 
(3,726
)
Federal income tax and other taxes
7,515

 
388,718

Other assets
(59,275
)
 
7,063

Accrued interest payable
3,102

 
1,744

Other liabilities
(19,963
)
 
62,587

Due to/from affiliates
(15,748
)
 
(5,435
)
Net cash provided by operating activities
654,389

 
1,243,197

Cash flows from investing activities:
 
 
 
Originations of and disbursements on finance receivables held for investment
(3,836,292
)
 
(4,986,961
)
Purchases of portfolios of finance receivables held for investment
(95,596
)
 

Collections on finance receivables held for investment
2,598,238

 
2,537,187

Proceeds from sale of loans held for investment
823,877

 
407,470

Leased vehicles purchased
(1,622,199
)
 
(1,135,171
)
Manufacturer incentives received
329,616

 
219,419

Proceeds from sale of leased vehicles
295,118

 
586,664

Change in revolving personal loans
166,890

 
(4,237
)
Purchases of furniture and equipment
(14,500
)
 
(4,844
)
Sales of furniture and equipment
1,010

 
188

Change in restricted cash
(404,457
)
 
(766,447
)
Other investing activities
(2,532
)
 
(1,533
)
Net cash used in investing activities
(1,760,827
)
 
(3,148,265
)
Cash flows from financing activities:
 
 
 
Proceeds from notes payable related to secured structured financings — net of debt issuance costs
2,634,405

 
3,056,950

Payments on notes payable related to secured structured financings
(3,171,686
)
 
(2,780,640
)
Proceeds from unsecured notes payable
2,818,900

 
1,690,000

Payments on unsecured notes payable
(2,643,900
)
 
(1,005,000
)
Proceeds from notes payable
6,353,143

 
6,195,553

Payments on notes payable
(4,862,083
)
 
(5,259,330
)
Proceeds from stock option exercises, gross
813

 
9,161

Repurchase of stock - employee tax withholding

 
(164
)
Other financing activities

 
(7,667
)
Net cash provided by financing activities
1,129,592

 
1,898,863

Net increase (decrease) in cash and cash equivalents
23,154

 
(6,205
)
Cash — Beginning of period
18,893

 
33,157

Cash — End of period
$
42,047

 
$
26,952


See notes to unaudited condensed consolidated financial statements.

9



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 subsidiaries, a specialized consumer finance company focused on vehicle finance and third-party servicing. 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 (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, 2016, the Company was owned approximately 58.9% by Santander Holdings USA, Inc. (SHUSA), a subsidiary of Banco Santander, S.A. (Santander), approximately 31.2% by public shareholders, approximately 9.8% 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. Pursuant to a Separation Agreement with Mr. Dundon, SHUSA was deemed to have delivered, as of July 3, 2015, an irrevocable notice to exercise the call option with respect to all the shares of Company common stock owned by DDFS LLC and consummate the transactions contemplated by the call option notice, subject to required bank regulatory approvals and any other approvals required by law being obtained (the "Call Transaction"). Pursuant to the Separation Agreement, because the Call Transaction was not consummated prior to October 15, 2015 (the “Call End Date”), DDFS LLC is free to transfer any or all of its shares of Company common stock, subject to the terms and conditions of the Amended and Restated Loan Agreement, dated as of July 16, 2014, between DDFS LLC and Santander (Note 11).
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries, including certain Trusts, which are considered VIEs. The Company also consolidates other VIEs for which it was deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial statements as of March 31, 2016 and December 31, 2015, and for the three months ended March 31, 2016 and 2015, 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 generally accepted accounting principles for complete financial statements. In the opinion of management, these financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 31, 2016.
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, 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.

10



Corrections to Previously Reported Amounts
The Company has made certain corrections to the March 31, 2015 condensed consolidated statements of income and comprehensive income, equity, and cash flows, and Note 4, Note 9, and Note 12 thereto. The Company determined that its historical methodology for estimating its credit loss allowance for individually acquired retail installment contracts was in error as it did not estimate impairment on troubled debt restructurings (TDRs) separately from a general credit loss allowance on loans not classified as TDRs, and incorrectly applied a loss emergence period to the entire portfolio rather than only to loans not classified as TDRs. The Company has corrected its allowance methodology accordingly, and has determined, based on this corrected methodology, that the Provision for credit losses reported on the condensed consolidated statement of income for the three months ended March 31, 2015 was previously understated by $68,706. For the three months ended March 31, 2015, income tax expense and net income were overstated by $25,738 and $42,968, respectively. In addition, the Company has determined that it had incorrectly identified the population of loans that should be classified and disclosed as TDRs.
The Company also has determined that subvention payments related to leased vehicles were incorrectly classified, within the income statement, as an addition to Leased vehicle income rather than a reduction of Leased vehicle expense. The subvention payments classification errors did not impact net income for any period.
The impacts of the corrections of these errors on the unaudited quarterly financial information filed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2015 have been provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and the corrected quarterly financial information is presented in this Form 10-Q.

The following table summarizes the impacts of the corrections on our condensed consolidated statement of income for the three months ended March 31, 2015:
 
As Reported
 
Corrections
 
As Restated
Leased vehicle income
$
332,946

 
$
(101,330
)
 
$
231,616

Total finance and other interest income
1,570,289

 
(101,330
)
 
1,468,959

Leased vehicle expense
273,064

 
(101,330
)
 
171,734

Provision for credit losses
605,981

 
68,706

 
674,687

Net finance and other interest income after provision for credit losses
542,388

 
(68,706
)
 
473,682

Net finance and other interest income after provision for credit losses and profit sharing
528,872

 
(68,706
)
 
460,166

Income before income taxes
430,676

 
(68,706
)
 
361,970

Income tax expense
141,426

 
(25,738
)
 
115,688

Net income
$
289,250

 
$
(42,968
)
 
$
246,282

 
 
 
 
 
 
Net income
$
289,250

 
$
(42,968
)
 
$
246,282

Comprehensive income
$
276,407

 
$
(42,968
)
 
$
233,439

Net income per common share (basic)
$
0.83

 
$
(0.13
)
 
$
0.70

Net income per common share (diluted)
$
0.81

 
$
(0.12
)
 
$
0.69


The following table summarizes the impacts of the corrections on our condensed consolidated statement of equity for the three months ended March 31, 2015:
 
Retained Earnings
 
Total Stockholders’ Equity
 
As Reported
 
Corrections
 
As Restated
 
As Reported
 
Corrections
 
As Restated
Balance — January 1, 2015
$
1,990,787

 
$
35,323

 
$
2,026,110

 
$
3,558,349

 
$
35,323

 
$
3,593,672

Net income
289,250

 
(42,968
)
 
246,282

 
289,250

 
(42,968
)
 
246,282

Balance — March 31, 2015
$
2,280,037

 
$
(7,645
)
 
$
2,272,392

 
$
3,850,481

 
$
(7,645
)
 
$
3,842,836


The following table summarizes the impacts of the corrections on our condensed consolidated statement of cash flows for the three months ended March 31, 2015:

11



 
As Reported
 
Corrections
 
As Restated
Cash flows from operating activities:
 
 
 
 
 
Net income
$
289,250

 
$
(42,968
)
 
$
246,282

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Provision for credit losses
605,981

 
68,706

 
674,687

Depreciation and amortization
297,521

 
(101,330
)
 
196,191

Accretion of discount
(234,055
)
 
101,330

 
(132,725
)
Deferred tax expense
24,463

 
(25,738
)
 
(1,275
)

The impact of the corrections on the Company's disclosures of the activity in the credit loss allowance for individually acquired loans for the three months ended March 31, 2015 was as follows:
 
Retail Installment Contracts Acquired Individually
 
As Reported
 
Corrections
 
As Restated
Balance — beginning of period
$
2,726,338

 
$
(56,508
)
 
$
2,669,830

Provision for credit losses
507,148

 
68,706

 
575,854

Balance — end of period
$
2,822,712

 
$
12,198

 
$
2,834,910


The impact of the corrections on the Company's disclosures of the average recorded investment and income recognized on retail installment contract TDRs for the three months ended March 31, 2015 was as follows:
 
Three Months Ended March 31, 2015
 
Retail Installment Contracts
 
As Reported
 
Corrections
 
As Restated
Average outstanding recorded investment in TDRs
$
3,573,868

 
$
709,318

 
$
4,283,186

Interest income recognized
196,976

 
(15,566
)
 
181,410


The impact of the corrections on the Company's disclosures of the financial effects of retail installment contract TDRs that occurred for the three months ended March 31, 2015 was as follows:
 
Retail Installment Contracts
 
As Reported
 
Corrections
 
As Restated
Outstanding recorded investment before TDR
$
875,809

 
$
(27,442
)
 
$
848,367

Outstanding recorded investment after TDR
$
874,371

 
$
(17,126
)
 
$
857,245

Number of contracts (not in thousands)
52,319

 
(3,427
)
 
48,892


The impact of the corrections on the Company's disclosures of retail installment contracts modified as TDRs that subsequently defaulted for the three months ended March 31, 2015 was as follows:
 
Retail Installment Contracts
 
As Reported
 
Corrections
 
As Restated
Recorded investment in TDRs that subsequently defaulted
$
158,518

 
$
26,674

 
$
185,192

Number of contracts (not in thousands)
11,654

 
(913
)
 
10,741


The impact of the corrections on the Company's disclosures of the income tax expense and effective tax rate for the three months ended March 31, 2015 was as follows:
 
As Reported
 
Corrections
 
As Restated
Income tax expense
$
141,426

 
$
(25,738
)
 
$
115,688

Income before income taxes
430,676

 
(68,706
)
 
361,970

Effective tax rate
32.8
%
 
(0.8
)%
 
32.0
%

The impact of the corrections on the Company's disclosures of earnings per share for the three months ended March 31, 2015 was as follows:

12



 
As Reported
 
Corrections
 
As Restated
Earnings per common share
 
 
 
 
 
Net income attributable to SC shareholders
$
289,250

 
$
(42,968
)
 
$
246,282

Earnings per common share
$
0.83

 
$
(0.13
)
 
$
0.70

Earnings per common share - assuming dilution
 
 
 
 
 
Net income attributable to SC shareholders
$
289,250

 
$
(42,968
)
 
$
246,282

Earnings per common share - assuming dilution
$
0.81

 
$
(0.12
)
 
$
0.69

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, recreational vehicles, and marine vehicles. It also includes the Company’s personal loan and point-of-sale financing operations.
Recently Adopted Accounting Standards
In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period. This standard affects entities that issue share-based payments when the terms of an award stipulate that a performance target could be achieved after an employee completes the requisite service period. This guidance became effective for the Company January 1, 2016 and implementation of this guidance did not have a significant impact on the Company’s financial position, results of operations, or cash flows.
In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items. This standard simplifies income statement classification by removing the concept of extraordinary items from U.S. GAAP, and as a result, items that are both unusual and infrequent no longer will be separately reported net of tax after continuing operations. This guidance became effective for the Company January 1, 2016 and implementation of this guidance did not have a significant impact on the Company’s financial position, results of operations, or cash flows.
In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis. This ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance became effective for the Company January 1, 2016 and implementation of this guidance did not have a significant impact on the Company’s financial position, results of operations, or cash flows.
In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU clarifies when fees paid in a cloud computing arrangement pertain to the acquisition of a software license, services, or both. This guidance became effective for the Company January 1, 2016 and implementation of this guidance did not have a significant impact on the Company’s financial position, results of operations, or cash flows.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years 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 also 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). 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. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 and the related updates to it on its financial position, results of operations and disclosures.

13



In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.
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 is in the process of evaluating the impacts of the adoption of this ASU.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.
2.
Finance Receivables
Finance receivables held for investment, net is comprised of the following at March 31, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31, 2015
Retail installment contracts acquired individually
$
23,753,177

 
$
23,111,146

Purchased receivables
215,344

 
244,362

Receivables from dealers
74,612

 
76,025

Personal loans
1,337

 
941

Capital lease receivables (Note 3)
37,710

 
47,206

 
$
24,082,180

 
$
23,479,680

The Company's held for investment portfolio of retail installment contracts acquired individually, receivables from dealers, and personal loans was comprised of the following at March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
Retail Installment Contracts
Acquired
Individually
 
Receivables from
Dealers Held
for Investment
 
Personal Loans
Unpaid principal balance
$
27,588,943

 
$
76,015

 
$
1,337

Credit loss allowance (Note 4)
(3,423,258
)
 
(1,403
)
 

Discount
(455,471
)
 

 

Capitalized origination costs and fees
42,963

 

 

Net carrying balance
$
23,753,177

 
$
74,612

 
$
1,337

 
December 31, 2015
 
Retail Installment Contracts
Acquired
Individually
 
Receivables from
Dealers Held
for Investment
 
Personal Loans
Unpaid principal balance
$
26,863,946

 
$
76,941

 
$
941

Credit loss allowance (Note 4)
(3,296,023
)
 
(916
)
 

Discount
(502,342
)
 

 

Capitalized origination costs and fees
45,565

 

 

Net carrying balance
$
23,111,146

 
$
76,025

 
$
941


Purchased receivables portfolios, which were acquired with deteriorated credit quality, were comprised of the following at March 31, 2016 and December 31, 2015:

14



 
March 31,
2016
 
December 31, 2015
Unpaid principal balance
$
314,847

 
$
359,822

 
 
 
 
Outstanding recorded investment
$
388,269

 
$
419,183

Less: Impairment
(172,925
)
 
(174,821
)
Outstanding recorded investment, net of impairment
$
215,344

 
$
244,362


As of September 30, 2015, the Company determined that it no longer had the intent to hold its personal loans for investment and that classification of all of its personal loans as held for sale was appropriate as of that date. In connection with the reclassification to held for sale, the Company transferred the personal loan portfolio at the lower of cost or market, with the lower of cost or market adjustment being charged off against the credit loss allowance. Loan originations and purchases under the Company’s personal lending platform subsequent to September 30, 2015, also are classified as held for sale. Following the reclassification of personal loans to held for sale, further adjustments to the recorded investment in personal loans held for sale, whether due to customer default or changes in market value, are recorded in investment gains (losses), net, in the condensed consolidated statements of income and comprehensive income (Note 16). On February 1, 2016, the Company sold personal loans with an unpaid principal balance of $869,349 to a third party for an immaterial gain to unpaid principal balance.

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 $1,337 and $941 at March 31, 2016 and December 31, 2015, respectively.
The carrying value of the Company's finance receivables held for sale was comprised of the following at March 31, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31, 2015
Retail installment contracts acquired individually
$
1,345,371

 
$
905,710

Personal loans
978,819

 
1,962,893

 
$
2,324,190

 
$
2,868,603

Sales of retail installment contracts to third parties and proceeds from sales of charged-off assets for the three months ended March 31, 2016 and 2015 were as follows:
 
For the Three Months Ended 
 March 31,
 
2016
 
2015
Sales of retail installment contracts to third parties
$
859,955

 
$
919,078

Proceeds from sales of charged-off assets
$
6,230

 
$
38,376


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, 2016 and December 31, 2015 were as follows:
 
March 31,
2016
 
December 31, 2015
Serviced balance of retail installment contracts and leases sold to third parties
$
11,617,032

 
$
12,155,844

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 5). Most of the creditors on the Company’s retail installment contracts are retail consumers; however, $1,165,062 and $1,087,024 of the unpaid principal balance represented fleet contracts with commercial borrowers as of March 31, 2016 and December 31, 2015, respectively.

15



Borrowers on the Company’s retail installment contracts held for investment are located in Texas (17%), Florida (13%), California (10%), Georgia (5%) and other states each individually representing less than 5% of the Company’s total.
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, 2016 and December 31, 2015, 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 $158 and $156 at March 31, 2016, and December 31, 2015, respectively.
The remaining receivables from dealers held for investment are all Chrysler Agreement-related. Borrowers on these dealer receivables are located in Virginia (38%), California (23%), New York (20%), Missouri (9%), Mississippi (7%), 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, 2016
 
March 31, 2015
Balance — beginning of period
$
193,564

 
$
264,416

Accretion of accretable yield
(21,329
)
 
(26,905
)
Reclassifications from (to) nonaccretable difference
(24,258
)
 
6,144

Balance — end of period
$
147,977

 
$
243,655

During the three months ended March 31, 2016 and 2015, 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.

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, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31,
2015
Leased vehicles
$
10,004,043

 
$
8,862,214

Less: accumulated depreciation
(1,736,884
)
 
(1,517,198
)
Depreciated net capitalized cost
8,267,159

 
7,345,016

Manufacturer subvention payments, net of accretion (a)
(987,901
)
 
(845,142
)
Origination fees and other costs
19,263

 
16,156

Net book value
$
7,298,521

 
$
6,516,030

(a)
The Company recognized accretion of lease subvention payments, as a reduction to depreciation expense, of $151,871 and $101,330 for the three months ended March 31, 2016 and 2015, respectively.
During the three months ended March 31, 2016 and 2015, the Company executed bulk sales of Chrysler Capital leases with an aggregate depreciated net capitalized cost of zero and $561,334, respectively, and a net book value of zero and $488,919, to a third party, respectively. The bulk sale agreement included certain provisions whereby the Company agreed to share in residual losses for lease terminations with losses over a specific percentage threshold (Note 10). The Company retained servicing on the sold leases. Due to the accelerated depreciation permitted for tax purposes, the sale generated large taxable gains that the Company deferred through a qualified like-kind exchange program. An immaterial amount of taxable gain that did not qualify for deferral was recognized upon expiration of the reinvestment period.

16




The following summarizes the future minimum rental payments due to the Company as lessor under operating leases as of March 31, 2016:
 
 
Remainder of 2016
$
977,209

2017
963,272

2018
421,093

2019
24,165

2020
50

Thereafter

Total
$
2,385,789

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, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31,
2015
Gross investment in capital leases
$
70,781

 
$
91,393

Origination fees and other
168

 
155

Less unearned income
(17,379
)
 
(24,464
)
   Net investment in capital leases before allowance
53,570

 
67,084

Less: allowance for lease losses
(15,860
)
 
(19,878
)
   Net investment in capital leases
$
37,710

 
$
47,206


The following summarizes the future minimum lease payments due to the Company as lessor under capital leases as of March 31, 2016:
 
 
Remainder of 2016
$
17,065

2017
22,721

2018
21,587

2019
8,279

2020
1,037

Thereafter
92

Total
$
70,781


4.
Credit Loss Allowance and Credit Quality
Credit Loss Allowance
The Company estimates 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. Loans classified as TDRs are assessed for impairment based on the present value of expected future cash flows discounted at the original effective interest rate.
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, 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 loans for the three months ended March 31, 2016 and 2015 was as follows:

17



 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
 
Retail Installment
Contracts
Acquired
Individually
 
Receivables
from Dealers Held
for Investment
 
Retail Installment
Contracts
Acquired
Individually
 
Receivables
from Dealers Held
for Investment
 
Personal Loans
 
 
 
 
 
(As Restated - Note 1)
 
 
 
 
Balance — beginning of period
$
3,296,023

 
$
916

 
$
2,669,830

 
$
674

 
$
348,660

Provision for credit losses
709,530

 
487

 
575,854

 
456

 
97,703

Charge-offs
(1,192,610
)
 

 
(926,993
)
 

 
(99,690
)
Recoveries
610,315

 

 
543,336

 

 
6,205

Transfers to held-for-sale

 

 
(27,117
)
 

 

Balance — end of period
$
3,423,258

 
$
1,403

 
$
2,834,910

 
$
1,130

 
$
352,878

The impairment activity related to purchased receivables portfolios for the three months ended March 31, 2016 and 2015 was as follows:
 
Three Months Ended 
 March 31,
 
2016
 
2015
Balance — beginning of period
$
174,821

 
$
188,639

Incremental provisions for purchased receivables portfolios
1,319

 
300

Incremental reversal of provisions for purchased receivables portfolios
(3,215
)
 
(5,402
)
Balance — end of period
$
172,925

 
$
183,537

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, 2016 and 2015 was as follows:
 
Three Months Ended 
 March 31,
 
2016
 
2015
Balance — beginning of period
$
19,878

 
$
9,589

Provision for lease losses
(1,547
)
 
5,776

Charge-offs
(12,359
)
 
(1,997
)
Recoveries
9,888

 
1,814

Balance — end of period
$
15,860

 
$
15,182


Delinquencies

Retail installment contracts are classified as non-performing when they are greater than 60 days past due as to contractual principal or interest payments. Dealer receivables are classified as non-performing when they are greater than 90 days past due. At the time a loan is placed in non-performing 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.
A summary of delinquencies as of March 31, 2016 and December 31, 2015 is as follows:
 
March 31, 2016
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 31-60 days past due
$
1,900,922

 
$
20,131

 
$
1,921,053

Delinquent principal over 60 days
852,863

 
11,570

 
864,433

Total delinquent principal
$
2,753,785

 
$
31,701

 
$
2,785,486


18



 
December 31, 2015
 
Retail Installment Contracts Held for Investment
 
Loans
Acquired
Individually
 
Purchased
Receivables
Portfolios
 
Total
Principal, 31-60 days past due
$
2,454,986

 
$
30,442

 
$
2,485,428

Delinquent principal over 60 days
1,191,567

 
17,297

 
1,208,864

Total delinquent principal
$
3,646,553

 
$
47,739

 
$
3,694,292


The balances in the above tables reflect total unpaid principal balance rather than net investment before allowance; the difference is considered insignificant. As of March 31, 2016 and December 31, 2015, there were no receivables from dealers that were 31 days or more delinquent.
FICO® Distribution — A summary of the credit risk profile of the Company’s retail installment contract held for investment by FICO® distribution, determined at origination, as of March 31, 2016 and December 31, 2015 was as follows:
FICO® Band
 
March 31, 2016
 
December 31, 2015
Commercial (a)
 
4.2%
 
4.0%
No-FICOs
 
12.6%
 
12.2%
<540
 
23.2%
 
23.4%
540-599
 
31.0%
 
30.9%
600-639
 
17.1%
 
17.3%
>640
 
11.9%
 
12.2%

(a)No FICO score is obtained on loans to commercial borrowers
Commercial Lending Credit Quality Indicators — The credit quality of receivables from dealers, which are considered commercial loans, is summarized according to standard regulatory classifications as follows:
Pass — Asset is well-protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value less costs to acquire and sell any underlying collateral in a timely manner.
Special Mention — Asset has potential weaknesses that deserve management’s close attention, which, if left uncorrected, may result in deterioration of the repayment prospects for an asset at some future date. Special Mention assets are not adversely classified.
Substandard — Asset is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. A well-defined weakness or weaknesses exist that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.
Doubtful — Exhibits the inherent weaknesses of a substandard credit. Additional characteristics exist that make collection or liquidation in full highly questionable and improbable, on the basis of currently known facts, conditions and values. Possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the credit, an estimated loss cannot yet be determined.
Loss — Credit is considered uncollectible and of such little value that it does not warrant consideration as an active asset. There may be some recovery or salvage value, but there is doubt as to whether, how much or when the recovery would occur.
As discussed in Note 2, the Company has $1,165,062 of fleet retail installment contracts with commercial borrowers. The Company's risk department performs a commercial analysis and classifies certain loans over an internal threshold based on the classifications above. As of March 31, 2016, $6,409 of fleet loans were classified as Special Mention; the remaining fleet portfolio borrowers with balances over the classification threshold all were classified as Pass.
Commercial loan credit quality indicators for receivables from dealers held for investment as of March 31, 2016 and December 31, 2015 were as follows:

19



 
March 31,
2016
 
December 31,
2015
Pass
$
67,644

 
$
68,873

Special Mention
2,406

 
8,068

Substandard
5,965

 

Doubtful

 

Loss

 

Unpaid principal balance
$
76,015

 
$
76,941

 
Troubled Debt Restructurings
In certain circumstances, the Company modifies the terms of its finance receivables to troubled borrowers. Modifications may include a reduction in interest rate, an extension of the maturity date, rescheduling of future cash flows, or a combination thereof. A modification of finance receivable terms is considered a TDR if the Company grants a concession to a borrower for economic or legal reasons related to the debtor’s financial difficulties that would not otherwise have been considered. Management considers TDRs to include all individually acquired retail installment contracts that have been modified at least once, deferred for a period of 90 days or more, or deferred at least twice. Additionally, restructurings through bankruptcy proceedings are deemed to be TDRs. The purchased receivables portfolio, operating and capital leases, and loans held for sale, including personal loans, are excluded from the scope of the applicable guidance. As of March 31, 2016 and December 31, 2015, 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 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.
The table below presents the Company’s TDRs as of March 31, 2016 and December 31, 2015:
 
March 31,
2016
 
December 31, 2015
 
Retail Installment Contracts
Outstanding recorded investment
$
4,803,486

 
$
4,667,380

Impairment
(1,374,510
)
 
(1,356,092
)
Outstanding recorded investment, net of impairment
$
3,428,976

 
$
3,311,288

 
A summary of the Company’s delinquent TDRs at March 31, 2016 and December 31, 2015, is as follows:
 
March 31,
2016
 
December 31, 2015
 
Retail Installment Contracts
Principal, 31-60 days past due
$
793,139

 
$
942,021

Delinquent principal over 60 days
367,413

 
510,015

Total delinquent TDR principal
$
1,160,552

 
$
1,452,036

 
A loan that has been classified as a TDR remains so until the loan is liquidated through payoff or charge-off. Consistent with the Company’s other retail installment contracts, TDRs are placed on nonaccrual status when the account becomes past due more than 60 days, and returns to accrual status when the account is 60 days or less past due. Average recorded investment and income recognized on TDR loans are as follows:

20



 
Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
Retail Installment Contracts
 
Retail Installment Contracts
 
Personal Loans
 
 
 
(As Restated - Note 1)
 
 
Average outstanding recorded investment in TDRs
$
4,735,433

 
$
4,283,186

 
$
10,387

Interest income recognized
$
174,191

 
$
181,410

 
$
589

The following table summarizes the financial effects of TDRs that occurred during the three months ended March 31, 2016 and 2015:
 
Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
Retail Installment Contracts
 
Retail Installment Contracts
 
Personal Loans
 
 
 
(As Restated - Note 1)
 
 
Outstanding recorded investment before TDR
$
703,948

 
$
848,367

 
$
5,394

Outstanding recorded investment after TDR
$
711,225

 
$
857,245

 
$
5,356

Number of contracts (not in thousands)
39,380

 
48,892

 
4,468

A TDR is considered to have subsequently defaulted upon charge off, which for retail installment contracts is at the earlier of the date of repossession or the month in which the loan becomes 120 days past due and for revolving personal loans is generally the month in which the receivable becomes 180 days past due. Loan restructurings accounted for as TDRs within the previous twelve months that subsequently defaulted during the three months ended March 31, 2016 and 2015 are summarized in the following table:
 
Three Months Ended
 
March 31, 2016
 
March 31, 2015
 
Retail Installment Contracts
 
Retail Installment Contracts
 
Personal Loans
 
 
 
(As Restated - Note 1)
 
 
Recorded investment in TDRs that subsequently defaulted
$
204,040

 
$
185,192

 
$
1,411

Number of contracts (not in thousands)
11,402

 
10,741

 
1,411

    

21



5.
Debt
Revolving Credit Facilities
The following table presents information regarding credit facilities as of March 31, 2016 and December 31, 2015:
 
March 31, 2016
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Warehouse line
June 2016
 
$
328,484

 
$
500,000

 
1.53%
 
$
470,935

 
$

Warehouse line (a)
Various (a)
 
898,785

 
1,250,000

 
1.65%
 
1,268,593

 
33,876

Warehouse line (b)
July 2017
 
1,136,620

 
1,260,000

 
1.26%
 
1,327,405

 
39,890

Warehouse line (c)
July 2017
 
2,151,543

 
2,940,000

 
1.37%
 
3,301,792

 
59,169

Warehouse line
December 2017
 
1,342,277

 
1,800,000

 
1.59%
 
1,903,553

 
45,797

Repurchase facility (d)
December 2016
 
1,147,361

 
1,147,361

 
2.51%
 

 
44,767

Warehouse line
March 2018
 
886,199

 
1,000,000

 
1.26%
 
1,287,618

 
28,733

Warehouse line (e)
November 2016
 
175,000

 
175,000

 
1.99%
 

 

Warehouse line (e)
November 2016
 
250,000

 
250,000

 
1.99%
 

 
2,502

Warehouse line
January 2018
 
73,000

 
400,000

 
3.13%
 
102,309

 

Total facilities with third parties
 
 
8,389,269

 
10,722,361

 
 
 
9,662,205

 
254,734

Lines of credit with Santander and related subsidiaries (f):
 
 
 
 
 
 
 
 
 
 

Line of credit
December 2016
 
500,000

 
500,000

 
2.74%
 

 

Line of credit
December 2018
 

 
500,000

 
3.49%
 

 

Line of credit
December 2016
 
1,000,000

 
1,000,000

 
2.70%
 

 

Line of credit
December 2018
 
975,000

 
1,000,000

 
2.94%
 

 

Line of credit
March 2017
 
300,000

 
300,000

 
1.99%
 

 

Line of credit
March 2019
 

 
1,500,000

 
4.44%
 

 

Total facilities with Santander and related subsidiaries
 
 
2,775,000

 
4,800,000

 
 
 

 

Total revolving credit facilities
 
 
$
11,164,269

 
$
15,522,361

 
 
 
$
9,662,205

 
$
254,734

(a)
Half of the outstanding balance on this facility matures in March 2017 and half matures in March 2018.
(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)
The repurchase facility is collateralized by securitization notes payable retained by the Company. This facility has rolling maturities of up to 180 days. On April 14, 2016, the Company entered into a second repurchase facility, advancing $237,000.
(e)
These lines are collateralized by residuals retained by the Company.
(f)
These lines generally are also collateralized by securitization notes payable and residuals retained by the Company. As of March 31, 2016 and December 31, 2015, $1,591,882 and $1,420,584, respectively, of the aggregate outstanding balances on these facilities were unsecured.

22



 
December 31, 2015
 
Maturity Date(s)
 
Utilized Balance
 
Committed Amount
 
Effective Rate
 
Assets Pledged
 
Restricted Cash Pledged
Warehouse line
June 2016
 
$
378,301

 
$
500,000

 
1.48%
 
$
535,737

 
$

Warehouse line
Various
 
808,135

 
1,250,000

 
1.29%
 
1,137,257

 
24,942

Warehouse line
July 2017
 
682,720

 
1,260,000

 
1.35%
 
809,185

 
20,852

Warehouse line
July 2017
 
2,247,443

 
2,940,000

 
1.41%
 
3,412,321

 
48,589

Warehouse line
December 2017
 
944,877

 
2,000,000

 
1.56%
 
1,345,051

 
32,038

Repurchase facility
December 2016
 
850,904

 
850,904

 
2.07%
 

 
34,166

Warehouse line
September 2017
 
565,399

 
1,000,000

 
1.20%
 
824,327

 
15,759

Warehouse line
November 2016
 
175,000

 
175,000

 
1.90%
 

 

Warehouse line
November 2016
 
250,000

 
250,000

 
1.90%
 

 
2,501

Total facilities with third parties
 
 
6,902,779

 
10,225,904

 
 
 
8,063,878

 
178,847

Lines of credit with Santander and related subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
Line of credit
December 2016
 
500,000

 
500,000

 
2.65%
 

 

Line of credit
December 2018
 

 
500,000

 
3.48%
 

 

Line of credit
December 2016
 
1,000,000

 
1,750,000

 
2.61%
 

 

Line of credit
December 2018
 
800,000

 
1,750,000

 
2.84%
 

 

Line of credit
March 2017
 
300,000

 
300,000

 
1.88%
 

 

Total facilities with Santander and related subsidiaries
 
 
2,600,000

 
4,800,000

 
 
 

 

Total revolving credit facilities
 
 
$
9,502,779

 
$
15,025,904

 
 
 
$
8,063,878

 
$
178,847

Facilities with Third Parties
The warehouse lines and repurchase facility 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 its New York branch, Santander provides the Company with $3,000,000 of long-term committed revolving credit facilities. Through SHUSA, Santander provides the Company with an additional $300,000 of committed revolving credit, collateralized by residuals retained on the Company's own securitizations, and $1,500,000 of committed revolving credit that can be drawn on an unsecured basis.

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, 2016 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.

Secured Structured Financings
 
The following table presents information regarding secured structured financings as of March 31, 2016 and December 31, 2015:

23



 
March 31, 2016
 
Original Estimated Maturity Date(s)
 
Balance
 
Initial Note Amounts Issued
 
Initial Weighted Average Interest Rate
 
Collateral
 
Restricted Cash
2012 Securitizations
September 2018
 
364,210

 
2,525,540

 
0.92%-1.23%
 
500,444

 
85,090

2013 Securitizations
January 2019 - January 2021
 
1,718,547

 
6,689,700

 
0.89%-1.59%
 
2,251,347

 
269,731

2014 Securitizations
February 2020 - January 2021
 
2,569,061

 
6,391,020

 
1.16%-1.72%
 
3,435,615

 
320,444

2015 Securitizations
September 2019 - January 2023
 
6,340,242

 
9,317,032

 
1.33%-2.29%
 
8,223,569

 
613,124

2016 Securitizations
April 2022 - May 2023
 
1,558,668

 
1,639,790

 
1.94%-2.44%
 
2,041,205

 
107,886

Securitizations (a)
 
 
12,550,728

 
26,563,082

 
 
 
16,452,180

 
1,396,275

2010 Private issuances (b)
June 2011
 
162,149

 
516,000

 
1.29%
 
260,960

 
7,794

2011 Private issuances
December 2018
 
552,070

 
1,700,000

 
1.46%
 
987,640

 
51,728

2013 Private issuances
September 2018-September 2020
 
2,919,009

 
2,693,754

 
1.13%-1.38%
 
4,597,426

 
171,712

2014 Private issuances
March 2018 - December 2021
 
1,282,460

 
3,271,175

 
1.05%-1.40%
 
1,871,997

 
114,993

2015 Private issuances
December 2016 - July 2019
 
2,392,487

 
2,855,062

 
 0.88%-2.81%
 
2,660,644

 
141,190

2016 Private issuances
May 2020
 
482,056

 
500,000

 
1.55%
 
650,578

 
11,419

Privately issued amortizing notes
 
 
7,790,231

 
11,535,991

 
 
 
11,029,245

 
498,836

Total secured structured financings
 
 
$
20,340,959

 
$
38,099,073

 
 
 
$
27,481,425

 
$
1,895,111

(a)
Securitizations executed under Rule 144A of the Securities Act are included within this balance.
(b)
This securitization was most recently amended in May 2015 to extend the maturity date to May 2016.
 
December 31, 2015
 
Original Estimated Maturity Date(s)
 
Balance
 
Initial Note Amounts Issued
 
Initial Weighted Average Interest Rate
 
Collateral
 
Restricted Cash
2012 Securitizations
September 2018
 
$
433,771

 
$
2,525,540

 
0.92%-1.23%
 
$
580,581

 
$
84,231

2013 Securitizations
January 2019 - January 2021
 
2,000,915

 
6,689,700

 
0.89%-1.59%
 
2,577,552

 
267,623

2014 Securitizations
February 2020 - January 2021
 
2,956,273

 
6,391,020

 
1.16%-1.72%
 
3,894,365

 
313,356

2015 Securitizations
September 2019 - January 2023
 
7,269,037

 
9,317,032

 
1.33%-2.29%
 
9,203,569

 
577,647

Securitizations
 
 
12,659,996

 
24,923,292

 
 
 
16,256,067

 
1,242,857

2010 Private issuances
June 2011
 
108,201

 
516,000

 
1.29%
 
240,026

 
6,855

2011 Private issuances
December 2018
 
708,884

 
1,700,000

 
1.46%
 
1,142,853

 
50,432

2013 Private issuances
September 2018-September 2020
 
2,836,420

 
2,693,754

 
1.13%-1.38%
 
4,311,481

 
143,450

2014 Private issuances
March 2018 - December 2021
 
1,541,970

 
3,271,175

 
1.05%-1.40%
 
2,192,495

 
95,325

2015 Private issuances